Moderate gets on an elevator and the operator asks "what floor?"
Hesitant, the moderate said he wasn't for sure yet. The frustrated Operator barked "How do you not know what floor you're going to? Pick one."
"Well, I don't know, what's the most popular floor?"
"The First Floor."
"Oh... okay... well... I guess I'll just stay here then."
"Suit yourself pal."
"... bye..."

 

DAL 88 and Orvil,

It's been eons since I took a finance or accounting class, but I do appreciate your efforts to explain things...

The Snider Method rules (if I understand them correctly) strike me as "fuzzy math".

Here's an example. Suppose you purchase 100 shares of XYZ company for $100.00 per share (cost basis $10,000.)

You then write covered calls for the next year. One contract (100 shares) every month and let's say the option premium is $2.00 per share, so your cash flow would be $200 per month. Over 12 months you've realized $2,400 in options premium cash flow.

As I understand Snider's rules you've made a 24% return. Well let's suppose during the year XYZ's stock price has gone from $100.00 per share to $10.00 per share. Again, you've "made" a 24% return because you don't sell XYZ and "realize the loss". But the stock position is down $9,000!

By avoiding the reality of mark to market accounting principles you are not accurately measuring your investment performance.

Call me "old fashioned" but the market price of my investments is what they're worth.

At the end of the year if the value of the total portfolio is greater than at the beginning (including interest, dividends and option premiums) than I made money. If it's less, I lost money.

 

what about the green slip? I'm no where near ALV+15. I'm at like ALV-40. I haven't flown in two weeks. They can't use me because I'm not next in line? That seems odd.

 

You're on reserve right? Stop trying to break guarantee. Unless your category is short-staffed or an irregular op happens allowing you to green slip for a day's worth of pay, no credit, you are getting paid 70 hours/month and not a minute more. Just accept it and stop trying to manipulate the system. The system sucks and is designed to keep us from breaking guarantee. If that's not enough money for you, then think about that when you vote for the next contract that ALPA jams down our throats. I made less than 80,000 last year on third year pay on the Airbus (I don't count per diem as money). It's not that they can't use you. They won't because there are reserve pilots out there with less time than you. In ATL on the MD-88, there are on average 2-3 trips a day awarded to reserves with about 10/day awarded to white slipping line holders. There's usually 40-50 pilots on reserve per day FWIW. As a reserve pilot, you are a second class citizen. Don't even get me started on my ALPA buddy banking 90 hours/month by white slipping trips, then dropping them for ALPA business. Rant over.

 

I'm under 40 hours and there's one day left in the month. Do you really think I am trying to break guarantee? And that number is higher than most in my category. I just like to get out and fly rather than sit in a crashpad all day, and honestly the extra per diem helps too. I'm not complaining though, I don't really mind so much either way, I'm just trying to understand the system better.

On another note, in a way it's good to rarely go over guarantee. I know a few people on reserve at Continental, and they are worked nearly to death. They go over guarantee, but they are miserable because they are worked so much.

 

Don't forget that you're buying a certain number of shares of this stock each month (up to a predetermined max number of shares). You have cash allocated to support this position. So as the price of the stock goes down, you are dollar cost averaging and your average cost goes down as well. So let's say it takes three years before your stock's price rises enough that you can sell all your shares and close out the position at or above your average cost. And let's also say that during most of that time, you continue to earn option income. When you finally close out that position (sell all the stock), you recoup your investment in the stock and all the option premium you earned during that time is yours to keep. When it's all said and done, why is it relevant what the stock's price did while you owned it? You predetermined that you weren't going to sell it at a loss. The stock generated a cash flow yield that met your cash flow objectives. And when you finally close out the position, you have made real money, met your cash flow objective, and not lost a real penny in the process? (Disclaimer: there are no guarantees with any investment method, including this one.)

Again, I'm not trying to change your view or tell you how you should view your investments. That is totally up to you. I'm just trying to explain why I do not think Snider's math is "fuzzy." I think it is appropriate for the type of investment it is. The Snider Method is a cash flow investment. That is the objective. IMO, trying to measure it with a measurement intended for capital appreciation just doesn't provide any useful or relevant information. Or put more simply, I only care about the actual end result, which is what Snider's yield calculation measures. I hope we're not boring everyone with this, as it has nothing to do with the "latest and greatest about Delta." My apologies.

 

i think Wasatch is right. snider has not invented an investment method so much as she has invented a novel method of measuring return. one that does not compare with any established method and is designed to make her method look good. she also makes the dubious claim that you can just hold your stocks until they can be sold at a gain or are called away. that seems like a bill of goods.

a good explanation of covered calls from a respected financial writer:

Just why writing options does not increase your expected return from stocks is a complicated matter. Perhaps this simple point will persuade you that there is no magic in the option game: A covered call is mathematically equivalent to a naked put. You collect a premium and in return agree to take bad stocks off people’s hands at high prices.

so the snider method will leave you in the end with a basket of bad stocks, no?

 

Uh, yeah, no...this is good. Yep. I'm enjoying reading all this. Not boring at all. More please.

Better than underboob for sure. Investing talk rocks the house.

 

If it was just a covered call strategy and didn't have all the other elements that are built into it, then you would be mostly correct.

 

Money is better than sex?