Navigating Volatility: Options-Based Portfolio

Introduction

Controlling portfolio volatility is essential as the broader markets continue to break record high after record high along with violent pullbacks. The past three-month stretch of September-November was a prime example as the markets pushed to new all-time highs early in September then suffered a significant sell-off in the same month where the Dow Jones was down as much as 6%. October saw a bounce back into positive territory with new all-time highs set. Then November saw a dichotomy between the Nasdaq continuing to break out to new highs while the Dow Jones experienced significant weakness.

Amid this mixed market and broader index bifurcation, entire sectors were decimated. The payment space was heavily impacted with PayPal (PYPL) and Visa (V) taking huge market capitalization reductions by 37% and 21%, respectively. Quarterly reports have been detrimental for companies that report slight misses or in-line numbers with poor guidance. Disney (DIS) and International Business Machines Corporation (IBM) saw their stocks plummet 24% and 20%, respectively from their 52-week highs. An options-based portfolio can offer mitigation against these pockets of extreme volatility while generating consistent and smoother returns.

Options-Based Risk Mitigation

Risk mitigation can be achieved via a blended options-based approach where the portfolio is broken out into three components. Cash, long equity exposure, and an options component are the three pillars of an options-based portfolio strategy. Options alone cannot be the sole driver of portfolio appreciation. However, options can play a critical component in the overall portfolio construction to control volatility and mitigate risk. Continue reading "Navigating Volatility: Options-Based Portfolio"

Screening Key Technicals To Select Option Trade Types

Controlling portfolio beta, which measures overall systemic risk of a portfolio compared to the market, on the whole, is essential as these markets continue to break record high after record high with violent pullbacks. The month of September was a prime example as the markets pushed to new all-time highs early in the month then suffered a deep sell-off to only bounce back to new record highs in October. Controlling beta while generating in-line or superior returns relative to the market is the goal with an options-based portfolio. A beta-controlled portfolio can be achieved via a blended options-based approach where ~50% cash is held in conjunction with long index-based equities and an options component. Options alone cannot be the sole driver of portfolio appreciation; however, options can play a critical component in the overall portfolio construction to control beta.

Generating consistent monthly income while defining risk, leveraging a minimal amount of capital, and maximizing return on capital is the core of an options-based/beta-controlled portfolio strategy. Options can enable smooth and consistent portfolio appreciation without guessing which way the market will move. Options enable the possibility to generate consistent monthly income in a high probability manner in various market scenarios. An options-based portfolio provides durability and resiliency to drive portfolio results with substantially less risk via a beta-controlled manner. Using basic technical indicators and key dates can aid in trade type selection such as covered calls, put spreads, call spreads, or iron condors (Figures 1 and 2). Continue reading "Screening Key Technicals To Select Option Trade Types"

How To Create Better Trading Opportunities Through Hedging

According to professional options trader Jon Najarian, options add a great deal of flexibility to your trading program and can help you leverage your S&P trades, decrease your losses and avoid being "stopped to death".

In this exciting, fast-paced video, you'll learn how to watch the market so you can position your trades ahead of major news events. You'll be spellbound as Jon explains how to develop safer and less painful ways to play the bear side of the market and shows you smarter ways to make money selling a dull, sideways market. Plus, you'll find out why SPDRs are better than putting your money into mutual funds, and you'll discover how you can squeeze more cash out of existing stock holdings.

If you've been thinking about adding options trading to your repertoire, this is one video you can't afford to miss!

WATCH NOW: How To Create Better Trading Opportunities Through Hedging

Best,
The INOTV Team

Option Trade For A Range Bound Stock

By: Adam Beaty

Credit card companies have been nonexistent for the summer.

American Express (NYSE: AXP) and Visa (NYSE: V) have been trading in a range since May. Mastercard (NYSE: MA) has seen a little bit of action thanks to some better-than-expected earnings. The stock traders should focus on is American Express. AXP has traded in a range from $72.00 to $78.00, and right now is bouncing off the lower levels. AXP is oversold, so a bounce is probable here especially if there is a market bounce to go along with it. Traders could get long here with a first target at $73.30 and another target at $75.00. Continue reading "Option Trade For A Range Bound Stock"

Savvy Option Trading for Well-Capitalized Investors

If you are a “writer” of commodity options, you inherently have exposed and unlimited risk. However, it’s this risk potential that provides the capacity to reap rewards. Therefore, a savvy commodity option writer understands that managing risk is more important than reaping rewards. The trade setup below details a strategy to help protect short option positions with longer than a month until option expiration. In a follow-up, I will discuss a strategy to help protect short option positions with less than a month until option expiration. These strategies can be tailored to reach your short term objectives and long term goals. Continue reading "Savvy Option Trading for Well-Capitalized Investors"