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.

Diversified Leveraged Anchor Performance


In our continued efforts to improve the Anchor strategy, in April of this year we began tracking a Diversified Leveraged Anchor strategy, under the theory that, over time, a diversified portfolio performs better than an undiversified portfolio in numerous metrics.  Not only does overall performance tend to increase, but volatility and drawdowns tend to decrease:

 

image.png

               

One of the largest reasons for this is that different asset classes tend to outperform other classes in any given year:

 

image.png

 

As well as Leveraged Anchor has performed over the past couple of years, a large part of that performance can be attributed to the S&P 500 simply performing well – a trend that may or may not continue.  Given that the developers of the Leveraged Anchor strategy developed it in part on the premise of “we don’t know what the market is going to do over the next year,” diversification of the strategy only makes sense.

 

In furtherance of this, the strategy was diversified into four different indexes:

  1. SPY – S&P 500;
  2. QQQ – Nasdaq;
  3. EFA – Large cap international excluding US and Canada; and
  4. IWM – Russell 2000 (small caps).

 

While there is some overlap between the S&P 500 and the Nasdaq, the two indexes have had differing performances over the last decade:
 

image.png


Given the popularity of the two indexes, we wanted to gain exposure to both.  A driving factor in selecting the above instruments was volume of their option markets, as our strategy is almost entirely option driven.  All four of the above are top 10 instruments in total daily option volume and number of open contracts.  Liquidity should not be a major concern on any of the above except for the very largest of portfolios (and in which case there are ways to trade the indexes more directly than ETFs). 

 

Consideration was given to including real estate through a REIT or REIT ETF, but the only possible instrument identified that traded weekly options was IRY and it has fairly low option volume so was excluded.  Consideration was also given to adding in commodities (such as GLD or SLV) or bonds (such as HYG) but such instruments did not perform well in testing of the Leveraged Anchor strategy – at all – in any market conditions, so such instruments were excluded.  This does not mean such instruments do not have a place in a full portfolio – they absolutely do – but they just do not currently have a place in a Diversified Leveraged Anchor portfolio.


Theory is one thing, but how has it worked in practice since going live?  Too often in stock and option trading theory does not match reality.  Fortunately, several months in, diversification has worked exactly as intended.

The first EFA Leveraged Anchor position was opened on April 14, 2020.  Through July 1, 2020, the underlying EFA stock position was up 8.91% and the Leveraged Anchor EFA position was up 7.28%. 

 

The first QQQ Leveraged Anchor position was opened on April 17, 2020.  Through July 1, 2020, the underlying QQQ stock position was up 17.44% and the Leveraged Anchor QQQ position was up 21.64%.

 

The first IWM Leveraged Anchor position was opened on April 28, 2020.  Through July 1, 2020, the underlying IWM stock position was up 9.27% and the Leveraged Anchor IWM position was up 9.11%.

 

Over the same general period, SPY stock was up 8.58% and the Leveraged Anchor SPY position was up 5.35%.

 

In other words, an undiversified Leveraged Anchor position was up 5.35% while the Diversified Leveraged Anchor position was up 10.85% -- more than double the performance.

 

Overall, each of the new Leveraged Anchor instruments has performed as expected, if not better (QQQ has done much better than expected).  All three of IWM, EFA, and QQQ required the long hedge to be rolled in the first three months, which is normally a large cost item and operates as a drag on performance.  And while such a drag can be seen on EFA and IWM, such drag was minimal and should balance out as the hedge is continually paid for over a full year period.

 

In short, in the limited window of time we have diversified the Leveraged Anchor strategy, we are very pleased with the results and look to continue success over the coming months.

Christopher Welsh is a licensed investment advisor in the State of Texas and is the president of an investment firm, Lorintine Capital, LP which is a general partner of three separate private funds. He is also an attorney practicing in Dallas, Texas. Chris has been practicing since 2006 and is a CERTIFIED FINANCIAL PLANNER™. Working with a CFP® professional represents the highest standard of financial planning advice. He offers investment advice to his clients, both in the law practice and outside of it. Chris has a Bachelor of Science in Economics, a Bachelor of Science in Computer Science from Texas A&M University, and a law degree from Southern Methodist University. Chris manages the Anchor Trades portfolio, the Steady Options Fund, and oversees Lorintine Capital's distressed real estate debt fund.
 

