Using Options To Protect a Large Portfolio

[taowave]

Right now the 300 put (94% spot put)trades for 4%..With a 3% pullback and vol unchanged,you could collect 5%..You really want to be short 1 year vol to make 5%???

Not being a jack ass,but there are much better ways to make 5% with alot less risk

Here is just a rough idea:
Instead of buying portfolio insurance (who ever made money buying insurance on anything?), sell insurance just like all insurance companies do.
And you can do this as conservatively as you like. For example you can make 5% in 2020 by selling SPY/SPX put exp December 2020 at 300 strike for about $15/share or more when the market will have a small pullback. Those puts can get quite expensive, maybe $30 if you wait for the right moment, but as you’ve learned waiting doesn’t always work.
In any case, this approach would allow you to earn the full profit if SPY ends above $300 by the end of 2020, or if SPY ends up lower then you can get in just like you wanted, and your cost will be only $285/share.

 

[insele]

You're off to a good start! You're already in "insurance" mode. What you need to do now is transition into entry mode. I have no idea what level or type of investor you are, but it is normal to be hesitant - just know that you are historically better off being in the market steadily than in and out of it trying to time peaks and troughs. Find good ideas wherever you can, do your own homework, then pick three or four of the stocks or bonds or ETFs you're certain in your gut you'd like to own someday. At your portfolio size I would be shooting for ~$10K positions. Learn about selling puts - it is a simple process - don't let all of the details scare you off the path - it is also a safe, conservative process when managed responsibly. Call your broker, tell them what you're trying to do, and start selling puts on the things you want to own. You'll get paid and those puts will either expire with you banking the money and selling more, or they will be assigned and you'll get into positions you wanted to be in anyway at a lower cost. The hardest part (and it really won't be that hard when you look back on it) is selling those first puts. Your own investing style will evolve from there ... good luck and have fun with it!

 

[LaxFan]

Rather than using options to protect $400K, just purchase DITM calls or call spreads in SPY.
Put the remaining 75% in the bank @ 2% (1 yr. CDs) or some other investment.
Buying smaller amounts of call spreads in TLT (bonds) or GLD (gold) could also act as some protection for a lower SPY.

Why purchase deep in the money calls?

 

[LaxFan]

You want portfolio insurance? That's what options *are*.
But if your account is in cash, then you are already insured against anything but inflation.

Regardless, you express a wish to "participate" -- that is an easy one. While I agree with the dollar-cost averaging observations made thus far (with a default SPY target), I'd offer something with a little more (a *lot* more) involvement (entanglement): figure out those things that you'd wish to own, and sell naked puts on them: for $1000 of capital employed, you'll earn a great return. If you get hit on something you would've bought anyway, then you'll have been *paid* to purchase it at a lesser price than market.

Beats the pants of off dollar-cost averaging.

I have dabbled in cash-secured puts occasionally. Not cleared for naked puts, nor do I have or use margin.

 

[LaxFan]

That might actually be a disadvantage. When you follow something closely and invest time into it, you might start to take outcomes personally as a reflection of ability that could affect your confidence. At some point it turns into a game or competition. I think people who blindly invest passively have an advantage in the sense that they never take investing as a reflection on their own performance or ability. So it might be best to simply allow time to work in your favor and blindly invest in an index fund.

Yes, great point! I've read about stocks and investing since I was in high school. The people at my workplace know nothing about investing. Anytime investing, stocks, economics, or retirement plans are brought up, I will offer some elementary knowledge (such as "What is a Roth IRA? or "What are capital gains?") They only know the market has been going up. They think I'm some expert, but it's really basic investing knowledge. Yet their investments likely have done much better than mine--so then I have these feelings of failure and regret.

 

[LaxFan]

You're off to a good start! You're already in "insurance" mode. What you need to do now is transition into entry mode. I have no idea what level or type of investor you are, but it is normal to be hesitant - just know that you are historically better off being in the market steadily than in and out of it trying to time peaks and troughs. Find good ideas wherever you can, do your own homework, then pick three or four of the stocks or bonds or ETFs you're certain in your gut you'd like to own someday. At your portfolio size I would be shooting for ~$10K positions. Learn about selling puts - it is a simple process - don't let all of the details scare you off the path - it is also a safe, conservative process when managed responsibly. Call your broker, tell them what you're trying to do, and start selling puts on the things you want to own. You'll get paid and those puts will either expire with you banking the money and selling more, or they will be assigned and you'll get into positions you wanted to be in anyway at a lower cost. The hardest part (and it really won't be that hard when you look back on it) is selling those first puts. Your own investing style will evolve from there ... good luck and have fun with it!

Thanks, I have dabbled some with cash secured puts, but nothing crazy risky.

 

[destriero]

Buy bear risk-reversals in single name to avoid the index skew. You can trade them as verts to limit the haircut. There are a million structures.

 

[guru]

Right now the 300 put (94% spot put)trades for 4%..With a 3% pullback and vol unchanged,you could collect 5%..You really want to be short 1 year vol to make 5%???

Not being a jack ass,but there are much better ways to make 5% with alot less risk

My answer wasn't for someone trying to trade. Most people don't know about trading and buy real estate and make around 5% dealing with tenants, so they wouldn't mind making the same money with less effort. I don't know the poster's trading experience and wouldn't even get into discussing trading or variety of income streams.
I posted this only as "rough idea" with conservative approach, and as one of possible/other ideas, and just one of possible examples. Anyone can do whatever they like with it.

 

[ETJ]

No margin - that kills about half the ideas. Is it a retirement account - otherwise get it margin approved and increase your flexibility.

 

[dozu888]

So many ideas lol.

The best trade is still to go all in on the qqq. Bar none. Granted that op has the risk tolerance.

Of course none of these ideas will actually be adopted. But in a few years it will become clear lol