No. of Recommendations: 1
Hi Jim,
Thanks for weighing in. First off, the warning of:
There isn't much overlap between the choices with the juicy upside and the choices for which it makes sense to add leverage : )
is always a good one. Leverage in this case is going to be relatively small in that it is just how much of the cash pile to keep on hand.
I'm not sure exactly how to optimize for index correlation. Given that I have 45 stocks that are pretty well correlated with index (though obviously beleived to have a bit better prospects due to the high ROE and Cash positions). None are expected to go under any time soon. Of the 45 stocks, maybe 25 have options available. I can't sell puts on all of them as a single contract is still 100 shares, so the cash required to backstop the position gets too big for the portfolio.
Any ideas (from anyone) on how to optimize for index correlation?
I'm thinking of implementing this in a small corner of my portfolio, just to see what it does. The other think to think about is that while this is a long strategy, it is harvesting time premium, which tends to be higher with less time to expiration (2-3 months to go seems to give the largest premium evaporation). Perhaps this is better run on a shorter time scale. Thoughts?
--G
PS: As far as the BRK calls, I assume you are talking about the purchasing of DITM calls when the Price/Peak Book is within the lower range, and selling the calls and buying back the stock when the Price/Peak Book is higher. Though that should probably be on the BRK board.
