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Top Dogs: Managing a Large AccountSeries 1: Allocating Capital (4 of 12) | Sep 1, 2015
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    Top Dogs: Managing a Large AccountSeries 1: Allocating Capital (4 of 12)Sep 1, 2015

    This segment, the fourth in a twelve part series, explains how one can allocate capital in a large size account of $250,000 to $2.5 million and how using derivatives as part of that allocation can enhance the portfolio and reduce risk. This should provide some ideas and is not intended as an exact blueprint.

    The segment began with a brief recap of the previous three segments. The example of a core position was displayed. The core position left plenty of room for various option positions due to the leverage available in a portfolio margin account. The percentage of the account that should be used was noted and why that was is explained.

    The use of both defined risk and undefined risk strategies in the account was a key part of the capital allocation strategy. An example of approximately how many could be done and the margin required was displayed. Another table showed the breakdown of the new portfolio of the core position, defined and undefined risk strategies and the cash held. This was compared to a portfolio generated by a “robo-advisor”. There was a stark difference. The robo strategy did not take advantage of derivatives for cost basis reduction which can make a huge difference in results.

    Takeaways: By using a Portfolio Margin account, we are able to create a portfolio of approximately 35 uncorrelated underlyings compared to 6 that you would typically see from a professional money manager.

    Watch this segment of “Top Dogs” with Tom Sosnoff and Tony Battista to see the details of how smart capital allocation combined with what we have learned in the previous three segments can give you a greater chance of success, especially when compared to what the typical advisor would recommend.

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