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Options Portfolio Update (Jan-21)

For those following the blog, this will be a quick update about my portfolio. As to the reverse target date fund, I realized that I didn’t need to draw down on my retirement fortunately so I have reallocated it to a more aggressive allocation. I still stand by my comment that a reverse target date fund is best for those that don’t have an emergency fund as it does have lower draw down percentages than an aggressive portfolio. But what this quick update is more about my options portfolio, which is currently on a paper trading account as I’m not allowed to trade individual securities for work-related compliance reasons.

For the $100,000 portfolio, it has generated 10% monthly return in January. Roughly annualized, this would be 120% yield. I am not yet calling the flag if my strategy works 100% as everyone does well in a bull market and this would be a multi-year experiment but let’s just say that if I had enough starting capital, I would quit my full-time day job and trade full time. More importantly, here are some things I learned:

  • Have a clear entrance and exit plan. I wrote an article recently about my strategy but after a month of trading, I realized that I wasn’t following my strategy and this has cost 2-3% of additional return.
    • Instead of letting my options expire, regardless of being ITM / OTM, I always closed my options before expiry since I didn’t want to risk being assigned. I let my emotions take control of my strategy and this led me to rolling options. Thus, I wouldn’t call my first month’s of options trading isn’t really following the wheel strategy since I would avoid assignment no matter what cost.
  • Don’t write multiple options with different strike prices on the same stock. I almost had assignment happen on multiple contracts I wrote and this would be disastrous on a cost basis! Instead of writing different contracts on the same stock, use volume and write multiple contracts with the same strike.
  • Writing weekly options generates more yield than writing monthly options. I initially started writing weekly options but switched to monthlies to take advantage of theta decay but gamma and delta swings impact option pricing a lot more than theta! It’s easier to predict short-term prices of the underlying stock than predicting a stock a month out and while you won’t be getting as much theta decay, if the underlying stock isn’t super volatile then the swings won’t cause you to get assigned.

Additionally, I have started a separate account with a smaller initial balance ($5,000) as I believe that this strategy would also work on small accounts. For this smaller account, I am targeting at least a 10% annual return and plan to compound these returns to generate higher yield. I’ll keep everyone posted but if you have any questions or feedback, feel free to comment or reach out to us.

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