The Beauty of Options - Portfolio Insurance at a Discount

Discussion in 'Options' started by Sweet Bobby, Jun 19, 2020.

  1. As most of you know, I am probably the greatest options trader that ever lived. My humility prevents me from saying I’m the best human that ever lived.

    The beauty of options is that they allow you to protect an entire portfolio at pennies on the dollar. Insurance is expensive. We are told that long put options are also expensive.

    The secret is to offset the cost of the protection with other trades. What I do in my portfolio is finance the protection with various income trades. And my income trades are shorter in duration than my insurance, so I Am able to flip a few income trades while they are perfectly protected in my portfolio by the insurance.

    Let me give you an example. In my current portfolio, my insurance should cost $2,500 per tranche. That was the market value of the protection when it was put on. But, my total cost of the hedge is only $1,600 per tranche! Plus, I have an additional 100 long puts per tranche in the portfolio for absolutely free! If only I could figure out a way to do this with my homeowners insurance or automobile insurance.

    The purpose of this post is to let you know that if you are purchasing portfolio coverage, look for ways to reduce your basis and generate profits that are fully protected by your hedge. With options, this is a viable strategy.

    My portfolio has no risk to the upside whatsoever and I make lottery like returns in the event of a crash. My only risk lies in a very slow market grind down, but I have plenty of time to make adjustments.

    Happy trading all!

    Sweet Bobby
    Aged Learner, .sigma, Atikon and 4 others like this.
  2. guru


    Sounds like you’re almost as good as me. And using similar approach to me, with hunting for free or cheap insurance.
    Except I didn’t have good bullish or neutral bets, until about now.
    And I also think trading options can be beautiful, once you figure it out :)
    .sigma and Sweet Bobby like this.
  3. Lol. Let me grab my popcorn, until Dest arrives.
    .sigma, luckyfnlou, blix and 2 others like this.
  4. Does this sound like Karen the Supertrader? If it's too good to be true...
    .sigma and smallfil like this.
  5. guru


    I’ve got my popcorn ready too. Can’t wait.
    .sigma and David's faith like this.
  6. I wouldn’t let that prick hold my beer!
    .sigma likes this.
  7. Selling covered calls to finance expensive puts is not rocket science and definitely doesn't make you "the greatest options trader that ever lived." You'll get murdered at market bottoms/high vol environments initiating this one-trick pony trade. You would have gotten killed during the March lows buying expensive puts and selling covered calls that limited your long portfolio upside. And like the OP points out, you'll lose big if the market grinds lower.

    This strategy maybe only works when vol is low and market is near its highs and has limited upside. Even then you're selling dirt cheap calls to finance super high-skewed puts. Those lottery tickets and downside protection puts are super expensive any way you look at it. No free lunch.
    .sigma, Occam, taowave and 2 others like this.
  8. taowave


    You have a mishmash of a backspread and a calender..Nothing special here
    .sigma likes this.
  9. zdreg


    Never heard of you in this Capital.
  10. vinc


    oh, let me buy you one once I'm in the neighbourhood ..I understand for some like you it might be expensive..or you are already addicted?? you put too much value to it,man..
    #10     Jun 19, 2020