No. of Recommendations: 12
while fully hedged is also very interesting. Could you share that? If it's your 'secret sauce' it's quite understandable if you wish to remain mum on that. No big mystery.
I have a lot of different decent investment strategies, so for this particularly client, who REALLY wanted to avoid losing money in any given fiscal year, I picked what seemed to offer decent returns with decent hedging. The hedging was sufficient to protect almost all of the capital almost all of the time.
The largest strategy was, more or less, the one laid out in this book:
https://www.goodreads.com/book/show/1797544.Put_Op...In short: write a diversified portfolio of cash-backed puts, usually around a year out. Use some of that cash to buy puts at a lower level against an index that correlates passably well with the portfolio. The key bit: the maximum income is known in advance, so if it isn't attractive this year, simply don't do it this year.
Since this combo is hedged, a pinch of leverage is quite feasible, though I didn't use any for them. In reality the calculated maximum profit is an underestimate, because when a position makes most of its maximum return in much less than the maximum time, you can close it and replace it with something else with a higher prospective rate on offer. I usually did a round of trades like that every couple of months.
I took that strategy and adapted it to my own use, changing it a fair bit. Since then I've written over 100k contracts. It keeps me in beer and pizza.
A lot of people think "options! yikes! risk!", but if you study the actual strategy it's not like that. This strategy is hedged. The only way you can lose a non-trivial amount with this specific strategy is if a whole lot of your individual tickers really tank, but the index you picked doesn't drop, which is somewhere between rare and impossible. Besides, rarely noticed by anyone is that even when unhedged, writing a cash-backed put is always safer than simply buying the same stock, assuming you don't use the leverage on offer. Yet lots of people buy stocks all the time who would never consider the "risky" practice of using lower-risk options.
Jim
