I didn't go to the Wheel system permanently until after the Covid crash. I've basically done a little of everything except complicated stuff like butterflies.
3 to 7x leverage???? What percent of strike are you typically short,and average IV What's your performance vs the underlying stocks ??? Whats the beta/corelation of your your portfolio vs SPY.. Are you exceedingly concentrated in on sector/ industry?? This has trouble written all over it
It's good to see discussion about alternative strategies. First and foremost thanks for sharing. My concerns are similar to taowave. Do you have annualized return and volatility over a longer time horizon? What is the performance of your strategy spread against an equal volatility allocation to the sector itself? Seeing how much alpha remains would give a better picture if this is worth your time scouring reports and the significant tail risk you're holding. 3x leverage on Vanguard Midcap value ETF returns about the same as your strategy and the VaR on that might actually be lower than yours if you are getting up to 7x notional in short puts. Also I wouldn't expect someone doing balance sheet analysis to hold shares for a maximum of several weeks. I think there are periods where price can remain dislocated from fundamentals for longer than that. So trade frequency doesn't seem consistent with the methodology you're trying to use. Sounds like you're running a sizable amount of capital so congratulations on the returns. I think more than anything you made the correct macro bet with an aggressive leverage ratio at just the right time and that's where most of the alpha is coming from. If you are willing to de-lever now and/or you have been diversifying into other asset classes all the while seems like you're golden.
Thank you both. Leverage in my case is an opportunity not a risk. Those are very high conviction bets. That opportunity is now gone on the other hand. I am now aiming for a third of that performance over the next 12 months. A major correction will change that plan of course. P.s. my return for each year in the 2 previous years was in the single digit. I only deploy loads of cash when the risk/reward is widely assymetrical. This is very important for anyone looking to do what I am doing. It's very boring and you may have to side on the sideline for along time...
"Leverage in my case is an opportunity not a risk" is a very bold statement and will most likely get you blown out...Buffet trades derivatives based off a similar methodology,but hes more than happy to take down the underlying..At 7x leverage,you are staring at blowout risk. If you know goober about trading vol, the Leverage on your short options is anything but an "opportunity",its reckless risk.... Why on earth would yo lever up on a product you know nothing about?? Whats your return had you simply bought the underlying? "I could not care less about the vix, greeks, IV, wings, spreads, boxes, rollover or any other jargon relating to options. Let alone mean reversion, technical analysis or anything else around crowd behaviour. I sell puts for a yield premia that compensates the balance sheet risk I am facing - I never ever look at anything else, and particularly not the greeks. I don't even know what they mean actually."
I get it, you are not a fan. Not here to argue. After all, those opportunities only appeared because others thought differently...and it's a zero sum game this.
I don't think you will be blown out of the water in a major correction. It reminds me of Buffett (Berkshire Hathaway) buying BNSF. He bought it at such a great price...No one saw it coming!! The product will still be used during a major corrections (example commodities). Refine your trading style, back test, then keep doing what you're doing...
Im a big fan of your ability to analyze a balnce sheet and come up with some fair value/margin of safety... Its the leverage of up 7x with no position sizing/risk management to put up 100 percent that is a big red flag... Im not being argumentitive,but you havent answered how your stocks performed,with the risk/reward metrics to compare to your short vol portfolio. If they underperformed the S&P or some correlated benchmark, then what exactly is your edge?? Leverage??? Thats most likely where your sweet return is coming from There may be a far better (risk adjusted) way to capitalise on your fundamental analysis....