I don’t really have a documented strategy for the conservative fund. I am looking for good companies with a decent dividend (3% yield or better) that have pulled back and a CSP will get me into the stock near the recent low if I get put the shares. I am looking for near month or next month expiration that will give me a minimum of 3% return on my margin. That’s about it in a nutshell, Frederic. I wish I had something more substantial.

After I am in the stock I will either write Calls or buy Puts and maybe do both – depending on where the price is in its trend. I intend to hold them as long as I can milk them.

With that in mind, I am taking a very serious look at KFT for a JAN 27.50 Put and VLO for a JAN 16 or 15 Put. Any of those will give me better than 3% over the next 53 days.

- Jeff

I’m curious and interested in your methodology. So far, it looks as if it is promising, and even much better than mine.

Anyway, my idea was to buy a deep ITM LEAPS Call with a delta around .85 and a deep ITM LEAPS Put with a delta around -.85. This can be bought as a strangle. IF the spread between strikes is $50, you’ll be paying around 53-54 depending on volatility. So realistically, only the difference is really at risk if nothing gets done until expiration and the underlying finishes between the strikes. I usually chose the farthest LEAPS series available.

Then every month, I sell 1/3 covered calls and puts against my LEAPS. My criterium is a prob of expiring closest to 25%. Then when there’s .05 of time value left in the options, i buy them back for no commissions. Depending on the situation, I might buy the option back when its time value is 10% of its original time value when i sold it.
If both call and put written are OTM at expiration then I do the same thing over again. If one side ends up ITM when the intrinsic value reaches .05, then I roll by buying back the ITM options and writing as many ATM options necessary in order to get a credit on the spread. It’s a custom spread but a spread nevertheless. This is the entire reason for only writing 1/3 covered calls and puts. The 2/3 left come in handy when price moves violently. And this happens often enough.
Then once a year I readjust my LEAPS strangle and hopefully make a profit as well on that. In a year, the price usually moves enough to achieve this. Then i roll to a new strangle even farther out, using the profits made to increase the number of contracts in order to increase the number of options written every months as well and get more income.

I hope it’s clear enough. I can send you my backtest spreadsheet for the Qs too if you want. Let me know your email address and i’ll do that.
Frederic

I will let everyone know on Tuesday how PCLN turned out.

I too am back testing a conservative strategy. The first underlying I did was AFL starting on 10/30/07 just buying the stock and doing CC and protective puts according to a set of rules. I started with around $31,000 on that date and as of 10/31/09 it’s worth about $62,000. I am working on DIA right now. It’s a painstaking process but worth it. When I am done I will put all the detail in a document that can be downloaded. I can’t wait to hear about you method – if you will share.

- Jeff

PS: I’m backtesting another strategy that I have put together. So far it seems like a 20% a year ROI “guaranteed” no matter what the underlying does as long as it doesn’t go bankrupt. I backtested with thinkback from 1/2/07 until mid october with QQQQ and I got 77% ROI over 1000 days roughly. I’m currently backtesting IWM and will do DIA and SPY. But it looks promising!!!

- Jeff

I didn’t sell the winning side, I sold the losing side and held the winner. I am going to try to replicate your FSLR back test assuming you tested their latest earnings debacle.

- Jeff

I have tried straddles on earnings, and even on PCLN once. I might have been doing something wrong since I didn’t make all that much money. What happened is the stock went up so I sold my Put, then the stock went sideways for a few days. I was losing a lot of time value so I had to get out. I ended up with a small profit – not as much as I had expected. Good idea to back test – I think I will give it a try too. It should be interesting now since PCLN is now on the S&P 500 – did you see the volume today?

- Jeff