Hi Gang, Is this a crazy idea? Don't know for sure but I think it might work so I'm running it by you'll to get some different perspectives. Also want to thank Toofuzzy for getting me to think along these lines, but don't blame him if the idea is just too crazy for words.
AIM's success is based on volatility but there are times in the market where it does not move enough to trigger buys or sells for long periods of time and ETFs don't have all that much volatility ever, sooooo, how about selling both puts and calls against your holdings?
Sell a put around where AIM would have you buy your next batch. Yeah, you have to do it in lots of 100 shares rather than the percentage you have selected for AIM, but, if you get assigned, you get them at a price close to what you like AND you get the premium for the sell.
Then you can also sell a call around where AIM would have you sell some of your position, yeah you still have the hundred share limit per contract but when you sell you get not only the price for the share but also the premium for selling the call.
Let's look at the math and see how it would work. I'm going to use AMD as the example.
Currently AMD is selling for $11.44/share, so we'd buy 1398 shares on a 20% cash $20,000 dollar position. A 5% minimum share sale would only be 70 shares so we'd have to up that to 7.16%. Using Tom's 0% sell safe the price would be $12.32 but the closest option strike price that has a decent return is $12.00 for a January 18th, 2019 LEAP option. It currently is selling around $3.25/share or $325 for the 100 shares.
If you sold that you'd get the $325 plus $0.56/share over purchase when it sold or a total of $381, less commissions, of course. If you took the sale at the $12.32 the online calculator says, you get only $88 for the 100 shares. Big difference.
Now lets look at the buy side, 10% buy safe and 7.16% shares bought the online calculator says buy at $9.76. The closest option strike price that makes sense is $10.00 for $2.25/share for January 18th, 2019. Assuming a buy at $10.00 it would cost $1000 minus what you get for the put, or $775, $201 less than the $976 the calculator suggests.
Assuming you still had the 1398 shares at $11.44 or $15993, and you added the 100 shares at a net of $775 you'd have 1498 shares at an average price of $11.19 as opposed to $11.33. Not huge but might make a difference.
Okay, a couple of points. The choice of the January 18th, 2019 LEAP was to get the best possible price for selling the put and call. The return for significantly shorter times is significantly less. Also, using the LEAP acts sort of like a Good 'til Cancelled order to someone to actually ask for assignment. Another point is that as time goes on it might be possible to buy back your option position and make less be then be able to sell another put or call. In any case it requires patience just like AIM does, so that's not bad, right?
Please think on this idea and see what you come up with, either objections or improvements. I look forward to your thoughts and ideas.
Best,
Allen
