Get Rich Slick

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OIH is on fire! A while ago, Mrs. Micah asked, “Do You Have an Investing Exit Strategy” and I couldn’t help but associate that question with my ETF Covered Calls investing strategy. Let’s review a specific journey on a specific investment I recently made.

In December of 2007, I bought 200 shares of OIH at $189.45 and sold 2 contracts for January $190 strikes for $5.00/each to rake in about $1000.00. In January OIH dropped to around $170 and stayed near there through April when it started climbing back into the $180’s.

In April 2008, I sold 2 contracts for May $190 strikes for $5.55/each to rake in about $1100.00. So the total profit for the trades were about $2100 or 5.5% from December through May expiry.

OIH is now hovering around $210 but is now the time to sell? Has OIH had it’s run and will it slide back down or is it just catching its second wind and about to climb to $250?

Look at the graphical diagram (click for larger image).

As you can see from the image, OIH hit a “dry well” for a brief period from January thru April so should you have cut and run or stayed in it for the long haul? This is why I love ETF Covered Calls because you’re partially quasi-long and you’re profiting by selling calls (short). It’s the best of both worlds.  As obvious as it sounds, you make money selling not buying and I’ve sold calls and soon I’ll sell my shares to bank the profits.

As for my current investment, if OIH closes above $190 today (which looks like it will), I’ll be forced to sell my shares at $190 and revert to being in cash in my account. Once in cash, it’ll be time to look for more opportunities and I’m glad. I’m getting the feeling that OIH might have run its course and I’m not willing to re-buy OIH at these levels. Perhaps if OIH drops back down to $170’s I’ll pick it up again. If you find this interesting, check out www.ETFCoveredCalls.com to learn more.

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The week before options expiry usually yields lower returns but $500 is $500 right?  This brings my return for April up to about $2000 for the month.  Not too shabby for clicking a mouse but I’m still desperate for a phone that can handle true HTTPS/SSL requests so I can click my phone to make money.  Any recommendations out there?

Evidently, the iPhone doesn’t support true secure web connections but maybe the next generation one will!

As soon as option expiry ends next week, I’ll focus on making money in May.  You know what they say about May…..Sell in May and go away to keep your losses at bay or the foray will decay your profits away…..

You can learn more over at ETF Covered Calls.

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Not a bad week as I raked in $1500 this week. My OIH had been a dry well for a few months but it looks like it’s on its way to recovery as energy demand is red hot! I sold 2 May contracts to rake in $1100 in my arbitrage account. In my mini account, I went double long in the Dow by picking up 200 shares of DDM and selling 2 April OTM for $400.

So with the crazy market going up or down from one week to next, my Double Down Dow Arbitrage Theory is working bloody well. I’m now Long Double Dow with short calls in my mini account till April expiry and currently Long Double Short in my power account with hopes of selling Calls Short (inverse long). Whoa…. did that just make your head spin like it did with me?

If you want to learn more, check out ETF Covered Calls.

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Steroids and HGH aren’t just for baseball players, these handy little boosters will work wonders for your investment portfolio.   I’ve hinted in the past about a new mathematical model for the ETF-Cashinator that factors in leveraged index funds with covered call writing to boost returns to superior levels and as always, I put my money where my mouth (blog) is and take action.

Yesterday, I banked about $2700 on top of the $900 I made last week but I’m moving toward using my new leveraged model to rake in more profits as I described here.   This essentially goes back to this original mind blowing article written by Jason Kelly here.  I’m convinced that this model can work with pure options plays as well but that’s for another blog and another time.

So how does this whole thing work?

We all know index funds tend to be the better bets on the stock market.  Less than 20% of funds ever beat indexes so it makes index funds a very seductive investment play but how can you make it better?

In a single word: leverage.   If index  funds are good then why can’t leveraged index funds be better?  If you’re dollar cost averaging anyway, why not buy leveraged index funds.  Sure you’ll lose twice as much during down turns but as long as you keep buying you’ll make twice as much on the way back up right?  I like to think of these leveraged index funds as index funds on steroids.

