$1MM liquid -- how difficult to achieve 15% annual ROI with option writing?

P

platinum

Interested to survey the opinion of options vets on this board. I have recently retired from a lengthy career and have several $MM tucked away in managed assets with a trusted financial planner.

Needing something to do with my time, I am curious about the possibility of taking up stock option writing with a portion of my assets as a full time occupation. Question for the board members is the following. How achievable do you see a 15% annual return for options writing, after a guy studies for a good year? I would set aside $1MM of the assets to do option writes.

This would only meet my goals if I can convince myself that 15% per year is attainable. I welcome any thoughts from those of you on the board. My understanding of options is good, I have watched from a distance for many years yet I would need to spend time studying before venturing into the market on my own.
 
The thing is how good are you at picking stocks? Option writing can't help you unless the underlying stocks are acting in your favor.
 
You'd probably be better off making use of a proven CTA with a documented track record, of which there are plenty out there. If you take this route, 15% annually with minimal drawdowns is very achievable. Of course, there's always the "slim" chance the program blows up.
 
I think the more important questions are how much liquid capital you have, what your standard of living costs a year, and what is your best estimate of a largest loss that will come with a target of 15% return a year.



Quote from platinum:

Interested to survey the opinion of options vets on this board. I have recently retired from a lengthy career and have several $MM tucked away in managed assets with a trusted financial planner.

Needing something to do with my time, I am curious about the possibility of taking up stock option writing with a portion of my assets as a full time occupation. Question for the board members is the following. How achievable do you see a 15% annual return for options writing, after a guy studies for a good year? I would set aside $1MM of the assets to do option writes.

This would only meet my goals if I can convince myself that 15% per year is attainable. I welcome any thoughts from those of you on the board. My understanding of options is good, I have watched from a distance for many years yet I would need to spend time studying before venturing into the market on my own.
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15% is a conservative figure. You'd have to stick with stocks in the S&P 500. The key to covered call writing is to find stocks that are rangebound. Unlike someone with a 100K portfolio, 1 million buys you the luxury to not have to take chances. Using MSFT as an example, with 1 million you could buy 33K shares. Using the NOV 30 strike you could write 330 contracts for $.87 a contract giving you an instant income of 29K. Nov 16 would be expiration for this contract. Let's use the OCT 30 strike in another example. Selling at a bid of $.32. These expire next Fri and would yield 11K in less than 9 business days for a stock that's as slow moving as MSFT. It's best to write options month to month as this is the most profitable strategy. I'd spread your risk around to atleast 5 different stocks that are highly liquid. Avoid ETF's as this defeats the purpose of keeping you busy. You want to be the one in control plus most of those ETF's are down YTD. And lastly avoid being in a stock that will be releasing earnings. This is unnecessary volatility and exposure you don't need to risk despite the fact options go up in value during earnings season.
 
Look at it this way, it's a lot harder to make 15% trading Options than trading stocks.

Think about this, options are a zero sum game. That is, for every option winner there is a loser holding the other side of the trade. So you could say 50% of the options players lose.

On the other hand, because stock has no expiration and because the masses have been hyped to hold them indefinitely everybody can win on paper. If only the shrewed few cash out and the masses continue to hold the bag stock traders will continue to do better than options players (on average).

Yeah, you can be successful at options trading but you will first pay a tuition in time and money. And then you have to be better than 50% of the other option traders.

Don
 
Quote from WallStWhizKid:

Using MSFT as an example, with 1 million you could buy 33K shares. Using the NOV 30 strike you could write 330 contracts for $.87 a contract giving you an instant income of 29K.
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So you are saying he should bet his farm on just one stock? Isn't it a bit risky with no diversification?
 
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