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.

How Steady Momentum Captures Multiple Risk Premiums


Our Steady Momentum PutWrite strategy attempts to outperform the CBOE PUT index, which writes cash secured puts on the S&P 500. An investable version of this strategy can be purchased with the ETF PUTW. The historical data for PUT extends back more than 30 years, highlighting how writing puts can be an attractive strategy.

In addition to the S&P 500, CBOE also tracks the same strategy on RUT with their index PUTR. Below is the historical data since 2001.

 

Portfolio 1: PUT

Portfolio 2: PUTR

 

150059701_pv1.thumb.png.4b04c8e958ed4b183df001f7a061eb07.png

Past performance doesn't guarantee future results, and shouldn't be relied upon exclusively when making investment decisions. 

 

PUTR has beat PUT by 210 bps from 02/2001 - 05/2019, which is largely explained by the fact that IWM beat SPY by 199 bps (7.47% vs. 5.48%). This should not be thought of as random chance, as academic research has found there to be a persistent and pervasive size premium (small outperforms large...see charts below from Dimensional) in the historical data that is intuitive as a risk premium. For example, we can see that PUTR's 40% relative higher return (7.26% vs. 5.16%) came also with 25% higher risk (13.5% vs. 10.75%). Therefore the Sharpe Ratio's are similar. This is what would be expected in a world of highly (although not perfectly) efficient markets...All asset classes are expected to have roughly comparable Sharpe Ratio's over a long period of time, and therefore the best way to increase your expected Sharpe Ratio is with diversification

 

2060497220_sizepremium.png.ca2080efeb15081a83203486a66994fb.png

 

346094256_sizepremium2.thumb.png.e0499b99282dea0846f27078c1c67a9c.png

 

This same thought process of an expected long term risk premium can be applied to our usage of collateral in the form of ~ 5 yr treasuries. I had Dimensional create the following chart, highlighting the persistence of 5 yr treasuries outperforming T-bills since 1926. 

 

15333998_termpremium.thumb.png.e6c8e4e4e801336e8596c1067f833d70.png

 

I hope readers find this type of scientific data analysis transformational to your way of thinking, as I know I certainly did when I first learned of it. I believe this type of thought process should inform your entire investment portfolio, not just this particular strategy. For example, this same process has also gone into the construction of our ETF portfolio alerts, which are provided to Steady Momentum subscribers at no additional charge. 

 

If you were seeking out advice for a health related issue you were having, wouldn't you rather get that advice from a professional who has spent their career studying peer reviewed scientific research vs. picking up a magazine at the checkout line at the grocery store or asking a friend/family member/co-worker what they think you should do? These sources of advice may be sincere, but the consequences of bad advice are simply too high. If so, shouldn't the same standard apply to your financial planning and investment decisions? 

 

Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™ professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse manages the Steady Momentum service, and regularly incorporates options into client portfolios.

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

  • Signs that you Are Ready to Start Investing

    If you want to build your wealth, you have to make sure that you invest your money. If you put money into a savings account and don’t earn any interest from it, this won’t work for you in the long term. Your money will lose value because of inflation, and this is the last thing that you need. So when do you invest?

    By Kim,

    • 0 comments
    • 32 views
  • One Year of Diversified leveraged Anchor

    I almost hate to keep saying it, but the Diversified Leveraged Anchor strategy keeps exceeding expectations and performing as designed. To remind our readers, Diversified Leveraged Anchor was created in April 2020 attempting to further increase performance, reduce risk, and to reduce volatility. 

    By cwelsh,

    • 3 comments
    • 428 views
  • Should I Pay Off My Mortgage Early Or Invest?

    Paying off a home mortgage early is a popular financial goal. Most people feel a level financial peace when their home is paid off that is beneficial in many ways. The most common approach to paying off the mortgage early is directly making additional principal payments to the lender on a regular basis.

    By Jesse,

    • 0 comments
    • 120 views
  • Option Order Execution Tips

    As a community of option traders, we all can relate to the occasional challenges of order execution. Best practices for avoiding errors as well as techniques for better potential execution will be the focus of this article.  Like countless others in the Steady Options community, I personally have traded thousands of option contracts over the last decade.

    By Jesse,

    • 10 comments
    • 910 views
  • What Trading Can Offer To A Newcomer

    For any first-time investor, one of the most important questions to ask is “why are you doing this?”. Getting into investment can be thrilling and open up new worlds for you, but it can also be draining both physically and emotionally, with long days and sudden market moves always a genuine risk.

    By Kim,

    • 0 comments
    • 207 views
  • Updated: The Performance Gap Between Large Growth and Small Value Stocks

    Eight months ago on July 21st 2020 I posted an article, The Performance Gap Between Large Growth and Small Value Stocks. Over the long-term small cap value stocks have outperformed large cap growth stocks, although not over more recent history.

    By Jesse,

    • 0 comments
    • 398 views
  • 6 Ways to Invest Your Money That Aren't Cash Savings

    It’s always a good idea to keep some of your money in cash so if there is an emergency and you need money in a hurry, you can access it without having to worry. However, cash savings are not your only option if you have money left over at the end of the month, and there are a lot of other options that could bring greater returns.

    By Kim,

    • 0 comments
    • 418 views
  • Jade Lizard Options

    The jade lizard is one of those bullish spreads with limited maximum profit, and no risk on the upside. It is a combination of a short put with a short call spread . The credit this creates is higher than the span of the spread. To set this up, two actions are required:

    By Michael C. Thomsett,

    • 0 comments
    • 709 views
  • Are Your Emotions Trying To Tell You Something?

    As a trader, you may find yourself frequently trying to ignore or rationalize emotions.  You may have even created your own “solutions” to manage them. You exit early to lock up profit and avoid a potential blow-up if the trade turns against you.

    By Jared Tendler,

    • 0 comments
    • 444 views
  • Stock Trading Basics: 5 Rules for Successful Stock Trading

    You might be a stock trader, or just interested in learning more about how to trade and make the most out of your stock investment. Regardless, successful stock trading is not that easy. You must first have the financial capital to start and a very great endurance for risks.

    By Kim,

    • 2 comments
    • 623 views

  Report Article

We want to hear from you!


There are no comments to display.



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