You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away… by tracking performance and adjusting expectations!
Over the past few weeks, we have presented several investment strategies with different tilts:
- Pure upside for bulls
- “Either/Or” to profit regardless of trends
- Long-term, quality-stock selection
- Insurance for investors protecting recent profits
As investments proceed through their natural timeline it is important to develop a process for evaluating the progress of an investment;
Probably, the most relevant variables to be mindful of are as follows:
- Each position’s performance
- Upside/downside outlook based on current conditions
- Are there better alternatives
- Can the strategy by extended profitably
Is it time to take profits, book losses, or adjust to a new scenario?
Example: Tracking “Are We There Yet” – Small Profit Locked-In, Upside Remains
We introduced the “Are We There Yet” strategy on July 29, 2022. The idea is simple – buy a call option expiring Sep 30 financed by selling put spreads expiring through August. This simulates the performance of a ~$40k position in the SPY (SP500-tracking ETF) on the upside above a 7% threshold, with the downside limited by the put options.
At the start, the premia generated a small $38 surplus for the investor. In addition, the put spreads required $4,000 in posted collateral – which meant a total $3,962 commitment from the start.
However, as the put spreads expired unercersied over four weeks, the investor recovered the collateral and locked-in the $38 surplus as profit. Currently, the position is worth $135 (in addition to the $38 profit) which the investor could cash out.
If the investor retains the position, the upside/downside profile has changed and is currently:
· Guaranteed $38 minimum profit
· $135 cost for maintaining the position through the end of September
· 100% of the SPY’s upside above 6% on a $41,500 investment (i.e., if the SPY rises 10%, the investor will collect $1,660)
This compares with the $3,962 total possible loss at the start, with a threshold for profit at a 8% increase over 2 months.
Updated Thesis and Timing
Information on Disclosure Agreements
© 2022 Securities are offered by Lime Trading Corp., memberFINRA & SIPC,NFA, Lime Advisory Corp is aninvestment adviser registered with the SEC. and Lime FinTech is a technology business. Collectively known as“Lime Financial” or “Lime” provide various trading, investment advisory services, and technology solutionsincluding web and mobile trading applications, to retail and institutional investors. All investing incurs risk,including but not limited to loss of principal. Further information may be found on our Disclosures Page.
Please read the Options Disclosure Document titled “Characteristics and Risks of Standardized Options”before trading options.
Options trading entails significant risk and is not appropriate for all investors. Certain options strategiescarry additional risk and investors may lose 100% of funds invested in a short period of time. Investors shouldconsult with a tax advisor as to how taxes may affect the outcome of any options strategy. Options tradingprivileges are subject to Lime Trading Corp. review and approval. Transaction costs may be significant inmulti-leg option strategies, including spreads and straddles, as they involve multiple commission charges.
This material has been prepared for informational purposes only and is NOT intended to provide nor should itbe relied on for tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisorsbefore engaging in any securities transactions as each individual investment(s) may result in diverse/adversetax implications that will affect the outcome of any investment strategy. No information presented hereinshould be considered an offer to buy or sell a particular type of security. This is not an offer or solicitation inany jurisdiction where we are not advertised to do business. Other fees, such as regulatory, service, or otherfees, may apply. Please visit our Pricing Page for further information. Investments involve risk, pastperformance does not represent future results. Diversification may help spread risk but does not protect in adown market. You may lose all of your investment. Investors should evaluate their financial situation,investment objectives, and goals before investing. Substantial risks are involved with electronic trading. Daytrading involves significant risk and is not suitable for all investors. Please see our Day Trading RiskDisclosure Statement for more detailed information. Trading on margin is not appropriate for every investor.Please see our Margin Disclosure Statement for information on risks. System response may vary due tomultiple factors including but not limited to trading volumes, market conditions, system performance, andother factors. Access to electronic services may be limited or unavailable during periods of peak demand,market volatility, systems upgrades, maintenance, or for other reasons.
