Join Early Retirement Today
Thread Tools Search this Thread Display Modes
ETF Options over ETFs?
Old 01-14-2012, 11:39 AM   #1
Dryer sheet wannabe
Join Date: May 2010
Posts: 23
ETF Options over ETFs?

Hi all. I recently read 'buy and hedge' and am wondering if anyone has successfully implemented their strategy?

The premise is to purchase ETF options rather than the ETFs and maintain a leverage ratio as close to 1.0 as possible. The idea is that instead of 100% of your portfolio committed to the market, you purchase the options, which given the 100x leverage amounts to about 10-15% of your capital committed. The other 80% or so is in cash or other conservative assets (bonds, treasuries, etc).

I have a pretty high profitability rate selling options, but lower success rate buying options (mostly due to short term bets), so there's a little hesitancy. I'm an engineer rather than a finance person, so I don't have the luxury of experimenting with other people's money =) Any thoughts on using an asset allocation with long term options v. traditional vanguard etfs?

Book Review: 'Buy And Hedge: The 5 Iron Rules For Investing Over The Long Term' - Seeking Alpha

eatingmywords is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-14-2012, 02:34 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
Join Date: Oct 2006
Posts: 7,427
There are a couple of options threads that are pretty active here and here. I suggest reading them.

IMO, based both on some academic research, as well the same experience you have making money selling option writing options is more profitable than buying. I'd also say that generally speaking options on broad market ETFs (e.g. SPY) are especially overpriced. Therefore I'd be inclined to do the exact opposite of what they authors are suggesting. Either keep the cash and write puts, a strategy the Utrecht has profitably pursing for a long time, and me periodically. Or buy and hold ETFs, with occasionally writing covered calls, during times of high volatility.

clifp is offline   Reply With Quote
Old 01-14-2012, 09:39 PM   #3
Moderator Emeritus
Nords's Avatar
Join Date: Dec 2002
Location: Oahu
Posts: 26,563
I don't know how well that ETF-option strategy works in the real world, but I hope it earns enough to afford the tax-return preparation bills.

Originally Posted by clifp View Post
Or buy and hold ETFs, with occasionally writing covered calls, during times of high volatility.
This has worked very well for us. We've only been exercised once in over a dozen transactions during the last couple years, it's part of a rebalancing strategy, and that one time happened because I got greedy.

The book written on, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 01-15-2012, 07:30 AM   #4
Thinks s/he gets paid by the post
Join Date: Nov 2006
Posts: 2,240
I will admit that my taxes are a nightmare. I don't worry about tax prep bills because I do it myself, but it takes me quite a while every year.

I haven't read that book, but I can safely say that I would never consider any strategy where my entire portfolio is options related. In my book having 80% cash and 20% options hedging strategies IS having an entire portfolio of options related activity.

My portfolio is split up 85% "normal" and 15% options trading. My "normal" portfolio consists of index funds, bond funds, REITS, etc just like just about everyone here.
utrecht is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Anyone here trade options? utrecht Stock Picking and Market Strategy 263 06-24-2013 08:36 PM
Stock Options? Dr.Crusher FIRE and Money 16 01-14-2012 03:12 PM
Clyatt, ETFs for Rational Investing Portfiolio? REattempt FIRE and Money 8 08-02-2011 03:48 PM


All times are GMT -6. The time now is 07:17 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2016, vBulletin Solutions, Inc.