Tag Archives: trading

TAA portfolio performance: theory vs reality

One of the biggest challenges in implementing TAA portfolios is coming as close to the theoretical returns as possible. Theoretical returns are based on index returns which are not available in the real world. In this post I’ll explore the major items that keep investors from achieving published theoretical returns of TAA strategies and discuss some ways to minimize the gap between theory and reality. This is definitely an advanced topic but a critical one that I really never seen addressed in the financial blogosphere. First, let’s look at the three big reasons for the gap between theoretical and real returns for TAA … Continue reading

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Keep your losses small

A quick follow up to my last post on risk management. In the approach I outlined in that post the first component of the strategy was to limit losses. I gave the example of limiting losses per trade to 1% of equity capital and my more conservative approach of 0.3% of equity capital per trade. Today I just want to highlight why this is so important. The table and chart below show the % loss versus the return required to get back to breakeven. This is simple math. If you have $1K and lose 50%, it takes a return of … Continue reading

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Risk management in an option selling strategy

The most important part of any kind of trading plan is proper risk management. This is the area where most traders fail and end up wiping out their accounts. In this post I’ll outline the components of a good risk management strategy and use the option selling strategy I’ve discussed before (here and here) as an example. Actually, risk management applies to any kind of trading whether its selling options on stocks or just buying or selling the stocks themselves. It really is a money management strategy. We’ll just use option selling as one example. There are three major components … Continue reading

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Increase your odds of making money from selling options

Today I want to look at a few simple ways to increase your odds of making money from selling options. Option selling, i.e. selling cash secured puts, is my primary strategy to generate income from my trading portfolio. I talked about the details of my strategy in this post. The strategy is simple enough but obviously the success of the strategy is dependent on which stocks you choose and the strike prices for the options. It is also critically dependent on having a proper risk management strategy but I’ll leave that topic for another post. A common way of choosing stocks and … Continue reading

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Advanced income strategy – the leveraged covered call

Today I wanted to present an alternative way to generate income using options. In a previous post I discussed selling options as a great way, and my preferred way, to generate income. In my Investing for A Living retirement model this is the predominant strategy I use for the ‘trading’ portion of my portfolio, usually the 20-30% cash part of the total portfolio. While selling options is a great way to generate income there are times when it is too risky or the option premiums are too low to justify the risk. When volatility is very low, as it is … Continue reading

Posted in Options | Tagged , , , , , | 17 Comments