Hello all,
I have used a lot of investment newsletters, some of them good, some of them not so good. My conclusion: when the times are good, most of them can make money almost with no effort. But in 2009, I didnât need them â I could just invest in double index fund and make 50-60% a year. The problem begins when bear market comes â and in bear markers, very few newsletters deliver decent results.
My conclusion is very simple: itâs very hard to beat the market. So many experts say: just buy the index and hold. Well, we know what happened to those who just bought an index 10 years ago.
So what's the solution? When buying stocks, indexes etc., the mathematical probability of success in general is 50%. Why not to put the probability to our favor by implementing options income strategies like iron condor, calendars etc.? Stocks and indexes do trade in narrow range 80% of the time. Why not to use this fact in our favor? If you trade Iron Condor for example, the probability of success (depending on the strikes) can be 80-90%, with 4-8% monthly return. Of course those trades require adjustments and constant management in order to limit losses, but so are stocks. We already saw the most âsafeâ stocks tank by 40-60%. So instead of buying stock/index, watch it to go up 20% only to come back, why not to put time to work for us?
I donât want to rely on my (or anyone else) ability to predict the market direction and pick good stocks. I want to build my strategy on two well known facts:
1.Most of the time, indexes move in tight range.
2.Options lose value every day.
If I implement market neutral strategies with options, 80% of the time I can just sit tight and make 7-10% per month. If I control risk and cut my losses at those 20% period when indexes move more than 10-12% per month, I should do much better than directional strategies.
My experience with those strategies is still limited. I started using iron condors in April 2009. Despite very strong move since then (rut moved from 450 to 600 â thatâs 33% in 7 months, doesnât happen very often), the results have been very respectful. I made 8 trades, 2 losers (6-7% each) and 6 winners. September was particularly difficult, with RUT moving 18%, but I managed to close the trade with only 6% loss. Overall, I had 14% average gain (including the two losers), with average holding period of 6-7 weeks.
To reduce vega risk, I started using multiple calendars, in addition to iron condors. Iron Condor is vega negative (loses money when volatility increases), while calendars are vega positive. So Iâm trying to open iron condors on down days when volatility increases, and calendars on up days when volatility is lower. Combination of those two strategies reduces vega risk.
I would appreciate your opinion about those strategies.
I have used a lot of investment newsletters, some of them good, some of them not so good. My conclusion: when the times are good, most of them can make money almost with no effort. But in 2009, I didnât need them â I could just invest in double index fund and make 50-60% a year. The problem begins when bear market comes â and in bear markers, very few newsletters deliver decent results.
My conclusion is very simple: itâs very hard to beat the market. So many experts say: just buy the index and hold. Well, we know what happened to those who just bought an index 10 years ago.
So what's the solution? When buying stocks, indexes etc., the mathematical probability of success in general is 50%. Why not to put the probability to our favor by implementing options income strategies like iron condor, calendars etc.? Stocks and indexes do trade in narrow range 80% of the time. Why not to use this fact in our favor? If you trade Iron Condor for example, the probability of success (depending on the strikes) can be 80-90%, with 4-8% monthly return. Of course those trades require adjustments and constant management in order to limit losses, but so are stocks. We already saw the most âsafeâ stocks tank by 40-60%. So instead of buying stock/index, watch it to go up 20% only to come back, why not to put time to work for us?
I donât want to rely on my (or anyone else) ability to predict the market direction and pick good stocks. I want to build my strategy on two well known facts:
1.Most of the time, indexes move in tight range.
2.Options lose value every day.
If I implement market neutral strategies with options, 80% of the time I can just sit tight and make 7-10% per month. If I control risk and cut my losses at those 20% period when indexes move more than 10-12% per month, I should do much better than directional strategies.
My experience with those strategies is still limited. I started using iron condors in April 2009. Despite very strong move since then (rut moved from 450 to 600 â thatâs 33% in 7 months, doesnât happen very often), the results have been very respectful. I made 8 trades, 2 losers (6-7% each) and 6 winners. September was particularly difficult, with RUT moving 18%, but I managed to close the trade with only 6% loss. Overall, I had 14% average gain (including the two losers), with average holding period of 6-7 weeks.
To reduce vega risk, I started using multiple calendars, in addition to iron condors. Iron Condor is vega negative (loses money when volatility increases), while calendars are vega positive. So Iâm trying to open iron condors on down days when volatility increases, and calendars on up days when volatility is lower. Combination of those two strategies reduces vega risk.
I would appreciate your opinion about those strategies.
