Peter Spann Strategy, anyone made it?

[DaveJ]

Covered calls are usually marketed by people who don't really know what they're talking about. If you really must do it, write puts instead! You will have exactly the same return profile but with less brokerage costs. Short put = long stock + short call.

Covered calls are a very valid strategy if you have a long-term share portfolio and want extra income from them. I agree they are not a 'holy-grail' cash-cow.

Naked PUTs do have the same payoff diagram but the psychology of trading them is vastly different. People seem to like seeing all those shares in their account instead of options. And at the end of the day if it all goes pear shaped then they can just hold onto the shares until they rebound (if they do).

 

[Mikhaila]

Covered calls are a very valid strategy if you have a long-term share portfolio and want extra income from them. I agree they are not a 'holy-grail' cash-cow.

Naked PUTs do have the same payoff diagram but the psychology of trading them is vastly different. People seem to like seeing all those shares in their account instead of options. And at the end of the day if it all goes pear shaped then they can just hold onto the shares until they rebound (if they do).

I disagree, that psychology vastly different. The psychology is actually very close. I do both. In case of covered calls I am mentally ready to sell the stock I have at the price I wrote a call. In case of naked put I am mentally ready to buy the stock I don’t mind to have at the price I wrote a put. The difference is an expectation where the market will go, not the psychology. Of course, if you write naked anything there is a chance of being wiped out if there is no proper strategy in place or good cash reserves.

 

[im sparticus]

And at the end of the day if it all goes pear shaped then they can just hold onto the shares until they rebound (if they do).

are you saying i cant do this if my put gets exersized??

 

[Melbear]

But how mentally ready really are you when it comes to buying, say AFG or ABC or even MFS at $9 or $5 or whatever, when they absolutely tank, and the market is paying $3 if that for them?

Even shares like BHP can have big drops, and are you happy to pay $45 for them - which they were at a small while ago, versus the $36 you could buy them for also only recently? Even now with a bit of a recovery, you're still about $6 away from getting your money back, which psychologically has gotta hurt!

 

[DaveJ]

are you saying i cant do this if my put gets exersized??

Yeah of course because you end up with the shares anyway from the PUT being exercised. However i have seen the following two problems:

1. A short PUT takes a lot less money to trade (only the margin). Some 'investors' get greedy and sell more and more PUTs as it seems to work so well in an up-trending market. What they don't understand is the amount of leverage they are using. One big drop and they get wiped out. Saw it happen to a couple of friends. Didn't matter how may times I told them

2. If you are just writing the PUT and have 100% of the collateral available then there is no difference. Again some inexperienced 'investors' use selling PUTs as part of their trading plan and use the underlying money for other reasons.

With a Covered-write you are using all/most of your available capital so even if you don't fully understand the strategy it is hard to over leveraged yourself.

I agree it is not the most efficient strategy... I just wanted to point out it is a valid strategy in some instances. It's an income generating strategy, not a growth strategy...

 

[DaveJ]

But how mentally ready really are you when it comes to buying, say AFG or ABC or even MFS at $9 or $5 or whatever, when they absolutely tank, and the market is paying $3 if that for them?

Even shares like BHP can have big drops, and are you happy to pay $45 for them - which they were at a small while ago, versus the $36 you could buy them for also only recently? Even now with a bit of a recovery, you're still about $6 away from getting your money back, which psychologically has gotta hurt!

Remember the full Spann strategy has the long-dated PUT that is supposed to protect you from this... The issue is if there is a strong recovery after you write the call at a lower price you will be caught out.

You might have the option of making most of the drop back from the increased value of the long PUT. You can roll that down and start again from a lower base. Yes you will have a capital loss from the shares when you finally get exercised but you will have all the profit from rolling the PUT to offset this.

Also you don't really know that the above will happen... You would get hurt using just about any long strategy if/when the above happens.

 

[im sparticus]

ok so basicly span strategy is "buy a put sell a put" wtf.

am i missing something??? doesnt add up to me. seems like a net gain of zero minus interest paid to hold the stock if you go the covered call route lets not forget brokerage etc etc.

 

[DaveJ]

Its been covered previously in this thread..

http://www.asx.com.au/investor/options/how/library/collar_protected_covered_write.htm

Just make the Long PUT a longer dated one.

 

[DaveJ]

I know its asking a lot but do you think you could work me an example on current prices of a popular stock buying a out of the money 12 month put and selling four out of the money 3 month puts. (assuming this is the strategy)

ummm...

1. It probably won't add up at the moment as everything is in a downtrend and PUTs are rather expensive at the moment

2. http://www.asx.com.au/asx/markets/s...nderlyingCode&underlyingCode=LGL&optionType=B
Try here to get rough prices...

3. Come on this is a big secret that costs a lot of money to learn... Can't just give it too you at the introductory seminar

And it would take too long... Many a discussion has been had here regarding this... Search the forum on: covered calls, buy-writes, magic moo cow etc etc

 

[im sparticus]

ummm...

1. It probably won't add up at the moment as everything is in a downtrend and PUTs are rather expensive at the moment

2. http://www.asx.com.au/asx/markets/s...nderlyingCode&underlyingCode=LGL&optionType=B
Try here to get rough prices...

3. Come on this is a big secret that costs a lot of money to learn... Can't just give it too you at the introductory seminar

And it would take too long... Many a discussion has been had here regarding this... Search the forum on: covered calls, buy-writes, magic moo cow etc etc

sounds like an expensive/complicated/inefficient way to place a horizontal calender spread to me.....whats so magic/secret about that!

way to dig up a dead thread sparticus (guess ive got tomuch time on my hands these days)!

