SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Anchor 2019 Performance Analysis


Steady Options now has a full year of trading the Leveraged Anchor Account under its belt. (Technically since today is December 30, the values used herein are one day off.) To say things went as designed is an understatement - the strategy outperformed the S&P 500 in 2019 by 7.2% while being hedged.

The new tracking account was opened on January 2, 2019 when SPY was right at $249.00 with a balance of $100,000.  In the tracking account, trading commissions were ignored.  The initial portfolio looked like:


image.png

 

Six contracts of the 175 calls gave us control over $105,000 of SPY, and we held $36,000 of BIL. This gave us about 140% leverage on the account, a moderate amount, but enough that we should not lag when the market increased.
 

I have a couple of comments on our initial portfolio.  First, our initial hedge was only 1.6% out of the money.  During the year we changed that to 5%, allowing for a loss in the event of a small market decline but trading it off for a higher upside.  Second, during the year we also “split” the hedge of the short puts and the long portfolio.  The short put hedge stayed at the money, as one of the bigger risks to the portfolio is a large spread between the short put that is sold during the week and the actual put hedging it.


For instance, in the above portfolio there is more than $6.00 of downside risk between the short put and its hedge.  (It is more than six dollars due to the delta of the hedge compared to the delta of the short position – in other words, the short position is more sensitive to down movements than the long hedge).  To offset this risk, we kept the portion of the hedge against the short puts higher.


Almost immediately after opening the position and continuing throughout the year, the market took off upwards, moving over 2.5% up in the first week alone.  In fact, the market moved up so quickly, we ended up having to roll the long hedge after the first month, rolling to the January 20 258 Puts when SPY hit 270.  It was at this roll that we adopted the five percent out of the money hedge. 


The market kept moving up, resulting in us having to roll the long hedge again on April 2, 2019 when SPY hit 285.  At this point we “split” the hedge and our portfolio looked like:


image.png

 

With SPY trading at 285, the six contracts at five percent out of the money, hedging the actual long portion of the portfolio were purchased at a strike of 270.  The four contracts hedging the short puts that are sold to generate income were purchased at a strike of 285 – the then current value of SPY.


The market did not stop its rise, leading to another roll of the hedge on November 1, 2019.  That makes three rolls up of the long hedge during one calendar year – a record number for Anchor and one that we would expect to act as a drag on the account.  However, due to the leverage employed, any drag was minimal. 


December 30, 2019 came around, necessitating a roll of the long call position. Due to portfolio gains, the strategy also had to purchase some additional long puts to continue to hedge the entire position.  After this roll, with SPY at $320.74, the portfolio looked like:


image.png
           

Over the full year, SPY went from $249.00 to $320.74, a gain of 28.8% (31.2% including dividends).  Over that same period, Leveraged Anchor increased from $100,000 to $136,094.88 – a gain of 36.1%. The final number for 2019 is 38.4% gain. In other words, the strategy outperformed the S&P 500 by 7.2%.  Individual accounts will be less, as there are trading costs and commissions, but even if an individual trader’s commissions ran two percent (an extremely high number), performance is still superb. 
 

In reviewing the strategy, several points emerge:

  1. Adding forty percent of leverage resulted in outperforming the market by twenty five percent.  This means the three rolls of the hedge during the year bled the account by about fifteen percent, which is to be expected.  Another way of looking at this is, had we not been hedged, the performance would be higher, but if a trader did that, the trader would be significantly increasing risk;
     
  2. Given the outperformance, it may be worth rolling the hedge more frequently to reduce risks from downturns;
     
  3. Given the outperformance, it may be worth rolling the hedge of the short puts more frequently to reduce the risk from small short term pull backs and whipsawing; and
     
  4. For large accounts, diversifying into other instruments on other market indexes (small caps and international) should be explored.

Thoughts and opinions on rolling the hedge more frequently, or on any other concerns or ideas for the strategy are always appreciated, as we are always looking to improve the strategy further. 
 

Thanks everyone for a great year, and let’s hope next year performs just as well. 

Christopher Welsh is a licensed investment advisor and president of LorintineCapital, LP. He provides investment advice to clients all over the United States and around the world. Christopher has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™. Working with a CFP® professional represents the highest standard of financial planning advice. Christopher has a J.D. from the SMU Dedman School of Law, a Bachelor of Science in Computer Science, and a Bachelor of Science in Economics. Christopher is a regular contributor to the Steady Options Anchor Trades and Lorintine CapitalBlog.
 

