LONG-TERM ACCOUNTS: 2017 401(K)/IRA SPY SHARE ACQUISITION LEVELS
For what seems like eons in the scheme of things, I've been working an IRA that is predominantly made up of SPY covered calls. Each month, I basically just look at selling calls against my shares to reduce cost basis in them and to give me a bit of some downside protection in the event of a sell off.
Additionally, every quarter, I look at the long-term charts and examine whether I should change my outlook and acquire additional shares and, if so, where I should start to think about doing that. At best, I look to add shares on an infrequent basis and at during fairly large sell-off events (Brexit, first rate hikes, etc.).
At the beginning of 2017, I figured acquiring additional shares around the 2016 range top would make sense, and it looks like there is no reason to change my tune at that level now. Not only is it basically last year's range top, there also appears to be some rough confluence with long-term Fib lines that adds to my confidence that acquiring there wouldn't be "entirely stupid," although a lower level (e.g., 203) would be better since lower is always better when you're long.
To potentially acquire these shares, I'm not going to do so "outright." Rather, what I'm looking for is for the 30-60 DTE 30 delta short put strike to line up with that 215-216 level, at which time I'll sell 215 puts. (Currently, the first expiry in which this occurs -- where the 215 strike 30 delta short put is at 215 -- is in March of 2018, way too far out in time for my tastes to diddle with; so much nastiness can happen in that sort of time frame. If you're curious, though, those are paying 7.20 ($720)/contract at the mid with a resulting cost basis in the shares of 207.80).
Naturally, selling 215 puts doesn't necessarily mean I need to take assignment of 100 SPY shares at 215. I have the option to attempt to roll them down strikes and out for duration if I'm not satisfied that 215 is a good price at that point in time (heck, I thought I was paying "too much" when I acquired some last year at 203).
Notes: I would note that SPY is currently a "heavy" instrument with a block of 100 shares -- which is what you'll need to do a full-on covered call -- at 215 carrying a 21k price tag. Naturally, you can use this type of methodology with a smaller, broad-market exchange traded fund (e.g., IWM), sector exchange-traded funds (e.g., XLU, XRT, etc.), or individual stocks that you want to acquire.
Additionally, every quarter, I look at the long-term charts and examine whether I should change my outlook and acquire additional shares and, if so, where I should start to think about doing that. At best, I look to add shares on an infrequent basis and at during fairly large sell-off events (Brexit, first rate hikes, etc.).
At the beginning of 2017, I figured acquiring additional shares around the 2016 range top would make sense, and it looks like there is no reason to change my tune at that level now. Not only is it basically last year's range top, there also appears to be some rough confluence with long-term Fib lines that adds to my confidence that acquiring there wouldn't be "entirely stupid," although a lower level (e.g., 203) would be better since lower is always better when you're long.
To potentially acquire these shares, I'm not going to do so "outright." Rather, what I'm looking for is for the 30-60 DTE 30 delta short put strike to line up with that 215-216 level, at which time I'll sell 215 puts. (Currently, the first expiry in which this occurs -- where the 215 strike 30 delta short put is at 215 -- is in March of 2018, way too far out in time for my tastes to diddle with; so much nastiness can happen in that sort of time frame. If you're curious, though, those are paying 7.20 ($720)/contract at the mid with a resulting cost basis in the shares of 207.80).
Naturally, selling 215 puts doesn't necessarily mean I need to take assignment of 100 SPY shares at 215. I have the option to attempt to roll them down strikes and out for duration if I'm not satisfied that 215 is a good price at that point in time (heck, I thought I was paying "too much" when I acquired some last year at 203).
Notes: I would note that SPY is currently a "heavy" instrument with a block of 100 shares -- which is what you'll need to do a full-on covered call -- at 215 carrying a 21k price tag. Naturally, you can use this type of methodology with a smaller, broad-market exchange traded fund (e.g., IWM), sector exchange-traded funds (e.g., XLU, XRT, etc.), or individual stocks that you want to acquire.
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