Tag: how to trade options

Wall Street capped off one of the most volatile years in history. The Dow Jones and S&P 500 ended the year at all-time highs, posting returns of 16.3% and 7.3%, respectively, for 2020. At the same time, the Nasdaq posted a return of 43.6% for the year. These unprecedented returns were achieved despite the S&P 500 nosediving over 30% earlier in the year due to the coronavirus pandemic sweeping the world. In this market environment harnessing options can allow traders to define risk, leverage a minimal amount of capital, and maximize returns.

All-time highs have been reached with the confluence of election certainty, improving vaccine prospects across the globe, and massive stimulus out of Washington. These positive developments have been priced into the markets. The broader indices are richly valued as measured by virtually any historical metric via stretched valuations, options put/call ratios, broad participation above 200-day moving averages, and elevated P/E ratios. Collectively, these may be potential warning signs of near-term pressures. Heeding these frothy market conditions via risk mitigation may be best served with risk-defined options trading.

Options: Margin of Protection and Defining Risk

Harnessing options in frothy markets allows one to define risk, leverage a minimal amount of capital, and maximize returns. Options can be structured to allow a margin of downside and/or upside stock movement while collecting income in the process. In these richly valued markets, allowing a margin of downside and/or upside stock movement may be a great strategy to heed potential market volatility. Continue reading "Leveraging Options To Navigate Frothy Markets" →

At the core of options trading is defining risk, leveraging a minimal amount of capital, and maximizing return on capital. Options enable smooth and consistent portfolio appreciation without guessing which way the market will move. Options allow one to generate consistent monthly income in a high probability manner in both bear and bull market scenarios. Over the past 8-plus months (May-December), 186 trades were placed and closed. A win rate of 98% was achieved with an average ROI per winning trade of 7.7% and an overall option premium capture of 82% while matching returns of the broader market and outperforming during market downswings. An options-based portfolio's performance demonstrates the durability and resiliency of options trading to drive portfolio results with substantially less risk. The risk mitigation element is particularly important, considering markets are richly valued as measured by any historical metric (Figures 1 and 2).

Figure 1 – Overall option metrics from May 2020 – December 31st, 2020
Continue reading "8 Months, 186 Trades and 98% Options Win Rate" →

Generating consistent monthly income in a high probability manner in both bear and bull markets is the luxury of options trading. The core of options trading is defining risk, leveraging a minimal amount of capital, and maximizing returns. They enable smooth and consistent portfolio appreciation without guessing which way the market will move. An options-based portfolio performance demonstrates the durability and resiliency of options trading as a means to drive portfolio results.

An agile options-based portfolio is essential to navigate pockets of volatility and mitigate market downdrafts. The recent September correction, October nosedive, and election volatility into November are prime examples of why risk management is paramount. Despite the recent market volatility, positive returns in all three market scenarios were generated. Over the past 6-plus months, 171 trades were placed and closed. A win rate of 98% was achieved with an average ROI per trade of 7.6% and an overall option premium capture of 89% while matching returns of the broader market and outperforming during market downswings (Figures 1 and 2).

Figure 1 – Overall option metrics from May 2020 – December 4th, 2020
Continue reading "Options: Generating Consistent Monthly Income" →

Despite the major averages being in correction territory in September followed by a volatile October, ending with a massive sell-off and heightened election volatility during the first week of November, realized gains were generated. Following the 10 rules in options trading throughout the recent market volatility has generated positive returns in all three market scenarios.

Defining risk, leveraging a minimal amount of capital, and maximizing returns is the core of options trading. All of this, combined with a statistical edge, provides smooth and consistent portfolio appreciation without guessing which way the market will move. The results over the course of September, October, and the first week of November demonstrate the durability and resiliency of options trading as a means to drive portfolio results.

An agile options based portfolio is essential to navigate these pockets of volatility. The recent September correction, October nosedive, and election volatility are prime examples of why following the 10 rules of options trading is key to an effective long term options strategy. Overall, in May, June, July, August, September, October, October, and thus far in November, 149 trades were placed and closed. An options win rate of 97% was achieved with an average ROI per trade of 7.5% and an overall option premium capture of 88% while outperforming the broader market despite the September correction (Figures 1 and 2).

Figure 1 – Overall option metrics from May 2020 – November 6th, 2020
Continue reading "Options: Positive Returns Despite Volatility" →