OptionsVest

Okay, so we have just went through the greatest wealth destruction in the history of the nation.  If you had been listening to this blog the whole way, you would have been much better off.   We have been preaching defense the entire time.  Now its time to begin looking for offensive plays.  Its time to start taking advantage of the extreme volatility.  I would recommend doing cash covered puts in quality stocks that have a very good chance of being here in 10 years.  Here is a short list: WMT, JNJ, MCD, KO, MSFT, XOM.  As you can see, the list is all Dow stocks.  A cash covered put means that you have the cash on hand to take delivery of the stock if the put is exercised.  You can get into these stocks at levels that are at least 20% lower than the current price.  If you don’t get the stock, you walk away with a nice 5%-10% return in 3 months.  I will give a quick example with MCD.  Lets say that you have 55k to invest.  Instead of buying 1000 shares at 55, you would sell 10 Jan 50 puts for 3.  At January expiration if the stock is above 50, you keep the 3000 dollars, a 5 1/2% return in 60 days.  If the stock closes at 50 or lower, you buy the stock at a break-even point of 47.  The only downside would be a huge rally in MCD in the next 60 days, something most investors aren’t worried about these days.

BA