Selling High Volatility. Real Trading Examples.
It’s been over half a year since I provided a couple of real examples of a strategy that can outperform the market. It’s interesting to summarize the results.
The strategy itself is described in this article.
I proposed two trades (in which I personally participated in real trading).
The first one was selling a put option on PayPal stock.
On November 6 2023, the price was around $55. As we can see today, that was practically the bottom. The stock remained in the 55–65 range all this time without significant growth. Considering the values as of today, August 14, 2024 , the stock has increased by 16%, while the S&P500 has risen by 20%.
But that’s the beauty of our strategy — we don’t need our stocks to outperform the market. We sold volatility that was three times higher than the volatility of the S&P 500. By selling a PayPal option and buying a SPY option, we outperformed the market by three times.
The second one was Medical Properties Trust (MPW)
On November 17 2023, the stock closed at $4.60. Today(August 14, 2024) close price was 4.68. In other words, the stock didn’t grow at all in a strong bull market, but we still made a good profit by selling put options. Since it was a risky play, I suggested using options that were far out of the money, with strike prices of 2 and 3. Despite the stock dramatically falling at the beginning of 2024, the price never dropped significantly below the 3 strike price. On average, these positions also provided around 20% annual returns. Considering that SPY call option costed around 6–7% per year, this position also resulted in nearly three times the market’s performance.
In the next article, I will discuss the ideal stock for this type of strategy at the present time (though with some delay, as the stock has significantly risen in the meantime). This stock is well-known to everyone; you might even try to guess which one it is)
