- Originally posted by The Mortgage Adviser:
Is that not the idea behind super investments? Long term capital appreciation of assets in expectation of retirement???
Yes it is, but a written call may put you in the position of having to sell the asset at discount to current price, if the share appreciates beyond the strike price; while affording little downside protection.
A bad deal if your are expecting upside during the life of the option.
Where the written call is useful if the share is NOT appreciating AND you do not want to sell.
I think actively trading your super funds in higher risk investments is a recipe for disaster. No-one is always right!Well…true, most of the time. Most people are not successful at actively trading anything, never mind their super a/c.
But, you do not always have to be right, to trade successfully. Some good traders I know have win rates of less than 40% yet still have positive expectancy.
One person I know does trade his SMSF in this manner. This is only with unleveraged shares though.
With a bit of study, one can create really good positive expectancy scenarios with pure options….superior to ordinary shares and far superior to CC’s
The only drawback is having to actively hunt down the the right opportunities, which would not suit most people.
The biggest hurdle, no doubt, is that you’re probably not allowed to do it in SMSF’s.
And that is the whole point. We are talking super funds here so you can not look at it from a return point of view as opposed to safer investments.
I don’t see the problem with covered calls if you get called out. You make your option premium and you make your margin. There is absolutely nothing wrong with that. I think of covered calls as a wrap on property – the premium is generating a rental return on your asset and the strike price is the transfer of property at a pre-agreed value.
You can always buy back into the underlying shares if you like them long term and do it all again.
There is no risk in this strategy if you intend to hold long-term without using a stop-loss.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
Just going back to this sentence <<<<I think actively trading your super funds in higher risk investments is a recipe for disaster.>>>>
That is the point of option spreads, to REDUCE risk. CC’s carry more risk than what I’m talking about.
But if you like CC’s that much, don’t let me hold you back Rob!
Cheers
Originally posted by wayneL:That is the point of option spreads, to REDUCE risk. CC’s carry more risk than what I’m talking about.
I disagree. More funds are required, there is no certainty of setting the ‘spread option’ and I consider returns to be less. Also, this requires more active trading and I don’t think they would be allowed under SMSF.
Are we going to get into the whole debate thing now over who’s is bigger? When are you going to mention ‘collars’ and other more technical investing?
The Mortgage Adviserhttp://www.themortgageadviser.com.au
Rob,
It’s not how big it is, it’s how you use it!
>>>I disagree. More funds are required, there is no certainty of setting the ‘spread option’ and I consider returns to be less.<<<
Huh? More funds? returns less? Do you have a clue what I’m talking about? This strategy is far less capital intensive than CC’s and as someone who trades these as my profession, i can assure you the returns are superior.
>>>Also, this requires more active trading<<<<
Not necessarily, There may be less activity than that required with CC’s
>>>Collars<<<<
You can collar the stock, but you still end up with poorer risk/reward than a diagonal spread with a nice amount of skew.
Which is actually a good point. If ownership of shares is required with a SMSF, You can create a synthetic diagonal with long stock… A diagonal collar.
So, how big you say? HAHA
Hi Guys,
back again.. you guys can talk about option spreads and all, and i totally agree with, that debit, credit spread would be much better to do.
but just keeping it to a very simple super fund strategy over 20 years.
and pooling peoples money together and rolling the appreciated funds into better yeilding assets and further talking again, to family members and friends.. on pooling and having them manage their super fund over the long term..
we have decided the best simple strategy, with little or less diversification, would be. (due to some likeing stocks, others liking property, and other investmenst such as storage sheds and car park spaces.. an overall simple plan would be their following idea..)
* buy stock, and do buy writes over them (remember they dont want to actively trade, once over $50,000 in cash or stocks)
* purchase storage sheds (while at the same time, any extra funds, would simply go back into doing buy writes position again)
* once funds have built up, to an overall $100,000 (available either in stocks, cash, storage sheds (sell off and roll funds/profits into property such as a house))
* continue to purchase stock and do buy writes over them again —> roll funds over again, when exceeding funds profits of $50,000 back into storage sheds —> and repeat back into property
* when property purchase (house) has appreciated in twice its value, sell off and reinvest funds and profits into 2 properties of $100,000 equal value (7 year strategy, $100,000 over 7 years potential of $200,000 over 7 year target)
* always funds less than $50,000 available, have them always sitting in stock and do buy writes, when over $50,000 roll over into storage sheds, then roll funds when in excess of $100,000 into property and when property has doubled sell it off and buy where possible property that is $100,000 with growth potential (remember super fund pays cash for everything… so cashflow is the main goal at the end of the 20 year strategy)
*** i questioned them, on installment warrants they had no interest, as they didnt want to take out any leverage products, but only product that the super fund could afford to pay in, an outright cash position.
*** though do remember they are all contribute funds each week and just want to roll, the smaller classed assets, into more solid assets over time, and repeat process as many of them were very risk adverse and wanted to carry the least amount of risk.
i honestly think their strategy is great, it has little diversification, (shares-buy writes, storage shed, property)
but they threw away the car park space idea, the installment warrants, and actively trading the share portfolio. but overall they said they would be happy with this basic strategy, as cashflow, would be created from all of the asset classes they wanted to pursue, and that also, a continual cashflow from there salary and company contribution.. would be in there super fund each week growing..
*** though please also note, we didnt take into consideration, the government incentive, for adding extra funds into there super..
anyways.. they have ideas, now on how to manage there super, and have come to an easy agreement then when ever funds or assets exceed certain amounts or targets, they would simply sell them and roll them into the next income producing asset, without having to do a share holder or trust meeting, on each time, funds were more available. i thought this was a sensible idea, as it would stop arguing and everyone would have there asset class they wanted at some time in there cycle of rolling the assets up and over..
good strategy, but i do think there are better strategies still out there…
Cheers,
sis*** also to note, we did talk about LPT and commercial property, but for some personal reasons, for all of them they were not happy with those invesment classes..
— personal, they are very risk adverse… (not my cup of coffee.. lol)
Cheers,
sisOriginally posted by wayneL:It’s not how big it is, it’s how you use it!
I agree with that but it is also what those with smaller ones often say! [baaa]
Huh? More funds? returns less? Do you have a clue what I’m talking about? This strategy is far less capital intensive than CC’s and as someone who trades these as my profession, i can assure you the returns are superior.More funds to actively trade. The majority of funds are invested in long-term holds and not available for such strategies. I did a comparison a while back and found that based on consistency of returns and considering time taken to trade (unless you have some expensive software to help you), the returns worked out less.
Do you not agree that higher potential returns equate to higher risk in most cases?
Not necessarily, There may be less activity than that required with CC’sAnd there usually is more activity required. A covered call only requires placing a single order at your preferred strike price and not worrying about it until the exercise date. Remember, the underlying stock is a long-term hold so decisions should not be affected by short-term fluctuations.
You can collar the stock, but you still end up with poorer risk/reward than a diagonal spread with a nice amount of skew.Which is actually a good point. If ownership of shares is required with a SMSF, You can create a synthetic diagonal with long stock… A diagonal collar.
I should not have mentioned collars!!!
So, how big you say? HAHAHUGE!!!
The Mortgage Adviserhttp://www.themortgageadviser.com.au
Huge eh? Now all you need is some use for it HAHAHA
More funds to actively trade. The majority of funds are invested in long-term holds and not available for such strategies. I did a comparison a while back and found that based on consistency of returns and considering time taken to trade (unless you have some expensive software to help you), the returns worked out less.Short of comparing brokers statements this will go around in circles ad infinitum. Too much effort for no reward to explain to you, but I suggest some more study on these.
Do you not agree that higher potential returns equate to higher risk in most cases?Yes and no. Options are often viewed as high risk instruments…and can be if misused. But they were initially created as a risk LIMITING instrument and thats how I like to use them.
