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Stocks B / Berkshire Hathaway


Subject:  Re: Iron Condor (revisited) Date:  8/10/2018  10:51 AM
Author:  mungofitch Number:  238105 of 259273
Jim, how do you feel about this being done now?

(a) it's not as juicy as it was then. The value proposition was better and the implied interest rate for the leverage was lower.
The cost is still getting worse, too, since the cost of a call has built into it the expected
short term interest rates over the next year or two. Those have gone from nothing to meaningful.
(b) I'm still doing it anyway, to a certain extent. I'm dumb.

As it emphasizes, a little leverage goes a long way.
You don't have to do this with your whole holding.
Selling 1/3 your stock and replacing it with some options with 2:1 leverage can add a useful little bonus to your retirement.
Most especially if you do it at an opportune moment in terms of valuation.
At *really* good moments you might do it with more than 1/3 or your stock or more than 2:1 leverage built into the options.
But do note the comments on why it's important not to do this with your whole portfolio.
Sometimes you will have to roll the options, the price won't have risen during the term you've held them, and the roll will cost you extra cash.
That cash has to come from somewhere, or you're forced to abandon the position while prices are low.

On the upside, I think there's a good chance that the Fed will blink at some point in the interest
rate cycle and the interest rates built into the calls will peak and start falling again.
I'm not counting on this, but I'm rather expecting it.
I have a slightly higher ratio of one year options to two year options at the moment, as the
current price for the second year is quite high and I thin kit could conceivably come down a bit.
Who knows?

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