Author: The INO.com Team

2019 has ushered in one of the most surprising bull markets that nearly no one saw coming. Unfortunately, the vast majority of Wall Street analysts underestimated the strength of this bull market as we enter into mid-November. Expectations for 2019 were largely muted when factoring in a slew of potentially negative economic issues such as the U.S./China trade war, Brexit, inverted yield curve, potential recession, Federal Reserve actions, and the presidential impeachment efforts. Despite all of these headwinds, the indices continue to post record highs, with the Dow Jones and S&P 500 notching gains of 18% and 23%, respectively.

This market has been dubbed the “most hated bull market in history,” illustrating the point that the ability for anyone to predict market returns is a futile endeavor. Reiterating why 92% actively managed funds do not outperform their benchmark and why there’s only a 36% chance of picking a stock that will outperform the market. An options-based portfolio approach can offer a superior alternative to traditional stock picking and position your portfolio to thrive in any environment such as this surprise bull market. An option-based strategy mitigates risk and circumvents drastic market moves. Selling options and collecting premium income in a high-probability manner generates consistent income for steady portfolio appreciation in both bear and bull market conditions. This is all done without predicting which way the market will move. Options trading is a great way to generate superior returns with less volatility over the long-term regardless of market conditions such as this “most hated bull market in history.”

Options and the Most Hated Bull Market

Market headwinds aplenty coupled with coming off a tough 2018, Wall Street had a negative view of stocks for 2019, and as a result, the vast majority of analysts missed one of the best years of the longest bull market in history. This market continues to make new highs after new highs. Per CNBC, of 17 forecasters for S&P 500 price, just three have targets that are above where the broad market index traded as of November 4th, 2019, with still nearly two months left in the year. Furthermore, negative sentiment is seen in the put-call ratio (a measure of sentiment among options traders), has remained above one since mid-September, a contrarian indicator that the market could be headed higher due to overly negative sentiment. Continue reading "Options Trading And The Bull Market No One Saw Coming" →

How can you effectively run an options-based portfolio when trading with a small account? For example, how can you trade options on stocks like Tesla (TSLA), Ulta Beauty (ULTA), Apple (AAPL), Disney (DIS), Facebook (FB), etc., that possess such a high price per share when account balances are limited? People often shy away from options trading due to low account balances. However, limited capital doesn’t preclude you from trading, and in fact, you can run an effective options portfolio regardless of account size. Options enable you to leverage a minimal amount of capital, which opens the door to trading virtually any stock, all while defining your risk.

Over the past 13 months, ~315 trades have been made with a win rate of 86% and a premium capture of 57% across 69 different tickers. When stacked up against the S&P 500, an options strategy generated a return of 9.1% compared to the S&P 500 index, which returned 3.7% over the same period. These returns demonstrate the resilience of this high probability options trading in both bear and bull markets. Moreover, these results can be replicated irrespective of account size when following the fundamentals outlined below.

Myth Busting Small Account Limitations

Options can be leveraged, using small amounts of capital to trade what otherwise would require much greater capital requirements. How is this possible? It’s possible because options can be traded in a risk-defined manner. Therefore, entering any options trade, the required capital equals the maximum loss while the maximum gain equals the option premium income received. Since the risk-defined approach has a max loss, the required capital is equivalent to the max loss. The maximum loss value only needs to be covered by the available account balance. The aggregate price of the underlying shares within an option contract (contracts trade in 100 share blocks) is irrelevant.

The overall options-based portfolio strategy is to sell options that enable you to collect premium income in a high-probability manner while generating consistent income for steady portfolio appreciation regardless of market conditions. This is all done without predicting which way the market will move since options are a bet on where stocks won’t go, not where they will go. This options-based approach provides a margin of safety, mitigates drastic market moves, and contains portfolio volatility. This strategy is agnostic to account balance and applies to accounts of all sizes. Continue reading "How To Trade Options In Small Accounts" →