Chapter 26: Buying Options and Treasury Bills 419 
option expiration cycles. It should also be pointed out that T-bills can be bought and 
sold only in amounts of at least $10,000 and in increments of $5,000 thereafter. That 
is, one could buy or sell $10,000 or $15,000 or $20,000 or $25,000, and so on, but 
could not buy or sell $5,000 or $8,000 or $23,000 in T-bills. This is of little concern 
to the investor with $1 million, since it takes only a fraction of a percentage of his 
assets to be able to round up to the next $5,000 increment for a T-bill sale or pur­
chase. However, the medium-sized investor with a $50,000 portfolio might run into 
problems. While short-term T-bills do represent the best risk-free investment, the 
medium-sized investor might want to utilize one of the no-load, money market funds 
for at least part of his income-bearing assets. Such funds have only slightly more risk 
than T-bills and offer the ability to deposit and withdraw in any amount. 
The truly small investor might be feeling somewhat left out. Could it be possi­
ble to operate this strategy with a very small amount of money, such as $5,000? Yes 
it could, but there are several disadvantages. 
Example: It would be extremely difficult to keep the risk level down to 10% annual­
ly with only $5,000. For example, 5% of the money invested every 180 days is only 
$250 in each investment period. Since the option selection process that is described 
will tend to select at- or slightly out-of-the-money calls, many of these will cost more 
than 2½ points for one option. The small investor might decide to raise his risk level 
slightly, although the risk level should never exceed 20% annually, no matter how 
small the actual dollar investment. To exceed this risk level would be to completely 
defeat the purpose of the fixed-income/option purchase strategy. Obviously, this 
small investor cannot buy T-bills, for his total investable assets are below the mini­
mum $10,000 purchase level. He might consider utilizing one of the money market 
funds. Clearly, an investor of this small magnitude is operating at a double disadvan­
tage: His small dollar commitment to option purchases may preclude him from buy­
ing some of the more attractive items; and his fixed-income portion will be earning a 
smaller percentage interest rate than that of the larger investor who is in T-bills or 
some other form of relatively risk-free, income-bearing security. Consequently, the 
small investor should carefully consider his financial capability and willingness to 
adhere strictly to the criteria of this strategy before actually committing his dollars. 
It may appear to the reader that the actual dollars being placed at risk in each 
option purchase are quite small in these examples. In fact, they are rather small, but 
they have been shown to represent 10% annualized risk. An assumption was made in 
these examples that the risk in each option purchase was 100% for the holding peri­
od. This is a fairly restrictive assumption and, if it were lessened, would allow for a 
larger dollar commitment in each holding period. It is difficult and dangerous, how-