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

  • Expiration Short Strategies

    Some traders have entered the options arena by selling exceptionally long-term contracts. The rationale for this is based on dollar amounts. A 24-month contract may yield an impressive dollar amount, but is it the best net return? It is not.

    By Michael C. Thomsett,

    • 0 comments
    • 128 views
  • Should You Finance or Pay Cash for a Home?

    When buying a home, individuals who have accumulated enough wealth to pay cash or make a substantial down payment have a decision to make. Take advantage of record low interest rates and lock in a 30-year mortgage for around 2.5%? Or pay cash and make payments to yourself by investing the savings?

    By Jesse,

    • 0 comments
    • 135 views
  • Implied Volatility Collapse

    The key ingredient on expiration Friday is volatility collapse. At the beginning of that last trading day, there are more than 6 hours of trading yet to go. However, there are 38 hours left before expiration on Saturday. When volatility is high, OTM options are most likely to be overpriced.

    By Michael C. Thomsett,

    • 0 comments
    • 233 views
  • Trading Volatility: Why It Isn’t Always a Bad Thing

    Volatility is still widely misunderstood — and feared — by novice traders. As someone lacking in trading knowledge and experience, you often hear and believe horror stories of unstable markets. The fear is valid. After all, your shares and investments are at an elevated risk in an unpredictable environment.

    By Kim,

    • 0 comments
    • 208 views
  • Models and their limits

    Options traders tend to think mathematically. When considering selection of an underlying, risks and expected profits, the model of outcomes is a primary tool for making selections. Without a model how can anyone understand the differences between two or more options that might otherwise appear the same – similar moneyness, same strike, and same premium.

    By Michael C. Thomsett,

    • 0 comments
    • 212 views
  • When You've Only Got $1000 To Invest, What Do You Do?

    Are you new to the world of investments? Most likely; it’s not something you just fall into! BUt at the same time, investing can be done by anyone. Investing doesn’t need to be saved for retirement. It isn’t something only the uber rich are able to get into.

    By Kim,

    • 0 comments
    • 454 views
  • Use of Options Spreads to Reduce Risk

    Traders may view spreads as a means for reducing market risk. But this also means that the potential profit is just as limited as potential loss, and this is easily overlooked in the focus on risk alone. A realistic view of spreading is that it reduces risk in exchange for accepting limited maximum profit.

    By Michael C. Thomsett,

    • 0 comments
    • 524 views
  • Put Writing in 2020: The Role of Timing Luck

    The impact of luck can play a meaningful role in the short-term outcomes of monthly option trades due to the requirement to roll expiring contracts. The extreme volatility in 2020 highlightsthis fact when we look at results of SPY cash secured put trades launched on slightly different start dates.

    By Jesse,

    • 0 comments
    • 507 views
  • The problem of Option Math

    Option traders may be divided into two categories. First are those relying on instinct or casual observation. This group tends to speculate on directional movement, future volatility, value, and on potential profitability of trades. The second group is involved deeply with math of trading and depends on what is perceived as certainty or near certainty.

    By Michael C. Thomsett,

    • 0 comments
    • 682 views
  • Put/Call Parity: Two Definitions

    Traders hear the term put/call parity a lot, but what does it mean? There are two definitions and they are vastly different from one another. The first definition involves the net credit/debit for any combination trade, with trading costs are considered. The second definition takes assumed interest rates and present value into mind.

    By Michael C. Thomsett,

    • 0 comments
    • 573 views

  Report Article

We want to hear from you!


Guest Racebuddy

Posted

Hi,     I am a disabled veteran and am going into Mass.General for major spine surgery. I have wanted to join this fund for 3 or 4 years now.

I just think that this diversified strategy is a very smart way to go. Especially after this past spring with the virus spreading. I lost $71,000 in my

401K plan. Just not that good. The manager of this fund (steady options) really knows what he is doing. I think I will join this fund and could

use some good news for a change. Have to replace our tankless water heater ( new water heater + installation =$4,000 ). I have 4 skunks

under my shed, it will cost $600 to have them removed. Looking forward towards making money in this fund.

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido