Covered Calls and Cash Secured Puts (Part 23)

My last post presented a SysCW example that did not meet the Math Exercise criteria. This sort of inconsistency makes me question whether a trading approach is legit.

I include this post to illustrate my thought process of how one might critically evaluate a trading strategy or financial proprietor, whether s/he be selling a newsletter, advisory service, or trader’s education program. I have waxed eloquent about the shadiness in the industry, which as a whole deals with some of the dirtiest stuff we touch on a day-to-day basis. MacDuff himself has a history of being less than clean. How can I not undertake these considerations?

As part of my due diligence, I absolutely should.

And you should too.

In this instance of the CC position on GIVN, MacDuff begins the trade by selling intrinsic value that would have resulted in a very poor return (about 2% annualized) if the stock were to move higher. Lucky for him GIVN moved lower! Now he looks like a genius except the SysCW guidelines tell us something altogether different. The Math Exercise dictates we pass on any trade that does not produce 15% annualized returns.

Sometimes MacDuff writes about accepting lower returns in the name of diversification. He says it can’t hurt to have positions involving mega caps and stable blue chip stocks, which are associated with lower option premiums. This sounds good but I question whether any evidence exists to support it. This certainly gives him justification to present additional examples that aren’t quite what SysCW shoots for.

While this may give reason to accept an 8-12% annualized return, I don’t believe MacDuff would ever target a 2% annualized return. That’s not worth anybody’s time.

If the strategy is not truly viable then one marketing approach could be to present tens upon hundreds of successful trade examples to make it look reliable and repeatable. If these are paper/backtested trades then I might be more likely to make mistakes. Personally, I am more cautious when real money is on the line. This means checks, double checks, and checklists: all to ensure nothing is overlooked.

Let’s file this under “optionScam.com” and move on.