 

[im sparticus]

Its been covered previously in this thread..

http://www.asx.com.au/investor/options/how/library/collar_protected_covered_write.htm

Just make the Long PUT a longer dated one.

sorry should have quoted this post

 

[Zimonya]

Peter,

If you read this thread again I was wondering if there are any strategies that one would be able to use to buy shares on protected margin at fixed rates for a 5-10 year time period without doing it through a capital protected managed fund?

Mind you I suppose that if you are looking to do it for that time frame it should be possible to find a fund that invests in the same theme that you would that would suit. In selecting the funds that you invest in do you look at the fees charged in your criteria?

There has been a lot written on the effects of the fees charged by managed funds on returns realised. I expect that the advantage that managed funds give you is that they provide economies of scale in accessing the strategy mentioned and allow it to be done with long term fixed interest. They also provide access to overseas markets which you are advocating for good reason but I would expect given that as you say a lot of the companies in Australia are leveraged to the emerging markets this might have limited value.

Sorry that this is pretty rambling. I would prefer it to be more succint etc.

In addition when is your new book coming out? It has been on the drawing board for a while now.

Anthony

 

[DaveJ]

sounds like an expensive/complicated/inefficient way to place a horizontal calender spread to me.....whats so magic/secret about that!

Hmm i guess sarcasm and a joke about seminars and 'their secrets' wasn't that obvious... And BTW A calendar spread doesn't have the down-side protection that this strategy provides...

If you read this thread again I was wondering if there are any strategies that one would be able to use to buy shares on protected margin at fixed rates for a 5-10 year time period without doing it through a capital protected managed fund?

Maybe look into Warrants... These might provide some of the things you are looking for.

I think this thread has done one too many circles... There is heaps of information out there regarding the pros and cons of this and similar strategies...

 

[im sparticus]

BTW A calendar spread doesn't have the down-side protection that this strategy provides...

why wouldnt it?

horizontal calander spread=buy longer dated option sell shorter dated option (puts to keep things relative) both @ same strike price. cant have anymore downside protection than that, or is this where the magic comes into it?

but then again i never attended the seminar.

just kidding i got your sarcasim.

 

[Zimonya]

The longest fixed interest I have found for warrants has been a couple of years but thanks for the suggestion

 

[grossreal]

hi willair
can you give me a bit of a run down of why the drop so steep on credit corp.
I understand that a couple fo directors sold out of this company some time ago and are now into developing.
just had a read of this post and as I am not into shares that much nor have I read much of peter strategy,probably should but then again there is alot that I should do.
just interested what your ideas on the movement.
not been following the stock more interested the timing of the change and the drop.
and just one little thing peter we all change and our views also change and aything that is recommended at one point in time changes within 6 months and so do people views good example is the german people views, or the soviets, or for that matter the changing of the chinese to capatalism though I think this will change back.
so I don't think anyone is about to hang you for your ideas.
a very good saying
you can go bankrupt.
you can lose all your money and all your goods but you can't lose ideas
and its the ideas that will take you back up that ladder and this time you will structure so that you don't fall again.not sure where I got it from but its one that always sits at the front on my head.
people will or won't use ideas but just be thankfull that you have received the idea.

 

[landlubber]

To hi-jack a hi-jacked thread .. aka in praise of PS

Looks like this thread should now be moved to an option trading forum, so I post with quite some hesitation. But this post is in praise of Mr. Spann. I attended his early seminars ( Melbourne) and have certainly used his (property) advice PLUS Jan Somers books to "make it" , with reference to the title of this thread. Peter has "moved on" on his personal journey, but his property advice from those early seminars is as relevant today as ever. As are Jan Somer's books.

LL

 

[mercurio]

hahahaha.....people underestimating the downside risk of covered calls/naked puts
I post forewarning that some people emotionally invested in Peter Spanns strategies may squirm and I also certainly dont mean to demean, but sometimes the harsh truth must be told.

These strategies work well in a bullish environment, which all wealth gurus seem to base their examples in.

Mr Spann is not the only one to advocate these income strategies, Mr Jamie McIntyre also promotes the same thing. He even goes further to "reveal" a magic cashflow technique - --which after reading is simply the bull put spread----amazing to the uninitiated in options----old skool news to option traders. Unique cashflow strategies indeed!!!

Back to covered calls/naked puts...
I applaud fellow posters who have pointed out that the payoff is the same. I find it quite amusing for people to speak of the "psychology" of trading these positions. Same old "no i wont do naked puts, but i'd do covered calls" i've heard it so many times before and no matter how many times it is explained people just dont get the point.
Ask any decent options trader about synthetic positions and see if they trade it differently psychologically.

I suggest people here sit down and read some good options books, preferably those that dont try to pass off options as a get rich scheme.

I appreciate that many are using it as a way to further your investing, which i fully encourage, but the strategy has capability of alot of pain, which some people seem to have dismissed without a thought.

As a last only rank novices would write options over individual stocks (sorry its harsh but true). I do acknowledge that there are posters here who know their stuff e.g. im sparticus.

Awaiting retaliation...

 

[asdf]

Having attended PS' update this month, I got the feeling from the presentations that he personally dusted a lot of $ in the market over the last year. I suppose if you were IN the market, you would've lost regardless of where and what assets you were invested in. If Michael Whyte could drop a couple of hundred and hes by no means a big player (sorry I don't mean to pick on you or be demeaning) , I'd hate to think how much was dropped by PS. Whatever it was, surely it can't compare to the hundreds of millions by the charismatic Chris Murphy who incidently is claiming the losses are Opes' problem and not his. Poor clients...

 

[mercurio]

Chris Murphy *winces* ouch

"I suppose if you were IN the market, you would've lost regardless of where and what assets you were invested in."
Maybe investors, no so much traders, though i should leave that debate for share market forums.