3-Fund Portfolio with Option Volume

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bliksem55
Posts: 15
Joined: Thu Sep 08, 2016 6:43 pm

3-Fund Portfolio with Option Volume

Post by bliksem55 » Tue Feb 07, 2017 2:31 pm

I have looked all over the Boglehead site to see if there are examples of a 3-Fund Portfolio using normally traded [liquid ..] Optionable ETF's as a vehicle. Or even if there was just a 2-Fund approach that would allow for covered call activity from time to time ...?

I want to leave the money in these funds for a very long time .... no desire to actively trade them but want to be able to sell some calls occasionally to generate income ...

SPY, TLT, others?

Thanks for taking the time to read my question ...

bliksem55
Posts: 15
Joined: Thu Sep 08, 2016 6:43 pm

Re: 3-Fund Portfolio with Option Volume

Post by bliksem55 » Wed Feb 08, 2017 9:23 am

I guess the absence of any response confirms my initial hunch that there is no viable strategy where you can combine a 3-fund portfolio and covered call activities ...

Thanks for all who had a look at this .....

Elbowman
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Joined: Tue Apr 03, 2012 2:25 pm

Re: 3-Fund Portfolio with Option Volume

Post by Elbowman » Wed Feb 08, 2017 11:03 am

Hi bliksem55,

You could definitely use SPY in place of the Total Stock Market part of the three fund portfolio. Most people consider the S&P 500 index to be slightly worse, but for most part a reasonable substitute for TSM if you have no better options.

What people here are more likely to disagree with is the covered call part of the strategy. Don't buy into that "if the stock passes the strike price, at least you made X%" argument. With stocks you NEED the periods of huge gains to make up for the periods of huge losses.

bliksem55
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Joined: Thu Sep 08, 2016 6:43 pm

Re: 3-Fund Portfolio with Option Volume

Post by bliksem55 » Wed Feb 08, 2017 4:45 pm

Elbowman,

Thanks for your response. I agree with the notion that selling calls and being called out is really a waste of time even if you can talk yourself a hole in the head that you made at least some money. I would like to keep the underlying stock and only gain the income from the sold calls that expire worthless. So one would not be selling these every week / month but just on those occasions when the market is oversold ... some market timing involved when making this decision.

Thanks again for your response ... If I learn anything else about this elsewhere I will post it here also.

bigred77
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Re: 3-Fund Portfolio with Option Volume

Post by bigred77 » Wed Feb 08, 2017 6:49 pm

I suspect this would be relatively easy to implement. Probably a 15 min call to Interactive Brokers and you could have a plan ready to go.

I think it's a bad strategy and a bad idea to do this. But that doesn't mean it can't be implemented fairly easily.

inbox788
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Re: 3-Fund Portfolio with Option Volume

Post by inbox788 » Wed Feb 08, 2017 7:58 pm

bliksem55 wrote:...want to be able to sell some calls occasionally to generate income ...

SPY, TLT, others?
The trouble with this strategy is that volatility is very low right now, so you're not generating that much income. You want to generate more income when volatility is high, but then the risk is a lot more then. The optimal strategy is to buy volatility low and sell high, but you've got to get the timing right.

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whodidntante
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Re: 3-Fund Portfolio with Option Volume

Post by whodidntante » Wed Feb 08, 2017 9:34 pm

I suggest you trade options on the funds with the most liquid options market. Sometimes the lack of liquidity is an advantage for a single stock, but I don't see that being the case for an ETF.

SPY and certain other funds are not bad long term holdings. But if you prefer to hold vanguard, then sell a call on the fund with the most liquid options market, and sell your vanguard fund to cancel your margin debt.

_robert
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Re: 3-Fund Portfolio with Option Volume

Post by _robert » Sun Sep 17, 2017 10:03 pm

Just saw this post - I'm considering a similar option with my retirement accounts.

I'm thinking of using SPY, IWM, and EEM (in a 500, 300, 100 share ratio). Currently, this won't make much because volatility is low, but I don't much care because it's more than I'd be getting holding the funds and doing nothing.

Today, with the market at all-time-highs and volatility at all time lows, you're still looking at $1,000 of yearly income for every 100 shares of SPY (4.22% on top of whatever gains you get, minus commissions, minus any time you blow through the strikes (although you could just roll until you are right).

I'm going to try it out for the rest of this year and next to see how it goes. Also, you could use TLT if you wanted the bond allocation, but when I trade options I usually don't stay 100% invested, so I'm not too worried about that.

Good luck, happy to keep the discussion going and curious to see if you've made any progress since February.

inbox788
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Re: 3-Fund Portfolio with Option Volume

Post by inbox788 » Sat Sep 23, 2017 3:48 pm

_robert wrote:
Sun Sep 17, 2017 10:03 pm
Today, with the market at all-time-highs and volatility at all time lows, you're still looking at $1,000 of yearly income for every 100 shares of SPY (4.22% on top of whatever gains you get, minus commissions, minus any time you blow through the strikes (although you could just roll until you are right).
Please explain in more detail your strategy. I don't think you get both the income and the gain. The fallacy of the covered call strategy is that you're capping upside with asymmetric downside risk.

http://www.nasdaq.com/symbol/spy/option-chain

Going back to the original question of this revived old thread, I didn't see anyone suggest using an all options strategy matching the direction, duration and range of the expected move (i.e. at the money vs out of the money). I've toyed with it, but my success has not been much better than at the casino.

http://www.theoptionsguide.com/vertical-spread.aspx

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