Hello once again! It’s been all but a day since my last post and already I have more to share. I trust today is going well and the Holy Spirit is guiding every step. I read a quote recently that I really liked and I hope you do also, it reads; “My greatest fear is having left this life asking too little of God”. With that, today ask Him for anything and everything with confidence at just the right time the request will be answered.
Now, if you’ve been paying attention to the market this year you’ll likely know we’ve been jumping to one new high after another. A market that has certainly treated me well and one I wish would continue perpetually. However, while the last 15-20 years have been stellar I can’t help but wonder if the gravy train will eventually end. As such, I’m an advocate for being ready when an inevitable decline does commence. Only problem is, I don’t want to pay for that protection.
Buying puts is great but that’s largely just been a sunk cost in this epic bull market we’ve all enjoyed. Outside of the Covid pandemic or possibly the mild bear market of 2022 we’ve enjoyed a pretty stable ride. Still, I want to be ready and in today’s post I want to share what I’ll be doing in my options trading account for the next few months. This is more of a trial run to thoroughly test out the idea but if it works as I intend, it will likely be just another arm to my overall strategy.
Post Agenda
My Complete Investment Strategy
First, I thought it would make sense to revisit my overall strategy. It’s been a while since I shared what I was doing across all of my portfolios. The last post I shared about it was back in May titled, “Half way through 2024… Cleaning up my Financial House”.
Most of the buckets still exist as described, although I’ve moved away from individual equities in favor of ETF’s. Regardless, here is a full breakdown of my bucket system as it stands today with some relevant metrics on performance to provide better context. Additionally, the total return column includes all dividends received since I began the bucket system earlier this year.
Bucket 1 – Cash | Treasuries | Bonds
| Asset | Total Invested | Total Return |
|---|---|---|
| IUSB | $2,047.22 | $68.36 |
| USFR | $11,300.32 | $201.12 |
| SGOV | $9,152.83 | $224.55 |
| Cash | $5,827.30 | – |
| TOTALS | $28,327.67 | $494.03 |
Bucket 2 – Income
| Asset | Total Invested | Total Return |
|---|---|---|
| ARCC | $229.63 | $11.97 |
| EPD | $290.27 | $5.71 |
| FDUS | $177.06 | $5.49 |
| FEPI | $319.78 | $2.71 |
| HTGC | $178.82 | $3.82 |
| ISPY | $172.84 | $3.94 |
| IVVW | $249.13 | $13.88 |
| JEPI | $169.78 | $4.63 |
| JEPQ | $219.14 | $2.20 |
| MAIN | $299.25 | $14.22 |
| QQQI | $306.77 | $14.77 |
| SPYI | $301.48 | $10.16 |
| VUG | $691.16 | $85.66 |
| YMAG | $183.99 | $4.85 |
| YMAX | $175.81 | $0.52 |
| TOTALS | $3,964.91 | $184.53 |
Bucket 3 – Equity ETF’s
| Asset | Total Invested | Total Return |
|---|---|---|
| GLDM | $1,185.19 | $134.81 |
| QQQM | $2,739.81 | $87.59 |
| SCHG | $1,754.47 | $88.83 |
| SLYG | $882.15 | $57.13 |
| SPLG | $2,251.28 | $143.45 |
| VTI | $2,699.73 | $174.67 |
| XLP | $857.04 | $54.95 |
| TOTALS | $3,964.91 | $742.18 |
Bucket 4 – Long Term Holdings
| Asset | Total Invested | Total Return |
|---|---|---|
| BND | $1,165.97 | $29.35 |
| DGRO | $1,532.14 | $127.56 |
| SCHD | $1,348.27 | $125.50 |
| SLYV | $822.95 | $57.38 |
| VGT | $2,189.12 | $200.31 |
| VNQ | $1,039.40 | $137.38 |
| VO | $1,236.75 | $111.00 |
| VT | $2,147.89 | $130.91 |
| XLE | $1,528.62 | $20.30 |
| XLU | $1,271.03 | $192.80 |
| TOTALS | $3,964.91 | $1,132.49 |
Bucket 5 – Market Crash Protection | Options
| Asset | Position | Total Return |
|---|---|---|
| /MES | -2/4 Put Ratio Spread | – |
| Cash | $3,015.22 | – |
| TOTALS | $3,015.22 | – |
A few things you’ll notice or at least the things I notice are that each bucket is performing as intended. My growth driver for the income bucket is pulling its weight. Additionally, I’ve abandoned individual stocks because I just got tired of watching one equity or another tank on some news event or earnings call. I much prefer the ETF’s but I realize there is significant overlap. The only thing I can say about that is, for now I’m ok with it.
You’ll notice that my cash bucket is producing cash in the form of dividends and you’ll also see I’m heavy on treasuries. That is only temporary as I DCA into other positions. I just didn’t want the cash sitting idle. Lastly, you’ll see that the options account is mostly idle and that the cash there is rather low. I have some additional capital available in my savings account earning a decent interest rate that is earmarked for the options account if needed. For now, I’m just going to keep collecting the monthly interest and in the next section I’ll indicate how I plan to maximize that $3K to pay for my options trades and get free market crash protection.
Free Market Crash Protection Plan
Now that you can see exactly what I’ve been up to, it’s time to turn our attention to how I’m hoping to gain free market crash protection. A bold claim, I admit. However, once you see the rather conservative plan, I think you’ll be surprised.
First, I’m going to convert the entire cash balance into USFR – Floating Rate Treasury ETF. By doing so I should, at current interest rates, be able to collect approximately $150 per year in cash. Assuming of course the money isn’t needed for the next portion of this plan.
Next, using Tastytrade’s favorable margin requirements I’ll be able to initiate a cash secured put on SCHD. Sure, SCHD won’t return much in premium but over the course of a year, I’m hopeful to receive another $100-$200 in premium. My initial plan is to roll puts if they go ITM but I am willing to take ownership if needed. Doing so would eliminate any income from USFR but I would be able to replace that by selling calls on the 100 share stake. For more information about trading options on SCHD, here is the post I wrote yesterday that sparked this latest thought process. That post is titled, “Options Trading on SCHD?“
Lastly, I plan to use the income to purchase either ratio spreads or outright put options and secure that free market crash protection I’ve eluded too. Is it possible? I believe it is but time will tell if I’m able to make it work. In all, my expectations with regard for return on this account is low to zero. However, my aim is to never be without a few puts of /MES in my possession in case the market craters randomly.
Final Thoughts
As a brief review, I’m planning on continuing to dollar cost average into each of my accounts as their listed above. And at current, I don’t have any plans to alter the structure of my bucket system. I’ve been happy with the result thus far. The biggest change is how I’m implementing my options strategies.
I’m hopeful to maximize that relatively small amount of money by using the favorable margin requirements at TastyTrade. Their fees are reasonable and I don’t have to have the bulk of that capital just sitting on the sidelines while I sell puts against SCHD. If I’m in danger of being assigned I will of course have to liquidate that USFR position to buy the SCHD shares. However, as long as I can get about $10 from each call I’ll be able to replace that income. Income that will then be used to buy more puts or initiate new ratio spreads.
Finally, what I hope you’ve taken away from this post is two fold. One, I’m never taking on staggering amounts of risk. I’ve seen too many people attempt similar ideas by opening naked puts as a part of their ratio spreads or attempt other outlandish options strategies to buy protection. By utilizing USFR & SCHD, both relatively safe investments, I should be able to generate enough cash to buy some further out of the money puts. Puts that will hopefully skyrocket in value should the market fall.
Should the market continue onward and upward, I’m really no worse for the wear. Leg work is minimal and barring any unforeseen issues all the ducks appear lined up for a swim. I guess time will tell us all how it works out.
Until the next post.
God bless,
Jeff
