Options investing for retirement?

[rapidly retire]

Has anyone considered investing in options to grow their portfolio much faster? Curious if anyone on this forum does what I do.

 

[Doribe]

I sell a few covered calls.

 

[NW-Bound]

When you said "grow portfolio much faster", I believe you meant using options as a way of leveraging, in contrast to using them for hedging or reducing risks, such as selling covered calls or buying protective puts.

Yes, there might have been people who use options to do that. They most likely lost all of their money, and are still at work and don't hang out on this forum.

 

[target2019]

I expect op will rapidly go fishing.

 

[Lewis Clark]

Karsten over at Early Retirement Now successfully writes put options. Scroll down to the bottom of this page to the section on articles about derivatives.
https://earlyretirementnow.com/start-here/

 

[LOL!]

I used to do covered calls in a big way.

Here's the deal with options:

There Ain't No Such Thing As A Free Lunch

If you cannot see how that applies, then you are going to be surprised when somebody doesn't sell you something for less than it is worth. You will also be surprised when nobody buys something from you for more than it is worth.

But you might get lucky, so don't let anybody here stop you from trying and learning first-hand about all the above.

 

[NW-Bound]

Karsten over at Early Retirement Now successfully writes put options. Scroll down to the bottom of this page to the section on articles about derivatives.
https://earlyretirementnow.com/start-here/

I spent a little bit of time at his Web site, but am not a follower, nor read everything there. From what I remember, he sells at-the-money cash-covered put options to generate some income. He expects the return to be better than just buying the S&P, and not to become super rich doing that. I don't know or don't remember what he said his actual return was, but remember him talking about how to limit risks. His approach seems reasonable to me.

I think the OP was thinking about heavy leveraging to get rich quick. For example, if owning Amazon beats the market, then putting all your money into Amazon call options will be even better. It is possible to get a one-off lucky trade, the same as some people making money by getting into bitcoins early.

Selling covered calls never gets anyone rich (but it is not going to bankrupt you either). Huge difference, if you understand the above.

 

[OldShooter]

Has anyone considered investing in options to grow their portfolio much faster? ...

If you think about it, you will realize that this is impossible. If there were such schemes at some point in time, people would have moved into them and bid up the option prices to the point that the scheme no longer worked.

The other thing to understand is that people who have placed winning bets are happy to talk about them at parties and to post on internet forums. The losers, not so much. So it is easy to get a highly distorted view of investing.

As someone said, TANSTAAFL.

 

[Ready-4-ER-at-14]

Options pricing has evolved significantly since I first used them. I seldom find mispriced bargain prices anymore.

If the probable reason you wanted to use them was to amplify gain when the market goes up you might just look at high beta stock. IE one that moves say $2 up when the linked index like the sp500 goes up $1. Or down $2 if index is down $1. Doing a google search of high beta stocks and Investopedia will find a thorough description.

Main point is high gain implies high loses as well.

 

[NW-Bound]

... If the probable reason you wanted to use them was to amplify gain when the market goes up you might just look at high beta stock. IE one that moves say $2 up when the linked index like the sp500 goes up $1. Or down $2 if index is down $1...

+1

And the time to load up on high-beta stocks is after a market crash, like in 2009. It is risky right now, when we have had a 10-year bull run.

And that's why I am selling covered calls on my high-beta stocks. I am doing it to hedge, not to get rich with options.

 

[Sunset]

I've sold and bought calls.
I lost money on the first call I bought, it was a good lesson.
Since then I never lost money, but I have lost potential money as my call was taken away and the stock continued to rise. So I would have been better off not selling the call and just selling the stock later.

Since then I frequent antique shops, looking for an accurate crystal ball

 

[NW-Bound]

I lost money 9 out of 10 times I bought calls. So I stopped doing that.

My covered calls get exercised about 1 in 10. When a stock had better fundamentals than I expected, I would either buy back the stock quickly, or sell a put.

In aggregate, the decay of time value works for the option writer, not for the buyer. So, I sell enough of options to keep that average working for me. I also never sell options on all that I hold.

I don't get rich doing this, but it is fun squeezing out a couple of % extra return, and is low risk.

 

[NW-Bound]

There's a huge difference between being wrong and earn less money than the market vs losing all that you have. People may not appreciate the difference.

 

[Sojourner]

I don't get rich doing this, but it is fun squeezing out a couple of % extra return, and is low risk.

+1

I've sold some puts here and there and also set up a protective collar once. Always made a little bit of money on each options trade, but don't at all consider it a significant source of income. If I know I'd like to buy a stock at a 10% discount, for example, then writing a put seems like an easy way to get paid for agreeing to buy it when it drops.

