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.

Leveraged Anchor 2020 Year In Review


Steady Options has now been trading the Leveraged Anchor strategy for two years, and, somewhat to my surprise, 2020 went even better than 2019. On the year, Leveraged Anchor was up 31.7%, while the total return of the S&P 500 was 18.4%.

One of the “best” things for Leveraged Anchor occurred in February and March.  Up to this point, Leveraged Anchor’s success in a down market was largely theoretical.  We knew the math was right, and that the strategy had been back tested in down markets, but it had not been subject to a “real” market correction when invested.

On February 6, 2020, Leveraged Anchor rolled its short position and long hedge when SPY was at 333.72.  Shortly after this the markets started to experience some volatility.  By the end of February, SPY had dropped 12.6%, the tracking account was assigned on the short position, and the value of the Leveraged Anchor Portfolio had dropped almost 9.5% drop from its peak and dropped 5.7% on the month. 

With the market dropping 12.6% from the February 6 point and 9.3% on the month, Leveraged Anchor was outperforming, but the 9.5% drop (from the peak not from the point at which it was hedged) was a bit worrisome and some concerns developed on what would happen if the market kept dropping.  Well keep dropping it did.  Over the next few weeks, the market continued to plunge.  This quick plunge led the strategy to being assigned on the short puts again on March 23, 2020.  At this point the market had dropped all the way to 222.33 – losing over 33% of its value.  Yet over this same period, Leveraged Anchor rose back up some.

 

In other words, from February 6, 2020, SPY dropped 33.4%.  Over this same time Leveraged Anchor only dropped 1.1%.  Leveraged Anchor was performing even better than expected.  The twin benefit of having a large volatility spike increase the value of the puts and the advantage of using a 90 delta call proved more than efficient in a large down market. A 90 delta call loses $0.90 for every $1 SPY declines.  Further, as SPY declines, the delta declines as well.  In practical terms the more dramatic the market drop, the less dramatic drop in the option.

 

At this point we realized that, at some point, the market would rebound – and Anchor would not.  (As the calls go up in value, the puts go down in value, we would have been lucky to “stay even” on a rebound).  However, our puts were so much in the money we could roll them down, take profit and free up cash, and keep the delta of the put above 90.  In other words, if the markets continued to go down, we would not suffer by being under hedged.

 

In April, when it looked like the markets were returning (SPY was already back up to 280), that is exactly what we did.  Then with that free cash, we increased our position size, which allowed the strategy to participate in some of the up market.  It of course will not be dollar for dollar, but if Anchor goes down 1% when the market goes down 33%, and then Anchor goes up 25% when the market goes up 50% (after a 33% market decline, a 50% rebound is needed to get back to break even), Anchor ends up over 20% ahead.

 

Of interesting note, had we rolled the puts down and increased our sizing when SPY was at 222, as opposed to 280, instead of going from 7 to 8 call contracts, we would have gone from 7 to 10, and Anchor would have finished the year another up an additional 10%.  I know of at least one member who successfully bottom ticked the market and extracted over 10% more by doing exactly that.  Knowing that that the strategy could have done better than it did is simply amazing. 

 

With the success of the strategy, we began to think of how to improve it further, and an obvious solution presented itself – diversification.  Over the long term (and Leveraged Anchor is a long-term strategy), being diversified in different stock classes virtually always outperforms AND reduces volatility at the same time.  This led to the birth of Diversified Leveraged Anchor, also in April 2020.

 

The timing of the launch could not have been better.  Over the past several years, the S&P 500 had been the top, or one of the top, performing asset classes.  However, over the next months, it would slip behind others. 


Members are invited to read the Leveraged Anchor Implementation to see what the expectations were when the Anchor was launched. 
 

image.png


Above is a table showing the performance of SPY, then using 25% leverage, 50%, and 75% leverage after certain market moves over a thirty day period.  After reviewing the above, and similar tables over longer periods of time, we made a decision that utilizing 50% leverage was optimal. As you can see, the strategy performed better than expected, in both bull and bear markets. If the market declines 40% or more, the portfolio would actually be in a positive territory. 

On the year, Leveraged Anchor (SPY only), was up 31.7%, while the total return of the S&P 500 was 18.4%. This is an incredible result.  However, once applying diversification, the results improved even further.  The below results are from the time the diversified strategy launched (April), not from the start of the year.  The dates listed are the actual days the trade occurred:

 

 

image.png

               
The power of diversification can quickly be seen.  If the strategy remained only in SPY, it would have returned 35.93%, under performing each of the other three indexes.  By blending performance increased almost fifteen points to 50.74%. We would expect such results in every year that the S&P 500 is not the best performing index. 

 

In the coming days, we will be:

  1. Re-balancing across the indexes if needed; and
     
  2. Exploring rolling the long call strikes up and out to increase cash and grow the position.

 

Rebalancing is a simple matter and must periodically be done to maintain the balance between each portion of the strategy.  However, concern must be given to potential tax consequences, changes in leverage, and, as fractional options are not available, what the possible rebalancing results look like. 

 

Similarly, rolling the long calls to increase the position size (leverage), must be weighed against tax concerns.  It makes little sense to increase leverage by a few percentage points if there will be significant tax implications that can be avoid by waiting a few months.

One of the questions we are often asked is "under what circumstances would you expect to lose money on the account?" We covered this in the The Downside Of Anchor article. 

Another question is "How do newcomers "catch up" so everyone is playin the same game?" The members forum has a dedicated topic with detailed instructions of how to start a new portfolio. 

 

While I know 2020 has been a tough, even tragic, year for many people, it certainly has not been for Anchor, and it is our hope that a growing portfolio using this strategy has at least somewhat helped. The strategy not only outperformed the markets, it also allowed our members to sleep well at night and not worry about market timing. 

 

As always, if there are questions or suggestions, please do not hesitate to post them.  Anchor has had an incredible decade of evolution to get to this point, and I we are always open to improving it in other ways if it can be done.
 

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 and oversees Lorintine Capital's
 

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

  • SPY Short Puts vs. Put Spreads

    In this article I’ll be using the ORATS Wheel backtesting tool to compare the performance since 2007 of SPY short puts versus short put spreads. I’ll look at both risk and returns, and different ways of determining position size to adjust for the differences in risk between the two trades.

    By Jesse,

    • 1 comment
    • 533 views
  • 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
    • 363 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,

    • 5 comments
    • 933 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
    • 347 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,

    • 17 comments
    • 1,598 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
    • 517 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
    • 800 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
    • 741 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
    • 1,179 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
    • 744 views

  Report Article

We want to hear from you!


Chris,

I must say that this is as close as it gets to the holy grail of investing. Being able to outperform the market by a wide margin two years in the row and not to lose money when the markets are down 33%? Absolutely remarkable!

Share this comment


Link to comment
Share on other sites

as I have always said and I have been criticized for it ,,, I love anchor strategy as well as I hate steady option strategy ,,,, I would add to outperform the market and have quiet dreams thanks to the hedging ,,, I only have one question ... can do you think it also works on a stock? provided of course that the stock goes up 🙂 

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