Living in the trading zone

    The one month trading zone for SPY has been 80 to 87.   With my buy-write strategy I have lowered my break-even point down into the 78 to 79 range--maybe 3% downside protection.  The problem with a  trading zone startegy comes when (not if) there is a break-out one way or the other.  With an upside move, my current strategy prevents me from participating on the upside, and I likely leave 40% of the latest premium on the table--but I can live with that.   However, with a strong downside move I take a beating--one bad day could more than wipe out my 3% insurance policy.   My friend Asad's comment comes back to me--if you think you know the direction, why mess around with covered calls., just go with the simpler strategy and buy the equity out-right. 

    With the buy-write strategy I reduce the rewards of being right considerably, due to the counteracting long stock vs short option dynamics, in exchange for some insurance.  Would I be better off buying puts at the next peak (e.g. March 79 probably around $250 each) and then just going long in the next valley?   If the market breaks out on the upside, I've lost my put investment (although I might sell them to reduce the loss if there was a clear breakout up) but I long in enough stuff I'll be happy any.  If the market drops through the floor I'm protected at an effective $76.5 point (strike price - the cost of the option).

    For the down side part of the cycle I could do a similar thing with calls and then much more comfortably short the market. 

  Another issue is my time.  If I am just holding the equity, without the dampening effects of the call it will be much more tempting to take intra-day profits.  Unless I can figure out another way, I run a very real risk of becoming a refresh button slave.