Covered Calls and Cash Secured Puts (Part 40)

To implement DCA in a market crash, spare cash would be required. The 15% annualized return MacDuff advertises with the Math Exercise would no longer apply because the deleveraged portfolio would be making less. How does this add up?

More recently, MacDuff has advised being fully invested. This eliminates the possibility of DCA and potentially resolves the discrepancy described above.

What happens when stocks tank?

On the call side I can sell premium at near-the-money strikes, which will enable me to continue generating cash.

What happens when a V-bottom prints (e.g. March 10, 2009) and stocks catapult higher through my lowered strikes?

MacDuff argues we are now better prepared for this situation thanks to narrower strike availability and weekly options that offer the potential for supercharged annualized returns.

What happens when I have to look months to years out in time to roll for a credit? Neither weeklies nor narrower strikes are going to save me.

In some cases, no available options will provide for a credit roll. I cannot take assignment at the [substantially] lowered strike because that would lock in a big loss. In 2009, I suspect this might have described most [if not all] of my positions.

My only other option would be to roll for a debit and hope the market cooperates and allows me to escape whole. “Hope is not a trading strategy” and I cannot begin to imagine my degree of insomnia if most of my positions were in that boat.

Until and unless MacDuff can give me some response to these difficult issues, I will have significant doubts about SysCW. One may argue “no trading system is perfect and losses are a part of the game” but MacDuff never shows any losses in his book nor in his tutorials.

How Madoff-esque is that?

Furthermore, what I have described here is more than “occasional losses.” What I have described is catastrophic loss running rampant across most of the portfolio. This is a risk that deserves a response and a remedy before SysCW qualifies as a viable trading system.