Update for 9/21/2009

Today we saw the indices take a breather from the recent rally that put us at 11 month highs. The fifty percent rule seems to be in full force, as 1133.00 on the S&P seems almost inevitible.

In this post I would like to share a strategy with you known as the covered strangle.
With a covered strangle, you sell a covered call (or covered calls), and at the same time sell a put (or puts). Go at least 2 strike prices from the current money with these. I like to go at least 3 strikes from the money in most cases. If the calls expire in the money, your profit is equal to the price you paid for shares minus premiums from both sales (calls and puts), deducted from the price per share at the strike price of the calls. If the puts expire in the money, they will be "put" into your account. Your position value is equal to the price per share purchased with the covered call (price minus premium), plus the price per share "put into" the account (strike price minus premium), averaged. If the latter happens, you will turn around and sell as many calls as you can given the original shares, plus the shares put into your account. This strategy is another one of those dividend enhancing, long term winners for those who are patient and pick good quality companies to play with. Consider combining this technique with other techniques from earlier posts. As always, good luck and have fun with your trading and investing.

Update for 9/1/2009

Today we saw significant selling in the major indices. If you read my previous posts, you see that this comes as no surprise to me. This is why I urge people to 1) buy only the safest of blue chip stocks, and 2) protect their long positions by selling calls and buying puts (or bear market etf's). Part 2 of this defensive strategy (the option spread of selling calls and buying puts) is called a "synthetic short" position. It allows the investor to take a neutral position, long and short (synthetically) simultaneously, and collect dividends from the blue chips utilized in this strategy.

The S&P remains around the $1,000 price. Patient players may just get a shot at attractive entry points between now and Christmas. Personally, this is what I anticipate!

as always, good trading.