Wheel & Covered calls, aka MPI. · Invest & Retire Community

Jun 30 (edited) • Monthly passive income

Wheel & Covered calls, aka MPI.

I meant to post long ago and am finally doing prompted by Eric's post "Fully recovered". Cutting to the chase: it takes only 3.5-4% to bullet-proof a covered call program. Do not take my word for that, check the numbers yourself.

Here is how it is done. Hedge your account with 2 years out SPY puts 50 delta. Calculate the number of contracts as SPY beta weighted. I hedge 50% with 50 delta, so the cost is about 8-10% but time decay on the puts is slow and you roll out a year in, so they lose about 1/3 assuming VIX at selling is the same as VIX at buying.

The reason I do 50% is that when market drops like it did in the first half of this year, VIX goes up and puts go in the money, so from a certain point you are virtually 100% hedged.

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