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Top Dogs: Managing a Small Account

Small Accounts | Adjusting to Market Environments (6 of 6)

Top Dogs: Managing a Small Account

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

This is the final installment in a six part series on constructing, maintaining and managing a portfolio for a $50K IRA account.

When we did last week’s segment the market was halfway through the first major rally of 2016. The S&P 500 jumped 7.5% week-over-week. Our portfolio was moderately long delta. We were successful in meeting one of the primary goals of an IRA portfolio, minimizing volatility. Profits were consistent and relatively stable despite the large movements in the market.

Making changes to the derivatives around a core position must be done with the market environment in mind. The high volatility and 23 days to expiration (DTE) means there is still too much extrinsic value left to make an adjustment to our short options. A review of our portfolio shows that we have used only about ⅔ of our capital. It is better to use some of that free capital so we added an Iron Fly in GLD. It has, over the longer term, a low correlation to the overall market and currently has high implied volatility, making it an attractive candidate for selling options. We still have excess capital to take advantage of high probability trading opportunities.

Watch this segment of “Top Dogs for Smaller Accounts” with Tom Sosnoff and Tony Battista for a review of our portfolio and insight into the reasons behind our management.

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