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Portfolio Diversification - SPY & TLT

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

How does a long diversified portfolio of stocks and bonds perform against a portfolio of short puts in SPY and TLT?

  • SPY and TLT, Short 50 delta put
  • 2005 - 2017, closest to 45 DTE
  • $1 Million account
  • Compare:
    • 100% Buy-and-hold SPY + TLT underlyings (50/50)
    • Short 50 delta puts in both SPY and TLT by allocating 25% (50/50) of the available account value i.e. 12.5% into SPY and 12.5% into TLT

We find that the long stock portfolio and the short put portfolio perform about the same P/L wise, but the option portfolio is a lot less volatile and requires much less capital.

Tune in as Tom and Tony break this study down!

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