THE PRAGMATIC CAPITALIST » » TRADE OF THE DAY: A BUY WRITE STRATEGY

TRADE OF THE DAY: A BUY WRITE STRATEGY

12 June 2009 by TPC 4 Comments

After the huge rally we’ve seen investors are struggling with ways to deal with their gains. Do you sell, hedge go short? All investors are different, but if you’re interested in hanging onto stocks you may want consider a buy/write strategy at these levels. A buy/write strategy is fairly straight forward – you simply write call options against the positions you own. This will limit your potential upside if the market rips higher, but provides you with income that pads your downside. A buy write strategy has performed very well during this downturn (without taking risk adjusted returns into account). As you can see below, the PowerShares Buy/Write Index Fund has substantially outperformed the S&P and the all world index. The ticker is PBP for those that can’t buy/sell options. It’s worth a look and I believe will produce fantastic risk adjusted returns in the coming months.

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4 Comments »

prescient11 said:

TPC,

Are you stealing my thunder with my VXX play?? LOL. I put that trade on recently my friend.

THESE FUCKING MARKETS ARE DUE FOR A CRASH OF ROYAL PROPORTIONS…. ARE WE A BANANA REPUBLIC NOW???

That fear index is fixing to pop. The public has had enough of the damn bailouts.

TIME FOR SOME F’ING FAILURES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Sorry, just blowing off Friday steam. PBP is an interesting play, I’ll look to add it. Thanks for the idea.

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# 12 June 2009 at 4:37 PM

TPC (author) said:

Prescient,

I’ll feel much better about owning volatility at the end of the month. For now, there is a little too much uncertainty for me to put that kind of potential downside risk in my portfolio. VXX is super volatile….