Objective Financial Planning LLC

Options Income Generation



  • Strategy Options
My view is that strong investment returns can help overcome shortfalls in other areas, such as poor planning.  This is why my focus has always been on providing the highest return for a given amount of risk. With markets in a guessing game as to the real value of assets due to the global monetary experiment being played, buying and selling stocks or indexes is not a place where I feel I can add value. This uncertainty is why I feel the right option strategies provide much more potential for positive returns due to a much greater room for error.  It is easier to hit the dartboard than the bullseye.
My option strategy focus is on a major index (versus an individual stock) as I want to avoid major price fluctuations.  The strategy utilized here is a lower risk, income generator where the credit spread (simultaneous purchase and sale of either a put or call) is far out of the money.  Typically there will be anywhere from one to three open spreads at a time as market trends can impact when I choose to open a spread. I also do not want one position to dominate a portfolio (i.e. avoid putting all your eggs in one basket) to help lower overall risk.
I have used this strategy with clients for over 5 years as a supplement to the rest of their traditional portfolio (mix of stocks, bonds, cash.) Each year, the strategy has evolved in terms of the size of the spread, how far to open away from the current price, and the amount of profit as well as the optimal point to close a position.
The current underlying security being utilized is the SPY (SPDR S&P 500) ETF as it is very liquid in the option world with most bid/ask spreads of 1 cent. There will typically be a cash cushion in place as a means of risk control in case positions need to be closed unexpectedly.  Total spreads open at one time will never exceed three and will never make up more than 90% of the Net Liquidation Value.  Expiration dates will also never exceed 30 days. On average, there is one spread opened every week with the positions expiring the vast majority of the time (>90% of the time).
Open spreads are closed only if the risk hits a predetermined level of potential loss. This depends on time to expiration, dollar value of potential loss, and VIX (volatility index).
The only time exceptions come into play are if a known major event is upcoming such as a Federal Reserve meeting announcement.

Performance

1.0%

Month to date

MTD

3.8%

Quarter to date

QTD

3.8%

Year to date

YTD

Quarterly vs S&P500

Quarterly vs S&P500

Risk score

  • 4.9%

    Best quarter

  • 3.3%

    Worst quarter

    • 1.5% fee
    • $12,000 min
  • Required: Margin account
  • Required: Options trading permission

Performance detail

Performance history disclosure

Performance Portfolio inception February 18, 2016

as of February 17, 2017 Manager (net of fees ) U.S. Aggregate Bond ETF S&P 500
Month-to-date 1.0% 0.1% 3.2%
Quarter-to-date 3.8% 0.3% 5.0%
Last 365 Days 19.7% -1.3% 22.6%
Since inception (Annualized) 19.8% -1.0% 22.0%
2017 (YTD) 3.8% 0.3% 5.0%

Risk metrics Last 365 days

as of February 17, 2017 Manager (net of fees ) U.S. Aggregate Bond ETF S&P 500
Volatility 9.8% 3.4% 10.6%
Sharpe Ratio 1.95 -0.54 2.08
Sortino Ratio 2.22 -0.75 2.79
Maximum Drawdown -3.5% -5.4% -5.6%
Value-at-risk (95%, 1 week) -2.3% -0.8% -2.5%
U.S. Aggregate Bond ETF vs. S&P 500
Information Ratio 1.96 -0.34
Alpha 18.0% 5.4%
Beta -0.33 0.62
R-Squared 0.01 0.45

Exposure

-0.2%
  • Equity Option

Portfolio commentary

  1. Profile Picture Monetary follies September 08, 2016

    The long-term impact of global easing is unclear

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Latest transactions Average trades per month 5.3

Executed Symbol Security Type Price
February 16, 2017 SPY 170303P00215000 SPY Mar 03, 2017 215 Put Buy $0.12
February 16, 2017 SPY 170303P00224000 SPY Mar 03, 2017 224 Put Sell short $0.25
February 06, 2017 SPY 170224P00219000 SPY Feb 24, 2017 219 Put Sell short $0.26
February 06, 2017 SPY 170224P00209000 SPY Feb 24, 2017 209 Put Buy $0.10
January 30, 2017 SPY 170217P00215000 SPY Feb 17, 2017 215 Put Sell short $0.33
January 30, 2017 SPY 170217P00205000 SPY Feb 17, 2017 205 Put Buy $0.13
January 23, 2017 SPY 170210P00216000 SPY Feb 10, 2017 216 Put Sell short $0.28
January 23, 2017 SPY 170210P00206000 SPY Feb 10, 2017 206 Put Buy $0.10
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Important Information

