I want maximum downside protection with some upside is collar the way to go?

T

Tomaz26

Hello.

I am very risk averse and I need to protect my capital, but on the other hand I need to double it in next 10 years so I can retire at 45. This means I need about 7 % return a year but somewhere along 5 % would also be fine. I was reading a paper about collaring QQQ and EEM and it worked great. Some upside with 2 % OTM options and no negative year. Or with 5 % OTM options even more upside potential, but less downside protection. So my question, would this be ok strategy as a long term investment for my need? Or are there better strategies, like just buying longer term call (LEAPS), bull spread, put buying (expensive..),..

thanks for help guys

Tomaz
 
You answered your own question, partially.
There is no right, or wrong, answer...it's all on your own discretion...where you want to place yourself on the Risk vs Reward spectrum.
spectrum.jpg

o_O:)
 
Tomaz26 said:
Hello.

I am very risk averse and I need to protect my capital, but on the other hand I need to double it in next 10 years so I can retire at 45. This means I need about 7 % return a year but somewhere along 5 % would also be fine. I was reading a paper about collaring QQQ and EEM and it worked great. Some upside with 2 % OTM options and no negative year. Or with 5 % OTM options even more upside potential, but less downside protection. So my question, would this be ok strategy as a long term investment for my need? Or are there better strategies, like just buying longer term call (LEAPS), bull spread, put buying (expensive..),..

thanks for help guys

Tomaz
More...

1st you should know that the riskless rate is under 1%, so you will need to take on risk to get 5% to 7%. Are you looking to do the trading yourself or hire a manager like a CTA or contribute to a hedge fund? Also, how much capital are you starting with? It would help to know.

If you are looking to make an allocation to a manager, I might be able to help. If you are looking to do this on your own, the fact that you are asking these questions makes it clear you are not ready to do this on your own.

1245
 
I too am risk averse. Hence my preference for scalp trading. Safest bet is to own a very liquid equity and write covered calls and puts. You collect the dividend and the premium for writing options. Otherwise best to study a handful of very liquid equity options using some technical indicators and decide when you should trade. Risk averse means don't trade every day. Sometimes I only trade once a week. I hate waiting around but I also don't like to lose money. Look for small profits. 1% a month is totally doable. 10% a year with equity options is a good target. Stay small, scalp and don't get greedy and over confident. The minute you think you're the boss, the trend will turn against you.
 
Your needs in terms of return are modest. Adding options to the mix will increase your volatility, thus may decrease your return. You may be able to do this best without options.
 
drcha said:
Your needs in terms of return are modest. Adding options to the mix will increase your volatility, thus may decrease your return. You may be able to do this best without options.
More...
I'll say that if I had a sizeable trading account, I would stick to trading very liquid blue chip equities. I only got into options to help me with leverage but I've also lost a bit almost always due to time decay and lack of liquidity in the moment.
 
My trading capital is not big, about 100.000 EUR. Like I said I would like to double that in max 10 years. TradeCat I like your idea. I saw some websites where they trade options around blue chips and make 1 % per month writing options, call and puts. But I did not see detailed strategy or anything like that. Can you point me into some direction? Any website or where I can learn more about it?

thanks!
 
Lets see:

1. You have no stock market experience...options or otherwise.
2. You recognize that the 'risk free' rate is currently around 1%
3. You would like to make 5 to 7 times the risk free rate without raising your risk.

This seems not just unlikely but is a logical contradiction.

This closest you will come is to put your money into a conservative Vanguard mutual fund. Which one? it would be best to talk to a Vanguard representative and tell him what you want.

:-)

Just a look tells me you might like VSCGX Vanguard life strategy fund.

It has a 5 year return of 5% and seems pretty safe:

http://finance.yahoo.com/q/pr?s=VSCGX+Profile

http://finance.yahoo.com/q/pm?s=VSCGX+Performance

http://finance.yahoo.com/echarts?s=VSCGX+Interactive#{"range":"10y","allowChartStacking":true}

What will you do if we have another 2008???
 
This is also an option ;)! But yeah, I fear 2008 looming with brexit, china and other shit, that is why I would like to have some upside potential but limited downside. I think tight collar would protect me from the downside. Even more, on backtests collar actually give high return during colapse. This is where it thrives, but it does not look good in crazy bull market. But those years are behind us now. So while I wait for next bear and lower levels to go all in with index fund, I would like some upside and capital protection.. But you are correct, no risk is 1 % and 5 % in this environment probably means taking quite a lot of risk to reach it..
 
You don't know what's behind us, or ahead of us. No one does. You will significantly cut off your upside with these collars. A balanced Vanguard fund, as suggested above, may be a better option.
 
You must log in or register to reply here.
Back
Top