≈ For every buyer, there must be a seller. ≈
— Good afternoon, sir. How are you doing?
— Doing fantastic, my friend. What can I do for you in this glorious afternoon?
— I need insurance for my portfolio. The Nasdaq is at its all-time highs and I’ve heard that buying some protection is quite inexpensive these days so, I thought I could add some to my tech stocks portfolio. I am willing to give up some of my profits for downside protection.
— That’s the right mindset, my friend. I sure got something for you here.
. . .
— Do you want short-term or long-term protection?
— I was thinking about buying 60 days out, 10% OTM. What do you think?
— If it fits your portfolio management, more power to it.
— OK, let’s do it.
. . .
— OK, I got a contract here. QQQ, 57 days out, 170 strike price, $70 per contract. Very liquid. How many contracts do you need?
— I want to bring my Delta down a little bit so 3 contracts will do the trick.
— Deal. $210 for 3 contracts.
. . .
(After the meeting, the broker calls his colleague. With the proceedings, he buys 3 puts, five strikes below the 170 just in case something goes wrong, netting a 4.8% ROI.)
… day 1
… day 2
… day 3
… day 57
. . .
— The market didn’t crash and the contracts expired worthless. I need some more protection for the next 60 days.
— Jolly good, Sir. I got this one that expires 62 days from now…
. . .
The wonders of the free market. For every buyer, there must be a seller and both should be better off after the transaction is settled.
This is how you protect your portfolio.
And this is how you cashflow with credit spreads.
Chart of the Day
In the chart above you can see how the deal was settled between the parts. The client’s portfolio is now protected with a long put. The broker who sold the contract bought a long put for himself with the proceedings, ending up with a nice bull put spread.
Video of the day
How to use the Clubhouse at Tackle Trading
In this video, Coach Tim Justice explains step by step how to use Tackle’s community platform, The Clubhouse.
Today’s line up
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