Thank you for the question. It helps me to think through my thesis.
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Haven't reread earlier posts, but if I'm recalling your thesis correctly you were doing this primarily to manage your entry point to equity exposure and improve the cash/fixed income return along the way. Is that correct?
"Manage entry point" is somewhat correct, although the amount of equity that I want to own is based on market valuation.
Rather than a 50/50 or 60/40 portfolio, shouldn't I be able to add some simple micro-econ into my portfolio construction? If the price of ice cream goes down I would eat more etc. I am willing to add a bit more equities into the portfolio during a market drawdown without too much market timing.
I likely over use CAPE Shiller; even Professor Shiller admits its limitations. But it is the primary way I think of market valuation.
If I am willing to adjust between 30/70 and 70/30 splits depending on valuation, then I
think it should be ok for me to sell puts at certain discounts to the market. If we were at at 20 CAPE, I would feel more comfortable at 70% equities than at a 29 CAPE.
Again, I understand CAPE Shiller only has limited predictive ability over the next 10 years and many professionals argue that new accounting changes impact the E in P/E.
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Fixed income returns have been surprisingly positive YTD, and I suspect your incremental return from the written puts has made for a collective nice return. However, I'm curious what the market has done over the same time frame. If we are talking YTD, your return has likely paled in comparison to what could have been if you simply entered the market. Can you elaborate on how your calls are doing in this light?
Very true about under-performing equities, although I imagine it would depend on which day you ask me. I am not sure comparing this portfolio to 100% equities is correct. If not, then what is the right level of equities to compare this to?
I don't play poker often, but when I do, I judge my play by how I played with the hand that I had based on what I knew, not on the results of that hand.
You have a great point though, I could miss the next 20 years of equity growth if I keep clipping coupons and selling puts for 1.5% to 2% annualized premiums.
I have not bought or sold calls lately.