{"id":53528,"date":"2020-12-10T08:00:29","date_gmt":"2020-12-10T13:00:29","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=53528"},"modified":"2021-08-03T14:20:39","modified_gmt":"2021-08-03T18:20:39","slug":"options-generating-consistent-monthly-income","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2020\/12\/options-generating-consistent-monthly-income\/","title":{"rendered":"Options: Generating Consistent Monthly Income"},"content":{"rendered":"

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. <\/p>\n

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). <\/p>\n

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Figure 1 \u2013 Overall option metrics from May 2020 \u2013 December 4th, 2020<\/em><\/small>
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Figure 2 \u2013 Overall option metrics from May 2020 \u2013 December 4th, 2020<\/em><\/small><\/p>\n

Positive Returns Despite September, October, and November Volatility:<\/h2>\n

The recent September correction, tail end October nosedive, and election-induced highly volatile early November provides an excellent opportunity to demonstrate an options-based portfolio's durability and resiliency. A positive $1,251 return, a positive $2,585 return, and a positive $2,797 return for the portfolio's options portion were achieved in September, October, and November, respectively (Figure 3).<\/p>\n

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Figure 3 \u2013 Generating consistent income despite negative returns for the S&P 500 index<\/em><\/small><\/p>\n

The positive options returns were in sharp contrast to the overall market's negative returns in September and October. Generating consistent income without guessing which way the market will move with the probability of success in your favor has proven successful despite these market conditions. <\/p>\n

Options Results<\/h2>\n

Compared to the broader S&P 500 index, the blended options, long equity and cash portfolio have matched this index. In even the most bullish scenario post-COVID-19 lows where the markets erased all the declines inflicted by the pandemic, this approach has kept pace with the S&P 500 returns through 30NOV20 with substantially less risk (Figures 4, 5, and 6). <\/p>\n

Overall, in May, June, July, August, September, October, and November, 1xx 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 outperforming the broader market through the September, October, and initial November volatility (Figures 1, 2, 3, 4, 5 and 6).<\/p>\n

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Figure 4 \u2013 ROI per trade over the past ~180 trades<\/em><\/small><\/p>\n

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Figure 5 \u2013 Percent premium capture per trade over the last ~180 trades<\/em><\/small><\/p>\n

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Figure 6 \u2013 Smooth and consistent portfolio appreciation while matching the broader market gains and outperforming during the market sell-off in September and October. An overlay of an options\/cash\/long equity hybrid portfolio and the S&P 500. Even under the most bullish conditions, the hybrid portfolio has matched or outperformed the index with a ~50% cash position<\/em><\/small> <\/p>\n

10 Rules for an Agile Options Strategy<\/h2>\n

Risk management is paramount when engaging in options trading. A slew of protective measures should be deployed if options are used as a means to drive portfolio results. When selling options and running an options-based portfolio, the following guidelines are essential: <\/p>\n