Hey everyone,
Merry Christmas and happy boxing day (in UK). Hope you are all enjoying the much needed rest and time with our family. End of the year and this festive season is always a time for reflection, take the learning from the year, rest, recover and re-energise to face the next year.
While the stock market is going sideways to down in the recent weeks and months and some breakout stock trades not following through, the option trades are standing out as a beacon in this unfavourable trading environment.
As longterm supporters and followers of growwealth many of you may know that I have been learning option strategies, back tested the last many years data and have started live trades since September. I primarily placed monthly BPS or IronCondor trades on a stock index. More recently I have also executed STO puts and calls on individual stocks too with some good returns.
But just wanted to share with you the type of returns that is possible with Option trades. If you look at hard sales pitch online from (almost all) most of the option trade tips services, they tend to show the $ value of the (potential) trade or the % return without giving the full context and more improtantly without highlighting the risks in the trade strategy.
If you are unfamiliar with option trading, take it from here:
Most options buys tend to lose money.
Selling options has higher probability of wins, but lower $ value of profits. This is preferably as you tend to win more often and the money compounds over a period of time.
Like in every investments - there is no get rich quick scheme and there is no holy grail, even in options trading.
When you look at the options return, particularly with Selling option trades, you need to know the RORC - Return On Risk Capital, and ARORC - Annualised Return On Risk Capital, and if you are interested in the actual $ (or £ or whatever currency you follow), you then look at that value and not before you understand the context (RORC and ARORC).
Below are a sample of the last couple of successful options trades executed.
In the stock index based option trades, I completed 5 trades since September and the 6th one live.
All of them have finished in profits. To give you an essence of it, the RORC / ARORC for them are:
11.29% / 132.89% (monthly trade)
8.08% / 98.28% (monthly trade)
1.443% / 65.35% (weekly trade)
7.45% / 87.7% (monthly trade)
1.25% / 12.69% (1 day trade)
The current live trade, if it finishes as expected, it would give 10.06% / 101.99%
I won't share the $ value here, as it is never a good idea to do that in public forum but, to give you an understanding, I will disclose this - One of the monthly option trades from the above list gave me enough profits in 1 month that more than covers the 3 full years of subscription for the GrowWealth's "Trade Ideas" membership.
No one can guarantee that level of profits month after month for eternity. But these option trades has inbuilt risk management and exit strategy which ensures that there is adequate protection to the capital, if the trade didn't work out, and has the long term wealth creation potential from compounding returns from the rinse and repeat mechanism of the monthly option trades.
I will share a bit more details of those trades below:
The first trade was an Iron Condor on Russell 2000 index (RUT) : October monthly expiration on RUT 1470/1480/1940/1950.
The second monthly trade was November expiration on RUT 1450/1460/2000/2010 Iron Condor.
The last monthly trade was December expiration on RUT 1650/1660 BPS (Bull Put Spread).
The strike price selection and the exit strategy depends on delta values, volatility, probability, RORC, ARORC and risk management using Kelly Formula and other values.
The stock option trades have also been positive so far. I use it to reduce the cost basis for the stocks that I intend to hold for a while.
I was skeptical about option trades after burning my fingers years ago when I foolishly followed someone who did a hard sale pitch, without fully understanding the process. I am no expert on this yet. I suppose no one is an expert in this. It just is about risk management and being selective in choosing low risk and reasonable reward trades and compound over time.
Feel free to share your experience, thoughts, ideas and comments in the chat section. I will try to post the progress of such strategies here in this blog periodically.
Happy Learning and Successful Investing.
I wish you all a Happy New Year and a Prosperous 2023 :)
Disclaimer: This material is intended for educational purposes only, and is not recommendations to buy or sell any financial instruments or products. Do your own due diligence and make your own decision. The value of your investments can rise as well as fall. Capital is at risk when investing in any financial products. You could get back less than you invested. Past performance may not be indicative of future results.