Noting options are generally highly risky and volatile compared to buy-and-hold stock investing, and the fact that options can easily produce strong returns in short timeframes (albeit with more risk), but risk tolerance can still be chosen with options, I’m trying to formulate an investment strategy based on stock/ETF investment with higher returns by employing conservative options trading as well.
If I could earn, say, 8% p.a. with a buy and hold of stock XYZ, what strategies involving options could I employ to boost my return to say, 20% p.a.?
Obviously this requires taking on more risk, but I believe that it is very realistic to achieve 20% p.a with an active, but conservative options investment strategy.
What would you guys do or recommend as a strategy for achieving around 20% returns with a relatively conservative approach?
The best approach I can think of off the top of my head would be to maybe buy a stock with low volatility, and sell cheap OTM calls/puts every two months. I.e., sell options with unrealistic strike prices, and obviously receive low amounts, but with low risk and doing it every two months or so, selling another option when the previous option expires.
What do you guys think of this approach, and what ideas do you have? I hope to get some different opinions and ideas on this.
Thanks all!
Low-risk, low-return strategy discussion
byu/TangoRolling inoptions
Posted by TangoRolling
2 Comments
This is the wrong way to think about options. Options aren’t inherently riskier than buy and hold the stock, it depends on how you structure the trade. Moreover even if a buy and hold of a stock was guaranteed to yield 8% a year does not mean there is any option strategy with any return greater than the risk free rate. The two are simply unrelated. If you think return on a stock implies anything about potential return with options you do not understand option pricing and volatility.
Yeah i dont i would like too? Anyone know a good coach