Here is how I manage my 401K which is Cash Only!.. I can sell cash covered Puts and Covered Calls
on stocks and ETFs.
My goal is the aforementioned 18%/year
1. I begin by selling Puts that have a high IV ranking. This is basically a 'relatively high' IV when compared
to itself. Over the 50th percentile for the previous year is a good starting place. Higher is better.
2. I want only liquid products and try to stay away from earnings at the start of a trade.
3. I begin by selling Puts that are between ATM and 1 SD OTM - looking for somewhere between 1% and 4 % of underlying
value
4. I use some Individual stocks for the higher IV and thus
Return - but with more risk
5. I use ETFs for diversification and
to go 'short' via Contra and Ultra funds
6. These become my diversified
'Core Portfolio' with associated 'Cost Basis Reduction'
7. Sit back
and manage:
a. if gain 50% of max possible
profit, exit with gain and redeploy capital
b. if go to near
expiration and desire - roll Puts to next month to gain credit and reduce BE
c. if no roll desired, allow being Put stock and convert into Covered Call
( A Covered Call is actually 'the same' as a naked Put - but with half the commissions and a 'risk premium' advantage
of Puts over Calls
Once it is a Covered Call, I try to manage so as to
get out at BE - then exit and redeploy capital
5. If necessary, the put
Stock may need to be held several years before BE can occur.
In this account, there
is no 'trading around the core' as outlined previously, so it is pretty simple. I use some other accounts I have
to increase my occurences and use of leverage. It is not ideal, but one has to work with what is available, not
what one wishes it to be.
