Most Common Mistakes for Managing Options. $100K+ Portf… — Transcript

Learn common mistakes in managing options with a $100K portfolio update focusing on directional risk and weekly adjustments.

Key Takeaways

Directional positions can be actively managed to reduce volatility and improve returns.
Weekly adjustments and rolling near optimal times help control risk and maintain portfolio balance.
Maintaining a small net delta exposure keeps directional risk manageable in a $100K portfolio.
Managing positions increases the probability of profit and reduces correlation among holdings.
Extracting consistent credit income while managing directional bets can target 12%+ annual returns.

Summary

This video revisits a popular series on managing options positions started in 2016, updated for 2022.
The focus is on managing a $100,000 portfolio using about 50% capital with passive, weekly adjustments.
Positions are directional and subjective, not delta neutral, aiming to reduce portfolio volatility.
Current portfolio includes bullish S&P, bearish NASDAQ, bullish China, bullish Euro, bearish crude oil, and bullish Bitcoin positions.
The portfolio is managed with a goal to reduce volatility and extract monthly credit income, targeting about 12% annual return.
Weekly position rolls are timed optimally around 21 days to expiration to reduce risk.
Adjustments include re-centering deltas and maintaining a small net short delta exposure (~60 deltas) for controlled directional risk.
Managing positions improves probability of profit, reduces correlation, and lowers portfolio risk over time.
Capital outlay is reduced by about 10% after rolling positions, improving efficiency.
Overall, the approach balances directional bets with risk management to enhance portfolio performance.

Chapters

Full Transcript — Download SRT & Markdown

Speaker A

[Music] Top Dogs. Top Dog. Top Dogs 2022. Many positions. Um, this is a series we started in 2016, and people liked it. They watched more than a couple million times what was watched, and we decided that, uh, we'll revisit it in 2022. So today's segment's on managing positions, but can you go to the first slide, please?

Speaker A

Sure. Um, uh, the first week we did core portfolio. First of all, let's see what time it is. 9:09. The first week we did core portfolio and product indifference.

Speaker A

The next week we did capital efficiency and allocation. Last week we did cost basis reduction. Today we're doing managing positions. And, um, they're all just, you know, they're pretty wide topics. Um, and next week we'll do scaling up and down. Um,

Speaker A

this is the kind of stuff that we, that people write us a lot of emails about, um, or variations of this kind of portfolio management type stuff. Um, we're using a $100,000 account as the basis. We're using about 50% of the money. So on a

Speaker A

$100,000 account, we're using about, I think last week it was 47,500 or 48,000 of the 100,000. Um, we are passively managing the positions, which means for us, um, we're only making adjustments once a week, which is way

Speaker A

less than we would normally do. And the positions are pure directional. So what it is is they're subjective directional positions of just things that I like or don't like. So they have nothing to do with trying to be delta neutral. It has

Speaker A

nothing to do with it. It is trying to be non-correlated. But like the directional risk I'm taking there is just my directional risk. You guys might think differently. Like I'm long euro in here. Um, I'm short crude oil, you know, things like that.

Speaker A

Right. Right. Um, and, you know, I think, let me just, we'll take a look in a second. I think we're long bonds, too. Um, but we're, we're, we're fairly aggressive with being, um, very directional, and I think that is the key. That's one of the

Speaker A

key takeaways. Let me just give, let me just check on these bond positions to see where we stand. That's one of the key takeaways that I want, you know, people to kind of grasp is that we're not just

Speaker A

putting on stuff for the sake of just having high volatility. It's a combination of what you would do if you were putting together a portfolio and you said, "Hey, you know what? I want to be long China.

Speaker A

I want to be short China. I want to be long the British pound or I want to be shorted or I want to be long." So like, like we're, we're not saying this is just this market neutral position. We're

Speaker A

going after a bunch of direction and we're not, and, and we're not trying to make it a P&L thing. We're trying to make it a, um, a, uh, more of a reduction in volatility and how to manage, you know, a

Speaker A

little bit more the overall volatility of the portfolio. You, that's right. Let's go to the first slide.

