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Hi ERN,
Could you please share your opinion about the medical insurance or you already have the posts? Medical insurance is a big concern for the early retirement. Thank you.
I use Medishare. It's an affordable PPO-style Christian Care Ministry. We plan to stay with them for now. If we ever experience any serious health issues we might move to a WA State plan but for now, this is the cheapest option for us.
Holiday weekends are always bad for premium with not much happening domestically. How does everyone manage these? I usually take a haircut on my weekend premium target of about 10-20% with the short term volatility drops.
@nobatmanjokes hate long weekends, since risk feels higher (1 more day for something crazy) and premiums are lower.
Been selling around $1-1.10, so likely $0.90 or so today.
@navypack I sold a same day today so waiting for end of day, but these IVs around 10-11 through Tuesday are not enticing! I also feel subjectively like there’s some additional risk there compared to a normal weekend with non-US markets being 1) correlated to the US and 2) open on Monday.
I know it’s tempting to chase longer expiry to boost premium but I find that has too much Vega risk and is higher beta exposure compared to just taking less for the weekend and still selling every expiration.
@nobatmanjokes I traded the Tuesday options with my usual over the weekend premium target: $0.75
@earlyretirementnow.com Hi ERN, I was wondering if you layered several strikes only on one day with your spx put account? I am trying to fine tune my selling and it sounds like you sell all the puts for your account all in one expiration date only?
Do you sell various strikes or just one strike only a bunch of puts? I am trying to find the best approach still.
Using your leverage example if an account has 100k and 2 short puts of 4000 strikes are sold is that technically 8x leverage using your leverage post on selling short?
Thanks and have a good memorial day weekend!
@alex I try to sell with the shortest possible days to expiration. Hence, only one strike. See my section on the Central Limit Theorem in Part 4 of the series.
The strikes on that day vary because I sell at different times of the day and each time I target a specific Delta/yield.
Yes, that example would mean 8x leverage. I'd recommend with $100k you sell "only" one put at 4,000! 🙂
Happy Memorial Day Weekend, everybody! And happy trading in the shortened week!
@earlyretirementnowcomHi ERN, thanks for your reply. Right now I have been experimenting but I am about 10.5% YTD not strictly from options selling, but a good portion. Slightly underperforming the S&P-500, but also less volatility which is to be expected but overall I think I am getting a good rhythm. I did see you have your cash mainly in a muni bond fund and CEFs. Do you still use the same muni CEFs and mutual fund ? Right now my cash is just sitting as is, but I would probably be better served having it in a muni bond fund rather than cash esp in a higher tax state like CA.
The only concern I have is if rates end up going up, the NAV will inversely decline. Do you just treat your muni bond holds as forever holds as collateral irrespective of price and just put cash in loose as needed to fulfill drawdowns when needed ?
Thanks !
@alex if rates go up and NAV declines, tax loss harvest into a different CEF or fund.
My plan (roughly as ERN suggests) is to hold 5-6% in cash for bad days and the rest in muni bonds or preferred.
@navypack Thanks for the feedback. I have done puts on equities in the past so I was always used to keeping the cash amount elative to the purchase.
The margin requirement is much less for me though between 10 and 20 percent so I don't need to hold as much. I have had preferreds in the past but some of them have spreads wide enough to drive a bus through so I figured a cef or fund is easier plus diversification at one go.
The bank preferreds are not too bad but some of the others cna be very illiquid
@alex Yeah, same here. Slightly underperforming. But the vol is also much lower.
Still the same Preferreds and CEFs as before. They now got large unrealized gains, so I'm stuck with them. Unless we drop below the March 2020 lows I will keep them long-term.
@Alex Check IB SPX Put thread for a list of possible preferred. Personally, I only have muni CEFs right now due to tax rates, but will get into Preferreds at some point.
Lower margin requirement on SPX and better tax treatment are a big part of the benefit to this approach. If in retirement I stay in 12% bracket (~106k MFJ), this has very low taxes and allows for some conversions or tax gain harvesting.
I sometimes think post-retirement decisions will be harder than decisions in accumulation phase.
@navypack post retirement decisions are way harder since you can’t paper them over with income and you only get to be in one retirement cohort!