Index funds on steroids can be rewarding but why not add in something a little extra for a little insurance and extra kick!   Mixing leveraged index funds with covered call strategy is exactly that extra kick I’m famous for at this point!  I like to think of the covered calls as HGH so that leveraged index funds with covered calls acts and feels like steroids with HGH enhancement!

So what are the main tactical components.   Well leveraged index ETFs are the ones I like the most right now:

DXD - Double Short Dow

DDM - Double Long Dow

SSO - Double Long S&P 500

SDS - Double Short S&P 500.

I like all of these because they are leveraged up/down and they all trade options with healthy volume.    So my most recent trade was to go double short on the dow (DXD) and sell calls (DXDCI) to be inverse long.  Using this strategy, I banked ~ $2,000 in my power account yesterday.   I then went on to go double long on the Dow (DDM) and sell calls short DDMCT to bank another $700 in my mini account.

So whether the Dow goes up or down from here it should be a profitable move -in theory.  The DDM will be valuable if the market recovers short term or long term and DXD will be profitable if the market tanks or recovers (options).

We’ll see how March expiry plays out.

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I promised an anonymous poster that I’d do a write up on my ETF Covered Call strategy do explain it in detail but I’ve been too busy.  I don’t like writing about “theoretical” returns which is why I put this blog where my money is and write about my transactions almost as soon as they happen.

I held 700 existing shares of EEB and decided to sell 7 call contracts against them to rake in ~$900 today.   I’m long DXD (Dow double short) and I’ve sold calls short (inverse long) and those contracts expire tomorrow.  They’ll likely expire worthless so I’ll be able to sell March calls and possibly rake in $1700 or so next week.

I debated about whether I should wait a little longer before selling the contracts but I figured if my strategy really does make money when the market is up or down then it doesn’t really matter what’s going on with the market today so I pulled the trigger.

With the municipal bond meltdown going on write now, I’m as concerned as ever about this market which is why I’m double short on the Dow right now but with the Fed giving money away, the market can easily bounce back.   Why not gamble with free money anyway?

I hope you’re getting rich slick wherever you are today .

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I couldn’t resist the profit mistress as her sultry allure seduced me back into this market by snapping up 700 shares of EEB and 1000 shares of SDS and selling near the money calls for a quick $1900. What this mistress doesn’t know is that I like to play both sides against each other .

I bought long and sold short simultaneously so it’s a win-win for me and only me .

I expect this unmedicated market to experience some serious bipolar issues next week so buckle down for the wild ride and good luck hunting.

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I wrote earlier that I’d do a year end round up of my ETF Covered Call investment strategy on three of my accounts: Mini-account (for small time investors), Power-account (for those more adventurous), and Arbitrage (for those with no money but big cojones) and the results are official.

My power account returned a little under 25% return for the 2007 year. My mini-account returned 27% return for the year and my arbitrage returned a whopping 54.76% on an annualized rate, 13.69% actual.

I did some graphs to illustrate how my mini account did against the major indexes: Dow Jones, S&P 500, and Russell 2000 for illustration purposes.

First up, ETF Covered Calls vs. Dow Jones Index

Next up, ETF Covered Calls vs. S&P 500 Index

Last up, ETF Covered Calls vs. Russell 2000 Index

Despite the great returns, I’m hesitant to think that 2008 will be as profitable as there are so many problems with the financial system in the U.S. that it could get ugly in 08 but we’ll have to wait and see what happens.  The year ended on a sour note and if the next few weeks are a roller coaster ride, people are going to get off the coaster and sit on the sidelines which won’t bode well for markets.

I’m primarily in cash right now with the exception of my arbitrage account and the mini account.  Both these accounts are energy top heavy which I believe will do well, recession or not, as demand and consumption continues to rip through previous consumption levels.

Good luck investing in 2008!

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