Hedge Fund DIY Workflow - Fund management
1. Apply for Tax ID
2. Establish partnership (between husband,wife, children or anyone you have mutual trust)
3. Open partnership account with Tax ID with your favorite broker (e.g. Ameritrade)
4. Establish business expense record including home office, business travel
5. File anual tax return as a home business
Hedge Fund DIY Investment Strategy 1 - Sell time value
1. Research an index fund such as DIA, SPY, QQQQ, SMH
2. Buy the index
3. Sell cover call
4. Wait until cover call expire
Example 1.
Assume we have 100K capital
SMH current price as of 2/16 was 34.40 - 34.59, buy 3000 share at 34.59 for a total of 103,770
SMH Mar 2007 32.5000 call 2.24 - 2.45, sell 30 contracts for 7350
Time value = 32.5 + 2.24 - 34.40 = 0.34 (use this one for calculation)
32.5 + 2.45 - 34.59 = 0.36
Now we have the obligation to sell smh to the option buyer SMH at 32.5. In another word, the option buyer has the right to purchase SMH from our hedge fund at 32.5. for this right he paid us a premium of 2.24.
Now let's calculate our return for different price movement scenarios (March 16 SMH price)
1). No price movement, 34.59
2.45 + 32.5 - 34.59 = 0.36
0.36*3000 = 1080. We make about 1% monthly return
2). If the price drops below 32.5, the buyer will not likely to exercise his option, so we will keep the stock and the premium. Our break even point is 34.59 - 2.45 = 32.14.
Adjust the option stike price
The above strategy is pretty conservative with a decent return. Now assume you are more aggressive and speculate the price might go a little bit higher within a month. Assume you sell SMH Mar 2007 35.0000 call
1). SMH current price as of 2/16 was 34.40 - 34.59, buy 3000 share at 34.59 for a total of 103,770
2).SMH Mar 2007 35.0000 call day's range was 0.56 - 0.65
3). our max return now is 35 + 0.65 - 34.59 = 1.06 per share, we'll earn about 3000 if SMH close above 35 on March 16.
4). and our break even point now is 34.59 - 0.65 = 33.94
By increasing our strike price, our max profit is raised but we also now take a higher risk.
何时用招：看不准走向。park cash. 象猎人在等待机会时。
变化：mix 不同strike price 的比例可调节最大回报率和风险。
Hedge Fund DIY Investment Strategy 2 - Sector Investment with a vision
The strategy is assuming there is no trend identified. If it drops to 25 from 34. The loss will be substantial.
I just started to sell 32.5 put today (11/20/2007) and will take the risk to get the small premium. If it drops to 25 this time, I'll continue to sell cover calls until it gets called away.