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.

Jesse

Welcome to Steady Momentum

Recommended Posts

We are pleased to introduce an addition to Steady Options offerings. Steady Momentum is for long term investors who want to apply the concepts of momentum to their ETF and options portfolios.

 

What is Steady Momentum?

 

Steady Momentum includes two separate trading strategies that subscribers can follow:

  1. Collateralized put trade alerts on both the S&P 500 and MSCI EAFE indices. These underlying indices represent the majority of the global equity market, and provide substantial option market liquidity. When momentum signals indicate a change in trend for each underlying index, simple risk-management adjustments will be made to move trades further out of the money until upward trend signals resume. Performance tracking will be based on a hypothetical $100,000 account, although subscribers could allocate much less. A single cash secured EFA contract would only currently require around $6,300.
     
  2. ETF trade alerts producing a low-turnover multi-factor globally diversified portfolio that may be suitable for long-term portfolios. Potential portfolio adjustments occur on a monthly basis, and subscribers could allocate basically any dollar amount. 

 

What's the goal?

 

Cash secured put writing has been shown to historically provide returns similar to the underlying asset, yet with less volatility and drawdown. We contend that over time the strategy must work, otherwise it implies that stock market insurance would be available for free. The goal for the put write alerts is to produce higher risk-adjusted returns than the underlying S&P 500, Russell 2000 and MSCI EAFE indices, and higher absolute returns than the strategy benchmark, PUTW (Wisdom Tree CBOE S&P 500 PutWrite Strategy Fund). Risk adjusted performance measurements like the Sharpe Ratio take into account both returns and volatility. 

 

The goal for the ETF alerts is to produce both higher risk-adjusted and absolute returns than the strategy benchmark, which is 80% VT (Vanguard World Stock ETF) and 20% AGG (iShares Core US Aggregate Bond ETF). Both the option and ETF strategies will be available to those interested in a professionally managed account. 

 

Both strategies are simple to follow and very low maintenance, making it easy for subscribers to replicate results. Put contracts will be collateralized by low risk fixed income ETF's. Skillful execution of limit orders will have little to no impact on subscriber success. If you're looking for constant action and high risk/reward trades, this service isn't for you. Some option selling services attempt to make in a month what our put selling approach is expected to make in a year. 

 

Trading Instruments

 

Short put alerts: XSP, IWM, and EFA

Benchmark: PUTW (Wisdom Tree CBOE S&P 500 PutWrite Strategy Fund) 

ETF alerts: IVV, ACWX, AGG, SLYV, DLS, VWO, DGS

Benchmark: 80% VT, 20% AGG


Performance expectations


To get an idea of historical performance of writing S&P 500 puts, we can look at and build upon the CBOE S&P 500 PutWrite Index (PUT):

 

From 1986-2018, the below chart illustrates PUT (portfolio 1) compared to the S&P 500 total return index. 

1.png

 

Additionally, we can backtest approximately how the method used in our putwrite alerts would have compared to both of these indices (portfolio 2).

2.png

Past performance doesn't guarantee future results, and please see this article for additional discussion on why future results may be lower.  

It is important to maintain realistic expectations, compared to our higher risk higher reward strategies like Steady Options and Creating Alpha. Please make sure you understand the performance goals before subscribing.


What is our edge

We are planning to use the following techniques to beat the PUTW benchmark:

  1. Use momentum to inform our strike selection. When momentum signals are negative, farther OTM strikes will be used to increase our margin of safety.
  2. Actively manage the positions by closing/rolling them prior to expiration when the majority of potential profits have been earned. The benchmark index assumes all trades are held until expiration.
  3. Use low risk ETFs as collateral instead of Treasury bills/money market.
  4. Diversify across Large Cap, Small Cap, and International indices. 


Portfolio size

The model portfolio is based on a $100k account. If you want to trade with less, you'll either need to exclude a symbol (XSP is the largest notional), or take more risk by using more leverage. You could also spread off the trades to reduce exposure (a put credit spread). For example, 1 EFA contract is about $6,000 of notional exposure. If someone had a $10,000 account, they could trade 2 EFA contracts and have a similar 1.25X exposure as our model portfolio. Of course performance would differ since XSP and IWM would not be included. And accounts anywhere in between will just need to make a trader's choice on how to allocate based on their account size and risk tolerance.

 

Management Style

 

Systematic. All alerts will be submitted based on pre-defined quantitative rules. Subscribers certainly can execute alerts based on their own discretion and risk tolerance, but I will not be providing personalized advice on the forums.  

 

Managed Accounts

 

Lorintine Capital is a Registered Investment Advisor providing managed accounts based on the Steady Momentum alerts. Contact myself or Chris Welsh if you are interested in further details.

 

Additional Related Reading

 

Combining Momentum and Put Selling

Trend Following: An 88 Year Look at the S&P 500

The Scientific Process of Increasing Expected Returns

Please refer to Frequently Asked Questions for more information.

Share this post


Link to post
Share on other sites

Equity index put writing: A strategy for uncertain markets

 

“Over the past 25 years, the CBOE S&P 500 PutWrite Index (PUT) has outperformed the S&P 500 index, with lower volatility and better risk-adjusted returns."

"Index option premiums areeligible for favorable tax treatment (IRS Section 1256: 60% long term /40% short term).”

 

E63AEC54-1B90-498A-B0F1-A2AFC2E43E9F.jpeg

 

“For investors concerned about uncertain markets, collateralized equity index put writing has the potential to seek to improve the risk-return efficiency, liquidity, flexibility and cost-effectiveness of investment portfolios without compromising the potential for equity-like returns over the long run. Simply stated, a put write strategy is designed to allow investors to maintain their participation in the market that may still have potential for expansion, but with the goal of pursuing less volatility and less drawdown risk than broader equity markets.”

 
 

 

Share this post


Link to post
Share on other sites
1 hour ago, blackgold said:

For Portfolio 1 and 2 is there a way to get the returns on a yearly or even monthly time frame going back to 1987?

Portfolio 1 is CBOE PUT. That data is available on their website: http://www.cboe.com/products/strategy-benchmark-indexes/putwrite-indexes/cboe-s-p-500-putwrite-index-put 

 

The method of constructing portfolio 2 is described in the discussion topic for members: https://steadyoptions.com/forums/forum/topic/5227-discussion-put-write-portfolio/?do=findComment&comment=119570 

Share this post


Link to post
Share on other sites

Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.