And there usually is more activity required. A covered call only requires placing a single order at your preferred strike price and not worrying about it until the exercise date. Remember, the underlying stock is a long-term hold so decisions should not be affected by short-term fluctuations.Didn’t you read what I wrote? – “There may be less activity than that required with CC’s”
The underlying is only a long term hold if you are never assigned, With CC’s you need to put on the option and perhaps re-buy the underlying. With the spread you put it on typically at the same time as a buy/write, but the spread may have a longer expiry than a typical CC. So to restate – ACTIVITY MAY BE LESS!!!! – understand?
We still have no answer as the the US/options question with Aussie SMSF’s
But this discussuion is giving me a lot of great ideas, as any of the spreads I trade can be created synthetically with long stock for the purposes of SMSF
Cheers
Originally posted by wayneL:And there usually is more activity required.Didn’t you read what I wrote? – “There may be less activity than that required with CC’s”
Re-read my response. It was a response to your comment.
So to restate – ACTIVITY MAY BE LESS!!!! – understand?Are you in ‘Wayne’s World’ or something? As I consider this comment and your earlier one to be arrogant and condescending, I will respond in kind.
YOU SAID: “May be less”
I RESPONDED: “Usually is more”English 101 – basic comprehension skills… do YOU understand that????
I am happy to debate topics forever with anyone. Unfortunately, when it gets like this, there is no point continuing the discussion.
You are right, I am wrong. Have a good weekend Wayne.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
>>>Are you in ‘Wayne’s World’ or something?<<<
errr..yeah!
>>>You are right, I am wrong.<<<
I’m glads it’s settled then!
Cheers
I dont’ know much about SMSFs but i thought there was a consensus of opinion that you need a minimum of around $200K for a SMSF to be worthwhile?
Does anyone know if this the case?
cheers
Jason.Most FA tend to agree that you need a minimum of $75K in your own SMSF to make it worthwhile and that is merely that the costs of compliance and reporting make it roughly similiar to the management fees and charges a company fund would charge you.
Personally i think you are right with you figure of 200K and am glad I had more that that in my super when i started self managment 10 years ago.
Remember costs and charges are static fixed figures you just need to ensure that you make a return that is worthwhile. 10% PA after costs or you would leave it in the hands of a fund manager.
Thankfully i will never trust a fund manager again.
Cheers Richard
richard at castlewhite.com.au
Email me for details of our Qld wrap CD which gives you a full Installment Contract.Richard Taylor | Australia's leading private lender
Self managed Superfunds definitely have max. 4 members and you can’t borrow in them. You can use warrants.
Why do you need 10000 units to make a covered call effective? I’ve just started to learn about it and thought you could do it with 1000.?
Cheers
NicI thought it was a finger stutter!
You can buy in blocks of 1,000. I have also seen less.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
Hi Nic,
its just not really profitable in the Australian Market to be doing cover calls, you need a stock with a high volatility (IV), were a premium, can be captured, but mainly its because, most stocks in australia need to be written ATM or ITM, to collect a premium high enough, to make money..
the other reason too is.. doing a cover call on 1 stock on 1000 units and if the premium is only say for example 4-20 cents, your only making a gross of $40 – $200 profit, still having to minus brokerage (now if your brokerage is 1% of your trade.. theres just not enough money, to be made…)
Cheers,
sisI am with SIS whilst you can trade a CC in single contracts of circa 1000 shares (dont forget not all Companies trade in a round 1000 shares) it certainly isn’t profitable with brokerage charges and OCH fees.
With 5-10 Contracts at least you are starting to generate a decent monthly amount even on a small stock like QAN or TLS.
Writing a CC over an Installment Warrant you will probably need a Full Service Broker so you fees will also be higher. Wayne is right there are so many better strategies than a simple CC however in my opinion still relatively effective for a SM Super Fund.
Cheers Richard
richard at castlewhite.com.au
Email me for details of our Qld wrap CD which gives you a full Installment Contract.Richard Taylor | Australia's leading private lender
The reason I asked if a SMSF could trade covered calls in the US market was because I used to do this and it cost me less than $10 USD per trade through Ameritrade. The market is deep and the choices are numerous. It was difficult to not make money!
The Mortgage Adviserhttp://www.themortgageadviser.com.au
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