Terry’s Tips Track Record Update - August 24, 2010

In late June, 2010, for the first time ever, the CBOE offered Weekly options on many popular ETFs and stocks, including our favorite, the S&P 500 tracking stock (SPY). The new Weekly options dramatically changed the way we carry out our option strategies at Terry’s Tips.

For almost a decade, Terry’s Tips has carried out option strategies in several actual accounts for subscribers to follow (or mirror if they wished). Having actual accounts meant that all commission and slippage costs would be accurately included in our results. Over the years, an average of 8 portfolios were conducted at any given time, some using different underlyings and variations of our basic option strategy.

Regardless of the portfolio variation, the underlying idea of the strategy is that the decay rates for short-term options is considerably higher than that of long-term options. We own the longer-term slower-decaying options and sell to someone else the short-term faster-decaying options. Calendar spreads at several different strike prices, some above and some below the stock price were usually placed and adjusted as the underlying stock price fluctuated in both directions.

Before Weekly options came on the scene, we usually bought LEAPS (or other longer-term options with many months of remaining value) and sold current month options against these long positions. Then we sat and waited 4 or 5 weeks for the short-term options to expire (and then they were rolled over to the next month).

The highest rate of premium decay took place in the final week of an option’s life, and we had to wait 3 or 4 weeks each expiration month for that final week to appear. When the new Weeklys appeared, we could enjoy that higher decay level each and every week.

So we changed our basic strategy. We replaced our earlier strategies which we called the 10K Strategy and the Mighty Mesa Strategy with the Optimum Weekly Strategy. Our long options only have 1 to 3 months of remaining life, and we sell new Weeklys against them every 7 days. We have added vertical spreads for adjustments on Thursdays, and diagonal spread have replaced calendar spreads at many of the strikes.

The Optimum Weekly Strategy is more complicated than anything we have ever conducted, and commission costs are huge, but we believe that the profit potential is greater than anything we have ever experienced in the options market.

Because of the dramatic changes in the way we are carrying out our strategies, the historical records of the portfolios before we made these changes are pretty much irrelevant (except to give you an idea of the potential of our basic strategy).

From this point on, we will be frequently updating how well the new Optimum Weekly Strategy is performing for all of our (currently 7) portfolios. The start date will be the second week in July which was the first time that we had converted the portfolios entirely to the new strategy.

SPY “Neutral to Bullish” Portfolios – Composite Gained +1% for the 6-Week Period

There are 4 portfolios in this group, all of which use the same basic strategy. Investment size ranges from $1000 to $10,000 and one of them, Big Dripper, withdraws cash every month regardless of how well the portfolio performs.

While the price of SPY was flat during this period ($106.66 to $107.53), up .8%, mid-week volatility was unusually high (over 3.5% in each of two weeks), depressing results.

SPY Bearish Portfolio (Big Bear) Gained +5.5%

While market volatility hurt this portfolio as well, it was nice to see a gain even though the price of SPY rose slightly during the six-week period.

Gold Bug (GDX Underlying) Gained +10.1%

GDX went up $2.74 (5.6%) during the six-week period, helping the bullish-leaning portfolio.

William Tell (AAPL Underlying) Lost – 12.9%

This portfolio does not employ our basic 10K or Mighty Mesa Strategy but is a demonstration portfolio designed to show how an option portfolio can outperform an investment in the stock of a company that you believe will move higher. Unfortunately, Apple has lost $17.36 of its value since the portfolio was established, and a loss has resulted.

Check Back Often:  Every month during the last week of the calendar month, this Track Record page will be updated.

Back to TOP