Screening Key Technicals To Select Option Trade Types


Controlling portfolio beta, which measures overall systemic risk of a portfolio compared to the market on a whole is essential as these markets continue to break record high after record high with violent pullbacks. The month of September was a prime example as the markets pushed to new all-time highs early in the month then suffered a deep sell-off to only bounce back to new record highs in October. Controlling beta while generating in-line or superior returns relative to the market is the goal with an options-based portfolio. A beta-controlled portfolio can be achieved via a blended options-based approach where ~50% cash is held in conjunction with long index-based equities and an options component. Options alone cannot be the sole driver of portfolio appreciation however options can play a critical component in the overall portfolio construction to control beta when following the 10 rules of option trading.

Generating consistent monthly income while defining risk, leveraging a minimal amount of capital and maximizing return on capital is the core of an options-based/beta-controlled portfolio strategy. Options can enable smooth and consistent portfolio appreciation without guessing which way the market will move. Options enable the possibility to generate consistent monthly income in a high probability manner in various market scenarios. An options-based portfolio provides durability and resiliency to drive portfolio results with substantially less risk via a beta-controlled manner. Using basic technical indicators and key dates can aide in trade type selection such as covered calls, put spreads, call spreads or iron condors (Figures 1 and 2).

Figure 1 – Options screening tool highlighting key technical indicators and dates to aide in selecting option trade types (covered calls, put spreads, call spreads or iron condors) - Options Screening Tool.