COVID-19 has become the black swan event that has materialized into a worldwide economic halt. The spread of the virus globally has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure, and retail with others in the crosshairs. COVID-19 was the linchpin for the major indices to drop over 30% over the course of 22 days. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off while inducing extreme market volatility that hasn’t been since the Financial Crisis.
Although options trading provides a margin of downside protection and a statistical edge, when hit with a black swan event, no portfolio is immune from the wreckage. Thus, proper portfolio construction is essential when engaging in options trading to drive portfolio results. One of the main pillars when building an options-based portfolio is maintaining ample liquidity via holding ~50% of one’s portfolio in cash. This liquidity position provides the ability to adjust when faced with extreme market conditions such as COVID-19 rapidly. An agile options based portfolio is essential, and the COVID-19 pandemic is a prime example of why maintaining liquidity is one of the many keys to an effective long term options strategy.
An Agile Options Strategy
Risk management is paramount when engaging in options trading. A slew of protective measures should be deployed if options are used as a means to drive portfolio results. When selling options and running an options-based portfolio, the following guidelines are essential: Continue reading "COVID-19 - An Agile Options Strategy"