At SteadyOptions, we are not trying to predict when the next crash or meltdown will come. We are just trying to be prepared for all scenarios. For those of you who hold a "well diversified portfolio of high quality stocks and bonds" and believe you are protected - think again. To quote my partner Chris Welsh, “If your investment adviser has you in a small-cap fund, a mid-cap fund, a large-cap fund, a foreign investment fund, a commodity fund, a bond fund, and a high dividend fund such as a REIT or pipeline, and tells you that you’re adequately diversified, find a new investment adviser. In a market crash, ALL of those asset classes will get hammered.”
So what's the answer? Protection of course. However, just buying protection is expensive. Even now when Implied Volatility is close to record lows, to fully protect your portfolio will cost you 7-10% per year. Are you willing to lag the market by 7-10% each year?
Here where the Anchor Trades comes to rescue.
The Anchor strategy's s primary objective is to have positive returns in all market conditions on an annual basis.
It will achieve that goal in three basic steps:
Step 1 - Buy stocks or ETFs.
Step 2 - Fully hedge.
Step 3 - Earn back the cost of the hedge.
You can read full details here.
As we can see, the strategy performed exactly as designed:
- In years when the market is operating in positive conditions (defined as an over 5% return on the S&P 500 on an annualized basis) the strategy targets lagging the S&P 500 by two to three percent.
- In neutral markets (defined as a return on the S&P 500 on an annualized basis between -3% to 3%), the strategy targets a five to seven percent return.
- And in negative market years (defined as a return on the S&P 500 of -5%) the strategy targets a return of five to seven percent. In extreme down years (defined as a return on the S&P 500 of under -10%), as explained in other threads, could lead to outsized gains.
The best time to start the Anchor strategy is when IV is low because you can buy the hedge really cheap. It makes perfect sense - are you buying your home insurance before your home goes on fire or after? You buy insurance when it's cheap, not when you need it. And if IV goes up, we will get more credit for the puts we sell.
Protection is cheap now. If you are holding a long portfolio and are seeking to protect it against market crash, it is an excellent time to join Anchor Trades.
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