Related articles:

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Intrinsic vs. Extrinsic Value

    A lot is written about intrinsic value, but how does it work and what does it mean? The fact is, intrinsic value is an estimate of how future premium levels will change. It is base don current volatility and a set of assumptions. In dividing premium into its component parts, most descriptions deal with intrinsic and time value.

    By Michael C. Thomsett,

    • 0 comments
    • 174 views
  • McDonald's, Not A Shelter in the Coming Storm

    The amount of time and effort that investors spend assessing the risks versus the potential returns of their portfolio should shift as the economy and markets cycle over time. For example, when an economic recovery finally breaks the grip of a recession, and asset prices and valuations have fallen to average or below-average levels, price and economic risks are greatly diminished.

    By Michael Lebowitz,

    • 0 comments
    • 182 views
  • Risk Depends On Your Time Horizon

    Those who are nearing retirement and those who have recently retired represent the majority of my financial planning and investment advisory client base. One of the most common mistakes I hear from these types of individuals is something similar to “I no longer have enough time for the market to come back.”

    By Jesse,

    • 0 comments
    • 131 views
  • Estimating Gamma for Calls or Puts

    In a recent article, the details for estimate Delta were explained. This article deals with estimates of Gamma, which is denoted with the Greek symbol Γ. This calculation measures the rate of change in Delta and is summarized in percentage form. It is alternatively called the option’s curvature.

     

    By Michael C. Thomsett,

    • 0 comments
    • 447 views
  • Why Options Traders Fail?

    In the last 8 years, I trained thousands of options traders. I have seen many success stories, but also a lot of failures. There are a lot of reasons why many options traders fail. Here are the most common reasons, courtesy of our good friend and veteran options trader Gavin McMaster

    By Kim,

    • 0 comments
    • 851 views
  • Using ORATS Wheel To Test Entries and Exits

    My favorite option strategy backtester is ORATS Wheel, which includes a free trial for those interested. In the Steady Momentum PutWrite Strategy (SMPW), we sell out of the money puts on global equity indexes and ETF’s while holding our collateral in short and intermediate term fixed income ETF’s.

    By Jesse,

    • 0 comments
    • 566 views
  • Estimating Delta for Calls or Puts

    Options trading relies on many estimates of value and volatility. Among these, the most useful estimate is Delta. Even knowledgeable options traders might not fully understand the “Greeks” and how they operate, especially with one another. They are directly related and are useful in making comparisons of market risk and volatility.

    By Michael C. Thomsett,

    • 0 comments
    • 557 views
  • Are Covered Calls a ‘Sure Thing?’

    Most covered call writers enjoy the regularity and reliability of the position. In the majority of cases, the covered call will be profitable, even when underlying shares are called away. This assumes that the strike is higher than the basis in the underlying, and that the call writer understands the real limitations to the strategy.

    By Michael C. Thomsett,

    • 0 comments
    • 904 views
  • Lessons from Bill Ackman's comeback

    Bill Ackman is an American investor, hedge fund manager and philanthropist. He is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. Ackman is considered by some to be a contrarian investor but considers himself an activist investor.

    By Kim,

    • 1 comment
    • 2,092 views
  • Steady Futures 2019 Performance Analysis

    Steady Futures began trading the 50K portfolio in July 2019. It produced a 8.5% return during its 6 months of performance (18.0% annualized). We had three goals when we developed this system. First, we wanted a robust system that benefits from turmoil in the markets.

    By RapperT,

    • 0 comments
    • 574 views

  Report Article

We want to hear from you!


Thank you @cwelshGreat job!

I want you to read this sentence one more time:

The strategy outperformed the S&P 500 in 2019 by 7.2% while being hedged.

We all like to make money, but at the same time, not losing when the markets go down. This is why many people hedge. 

Well, there is a catch: hedging reduces your returns. Hedging costs money.

Except for the Anchor strategy, it didn't: not only hedging did not cost us money, but the strategy actually OUTPERFORMED the S&P by 5%.

Of course Anchor does not perform equally well under all market conditions - no strategy does. If S&P was up only 10%, the Anchor would likely slightly underperform (this where Steady Momentum would likely perform better). And the tradeoff was being slightly less hedged.

But I believe most retail investors and fund managers would be extremely happy to get those numbers on a hedged strategy.

 

Share this comment


Link to comment
Share on other sites


Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs Expertido