Hello all, I hope today finds you peaceful and well. I sincerely hope you know how significant God believes we are as his children. Truly, there is nothing He can’t or won’t do for us and I’m thankful for knowing that today.
With that, in this post I want to share with you my top 5 options strategies. Of the hundreds or possibility thousands of options strategies in existence I’ve whittled mine down to just these 5. Truthfully, outside of the strategies I’ll discuss briefly below I don’t even bother engaging in any others, for now…
I am the type of person that believes we’re all capable of improving no matter how good we are at something. So, while these are indeed my top 5 options strategies, I’m always on the lookout for winning strategies to put in my tool belt.
Also, before we begin, you should know at the outset I won’t dive too much into each strategy. My primary goal here is to introduce the strategies I believe are the best. You’ll have to decide if you agree or not. However, I’ll do my best to share some relevant resources as I introduce each strategy below to jump start your research into each.
Last thing, this won’t be you’re typical vertical put spread or buy an ITM LEAPS option post. These are truly my top 5 favorite options strategies of all time and the ones I use exclusively in my own trading at this point on my trading journey.
Post Agenda
- Options Collar Strategy
- Baby Rhino Options Strategy
- Wheel Strategy
- Poor Man’s Covered Combo
- Put Ratio Spread
1. Options Collar Strategy
First on my list also has the lowest amount of risk. In this strategy the trader would purchase 100 shares of a stock they like, sell an OTM call option, & buy an ATM put option. By doing this every bit of downside is protected by the long put option. Additionally, the long put is financed either partially or entirely by the short call.
Typically, when I utilize the options collar strategy, I elect to roll the options when the price moves either direction. Doing so would generate additional income, improve appreciation, or realign protection. However, as you’re reading this don’t begin to expect epic levels of return either. The markets are too efficient for that. By eliminating most or all of the risk our return really becomes nearer the risk free rate of return. Although, in my own trading I’ve seen about a 7% return on average. Which is slightly better than the 4-5% currently available risk free.
To get you started with this strategy you may like to have a look at this reddit discussion or this by the book explanation from Investopedia. Either will do well to get you thinking about the possibilities of this strategy.
If you’re the type of trader that likes being engaged each day then this options strategy may not be the most interesting. Generally, the options collar is slower in nature but the result is essentially a higher risk free rate of return.
2. Baby Rhino Options Strategy
Number 2 on my list is the baby rhino options strategy. If you’re interested to see a full post I did on this strategy here it is, “Baby Rhino Options Strategy”. Additionally, you may be well served to visit the traditional rhino strategy to get an understanding of how the position works as a whole. Here is a video from a youtuber discussing the strategy that I found very helpful as I began looking at the rhino options strategy myself.
In a nutshell, the strategy is simply a broken wing butterfly with an adjustment component as needed. Should the price move higher a calendar spread would be initiated to mitigate any delta concerns. Of course, the strategy is slightly more advanced than that but to maintain brevity, that is it.
The primary goal of the strategy is to collect some percentage of the maximum risk. I try to aim for around 10% on my baby rhino positions but as you’ll know, sometimes doesn’t quite happen. The strategy can require several adjustments and isn’t suitable for the newest of traders, in my opinion. You’ll want to have an understanding of the greeks and a firm grasp on what you want to accomplish before deploying this one.
Finally, the strategy is generally used on the put side but should we ever find ourselves in a protracted bear market, calls could easily be used as well.
3. Options Wheel Strategy
Admittedly, this is the first options strategy I found any sustained success with. Of all the options strategies I’ve tried consistency was just so elusive and that made trading almost a non-starter. However, after finding the wheel strategy I really started looking at options differently and I think you will as well. If you’re struggling to find a consistent strategy, then I would certainly start here.
The wheel strategy is probably every retail traders favorite options strategy for that reason. If you have enough capital to buy 100 shares you’ll start instead by selling a put OTM to collect the premium. Should the price rise, you’ll never take ownership of the shares and you get to keep the initial premium. Should the price decline you’ll be assigned the shares at the strike price and begin to sell OTM calls against those shares. If the shares rise again in price they will be exercised at the call strike price to complete the entire wheel cycle.
Here is a post from Options Alpha that breaks down the wheel strategy for anyone that may not be familiar. Additionally, I did a complete series on the wheel strategy on Youtube that you may be interested to see. Full warning though, don’t make the same mistake I did and choose a highly risky asset. It’s imperative to only trade stocks you are willing to own indefinitely.
4. Poor Man’s Covered Combo
Checking in at number four on my top 5 options strategy list is the poor man’s covered combo. The strategy, simply stated, is the combination of a poor man’s covered call and a poor man’s covered put. I made a Youtube video about it here that you may find interesting.
The strategy is just an expansion on the relatively well known poor man’s covered call. Which, funny enough, is a variation of the traditional covered call. Ah, the world of derivatives! In any case, if you have enough capital to use both the calls and the puts you’ll be astounded with the amount of income that can be generated. The poor man’s covered combo really opens the door for an adjustment just about any time you’ll want to make one. And all for a credit I might add.
In total, the strategy isn’t designed to protect the initial capital investment so some decay to principal can occur. However, the consistent levels of income usually more than make up for it when executed properly.
Lastly, do take a look at that Youtube video I linked, it will explain the strategy so you have a better grasp on the possibilities with this unique options strategy.
5. Put Ratio Spread
Last, but certainly not least is the put ratio spread. A strategy that I’ve talked about quite a bit in recent weeks as a form of portfolio protection. Here is a post I wrote a few weeks ago titled, “Ratio Spread Hedge” to discuss the strategy more completely. Honestly, I don’t know why this strategy just resonates with me so much. I think it plays on a few of my own personal quirks. One, I’m cheap, and this strategy gives me the ability to open an unlimited downside protection play at a cheaper cost than puts alone. Two, it offers plenty of adjustment opportunities. And three, it performs incredibly well when volatility spikes. All of which I really like.
That said, there is still a cost to this strategy if no plan exists prior to putting on the trade. However, the peace of mind that comes from knowing the bulk of your portfolio is protected is more than worth the small price.
Final Thoughts
Truly, these are my top 5 options strategies as of today. A list that I know many would charge an exorbitant amount to share. The hours and years that I’ve spent to determine these as my best couldn’t honestly be quantified. That said, if you’re reading this I hope you enjoy looking at each strategy and even building on to this list. If you do, please come back and share what you’ve found, I would enjoy hearing other winning strategies.
Until the next post.
God bless,
Jeff
