Anchor Trades Strategy
What Is Anchor Trades?
Many investors try to insure against losses after those losses have already been incurred, or as they are occurring in real time – this is a mistake. It’s easy to be an investor during a prolonged bull market, but what happens when a severe, or even mild, market correction occurs?
At that point many investors find themselves trapped in falling positions, have stop losses kicking in, and are at a loss as what to do – other than to watch their principle dissipate. In the modern era of flash crashes, swift market volatility changes, and world risk it simply makes no sense to be invested in anything without portfolio protection.
- SPY hedged with options
- Tailored for long term investors
- 4-5 trades per month
- SPY or SPY options plus 2 option positions
- Targets positive annual returns in all market conditions
- ~0.5%/year commission impact
- $50K+ portfolios
Anchor Trades produced 23.8% CAGR (compounded annual growth rate) since inception, including commissions and fees.
The Anchor trade strategy's primary objective is to produce positive returns on an annual basis.
Step 1 - Purchase SPY (S&P 500) or SPY options
Step 2 - Hedge with SPY put options
Step 3 - Earn back the cost of the hedge over the course of a year
Anchor Trades should form the keystone of any investment portfolio. The one that lets you sleep at night, knowing your money is at work, but not subject to large risks.
An Anchor trades goal is to prevent loss of capital while still generating a positive return in all market conditions. The premise is that it must be possible to fully hedge against market losses, without sacrificing all upside potential. Anchor trades are concerned for full year, full portfolio protection.
It is impossible to routinely predict the next negative major market event, therefore 365 days of protection is a necessity. When your portfolio is hedged with Anchor Trades you can stop trying to predict the daily movements of the market.
The key to the success of the strategy is combining exposure to market gains while permanently hedging against downside risk.
You can read the full description here.
Why We Are Different?
The impact of minimizing or potentially even avoiding losses in down markets should not be overlooked both mathematically and psychologically.
The strategy is designed to participate in most of the market's upside while avoiding most of the market's downside. Easier said than done, but we are certainly pleased with the results to date on both a relative and absolute basis.
Is the Anchor Trades Strategy the Holy Grail? The answer is NO - in fact, no single strategy is. But we continue to improve the strategy designed to give investors the courage they need to invest confidently in the stock market for the long term.
The Anchor strategy could have potentially preserved capital during crisis periods such as 2008. In real trading, you can get a feel for how the option hedge can offer you portfolio protection by looking at August 2015 and January 2016, where the S&P 500 was down 5-6% while Anchor avoided losses.
We emphasize options education in a dedicated forum where the strategy is discussed in great details.
Please note that we report returns on the whole account (not return on margin) including commissions.