SUPER FORCE OPTIONS TWEAK TACTCS
- The best general strategy for sector investors (gold, stock market, energy, etc) is index put options. Generally speaking, hedging the portfolio at the start of January and again in early August is a very prudent strategy.
- The options expiry date should be about ten months for the options bought in January, and eight months for the options bought in August.
- The reason for the expiry times is because in the final month or two, a lot of time premium is typically lost.
- In terms of what kind of allocation to make, generally speaking 1%-2% of the portfolio per options play could be invested. So, if the portfolio is $100,000, $1000-$2000 would be spent on the protective play.
- Doing that twice a year costs the investor 2% -4% in insurance premiums. Aggressive investors holding more speculative stocks could spend more.
- I want to take the trading services more to that kind of sector protection, partly because a lot of the mining stocks don't offer put options, and some that do are illiquid and/or have wide spreads between the strike prices.
- In terms of tweaking the action, investors who have extreme nervousness should buy options with strike prices close to the current price. There's a price for that comfort. My suggest to nervous investors is to pay that price.
- More conservative investors can buy options further below the current price.
I'll be posting more detail on the options in coming updates, including plays for short term events like today's Fed meeting.
Have a great trading day!