Speaker A

So this is the position that we have on now. Now again, this is a $100,000 portfolio. We're using somewhere under $50,000 in cash. I'm not exactly sure what it is total today. We'll bring it up in a couple slides. Um, this

Speaker A

has a bullish S&P position on. It has a bearish NASDAQ position on, which of course, you know, today would, that would not be working great. It has a neutral Russell position on. That would be working fine. Why did we do bullish S&P

Speaker A

and bearish NASDAQ? No reason. We just had to pick something. So we went bullish, bearish, um, neutral. It has a bullish China position on covered call in there. It has, which is working nicely today. It has a bullish Euro position on

Speaker A

which is today, hold on, which today is about a wash. Um, it has on a, uh, bearish crude oil position which today is working fine, and it has a bullish Bitcoin position on, albeit small. Uh, today it's Bitcoin's up

Speaker A

a little bit, so that's good today. But I just wanted to show you we're not, there's, there's not, there's not that much that's what we call neutral.

Speaker A

There's one neutral position here. The Russell, which is short of strangle. The rest of these positions are bullish S&Ps, bearish NASDAQ, bullish China, bullish euro, bearish crude oil, bullish Bitcoin. Okay? So, there's directional risk.

Speaker A

I'm not trying to, I'm not trying to, you know, whittle out on this thing. We're trying to be aggressive. Let's go next slide because we think people have opinions.

Speaker A

Um, week one when we put this on, the market was up 4.5%. Week two, the market was down 3.8%. Week three, the market's down 3.3%.

Speaker A

And so total since we put this on, the market's been down 3.1% and volatility has been up 6.3%.

Speaker A

This is a short vol portfolio, so that's moved against us. And this is a, what turns out to be a delta neutral to slightly long portfolio. So that's moved against us a little bit, but we're just pointing out what the market's done. And

Speaker A

those are some fairly large moves over the last three weeks for sure. Let's go to the next slide. And I like the comparison looking at it in the past weeks how it was much tighter and you can see that the volatility was much

Speaker A

greater the last couple weeks. So we originally put these positions on in September. So because we're managing these positions on a weekly basis, we just rolled them last week to October. Now why did we roll them last

Speaker A

last Wednesday? And the reason we did is because last Friday was 21 DTE. And if you're going to default to the optimal time to roll, um, Tony and I always prefer to choose a day or two earlier than a day or two later.

Speaker A

Sure. Okay. Um, it's just, it, it's a reduction in risk. I think we've talked about that ad nauseam limit time throughout the, throughout the show. For sure.

Speaker A

When we rolled the position, we also recentered a lot of them. So in other words, we went back to kind of like the original delta. So you can see here the spies were long 30 deltas. The Q's were

Speaker A

now short 47 deltas. IWM was completely flat. FXI was long. These are beta weighted to the S&P deltas. The XXX, I'm sorry, FXI, which is CH, which is large cap stocks, large cap Chinese stocks trading in Hong Kong, long a

Speaker A

total of six deltas on a covered call. 6E, um, which is our Euro position, long 31 deltas. XOP short 93 deltas as measured by the S&Ps and Bitcoin long 13 deltas.

Speaker A

Net net we picked up $4,410 in additional credit. Um, and we are short beta weighted right now 60 deltas.

Speaker A

Our entire portfolio. So the whole portfolio is short 60 deltas. That's a pretty small position for a $100,000 portfolio. When you think about $100,000 portfolio for us, a normal directional port, a normal directional bet on $100,000 portfolio is usually somewhere

Speaker A

between 200 and 400 deltas. So 60 deltas is a very, um, is a very good non-correlated portfolio with a small amount of risk. That $4,400 number. We are trying to take about $1,000 plus maybe $1,100 or $1,200 out of that

Speaker A

number at the end of the month. Gazintite. So our, our goal on this position is have the positions work for us, have volatility collapse, have the positions work for us, and at the same time take out some of the volatility,

Speaker A

which is about 25% of that number of the 4,400. And also hopefully the direction works for us too.

Speaker A

Mhm. Sure. We're hoping for like, you know, like if you think about this, if you, if you straight line this over 12 months, you're trying to take 12% plus, 12% plus out of your volatility play, which is about 1% a month on and on top

Speaker A

of that, you're trying to, you know, be right directionally. Let's go to the next slide.

Speaker A

So, we wanted to show you by managing positions because this is a managing position segment. We wanted to show you, hey, what does it all mean? So the underlying in just as an example in the spy before the adjustment after two

Speaker A

weeks of having a position on it was 48 spy deltas. After we made the adjustment we knocked it back down to 30 and as of 8:30 it's now 43 again. See, I'm just showing how positions move around.

Speaker A

Yeah. The Q's went from -32 to -47 back to 23. IWM went from being completely flat to long 23 deltas. The FXI stayed the same. The 6E went to almost zero.

Speaker A

The XOP went to only 39 and the BTO remained where it was. S

Speaker A

The XOP went to only 39 and the BTO remained where it was. So net net on the week we picked up 28 um deltas.

Speaker A

That is a very reasonable number. If you can keep your number for on a weekly basis, like when you're thinking about how much remember this $100,000 portfolio with a with a significant amount of risk. We're not suggesting that it

Speaker A

doesn't have any risk, but our entire position moved 28 deltas. That's 28 shares of SPY over the course of a week, right?

Speaker A

I don't think there's anybody watching with with a $100,000 portfolio who's going to look at a 28 delta and say, "Man, we're taking a lot of risk." I don't think there's anybody watching that could say with a with a with a with

Speaker A

a with a $10,000 account that 28 deltas would throw would throw you off your game. So, I think that on a $100,000 account, 28 deltas, my whole point here is that that's a very manageable number, one quarter of 1% over the course of a

Speaker A

week in in, you know, um portfolio, how your portfolio moved. Mhm. And it could have been up or down, whatever it is. And I'm not even suggesting how I mean, obviously the portfolio had a good week, but we're

Speaker A

not, this is not about P&L. So, so what we're trying to do here is just impress upon the fact that you can have seven different positions all fairly equally weighted using almost the same amount of capital. I mean XOP position use a

Speaker A

little more capital than the other ones but generally speaking we tried to weight these based on capital based on uh delta and you can see by making these adjustments now we make these adjustments once a week in our normal

Speaker A

trading we make them more often than that. Sure. Sure. So we're even tighter than that. And the the purpose for this is to show you that what we're doing is very scalable.

Speaker A

Um let's go to the next slide. So the next thing we did is we went to look at probability of profit because of by managing positions. You know what does that mean? So last week we had a we

Speaker A

had a portfolio correlation of 0.45 to the S&Ps. What we wanted to do is keep that correlation as low as point as low as we can to zero because a non-correlated portfolio is actually much better for us. So the cool thing

Speaker A

here is that um we went from 045 last week to 0.35 this week because after we made all our um after we managed all our positions and made our portfolio adjustment, we actually were able to kind of move

Speaker A

closer back towards that zero number on portfolio correlation. The reason you want to be closer to zero is then you don't have this correlation risk and if the whatever the market does you you know you're independent of that. What

Speaker A

you can also see here is that by managing our positions on 823 to 8:30 in that one week, we were able to improve our probability of profit in IWM, 6E, XOP, and BITO dramatically. So, the other three stayed the same. But when

Speaker A

you manage your positions and you make some very minor adjustments, you put yourself back into a position where you have a higher probability of profit. So we we didn't we reduced our correlation.

Speaker A

We increased our probability of profit. Now I'm guessing the market accommodated us, which it did because we were small short deltas and crude oil came down a little bit. You know, euro went up a little bit. So so the market

Speaker A

accommodated us. But my point is you see the four green spaces bat all those are where the probability profit went higher.

Speaker A

Yeah. It's awesome. So by making these adjustments, can you go back one slide? And and you still have a high probability of of success on all the other trades too, which is Yeah. So when you go back one slide, I

Speaker A

go back to these managing positions, the beta weighted deltas. The deltas we reduced um over the course of the week, we reduced our our delta risk. Remember before adjustment would be 136. after adjustment it was only 60 and so and

Speaker A

then negative 60 and a week later it's plus 28. So we basically reduced our overall portfolio risk and then go forward to the next slide and in the same in the process of doing that we also um gave ourselves a higher

Speaker A

probability of prop of higher probability of pop which is probability of profit and then we reduced our correlation risk you know by by almost 25%.

Speaker A

Mhm. So they're even more aggressive than this. So ourselves, let's go to the next slide.

Speaker A

I mean, listen, it's hard when you're when you're doing something for, you know, for show like not to have your own personal opinion on something. I mean, everybody who trades has their own personal opinion. We're trying to stay

Speaker A

right down the line here and be mechanical with everything that we do. Now, here we'll keep moving forward here because this is really interesting. So now you get to the capitalation piece and you're thinking to yourself, well um

Speaker A

in September as we were getting closer to expiration, what happens is that you um uh before we adjust positions and we had we actually had more risk on which meant we were using $48,000 in capital. After we rolled the positions, we reduced the

Speaker A

risk of the portfolio by managing the positions, but we also reduced the amount of capital.

Speaker A

We didn't increase it. Yep. Yep. Sorry, I had to sneeze. Um, so tight. Thank you. So in these positions as they started to move our way a little bit this week and as we rolled forward, what happens is that the amount of capital

Speaker A

usage like in 6E went down and XOP went down because we reduced our delta risk in there. And by reducing our risk because we were managing the positions, we also reduced our capital allocation.

Speaker A

So we have the same opportunity but using less capital which means under normal circumstances we could put on more positions if we wanted to. I mean we reduced our we reduced our capital exposure by almost 10% or our capital

Speaker A

outlay by almost 10%. Not our exposure but our outlay by almost 10 a little over 10%.

Speaker A

I like it. Let's go to the next slide. And I think this is the last one. And now by managing our positions, this is also really interesting. By using a little less than 50% of our capital, we're comparing this now to a buy and

Speaker A

hold strategy in the S&Ps. So, if we had a buy and hold strategy in the S&Ps, which obviously would not have worked well in this down move to start with, but the volatility would be, you know, two 2.2% the first week, 2.1% the second

Speaker A

week, and 1.9% in the third week. That's just straight out long spy. Mhm. Mhm.

Speaker A

Without adjustments is the middle column, and then with adjustments is the last column. And you can see all we did was essentially improve over 3 weeks by about 25% our um the the the volatility of our portfolio. That means our swings.

Speaker A

We never put ourselves in a position where where with an adjustment was higher. We just we obviously reduced you know we showed you we improved the correlation. We improved the amount of of credits we took in. We we reduced our

Speaker A

delta risk. you know all of the above and we lowered the portfolio volatility by managing the positions. So every single aspect of portfolio management was benefited, you know, by the rules into into October. You know, again, we lowered volatility. This is slide eight.

Speaker A

We and we're showing you here how much we lowered volatility the portfolio. Go back to slide seven for a second, Ryan.

Speaker A

No, no, go back to slide seven. Yes. and we lowered the amount of capital that we're using by over 10%. Go back to slide six.

Speaker A

We improved our probability of profit on four of our seven positions and we lowered our our correlation risk. And go back to slide five.

Speaker A

And in this one, we reduced our delta risk, you know, by over 50%. So you can see every aspect of those of managing those positions improved our portfolio chances. Now go forward to 9. Thank you.

Speaker A

So that's managing positions. Next Wednesday at around 9:05 we'll do scaling up or down so you can get use more capital. And that's it.

Speaker A

Nice. Good job. Good job out of you. Good job out of the team. I like the way you presented it. We'll take a quick 90 second break. Sound up. Don't look now.

Speaker A

Even the S&P is down one. You listen to straight live. SCOTT SHERIDAN NEXT. OH BOY.

Topics:options tradingportfolio managementdirectional optionsdelta riskrolling optionsvolatility managementcovered callscapital efficiencyrisk managementtastylive

Frequently Asked Questions

What is the main strategy used for managing the $100K options portfolio?

The strategy involves using about 50% of the capital in directional options positions, making passive weekly adjustments to reduce volatility and maintain controlled delta exposure.

How often are the options positions adjusted in this portfolio?

Positions are adjusted once a week, which is less frequent than typical active trading, to manage risk and maintain portfolio balance effectively.

What is the goal of rolling options positions near 21 days to expiration?

Rolling near 21 days to expiration is preferred to reduce risk by avoiding the increased volatility and potential losses that can occur closer to expiration.

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