Top Dogs: Managing a Large Account

Portfolio Strategies

Top Dogs: Managing a Large Account

This is the fourth segment in a planned 6 part series focusing on managing a large account. The first segment was “Improving Your Odds with Options”. The second segment was “Building a Core Portfolio”. The third was “Allocating Capital”. This segment is on portfolio strategies. Last week we allocated capital using undefined risk strategies and this week we discuss defined risk strategies.

A recap of the current undefined risk positions, the option strategies and their current P/L was displayed. Our margin cost was about $185,000 or close to 75% of the $250,000 with which we capitalized this portfolio. Absent from our portfolio has been defined risk trades such as short Iron Condors (which we prefer to implement in underlyings with a high Implied Volatility Rank (IVR), Vertical Spreads (which we like to enter at a perceived market extreme [using debit spreads when Implied Volatility (IV) is low and credit spreads when it is high) and Calendar Spreads (which we use for indices with low IV). “We believe the more diversification you have around strategy, the more diversified your portfolio is, the less correlated risk you have and you should outperform over time.”

We allocated just a portion of the 25% of available cash to these new trades. A table of possible defined risk trades to add to our portfolio was displayed. The table included the underlying, position, quantity, expiration date, debit/credit and margin required. This will help us compare the strategy performance next week. Our Buying Power Reduction (BPR) was $8320.

This week we discussed portfolio strategies. Next week we will discuss managing techniques.

Watch this segment of Top Dogs: Managing A Large Account with Tom Sosnoff and Tony Battista for a better understanding of the benefits of adding defined risk strategies to our portfolio.

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