February, 20, 2009:
The individual investor can predictably outperform the S&P500 by simply purchasing the stick SPY and sell a covered call every month (generally on the third Friday of the month) with a strike price 10% above the current price. The sell of the call is protected by stock and is therefore not leveraged so there is no additional risk of loss over owning the stock itself, but generates revenue, so it is actually carries less downside risk than owning the stock outright, and should share equally with the S&P500 in growth, because, as illustrated previously, there is little chance the option will be called out. If it does, it is only because the stock has already moved greater than 10% in your favor in the last month anyway. Your reward for doing this varies by implied volatility. Based on today's (February 20th 2009) option prices and volatility, the annual return on selling the call alone is 10 to 12% per anum. Also add in the 3.5% annualized quarterly dividend paid by SPY, and this strategy will always outperform the S&P500.

I started a real time illustration of this strategy today using $100,000 dollars. The stock traded at $77.42 per share at closing and a $85 march call strike traded for $0.81 per share. To sell a covered call brought the total purchase price of the stock to $76.61. With $100,000, I was able to purchase 1300 shares of stock, with a remaining balance of $382.50 in cash (after 24.5 in brokerage fees). We then set a limit order to buy the call back if the value of the call fell below $0.1 within the next two weeks. If this occurs, it usually means the stock value fell rather quickly and we have the opportunity to make a little more with an additional trade. In comparison, buying the S&P500 directly at its current price of $770.05, you could own 129.80 shares of the index and ~$40.00 in money market.

Summary: On Day 0, the S&P500 is worth $99992.49 and our account is worth $99975.50.

March 20, 2009:
The first month of the strategy is complete and true to form, the S&P500 has only moved a net 3%. It did make a large move downward over 5 weeks (nearly 20%) but recovered everything to close slightly up. However, Because of the sell of the call, the covered call account is currently outperforming. Because the options settle on Saturday, a new trade cannot be initiated until the following Monday.

March 25, 2009:
Normally a new trade is initiated on Monday (march 23, 2009) but because it was such a large move that day, it was a good opportunity to wait to buy in an get a larger return. I ran out of time and did not initiate a new trade until today (Wednesday) To make the trading strategy more rigorous, I sold a call at 860 consistent with what it would have been in purchased before the move on Monday, and 860 will probably not be met at the end of the month, especially given the very large moves upward that have already taken place, however, the safer bet would be to do 10% above the current price. The profit on the call was $1722. The SPY price this morning was $81.50 giving us a position value of $107,060.50 ($105,950 in stock + $728 in dividends from a 56 scent dividend delivered March 20th, and $382.50 carry over from last month), not including the $1722 collected this month. with the sale we are holding $105,950 in stock and In comparison, the value of the SPX would be $105,827.

April 17, 2009
The S&P500 has has had an unprecedented move in the past 8 weeks, both down and up. I've been anticipating a correction for over a week now but it has not happened yet. It will happen soon, but unfortunately, it will come too late for this trading strategy. I rolled the current call position today out 1 month and up 5 percent. I only went 5% because the market is way too stretched to handle more than that. The credit was only $180 this month, because the current position is in the money, but that is OK because we collected twice as much last month when I sold at 5% above the current market price instead of 10%. As of April 17, 2009, the SPY closed at $87.08 time 13 calls equaling $113,024 in stock value plus $2832.5 in cash. Add $180 this month from rolling to the May 91 call = $3012.5 in cash. In comparison, the value of SPX is 869.60 times 129.8 shares = $112,874.08. Our strategy is almost exactly on track with a return above the SPX of 2.64%.

May 15, 2009
The S&P500 was expected to fall last month, but ended up rising. We sold our call at 5% above this month as well because the market is now definitely in for a down. The trade was correct and our option is now expired. To resell at 5% above market would be 13 calls times the closing priceof the 93 call ($1.38) equaling after commissions a credit of $1764.55. The SPY value is $88.71 equaling an equities value of 115,323 plus 3012.15 in cash. With the new sell, the amount in cash is $4777.05. A couple more months and we will be in a position to purchase another 100 shares of stock. If we were to purchase 10% out, the net return would have been 475.05 instead. However, currently the position value is $116036.5 versus an SPX position value of 882.88 times 129.8 = $114597.8.