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.

What To Do In A low Yield Environment


Investors over the world are struggling with yield in their portfolios.  Government investments are at historically low levels, with thirty-year treasuries basically declining every year for almost thirty years straight:

 image.png

               

Vanguard’s extended duration treasury ETF is down to yielding 1.61%.  It’s short term bond et yields only 0.36%.  Inflation protected security products have a yield of NEGATIVE 1.15%.  Even the mortgage back security product is yielding a paltry 1.22%.

 

Corporate bonds are not any better, with high grade corporate bonds yielding 0.84% and total return bonds products (e.g. partially junk) only yielding 3.06%.  There are no money market products that have any return beyond something negligible.  Many now offer disclaimers that there is no chance such products can keep up with inflation. 

 

This means any investor placing money into a traditional 60/40 style portfolio is guaranteeing poor performance.  If interest rates go up, their bonds will suffer.  If interest rates stay flat, they’ll lose on inflation.  And no one believes rates can go much lower (if they go negative, everyone just goes to cash). 

 

So, what is the average investor to do?

 

When my clients ask me the question, the only investment left is the alternative investment class.  This can take the form of:

  1. Private funds;
  2. Options strategies; or
  3. Real estate.

 

Over the next couple of weeks, each of these will be examined in detail and discuss how investors might profit from participating in each.  A brief overview of each is included below.

 

Private Funds can access higher yielding products than may otherwise be available.  For instance, my firm has a mortgage product that yields between 8%-10%, without significantly more risk than the several publicly traded mortgage ETFs.  There are private funds that take advantage of tax lien strategies that have relatively safe risk that return anywhere from 5% to 10%.  There are hard money lending funds that have higher risk, but they do offer returns commensurate with the risk.  Some of these funds even offer different tiers of investment, depending on the return you’re seeking. 

 

There are low risk option strategies which can consistently yield 5% to 7%.  Increasing risk can increase these returns.  For instance, there are dividend capture strategies which consistently yield 0.5% or so a month.  The goal in a dividend capture strategy is to identify a stock, paying a dividend, buy the stock, sell a call at the current price that expires after the ex-dividend date and buy a put at the same price.  The cost of the call and put needs to be LESS than the dividend being issued.  There are regularly such opportunities.  You won’t get rich doing it, but you can make a yield better than what else is available.

 

The last option for yield is of course real estate – own real estate, generate rent income.  Unfortunately, it is not quite that simple, but even in the times of COVID-19, there are opportunities on both the residential and commercial side to find investments that have acceptable yields.

 

Government bonds, treasuries, and corporate bonds simply do not offer value to investors in the current interest rate and yield environment.  Investors seeking yield must look elsewhere.  Fortunately, there are products that can deliver positive returns if investors know where to look.
 

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 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

  • Cyclical versus Historical Volatility

    The interest in volatility for options trading is logical and understandable. However, the nature of volatility in not universally understood or agreed upon. In fact, it is more complex than most people believe. Options traders think of volatility coming in two forms, historical and implied.

    By Michael C. Thomsett,

    • 0 comments
    • 115 views
  • Pros and Cons of Paper Trading

    My first recommendation to all new SteadyOptions members is to start with paper trading, then start small and increase your allocation as you gain more experience and confidence. Over the years, we had a lot of discussions related to the benefits of paper trading, and this article will discuss some of the pros and cons.

    By Kim,

    • 0 comments
    • 162 views
  • Does “Managing Winners” Add Value to Short Strangles?

    Some option educators suggest short strangles have historically benefited from actively managed exit strategies. A widely popularized approach is to enter S&P 500 strangles at 45 DTE and exit at 50% of the credit received or a 21 DTE time stop, whichever occurs first.

    By Jesse,

    • 2 comments
    • 328 views
  • Fat Tails and Option Returns

    When it comes to calculating likely returns from option activity, traders contend with a variety of variations. Returns may be skewed (with declines in value more likely than increases), or unstable in many forms. Or the outcome might reveal itself in the form of a fat tail.

    By Michael C. Thomsett,

    • 0 comments
    • 222 views
  • What To Do In A low Yield Environment

    Investors over the world are struggling with yield in their portfolios.  Government investments are at historically low levels, with thirty-year treasuries basically declining every year for almost thirty years straight:

    By cwelsh,

    • 0 comments
    • 264 views
  • Option Terminology – Avoiding Confusion

    Options traders may easily fall into the habit of expressing ideas inaccurately. This might seem like a minor point, but in fact. It matters a great deal. Confusing and misleading language may lead to incorrect trade entry, and for those novices following more experienced traders, the use of proper terms is the whole story.

    By Michael C. Thomsett,

    • 0 comments
    • 445 views
  • Option Volatility and the Underlying

    Too often, traders may  make the mistake of associating option volatility with behavior of the underlying issue. However, if you employ a volatility assumption to model how an option is likely to change, remember that pricing models are theoretical. It is only useful for estimating the option risks. It does not indicate how underlying price will move.

    By Michael C. Thomsett,

    • 0 comments
    • 381 views
  • Before You Startup Your Own Investment Company, Read This!

    Often when we have had some success on the market, investors minds' begin to consider turning their solitary pursuit into a fully-fledged business. One that does not only line their own pockets but can help make some serious money for our client as well. 

    By Kim,

    • 0 comments
    • 672 views
  • Measuring “The Market”

    When you hear what “the market” did today, what do you think of? Most of us will think of one or more popular US stock indexes like the Dow Jones, Nasdaq, or S&P 500. But how well do these indices actually represent the total stock market? Dimensional Fund Advisors has created an excellent chart to help us answer this question.

    By Jesse,

    • 0 comments
    • 397 views
  • Managing Volatility Spreads

    Although traders often are attracted to hedged combinations (including spreads), some of the features are misunderstood. The spread may be viewed to manage risk, when in fact selection of an appropriate strategy may provide more potential when picked based on volatility.

    By Michael C. Thomsett,

    • 0 comments
    • 559 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