Covered Calls and Cash Secured Puts (Part 39)

Once upon a time (one month ago), this space focused specifically about CCs and CSPs. My last post waxed eloquent about some optionScam.com aspects of the industry. Next I want to combine these two branches of inquiry and focus specifically on Rich MacDuff’s SysCW.

One of the biggest problems I have with SysCW is the exclusion of portfolio considerations. The SysCW tutorials and book include tens to hundreds of examples of successful positions.

Some were easy.

Some required more management.

Some involved dollar cost averaging (DCA).

Taken one at a time, MacDuff found a way to make every single position go back to cash profitably. For me, this was the primary appeal of SysCW: management strategies exist to handle most any situation imaginable.

Indeed, SysCW does offer tools to successfully manage most any situation… when looking at positions one at a time.

This is not the case when full attention is paid to portfolio considerations and that, in my opinion, is where SysCW begins to break down. What happens when another 2008-like crash occurs and all positions lose significant value? MacDuff has argued I can close profitable positions and use that money to aid losing ones. By definition, though, correlation goes to one in a severe market crash. No profitable positions are likely to exist in a violent bear market.

In Systematic Covered Writing (2011), MacDuff introduces DCA as a position management tool. Perhaps a market crash will require DCA and to do this I need significant cash on the sidelines. If I have significant cash on the sidelines then I will not realize 15%+ on my entire portfolio, which is what MacDuff repeatedly insists to be possible with the SysCW.

Something just doesn’t add up [yet].

I will continue this discussion in the next post.