Top Dogs: Managing a Small Account

Small Accounts | Practical Management (3 of 6)

Top Dogs: Managing a Small Account

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

In part 3 of a 6-part series, we discuss the practical steps to managing positions in a $50K IRA account.

A table of the portfolio was displayed. The table included the position, initial net liq (as of January 20th), current net liq and the overall change in net liq. The positions included covered calls in SPY (S&P 500 ETF), IWM (Russell 2000 ETF) and TLT (Bond ETF). The entire portfolio was beta-weighted to SPY.

The TLT position had profits of $405. With the large rally in bonds recently, our assumptions have changed and the team decided to close the long TLT position and replace it with a long TBT position. Since TBT is the inverse bond ETF, buying TBT is synthetically the same as shorting TLT. Since shorting stock isn't allowed in an IRA account, buying an inverse ETF such as TBT allows us to gain the downside exposure we wanted.

To make this adjustment in TLT, we sold the TLT stock and bought back the short call, while buying 100 shares of TBT and selling the 30 delta call against it.

With under 20 days until expiration on our SPY and IWM short calls, we decided it was time to roll the options to the March cycle with 45 days until expiration. In doing so, we collected additional credit, which helps to reduce our cost basis. A final table of the adjusted portfolio was displayed.

Watch this third segment of “Top Dogs For Smaller Accounts” with Tom Sosnoff and Tony Battista for the takeaways and more information about the practical management of a portfolio.

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