What do we do ?
We specialise in stock trading strategies using options with common stock and Exchange Traded Fund (ETF) core holdings. The emphasis is on minimising downside risk and preserving capital, whilst still leaving the upside open. We publish trading strategy and are actively producing software products to support these ideas. We absolutely invest our own money in our trading strategies. We do not invest any of our clients money and we are not licensed to give financial advice.
Why Insurance with Options ?
With the 2008/09 financial crisis and ongoing volatile markets many people are looking at hedging mechanisms for protecting their stock portfolio. The traditional buy and hold advice has meant massive drawdowns for many people’s portfolios – with seemingly very little control on the outcome. The markets have bounced back from the period March 2009 onwards, but what if they hadn’t ? Many people had lost years of wealth in months, and potentially it might never have come back. If you lose 50% equity you need to make back 100% to get back to breakeven (A quick example is if $100 stock goes down to $50 (50% loss), then need a $50 gain (100%) to get back to parity).
Option trades can :
1) help dampened the pain in market declines sell offs,
2) generate cash on sell offs with which to buy more stock at lower levels (reducing average price) and
3) can be used to eliminate tail risk from a portfolio (e.g. save you from a catastrophic sell off in one year)
It is important to note that losing money on hedges doesnt make you “wrong”. Strategies can run and consistently lose money on hedges for many years, only to have the hedges save your
portfolio when the market sells off 50% one year. It is very hard to make consistently accurate predictions in the market. However statistically the longer the number of years you
have a significant portfolio invested in the market, the more likely it is that you could experience a massive drawdown along the way. As such having option hedges is just like insurance
- only useful when you need it.
However option hedges are not a silver bullet. The option hedges employed can lose significant value, if the underlying holding rises. If you arent comfortable realising hedging losses
through out the year (realised loss) you may not philosophically agree with these strategies.
We operate on an absolute return basis attempting to make money every year, but where that isnt possible we attempt to minimise losses. We dont typically compare
our performance to benchmarks such as the S&P 500. We will likely underperform a “buy and hold” approach when the market averages have very bullish years. As
a general statement, our trading strategies returns are not tightly correlated with the annualised returns of the major benchmarks and may have significant exposure in low beta
We dont publish annual portfolio returns, but we do publish lots of details results for individual trading strategies.
Volatility and Trading Strategies
Some of our trading strategies perform better in highly volatile markets. For example one trading strategy may perform better on a stock that is
essentially flat for the year, but had a wide trading range. Alternatively if the stock that steadily went up throughout the year and returned 10%, some of our trading strategies
returns maybe flat (due to loss of hedges).
Why the name “30 Day Trading” ?
We typically hold initial positions for a minimum of 30 days, but use options to define the maximum risk during that initial period. After that timeframe, we reassess trade
progress periodically daily or weekly. We can hold trades for medium term (3 months to 12months) to long term (greater than 1 year).
Some employees of FINRA organisations have compliance restrictions where any stock or option positions must be held for a minimum of 30 calendar days. Our strategies are designed to work
within those regulations. However this approach will still suit many types of investor who have medium to long term investment style.
This style also reduces commission costs, which can be a significant drag on returns if hedging strategies are overtraded.
Why is your company named “Freedom 2020″ ?
We are aiming to be financially free by the year 2020. It’s an aspiration and a target for our portfolio.
Please click through questions above, then next review our 30 Day Trading Plan