Comments on: Is Reality Going to Set In?

By: Jim Stander

Jim Stander — Mon, 23 Nov 2009 14:58:26 +0000

Thanks Jeff.
I think we’re on the same page.

Jim

By: Jeff

Jeff — Sat, 21 Nov 2009 02:18:13 +0000

Bruce,

You suggestion for the insurance Put is a good one if only for the reduction in cash margin. I might look into that next week. Thanks for the idea.

- Jeff

By: Jeff

Jeff — Fri, 20 Nov 2009 19:06:32 +0000

Jim,

It’s really for lack of a better term. As you probably realize, by definition there is no ‘margin’ allowed in an IRA. However, most brokers allow you to short options if the risk is defined. In the case of a Naked Put it’s called a Cash Secured Put and the risk is defined as the amount of cash needed to purchase the stock if it is Put to the Put seller – so the broker holds that amount and will not allow you to access it as long as the trade is open.

Is it margin? Sort of. Am I charge interest? No. Could I call it return on investment? Maybe. Would that help and eliminate confusion? I don’t know – maybe you can let me know. You turn to help me.

- Jeff

By: Bruce

Bruce — Fri, 20 Nov 2009 18:31:02 +0000

I like the trade as a conservative trade for times like these (though I find I am continually acting like whatever the circumstances TODAY is a unique time period.

But I wonder if it might be worth adding insurance to your trade. I don’t know when you opened your trade, but I imagine you could have bought a 23 Jan PUT for .10 or a 22 strike for about .03. The .03 trade would represent less than 3% of your premium and cap your potential loss at $4.00 and free up margin requirements.

But I do agree that it seems prudent to concentrate on selling premium to supplement dividends and sometimes to even exceed the dividends.

These are the times that try men’s (financial) goals.

By: Jim Stander

Jim Stander — Fri, 20 Nov 2009 17:26:12 +0000

Hi Jeff;

Love your blog.

Did I miss something? You mentioned trading in two IRAs. If the “T” csp was in one of the IRAs how were you able to use margin ie: your statement of a 4.1% return on margin? Is it because they were cash secured? If so, is that really considered margin? I would consider the 4.1% return being based on the 1.07 premium and the price of 26 if stock is put to you WITHOUT margin. Please straighten me out. You can see I’m easily confused.

Thanks