About

Beware the investment activity that produces applause; the great moves are usually greeted by yawns. — Warren Buffett

Our investment objective is to achieve capital appreciation and steady returns in any market environment by selectively developing and actively managing an equity portfolio comprising both long and short positions, as well as options related to those positions.
Below is a depiction of a typical portfolio analysis and how we create a "business plan" to manage investment portfolios for our clients.

1. Investment Plan: Mission Statement 
The investment plan mission statement should state the goal of the portfolio as well as the starting portfolio value, benchmarked growth goals and the strategies that will be initiated within the portfolio. 
Also, the mission statement will need to break down the allocation of assets into each selected strategy. It is important that investors stick to the allocation percentages. Finally, the mission needs to state why this will be a formula for success.
Please remember that it is important to select trading styles that are appropriate to meet YOUR risk profiles. Every trading plan will be unique. 
Investment Plan 
“Plan the Trade, Trade the Plan”
Starting Portfolio Value: $50,000
Target Annual Portfolio Growth: 10-15%
Option Strategies Initiated: Vertical Spreads, Butterflies and Iron Condors
Portfolio Overview: 
The portfolio will use equity options to utilize option spreads that will take advantage of the time decay factor of options. The portfolio will attempt to remain as Delta neutral as possible to avoid volatility whiplash. The trades will target out of the money options that have a high probability of expiring worthless in an attempt to collect option premium and reduce risk.
Portfolio Allocation: 
15% Non-Directional Strategies: Low-risk, high probability non-directional option spreads that target range bound markets using exchange traded funds (ETFs).
80% Spread Strategies: Low-risk, high probability vertical option spreads that collect time premium.
5% Hedged Strategies: OTM long-term $SPX put positions to hedge overall negative portfolio Vega risk. 
2. Investment Plan: Strategy Analysis 
The section provides a detailed analysis of the investment strategy that will be utilized. It is important that each strategy has its own set of rules that are unique. What works as a stop loss for one strategy may not for the other. Examples of questions that may need to be answered are:
  • Maximum allocation and risk on each trade
  • Minimum acceptable return on equity
  • Specific details regarding expiration
  • Underlying stock specifics
  • Volume & bid/ask requirements
  • Analysis of Implied Volatility 
Specific Trade Rules Regarding Non-Directional Positions: 
  • No more than 50% will be put at risk in an individual non-directional position. For example, if the overall portfolio allocation at the inception of the non-directional position is $1,000, the non-directional position may not have a potential loss of more than- $500. This rule will keep the portfolio diversified from individual risk.
  • A minimum of 50% probable return is required for a non-directional position to be considered. For example, if the potential loss on the non-directional position is -$500, the potential return must be a minimum of -$250.
  • No more than 45 days until expiration may remain when a non-directional position is opened. For example, if the non-directional position has 56 days until expiration, the position would not be acceptable and will be re-assessed when expiration is 45 days or less.
  • A stop loss target must be set before opening a non-directional position. This target should not exceed 50% of the potential loss on the non-directional position (see rule 1). For example, if the potential loss on the non-directional is -$500, a stop-loss must not be above the -$250 loss level.
  • If a non-directional position achieves 50% of potential profit with more than 3 weeks until expiration, it must be closed out for a profit. At this point time decay will be negligible and the position will be at higher risk to give back gains from rises in the underlying price or volatility.
  • Underlying issues with high Betas and high Average True Range’s (ATR) should be preferred non-directional position candidates. This is important because low Beta underlying issues typically have lower premiums priced into the options, which increases the risk and commission levels of the trade as well as lower the returns on equity.
  • Candidates must offer tight bid/ask spreads and heavy underlying volume of at least 10 million shares per day. Attempts to open non-directional position on low volume, illiquid underlying issues will lead to wide spreads and higher commissions as well as poorer returns on equity. Also, the non-directional position targets should be mainly Exchange Traded Funds (SPY, DIA, etc.) that mirror Market Indexes.
  • Delta risk will be weighted on the overall portfolio. However, attention must be paid to individual non-directional positions’ Delta as well. For example, the portfolio will attempt to maintain a near Delta-neutral position to offset systemic whiplash.
  • Implied Volatility levels must be comparable to Historical levels to attain targeted credit levels.  Higher IV levels will be preferred. For example, if the IV levels are 10% or lower than the HV levels, premium priced into the options will typically be poor, which increase risk and decreases returns on equity.
3. Investment Plan: Identification of Stocks 
This section of the investment plan focuses on stock selection. We recommend that new investors run a monthly screening to identify stocks that are suitable. For this investment plan, we have screened using the following conditions:
Market Cap: > $2 billion
Price: over $100
Average Volume: > 1 million 
In order to stay focused, this portfolio will narrow the list of tradable stocks to those that posses a market cap of more than $2 billion with a share price of more than $100 per share and average volume of at least 1 million shares per day. 
In this example, this screening led to the following list of tradable stocks:



4. Investment Plan: Conclusion 
The investment rules and strategies listed here will optimize potential returns while eliminating unnecessary risk. This portfolio is focused on generating sustainable levels of returns over long periods of time. Also, the strategies selected match the desired risk tolerance levels. It will be important that all rules are abided by at all times to optimize possible success.
Sector ETF Based Model Portfolios
Investment ObjectiveLong-term capital appreciationAggressive growth
Portfolio Composition7 to 8 sector ETFs on average2 to 4 sector ETFs
DiversificationMore diversifiedLess diversified
VolatilityLess volatileMore volatile
ETF Holding PeriodMost ETFs held 1 year or longer;
some held for 6 months
Most ETFs held 6 months;
some held longer
Tax EfficiencyMore tax-efficientLess tax-efficient
Suggested Account Size$60,000+$30,000+
Who investsInvestment advisers or
individual investors
Popular with Rollover IRA
and SEP-IRA
Investors with adequately sized
accounts and moderate risk tolerance
Investors seeking alternative to
investing in diversified domestic equity
ETFs
Investment advisers or
individual investors
Popular with investors seeking
aggressive growth
Investors with smaller sized accounts,
higher risk tolerance or longer time
horizon
Investors seeking alternative to
investing in non-diversified domestic ETFs
Investors seeking to enhance the
return of diversified portfolios
Sector ETF Based Model Portfolios 
The model portfolios pursue capital appreciation; income is secondary. Tax efficiency is considered in periodic repositioning of the investment portfolios. You can use either or both of the ETF model portfolios depending on the investment objectives of the individual account.
The Sector ETF model portfolios may at times include index funds like SPDR S&P 500 or cash equivalents like money market funds for diversification or capital preservation purposes.
The information contained  herein does not constitute a distribution, an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction in which such distribution or offer is not authorized. In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States (“US”) to or for the benefit of any US person (being residents of the US or partnerships or corporations organized under the laws of the US). 

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