At Strong Back Financial, we recommend a well-diversified portfolio for our clients. Most plans will have an aggressive investing component that should yield larger gains to grow savings faster. For advanced investing clients, we recommend taking 10% of the aggressive investing portfolio and utilize a strategy we call hitting singles and taking LEAPS.
Our steady growth plan is based upon selling put contracts. When one sells a put contract, they are betting a security will be valued above a target price at a point in time in the future. We use our system and research to select contracts that will yield over 20% annually (5% over 3 months, 10% over 6 months, etc.) If our bet is correct, then the contract expires with no further obligation, and we keep the money we made on the trade and recycle the profits into the next trade. If our bet is incorrect, we agree to purchase the security at the target price and we own the stock. The nice thing about selling puts is that even if your bet is wrong, you end up with the underlying security and have something of value. This strategy can help accelerate your gains while limiting the downside to trading options and is a valuable tool in our investing kit.
A LEAP is basically a call option that has a target date beyond a year from the purchase date. Call options can yield fantastic results if your timing is sound and get into the right security (just ask Hillary Clinton). The issue with buying call options is that if you bet incorrectly, they can expire with zero value. Everyone dreams of buying a call option that pays out big. You can buy a contract worth a quarter and sell it in a week for $10 if your timing is perfect, but lottery-like wins are rare and extremely risky. We use the longer time frame in a LEAP and small position sizes to modify that risk profile. Our system and research targets call options that have a good chance of appreciating 100% or more.
Rational position sizes in each of these techniques adds gaining power to your portfolio while not risking a huge portion of your overall savings in case the unexpended happens. This strategy has proven to add 1-5% to a portfolio’s annual return – which can make the difference between meeting your savings goals and far exceeding them.
Subscribers to the Strong Back Financial planning service will also get the Hitting Singles and Taking LEAPs newsletter. This bonus will give you access to new option ideas every month to boost your performance. Please contact us at www.strongbackfinancial.com to learn more.