Options Hedged Portfolio (My Flagship Strategy Designed To Protect Your Money, Give You A Good Deal, And Beat 85% Of Managers After 10 Years).
Below are the managers I use for the options hedged portfolio. I have used PUT options with ETFs and I have used PUT options with individual stocks. I prefer to use PUT options with ETFs because there is no tracking error. If I ever have to exercise the PUT I want to exercise easily, quickly, and know exactly what my down side would be. Most of the time though I would either let the PUT expire worthless or let them appreciate in a market downturn scenario and sell them after heavy appreciation.
Large Caps:
SPY (50%, Large Cap Blend)
QQQ (50%, Large Cap Growth)
Both managers and tickers have very long track records with superior performance compared to 85% of managers after 10 years.
SPY
QQQ
Covered Calls:
Write covered calls on both SPY and QQQ.
Write them 25-35 days out 10-12 times a year per ETF.
Write calls that have an 80% chance of expiring out of the money. (Strike Price > Current Market Price)
QQQ 595 Call 08/01/2025
(100*0.44*172 = $7,568)
SPY 655 Call 08/01/2025
(100*0.49*155 = $7,595)
We can generate between $151,000 and $181,000 in additional low risk income for the portfolio.
Cost of Portfolio Below:
As you can see below the cost of the portfolio after the management fee, trading costs, and expense ratio from the manager comes out to a flat 1%. With writing the covered calls we can essentially give you an almost free portfolio. Let’s say we generated $175,000 in income from the covered calls in a year…
Income generated: $175,000 - $160,000 (mgmt. fee) - $29,000 (expense ratio) - $11,070 (trading) = -25,070 ($25,070). You would really only be paying $25,070 for the portfolio and professional money management or 0.12%. That is lower than if you just stuck your money in QQQ and SPY at 50% each and left it.
If we bought PUTs on the portfolio you would pay more but you would get an insurance like wrapper for protection. You have the opportunity to perform better than the standard 60/40 equity bond portfolio. To me this whole package is a heck of deal for the right people and organization. QQQ and SPY have long histories and excellent managers backing them up. I think its a great deal and a great product/portfolio management offering that you and your organization could benefit from.
Returns of QQQ and SPY Since June 2005:
Portfolio weighted at 50% each.
Cumulative Return: 877.02%
Annualized Return: 12.28%
Fees and Costs
Closing quote from Warren Buffett: “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”
Some people will look at this strategy and think it is to easy. That is okay, easy works, easy is effective, and after 10 years the likelihood of this portfolio being at or above the S&P 500 is better than say 85% of other managers.