 

[NW-Bound]

+1

I've sold some puts here and there and also set up a protective collar once. Always made a little bit of money on each options trade, but don't at all consider it a significant source of income. If I know I'd like to buy a stock at a 10% discount, for example, then writing a put seems like an easy way to get paid for agreeing to buy it when it drops.

The problem is when the stock crashes because of a bad news. But then, you would be in worse shape if owning the stock outright.

 

[kgtest]

I spent a little bit of time at his Web site, but am not a follower, nor read everything there. From what I remember, he sells at-the-money cash-covered put options to generate some income. He expects the return to be better than just buying the S&P, and not to become super rich doing that. I don't know or don't remember what he said his actual return was, but remember him talking about how to limit risks. His approach seems reasonable to me.

I think the OP was thinking about heavy leveraging to get rich quick. For example, if owning Amazon beats the market, then putting all your money into Amazon call options will be even better. It is possible to get a one-off lucky trade, the same as some people making money by getting into bitcoins early.

Selling covered calls never gets anyone rich (but it is not going to bankrupt you either). Huge difference, if you understand the above.

Options 101, Convered vs Naked. Best not to get caught with the pants down nekked.

 

[rapidly retire]

I've been trading options for almost 10 years, and I discovered a number of things that might be helpful if you're thinking of trading options for retirement
1. Don't trade strategies that promise steady monthly income from options. Every strategy I've ever seen that promises this doesn't protect against downside risk, and a major market move, even a comparatively "small" one, could mess you up for years when you will no longer see those original monthly returns
2. Thus, never sell anything "naked" (puts or calls). Just google Karen the super trader and you will see why.
3. and don't sell covered calls unless you have a clearly tested plan for when the market falls or even if it flies up. You will make money that month but do you have a plan for when you want to reset?
4. Also, it is best to look at options trading as long term "investing" where you're not pressured to make a profit every month. I've seen many good traders wiped out bec they had to make a profit every month. Sometimes you've got to take a loss and it's okay as long as you have a good long term plan where the odds are in your favor.
5. speaking of odds never buy a single option (call or put) as a strategy unless you have inside information and are trading on the info legally. Because you need at least 3 things to be exactly right to profit on a single long option: timing, direction and major movement. That's too much to need to be consistently right to end up with a profit over time.
6. It is almost never a good idea to bet against the market, even in a condor. There are way too many forces pushing the market higher at any given time and the odds are usually not priced in your favor anyway.
7. Learn everything you can about volatility. You know how they say location, location, location when it comes to real estate investing. Well, with options it's volatility, volatility, volatility.
8. Probably most importantly, never trade options without good software. If you don't have options analysis software you are trading blindly. And I'm not talking about on a brokerage platform like TOS I mean dedicated options analysis software like Optionvue (which I use) or Option Net.
This is just from my experience FWIW. I will probably add to this list but in the meantime I hope it helps.

 

[JPatrick]

I sold my first covered call in the early 80's while living in Honolulu. Turned out it was the first option handled by the firm. Lots of red tape to get approved. My first transaction was a 3 month Diamond Shamrock covered call that yielded $500. Broker was so excited he woke me up at 4:30 to tell me. Back then you could have a first class weekend in Maui for $500. That's what we did.
Been at it ever since. Mostly no-brainer covered calls.
These days I have a thousand QQQ's that I use for covered call writing. Probably have yielded 30 to 40 percent from rolling out monthly. Something has to give soon though, the Q's I trade have a basis in the low 150's and I am rolling out to around 169 when the stock is at $184. I keep running to avoid the tax problem i know is coming.
I also write covered with VIXY which is a volatility product which moves the opposite direction of the major indexes. Here's the catch though, I put many hours into this almost every day to be able to catch the sales you want. VIXY options have very low volume which makes it very tough to create the best deal.
I'm sure I should be considered an addict, but I love it.

 

[Oz investor]

If you think about it, you will realize that this is impossible. If there were such schemes at some point in time, people would have moved into them and bid up the option prices to the point that the scheme no longer worked.

The other thing to understand is that people who have placed winning bets are happy to talk about them at parties and to post on internet forums. The losers, not so much. So it is easy to get a highly distorted view of investing.

As someone said, TANSTAAFL.

those loses sometimes yield extra wisdom ( which might give you a winning edge at a different time ) ( and let's face it you have paid dearly for that experience ) ( i don't want the price to crash before i have unloaded when a RED FLAG is raised )

i wanted to use options as a lay-by play ( put a deposit on a share , so i would buy it CHEAP in a sudden downturn .. say missed market expectations on the half yearly report )

but i could not find a cost effective way to do so , so currently just through a bid into the market when the share price is in chaos .

good on you if you can find a strategy that works for you

 

[rapidly retire]

Not so fast....

