July 29th, 2008Three investment strategies that continue to work
What gives? It now seems that every other day the market is up or down two percent or more. We all know that what really drives the big moves is the big money. But I’m not convinced that the big money is actually the smart money, especially when viewed in context of huge 2 percentage point swings every other day. To say we are in a volatile market is an understatement, and many people are just pulling out to sit in cash – what little they have left – as they wait for calmer waters. But if you still want to play, here are 3 strategies to consider that can work in high volatility markets:
1) Covered calls – An investment strategy where the investor has a simultaneous long position in 100 block increments of a security, and a short call against those positions. The short call acts as a minor downside hedge, and can also offer enhanced returns on the upside.
- the vix index and covered calls
- Time for cover – the covered call
- Covered calls – removing the covers and going naked
2) Calendar Spreads – Covered calls on steroids. Instead of owning the actual shares to sell calls against, a trader buys longer term options – LEAPS – to sell shorter term options against.
3) Iron Condors – Short term option strategy involving two simultaneous credit spreads composed of four individual option legs. The Iron condor trader hopes to make consistent monthly income of 5-25 percent. The higher your target income range, the more risk you take on. My personal favorite is to use monthly iron condors against the Russell 2000 index.
For additional reading, please CLICK, BUY and READ:
Covered Calls and LEAPS–A Wealth Option + DVD: A Guide for Generating Extraordinary Monthly Income (Wiley Trading) by Joseph R. Hooper
Disclaimer: Investing and/or Trading or Speculating is dangerous. You can lose money.