Advice on how to make 5%/month on $1 million

[7out]

Would like to get some feedback on the following "not so hypothetical".

Consider the following constraints:
- U.S.-based brokerage account with $1 million in cash
- monthly target of 5%/month; this will be withdrawn, so account won't grow
- max trade limit of 50 trades/month
- ideally no more than 2-3 hours/day of watching/trading markets
- lowest risk to achieve the 5%; in other words, would rather have less risk than a return greater than 5%

How would you approach this?
what markets/instruments?
what trade sizes?
where to place stops and limits?
other thoughts?

Thank you for your time.

I'm actually in the process of achieving this type of trading scenario for the past 9 months (but started with a fraction of your hypothetical $1MM and instead, I'm compounding profits). Under normal conditions I would agree with the majority that this can't be achieved, but since the pandemic and with the volatility increasing, it isn't overly difficult to achieve 1% per week by utilizing options via covered calls and cash covered puts.

If you break your trades into 10% pieces and sell (6-7 portions) far from the money puts you can easily make up approx 1% per week (mind you, might not be as easy doing it with $1MM as with say $100K). The remaining 3-4 pieces can be utilized with outright stock purchases and/or selling covered calls.

 

[Sig]

I'm actually in the process of achieving this type of trading scenario for the past 9 months (but started with a fraction of your hypothetical $1MM and instead, I'm compounding profits). Under normal conditions I would agree with the majority that this can't be achieved, but since the pandemic and with the volatility increasing, it isn't overly difficult to achieve 1% per week by utilizing options via covered calls and cash covered puts.

If you break your trades into 10% pieces and sell (6-7 portions) far from the money puts you can easily make up approx 1% per week (mind you, might not be as easy doing it with $1MM as with say $100K). The remaining 3-4 pieces can be utilized with outright stock purchases and/or selling covered calls.

Sure, you can make 1% per week selling OTM puts.....until the steamroller you've been picking up nickels in front of crushes you when the market falls and you lose all you made and whole lot more. It's not a matter of if but when.

 

[7out]

Sure, you can make 1% per week selling OTM puts.....until the steamroller you've been picking up nickels in front of crushes you when the market falls and you lose all you made and whole lot more. It's not a matter of if but when.

Possibly, but so far (knock on wood) I have achieved much better than 1% per week on a sizable account (but no where near $1MM) since late Sept 2020. I have taken some hits in that period and several times had to take possession of stock (which I sold puts against), but overall it has worked out nicely. I will admit, It is a lot of work and you must be ready every Thursday night with your studies to trade on Friday to balance positions.

 

[DiceAreCast]

You lost me the second you mentioned the word "easy". Anyone who thinks anything about trading or investing is easy is completely insane. Or perhaps it's all those retarded graduates from Harvard, UPenn, MIT, UC Berkeley who are insane and who toil their entire lives to make it into any of those banks and hedge funds just to get a shot at this game. That's before all the chaff gets sorted out. Some of you guys are almost romantic dreamers...

I'm actually in the process of achieving this type of trading scenario for the past 9 months (but started with a fraction of your hypothetical $1MM and instead, I'm compounding profits). Under normal conditions I would agree with the majority that this can't be achieved, but since the pandemic and with the volatility increasing, it isn't overly difficult to achieve 1% per week by utilizing options via covered calls and cash covered puts.

If you break your trades into 10% pieces and sell (6-7 portions) far from the money puts you can easily make up approx 1% per week (mind you, might not be as easy doing it with $1MM as with say $100K). The remaining 3-4 pieces can be utilized with outright stock purchases and/or selling covered calls.

 

[Sig]

Possibly, but so far (knock on wood) I have achieved much better than 1% per week on a sizable account (but no where near $1MM) since late Sept 2020. I have taken some hits in that period and several times had to take possession of stock (which I sold puts against), but overall it has worked out nicely. I will admit, It is a lot of work and you must be ready every Thursday night with your studies to trade on Friday to balance positions.

You don't have to answer this, but think about it. How far OTM are the puts you're selling in percentage terms. What is the maximum percentage change in the time period you're selling puts for historically in the stock in question and it's peers? How many times in the past 10 years has the stock percentage change exceeded your OTM value?

Or to put numbers on it. You're selling OTM puts on XYZ manufacturing company stock 10% from strike expiring in a month. How many times in the past 10 years has XYZ stock fallen more than 10% in a month? How many times has it's peer group stocks fallen more than 10% in a month? If the answer is >1, then it's highly likely to happen again. If it's 0, then it could still happen it just hasn't yet. In the case it does happen, what is your exposure? You sold an OTM put for $1 on a $100 stock. If it falls to $90 you just lost 10X your investment! If you're putting 60-70% of your portfolio into this, then you wouldn't even come close to being able to cover that kind of loss.