If you think about it, you will realize that this is impossible. If there were such schemes at some point in time, people would have moved into them and bid up the option prices to the point that the scheme no longer worked.

The other thing to understand is that people who have placed winning bets are happy to talk about them at parties and to post on internet forums. The losers, not so much. So it is easy to get a highly distorted view of investing.

As someone said, TANSTAAFL.

Oldshooter this may be true of options that trade in an illiquid market, but there are so many traders involved in the index options market that it is probably impossible to manipulate the pricing of these derivatives. It's kind of like saying so many people invest in the S&P 500 that it is a scheme because so many people bid it up.

 

[Stonewalker]

In 2017, I subscribed to one of Stansberry's newsletters for doing options. I did, in fact, make a little money - a tiny bit more than the subscription cost me. (I've tried many of PS's products, and they just don't work for me, but that's another story.)

The stress of watching the options was sort of like going to work and wondering if we were having more lay-offs...

Just kidding. Options just weren't for me, and they certainly didn't help me grow my portfolio faster.

Now I'm into buying dividend stocks, and that seems to work for me (though I do watch them closely).

Y'all are a great bunch of folks to follow. Thanks for letting me chime in.

 

[rapidly retire]

Agreed

In 2017, I subscribed to one of Stansberry's newsletters for doing options. I did, in fact, make a little money - a tiny bit more than the subscription cost me. (I've tried many of PS's products, and they just don't work for me, but that's another story.)

The stress of watching the options was sort of like going to work and wondering if we were having more lay-offs...

Just kidding. Options just weren't for me, and they certainly didn't help me grow my portfolio faster.

Now I'm into buying dividend stocks, and that seems to work for me (though I do watch them closely).

Y'all are a great bunch of folks to follow. Thanks for letting me chime in.

I agree with your opinion of Stansbury. Not much consistency there. The problem isn't options, the problem is with their strategies.

 

[rapidly retire]

Get rich quick

I spent a little bit of time at his Web site, but am not a follower, nor read everything there. From what I remember, he sells at-the-money cash-covered put options to generate some income. He expects the return to be better than just buying the S&P, and not to become super rich doing that. I don't know or don't remember what he said his actual return was, but remember him talking about how to limit risks. His approach seems reasonable to me.

I think the OP was thinking about heavy leveraging to get rich quick. For example, if owning Amazon beats the market, then putting all your money into Amazon call options will be even better. It is possible to get a one-off lucky trade, the same as some people making money by getting into bitcoins early.

Selling covered calls never gets anyone rich (but it is not going to bankrupt you either). Huge difference, if you understand the above.

NW bound - Most people leverage with options by buying calls and puts, but with that strategy even if you can get rich quick, you'll usually get poor even faster. But there are other options strategies that offer leveraging power that aren't "all or nothing" and are not as risky as buying call options on Amazon, yet are potentially more profitable than covered calls.

 

[OldShooter]

Oldshooter this may be true of options that trade in an illiquid market, but there are so many traders involved in the index options market that it is probably impossible to manipulate the pricing of these derivatives. It's kind of like saying so many people invest in the S&P 500 that it is a scheme because so many people bid it up.

Sorry I was not clear. I am not saying at all that prices are manipulated. Rather, any scheme that works will ultimately be discovered by enough people trying to participate that the scheme will no longer work.

The classic example is someone who notices that a given stock always goes down on Fridays and rises on Mondays. So ... easy money. Buy on Friday, sell on Monday. But as the scheme is discovered, Friday prices rise and Monday prices decline until the scheme no longer exists. It might even start to work backwards.

Same-o for any trading scheme that is found to work. It will eventually not work. If one is the first to discover it, there may be a temporary opportunity. But with 10,000 mutual funds and thousands more private asset managers looking for "market inefficiencies" in only 3600 US market stocks, it is very, very unlikely that there is any undiscovered gold.

 

[gstillson]

I mostly only use options for leverage (instead of taking out a margin loan) in my smaller accounts or in accounts like IRAs which don't allow margin. I try to be very careful and buy leaps on super bargain discount days like we had back in December 2018. I always end up selling too early but hogs get slaughtered and all that. I usually buy an initial amount of about 1/3 of what I have to spend, then wait for it to fall knowing that I am not good at purchasing at the low. At that point I buy another 1/3, knowing that it can't possibly drop lower than this. When it crashes from there I buy the last 1/3, wishing that I had just waited to buy everything at this low price. I then sell out as it goes back up, if it goes back up. With luck it will, especially if you choose companies that have more cash than debt and positive forward earnings that are increasing. Those are getting rare now.