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Archive for December, 2010

How to get financially fit in the new year

Tuesday, December 21st, 2010

Every year we come up with new year resolutions. Most of the resolutions’ vigor fade away as the days pass by. But, we never give up! We make another set of resolutions when the new year approaches.If you want to do this right, an interesting article from Wall Street Journal could help you.

Here is the summary of that article:

  • Max your 401k contributions.
  • Check where your moola goes, verify and validate all the cash flow
  • Lock up your credit/debit cards for a month
  • Check your current asset allocation in all the investment accounts and reshuffle
  • Knock off that nasty debt
  • Invest in yourself
  • Check your progress on the cash flow monitoring
  • Check if you can reduce your auto/home/medical insurance
  • Update your will
  • Open 529 accounts if you have children or grand-children

Read the article here for more details.

Mutual funds that use covered call strategy – Part 2

Sunday, December 5th, 2010

This post is an extension of Mutual funds that use covered call strategy that was published on Dec 2, 2008. Here are some more mutual funds that use covered call strategy apart from EROAX that was discussed earlier.

Goldman Sachs U.S. Equity Dividend and Premium Fund (GSPAX) uses covered call strategy to outperform S&P 500. This fund writes calls that cover from 15% to 35% of the portfolio. This fund writes covered calls mainly on S&P500 index options.

Eaton Vance Tax-Managed Buy-Write Income (ETB) is a closed-end fund that also uses covered call strategy. Its stock portfolio roughly tracks S&P 500 and writes covered calls on S&P500 index call options.

The idea behind covered call mutual funds is that portfolio can be hedged against the market swings using the covered call options. If the stocks go up, the stock portfolio’s gain will be up. If the stocks go down, the stock portfolio’s loss will be offset by gains in the covered calls.

However, this strategy can help only to some extent. Gains from covered call options are limited. If the stock’s price goes down dramatically, covered call options can’t completely offset the stock loss. In this case, stock portfolio would suffer serious losses. Covered call strategy would work for mutual funds only if the stock portfolio doesn’t suffer from violent swings. This is why most of the covered call mutual fund managers structure their stock portfolio to imitate S&P 500.

Disclosure: I do not own the mutual funds mentioned in this post.

Related Link: Mutual funds that use covered call strategy

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