There are literally thousands of strategies that can provide you a steady payment all the way until the day they don't and crush you. Risk adjusted returns is a key concept, but even simpler than that is the basic heuristic I described above.

 

[2rosy]

This is a 60% annualized return.

If you can consistently get this, start a hedge fund.

removing profits and maintaining $1M level gives a risk of ruin of 100%

 

[7out]

You lost me the second you mentioned the word "easy". Anyone who thinks anything about trading or investing is easy is completely insane. Or perhaps it's all those retarded graduates from Harvard, UPenn, MIT, UC Berkeley who are insane and who toil their entire lives to make it into any of those banks and hedge funds just to get a shot at this game. That's before all the chaff gets sorted out. Some of you guys are almost romantic dreamers...

I'd hate to lose anyone, especially when you're possibly the only one following me.
I think you took my word "easy" out of context. The first time I used the word easy was referring to the premiums easily exceeding 1% per week these days. The second time I wrote easy, I actually wrote it might not be as "easy".

 

[7out]

You don't have to answer this, but think about it. How far OTM are the puts you're selling in percentage terms. What is the maximum percentage change in the time period you're selling puts for historically in the stock in question and it's peers? How many times in the past 10 years has the stock percentage change exceeded your OTM value?

Or to put numbers on it. You're selling OTM puts on XYZ manufacturing company stock 10% from strike expiring in a month. How many times in the past 10 years has XYZ stock fallen more than 10% in a month? How many times has it's peer group stocks fallen more than 10% in a month? If the answer is >1, then it's highly likely to happen again. If it's 0, then it could still happen it just hasn't yet. In the case it does happen, what is your exposure? You sold an OTM put for $1 on a $100 stock. If it falls to $90 you just lost 10X your investment! If you're putting 60-70% of your portfolio into this, then you wouldn't even come close to being able to cover that kind of loss.

There are literally thousands of strategies that can provide you a steady payment all the way until the day they don't and crush you. Risk adjusted returns is a key concept, but even simpler than that is the basic heuristic I described above.

I have no issues answering indirect questions about my investing, investment strategies and thought process, after all this is how you learn - by reading and assessing others' point of view in comparison to your own.

It's not very relevant to what the stocks have done in the past because since the pandemic began the market has changed (and you must adapt to the new changes). Currently the option premiums are much juicier than they have been before the pandemic.

At no point of describing how to go about and achieving such returns, did I ever mention setting aside more than 10% of the portfolio into 1 position and I also specifically suggested that the account only sell cash secured puts - in case you are forced to take possession of stock via puts sold.

I don't see how you can lose 10x your investment from what I suggested.

If you guys are interested, I am willing to post a theoretical portfolio (partially based on my own portfolio) late Friday night but must be allowed to use the closing prices of Friday as entry points. Then we can analyze and critique my thought process. As I mentioned in my first response, I would break up portfolio into 10 pieces (10% each) and enter 6-7 far OTM puts to gain 1% per week in puts, then take 3-4 stock positions with or without covered calls.

 

[Sig]

I have no issues answering indirect questions about my investing, investment strategies and thought process, after all this is how you learn - by reading and assessing others' point of view in comparison to your own.

It's not very relevant to what the stocks have done in the past because since the pandemic began the market has changed (and you must adapt to the new changes). Currently the option premiums are much juicier than they have been before the pandemic.

At no point of describing how to go about and achieving such returns, did I ever mention setting aside more than 10% of the portfolio into 1 position and I also specifically suggested that the account only sell cash secured puts - in case you are forced to take possession of stock via puts sold.

I don't see how you can lose 10x your investment from what I suggested.

If you guys are interested, I am willing to post a theoretical portfolio (partially based on my own portfolio) late Friday night but must be allowed to use the closing prices of Friday as entry points. Then we can analyze and critique my thought process. As I mentioned in my first response, I would break up portfolio into 10 pieces (10% each) and enter 6-7 far OTM puts to gain 1% per week in puts, then take 3-4 stock positions with or without covered calls.

I think the confusion is in your last paragraph. It makes it sound like you're investing 60-70% (6-7 units of a 10 unit portfolio) in OTM options. If by that you mean you're counting the options at their full strike value then you're right, no chance of losing 10X.

I would mention a couple of other red flags. First, the idea that stock prices are independent variables isn't generally true. Just because you're invested in a portfolio of 10 stocks (no more than 10% in one position) doesn't mean that a down move won't be reflected in all of them at once to once degree or another. Which brings us the second very dangerous thought process, that somehow everything is different now and the past should be ignored. It's very possible that premiums are higher now than they were before COVID. That in no way makes the possibility that a large, broad one day or multi-day crash will happen in the next X months any less likely than it has been in the past 25 years. I heard a whole lot of this "everything is different now, you need to stop living in the past" all through 1998-early 2000. Until the .com bubble burst and it turned out that while the internet was revolutionary it wasn't a market anti-gravity machine.