Using Options To Protect a Large Portfolio

[Daal]

Excellent comments.

Can you run the numbers to include real estates and collectables?

Thanks.

I could if I had the data but I havent found it anywhere. I mean, long-term data (going back to the 20s). Gold is sorta similar due being a real asset and being protected against inflation so it could be considered a proxy

 

[Matt_ORATS]

I could if I had the data but I havent found it anywhere. I mean, long-term data (going back to the 20s). Gold is sorta similar due being a real asset and being protected against inflation so it could be considered a proxy

Using portfolioanalyzer.com with a free account, you can run analyses back to 2007 with REITS, gold, commodities and more. As below, the drawdowns are substantial.

https://gyazo.com/18bfe0e30aff92a042b32b7839f7d017

 

[Matt_ORATS]

The best combination of long puts and long SPY is below. The long put strategies are over-hedging with WOTM long-term and under-hedging with OTM short-term puts.
This combination had a drawdown of 17%, annualized returns of 7.5%, Sharpe of 0.76.
For comparison, SPY had a drawdown of 60%, annualized returns of 10% and a Sharpe of 0.72 from 2007 to present.

https://gyazo.com/b7474c5ae2eae35aa7210779c111791e

 

[nooby_mcnoob]

No free lunch.

 

[ironchef]

The best combination of long puts and long SPY is below. The long put strategies are over-hedging with WOTM long-term and under-hedging with OTM short-term puts.
This combination had a drawdown of 17%, annualized returns of 7.5%, Sharpe of 0.76.
For comparison, SPY had a drawdown of 60%, annualized returns of 10% and a Sharpe of 0.72 from 2007 to present.

https://gyazo.com/b7474c5ae2eae35aa7210779c111791e

How is it compared to the CBOE PUT (put-write index)?

 

[misterkel]

With that time horizon - btfd seems a better strat than $ cost averaging.
But you have to wait longer. You can also wait until there's a big drawdown, then sell ATM puts when vol is high - it goes up a LOT during a drawdown. Then you collect either a high premium, or you get in a much better price, depending on whether SPY ends up ITM or OTM.

So every time there's a strong dip (2%+ I'd guess), you sell 2-5 ATM puts for your budget on SPY. Month out should be about right. You'll probably only get assigned once a year, I'd guess.

 

[Matt_ORATS]

How is it compared to the CBOE PUT (put-write index)?

Ironchef
It compares favorably. Return is better. Volatility is lower. Risk is much less.
If anyone is interested I can put a risk slide together.

https://gyazo.com/0130c6f405b5bd1ce61d28923ba24eef

 

[yc47ib]

Twenty years ago I was in precisely your position, with precisely the same questions, and at precisely the same market levels near all time highs. I asked an experienced options broker if it would be a good idea for me to sell puts. No, he replied. Because shit happens.

I didn't listen then, and shit happened, as in time it always will.

It has also been my experience that threads like this, with traders advising a newbie to engage in selling puts, is a good sign that we are at or near a market top.

Good luck.

I hate to say this, but I totally agree! Disclosure: I have some short positions on all indices set up during the last week averaged up.