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  1. Phil

    Incomes/Rev – Good catch and yes, white is the "new green" these days as it's a miracle to simply not lose ground in today's labor market.  When Hayek wrote "The Road to Serfdom" during WWII, it was his view that centralized planning led to Totalitarianism but that's a product of the time in which it was written, as people sought to explain how the World had gone so mad.  But all the "evils" of centralized planning are just as present in the Corporate Kleptocracy we have devolved into as they ever were under Fascist regimes of his time.  Hayek's main point was that, in Socialist societies, the will off a small minority would be imposed upon the people but that's exactly what happens now in America, where a powerful few control the masses, who are merely given the false choice between two flavors of the same status quo at election time.  In fact, Hayek himself said that such systems require effective propaganda for people to believe the stat's goals are their own. 

    Anyway, I bring that up because I was arguing with some guys last night who were quoting Hayek to attack the "Socialist" Obama but it goes back to that whole Conservative brain thing where, just because Hayek used the word "Socialist" at the time, doesn't mean it has anything to do with the modern concept of Socialism in the same way the the Union of Soviet Socialist Republics are not quite the same brand of "Socialism" as the modern EU.  

    3am/Dawn – I'm often up at 3am and I'm all caught up on my Tivo so what's a fella to do?  I will be mindful of your multi-faceted trading strategies as I do then to be a little over-cautious when asked about trade ideas as most risks are not for most traders.  Of course, you have to realize also that, when I do answer your question, sometimes I'm making a general point to all who read it and it's not aimed specifically at you, as I do realize you are a pro trader but, as you note, even pro traders get burned so consider me a sounding board offering a word of caution and not the absolute arbiter of your trade ideas. 

    As to my trading approach – it too varies with my overall long and short-term outlook for the markets in general and for each stock so trying to peg down "rules" is not very productive as the only real rule I have is trying to minimize risk and maximize reward on each trade and THEN trying to be right more often than I'm wrong.  If you combine that approach with reasonable cash management – you can become very wealthy over time!  

    You are absolutely right that it is the best time to buy long calls – IN THEORY – as the VIX is low but the 2015 VIX is not low, only the short-term VIX that you see and, if we are highly expectant of floating up due to inflation and an improving economy, then why not sell puts, which are nearly a sure-thing, vs buying calls, where you pay your premium and take your chances.  Again, I'm generally conservative so if we look at INTC, for example, which is trading at $21.58, it's very easy to make a case that they SHOULD be trading at $25 to $30 over the next two years and you could buy the 2015 $22 calls for $2.20 and then you "only" need $24.20 to break even and the rest is wonderful, leveraged profits.  But, on the other hand, if this or that happens in the economy or INTC's notebook sales (35.6% of their business) or Desktop sales (15.2%) or even their Server Processors (23.4%) have some troubles over the next two years – you have nothing.  

    If however, we SELL the 2015 $18 puts for $1.80, TOS tells us that the net margin is $1.80 so we get 100% return on margin and all INTC has to do is NOT fall $3.50 (16%) over the next two years and we get the whole 100% and we don't lose money unless INTC is below $16.20, which is 25% below the current price.  So, to make $1.80 on INTC I have a choice of buying a call for $2.20 and needing INTC to get to $26 by Jan 2015 (up 20.5%) or I can sell the put, get the $1.80 TODAY and make that money as long as INTC doesn't fall below 18 (down 16%).  

    That means my next advantage selling puts on INTC vs buying calls is 36.5% to make the same $1.80 and buying calls costs me $2.20 of my cash while selling calls costs me $1.80 of my margin.  That's the basis for our strategy at this time.   Should the balance change – I'd be happy to change my strategy but you can't walk away from a 36% advantage on a trade, can you?  



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ValueWalk

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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