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Eliminating Dogs- Introduction

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Eliminating Dogs

Introduction

So far, I have considered the effect of selling at-the-money puts on the entire universe of 217 stocks that had LEAPS on March 31, 1997. You saw that 77.7 percent of the time, the stock closed out of the money, and for every $8,354 received in premiums and interest on expired LEAPS, the net amount retained was $3,559. The remaining portion of the premiums and interest, $5,620, was needed to close out losing positions. Because of the longer expiration time involved, the net amount retained on the far-term LEAPS averaged out to 48.1 percent, while on the near-term LEAPS the net amount retained averaged out to just 36 percent. 

Finally, the account balance at the end of the ten-year period was 44.3 percent of the total premiums ever collected. Such results are hardly worth boasting about. One way to improve them might be to restrict the sale of LEAP puts to better-quality issues. I'll investigate what would have happened if I had sold LEAP puts only on thos…