Short Strangle vs DRIPing an income etf PGF

Discussion in 'Options' started by invest2bfree, Feb 18, 2017.

  1. I am thinking of two strategies-

    1. Do weekly strangle sell monday for friday expiration a weekly strangle on SPX. Sell it for 1% out of money for each direction.

    2. Buy an ETF like PGF which is a financial preferred and just DRIP into it every month.

    I have fulltime job with 3kids so dont have lot of time to do trading.

    If offered any two choices which do you prefer and why? I just want to get 10% a year.

    Also I dont like to be in the stock market. I just believe with the bad demographics and huge debt in the western world the stock market is going to take a Japan like tumble. At the same time Euro Zone is going to disintegrate.
     
    Last edited: Feb 18, 2017
  2. Ryan81

    Ryan81

    Depends on your appetite for risk.

    #1 If you're really looking to just make about 10% a year, this strategy is probably a lot more risk than you need to take

    #2 Is a lot less risky, but probably won't quite get you your 10%
     
  3. Ryan81

    Ryan81

    From what you've said, if I put myself in your situation, I would lean more toward #2, but possibly with a larger set of stocks/etfs that pay yield (maybe consider reit funds, some corporate debt that is more diversified than just the financial sector...) Me personally I would also want some upside exposure to equities.. but you've stated you feel differently on the overall long term outlook of equities...
     
  4. Tim Smith

    Tim Smith

    With all due respect, I think you need to be told a few hard truths :

    (1) "I just want to get 10% a year"

    REALITY CHECK TIME.

    "just" 10% a year involves a significant degree of risk.

    Low-risk is 3–5%.

    Once you start looking at double digit levels, the amount of risk increases exponentially.

    Also, you don't have to be a day-trader, you can be an investor. But with "a job, 3 kids and not much time", even as a buy & hold investor, if you're setting yourself a 10% target, as well as the risk involved, achieving 10% is going to involve some work and monitoring, its not a "buy and forget" job. 3–5% however, is something that you could probably achieve with "buy and forget" (if you take the time initially to do some good research).

    In your post you explain you have a job, three kids and then you spend a whole paragraph explaining how you think the whole stockmarket is going to collapse.

    Think long and hard about how much risk you are willing to take on and perhaps set yourself a more realistic target.

    (2) "Do weekly strangle .... on SPX" or "Buy an ETF like"

    And yet in the same post you go off on a rant about how you "dont like to be in the stock market" and how you think the world is going to collapse.

    Do you understand that both SPX and ETFs by their very nature equate to exposure to the stock market by virtue of their correlation ???
     
    Last edited: Feb 18, 2017
  5. Maverick74

    Maverick74

    I have to concur with this. The OP has a retail mentality that the market "owes" him something just for being alive. People throw numbers around ET like I just want to make 30% a year as if they should be honored for the sacrifice they are making. I agree, 10% is a lot of risk. And the irony of course is the very thing he is afraid of, would blow out both strategies. Selling weeklies would get decimated if his worldview plays out. And option 2, preferreds can be HUGE liquidity traps in a crash. Yes, you can lose as much or more then you could being long stocks. There IS a reason why they pay the yields they do.

    I agree the best course of action is to diversify across a lot of dividend paying preferreds or REITS and aim to make 4% to 5% a year. And no, this is not low risk either. But it's more reasonable.
     
    nbbo likes this.
  6. Hello everyone,
    Some background might help, I have been trading the last 15 years using 52 week low dip buying strategy. I have done reasonably okay amazed a decent sum in my 401k and regular account. You could call me a lucky fool, since I have had many close calls and have been wiped out once in 2002 by buying worldcom buying right before they went kaput.
    This alas gotten me into serious health issues and cannot take any more volatility.Now I want a complete reset.

    Looks like many of you prefer a diversified income strategy.
    No More than 5% in a preferred or a baby bond.
    If you run into bear market scenarios just average down with the income.
     
  7. ironchef

    ironchef

    Just buy BRK.A or BRK.B and let Warren works for you. Until he moves on he can probably get you > 10% a year on average. He worked very hard for me, got me 15% - 20% a year on average for many years.
     
  8. pann2310

    pann2310

    My two cents.

    I've seen backtested models on the 1SD strangles and the performance is less than stellar...not sure it is even a viable long-term strategy. I know that's how Karen the Supertrader blew up her fund..

    With regards to long-term investing there are many articles on Seeking Alpha detailing numerous different strategies...the ones that I have had personal success with are those exploit structural alpha i.e low volatility, small cap, equal weight, dividend.....whether or not those strategies will mean revert in the future is an open question.

    The question of how to invest in these indices is another methodology entirely. Two common methods that I've seen is Risk Parity with re balancing or some time of momentum strategy. Pros and cons with each.

    Finally, if you want to trade the market find a particular strategy that works, be mechanical, control risk.
     
    zdreg likes this.
  9. zdreg

    zdreg

    learn how to sell short, before the practice of short selling get banned/restricted.