While I am writing this article, the exchange traded fund (ETF) for the S&P 500 index, is dealing at around $85.95 and the near money call option (with strike 86 and leaving only eight days before expiration) is dealing at $3.45! Call option means buying a particular stock from stock at strike price and at the money refers as the available price of stock is equal to strike price. Do not you how the things are going through in the
New York stock exchange.
What do you mean by 4% of premium?
Premium of 4% means, you’ll be witnessing the underlying future cash flow, if you sell write a call option:
As long as the
stock market remains low or constant, keep 4% premium in the next eight days.
Keeping part of the premium till market does not rally more than 4%.
Depending upon the market rising, the lose will also increase, if the market rallies more than 4%.
If the above mode of operation is repeated every month, the transfer of wealth to bear stock market and stagnant market from bull markets will become easier.
What would have been the feasibility chances of this plan in history?
It must be taken in account that in that years the call-writing approach typically lost money, when the S&P 500 got 20% returns or more than that to New York stock exchange. But in some years the call-writing approach was very lucrative, when S&P 500 lost money.
Above all, S&P 500 got 41.1% down, during the dot-com problematic years i.e. 2000 to 2002. In this period one would have stopped the loss to 11.6%, if call-writing strategy would have been added to his portfolio. In addition to that, the loss till November 2003 would have been recovered, in contrast to October 2007 for the S&P 500 index to the New York stock exchange.
Achieving same outcomes using ETFs:
To acquire the same outcome as call-writing, purchasing of PBP and selling of short SPY can be a trustworthy solution. In 2008 till now, this approach has generated around 12% return. Just think about all asset classes felling by 40% to 50% and that also in a single year. Does that not sound like dew in the desert? You must be very conscious while seeing the changing scenario of stock market and how it gets through the New York stock exchange.
stock market
