The original Overview was short and simple:
This strategy is intended for positions lasting one year or longer in order to qualify for the lower long-term capital gains rate and that can earn income through dividends or earn additional capital gains through the sale of covered calls against the position, or both.
The strategy consists of buying shares of stock and hedging downturns with bearish options positions while retaining ownership of the shares.
The revised version goes into greater detail, grouping potential long-term plays into three categories.
This strategy is intended for positions lasting one year or longer in order to qualify for the lower long-term capital gains rate.
To be selected for consideration, a stock or fund must meet one or more of these criteria:
- It pays a dividend substantial enough to make the risk worthwhile.
- It holds a dominant position in its market sector.
In other words, I’m looking for an income play, a stability play or a story play.
- It has a potential to create a new market sector
The dividends earned by an income play reduces my basis over time.
The stability play provides an opportunity to sell covered calls against my shares, with the premiums from the sale of options reducing my basis.
A story play is pure speculation: If a company can create its own sector. Think the early Intel with its chips or modern-day Facebook. Or, perhaps, the future Space X.
A lower basis means greater long-term capital gains that will be subject to the lower tax rate.
The strategy consists of buying shares of stock and hedging downturns with bearish options positions while retaining ownership of the shares, and selling covered calls against shares where appropriate.
This is a preliminary model, of course, and I'm confident that I'll be focusing it more as I work with it.
-- Tim Bovee, Portland, Oregon, June 4, 2014
My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.License
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Based on a work at www.timbovee.com.