January 27, 2004
TIP: Buy on weakness, cover up on strength

Along with being denominated in U.S. dollars, the other knock against selecting iShares Lehman US Treasury Inflation Protected Securities Fund (TIP) for the Wish List was that the fund did not have tradable options. Well, it didn’t take AMEX long to figure out that TIP is a liquid enough issue to attract some interest in the derivatives market. Last week options began trading on TIP.

The knock against using covered calls to generate income is that they can limit your upside investment potential.  Another downfall is that you can, if called, be forced to sell your profitable position and incur taxes that the covered calls were supposed to prevent you from paying (many investor use covered calls to hedge investments instead of selling their position outright).

These pitfalls aside, we believe that, at times, covered calls can safely enhance investment returns. We are looking to write out of the money covered calls on TIP on share price strength. We do not cover derivatives hedges in the Wish List, but will keep members informed of our covered calls opinions going forward. 

Prospectus:  iShares Trust Bond Funds PDF








BWillett@fallstreet.com


TAlway@fallstreet.com