  1. Past performance is no guarantee of future results.
  2. Performance of the Portfolio Manager's account is calculated by Covestor on a daily time-weighted basis, including cash, dividends and earnings distributions and reflects the deduction of broker commissions. Manager returns include trades and positions that fail Covestor's trading rules, as a result, actual client returns will differ. Covestor advisory fees are simulated and applied retroactively to present the portfolio return "net-of-fees".
  3. Average client returns are calculated by Covestor and are composed of the asset-weighted daily average returns of all active client investments (some of which may contain investment restrictions) to the underlying portfolio. These daily average returns are then linked together for the timeframe presented. These returns include cash, dividends, and earnings distributions, and reflect the deduction of Covestor advisory fees, brokerage and other commissions and expenses actually paid by clients.
  4. All graph data is as of the end of day for the referenced period, unless otherwise specified. The investment minimum is the minimum investment required to follow a particular portfolio. The minimum amount is determined by Covestor, based on the characteristics of the underlying portfolio. It should not be considered as specific investment advice for your investment situation.
  5. The performance charts are provided for informational purposes only, and should not be used as the basis for making an investment decision. We rely on mathematical formulas, computer programs, and pricing information from third-party vendors to provide these returns. Neither Covestor nor any of its data or content providers shall be liable for any errors in this information or any actions taken by you in reliance upon this information.
  6. Benchmark returns displayed have been calculated by Covestor using daily benchmark prices and do not include dividend income. More information here. For certain portfolios Covestor uses an index as a benchmark, while for others it uses an investable exchange traded fund (ETF) as a benchmark. Index returns do not reflect the deduction of any management fees, transaction costs or expenses. Individuals cannot invest directly in an index. Investable ETF returns reflect the deduction of (i.e., are net of) management fees, transaction costs and expenses.
  7. Leverage indicates the level of margin utilized and is calculated by dividing gross exposure by portfolio net liquidation value.
  8. All Portfolio Manager information including personal data, profiles, strategies, monthly investment reports, and historical results outside of Covestor has been provided by the Portfolio Manager. Covestor makes no representation or warranty of its accuracy, completeness or relevance and it does not represent the opinions of Covestor. Transaction history of Portfolio Managers is available upon request. Portfolio classifications are provided by Covestor, and are intended to serve as a general guide.
  9. Not all transactions listed will appear in accounts due to Covestor's trading rules and individual client constraints. Eligibility of these securities is monitored periodically, and may change over time. Actual client investment holdings may vary.
  10. This portfolio was launched on Covestor on July 18, 2016. Returns history prior to launch is derived from account position valuation and cash flow data at Interactive Brokers. Covestor has not reviewed this performance data but has received manager certification that it adheres to the current strategy.
  11. This portfolio contains options. Options trading involves a high degree of risk, is highly speculative, and is not suitable for all investors. You should only select a portfolio with options trading if you are comfortable with the level of risk involved in trading options.
  12. This portfolio uses short selling. Short selling is more complex than simply owning securities, involves a high degree of risk, is highly speculative, and is not suitable for all investors. The risk of loss associated with short selling is virtually unlimited. Short selling may also involve additional expenses and risks, including hard-to-borrow stock charges and buy-in risk. You should only select a portfolio using short selling if you are comfortable with the level of risk involved in short selling.
  13. This portfolio uses borrowed funds or leverage to fund investments. Leverage involves a high degree of risk, is highly speculative, and is not suitable for all investors. Leverage increases both the amount you may lose and the amount you may make in a portfolio, leading to higher returns in the case of favorable market movements but also larger losses under adverse market conditions. You may also incur additional expenses associated with borrowing funds. You should only select a portfolio using leverage if you are comfortable with the level of risk involved in using leverage.