Due to an an analysis background extremely busy working day I have been trying to build a model that suits my skill set and time available to screen watch.
It still is far from perfect. Even though I have made some reasonable money, I haven't been able to get the certainty that I require to scale up.
Any input would be appreciated.
Step 1 - Buy Long
My preferred position is to buy and hold long stocks with promising medium term outlook i.e 2 to 3 years. For example if my fundamental analysis suggested that CBA might be worth $65 in 2 years time and it is currently trading at $57 my objective is to buy and hold and self fund!
I like to use 100% funding for scalability buying a mid range put and rolling out over the term of the hold. If the share price lifts in the short run the average monthly put cost reduces. If the share price drops I can sell the put and roll down the loan amount.
QUESTION 1 - Can this position be wholely or partlyy recreated synthetically or by using LEPO's or other instruments?
Step 2 - Self Funding
Lets assume the combined annual cost of interest and puts is 15% (we will try and out perform this rate) and dividend is 5%. We now need to fund 10% per annum using derivatives.
I like to use a 13 month dividend (ie just before the stock goes ex) as an entry if possible on new trades to bump up the cashflow in year 1 when the costs are the highest.
To date I have been using covered calls, buy/write and credit spreads to generate the revenue meet the < 1% per month holding costs with mixed success. I have on 6 or more occassions missed really strong rallies on stocks in my portfolio for a variety of reasons and have ended up with a few mechanical problems, like having to roll ITM calls up and out for multiple months at break even without generating any cashflow. Had credit spreads hit even though they were 3 standard deviations out of the money!!!
QUESTION 2 - What ways can I get greater consistency and certainty for around 1% per month in Free Cash Flow to fund the holding costs?
I have considered trading futures and e-minis but due to my long work hours I don't have enough free time to properly monitior what is going on.
Example using COB details today
Buy CBA $58.29 say 5,000 = $291,450 12 month target
$65.00 say 5,000 = $325,000
$33,550 profit objective
(Note 13 month div does not apply if traded today)
Interest rate is 9% and lets say a 12 month put is also 9% (being conservative). Annual holding costs of $52,461 less dividends of $14,150 = $38,311 / 12 = $3,193 funding hole.
I could immediately write a covered at aqt $60 for $0.84 or $4,250 which looks great but cannot be relied upon every month and some months causes much more angst than it is worth.: