Within a portfolio, thinking about optionality and opportunity is important. There are ways to maximize your portfolio optionality/opportunity without paying for it.
1) Option Spreads
2) Closing a position
3) Cash / Margin
4) Selling Puts instead of using limits to buy
1) Option Spreads
2) Closing a position
3) Cash / Margin
4) Selling Puts instead of using limits to buy
1) Option Spreads: Instead of buying a put or call outright, you can buy an option spread (buy a near strike option & sell a further out option)
This creates optionality as if the underlying moves against you, you can close the far out strike you sold, and keep the near strike
This creates optionality as if the underlying moves against you, you can close the far out strike you sold, and keep the near strike
2) Closing a position: When you close a position or trim it, you have now created an opportunity for you to reopen if it moves against you. This works especially well for patent investors that don’t chase.
3). Cash / Margin: Every dollar of buying power you don’t use is an option for you to execute on a new position when it comes along. The reason why many good long term investors keep a high cash balance is they know it’s option value can be high vs it’s lost opportunity cost.
4) Selling puts to enter positions: Instead of a limit buy to enter a new position, selling a put at the limit price creates value in comparison. Keep this as a small percentage of you portfolio, as it can get costly if the market tanks.
5) There are probably other good strategies similar to these. I’d be interested to hear what other strategies people use.
