The 2012 Track Record at Terry's Tips
We carry out 8 portfolios at Terry’s Tips. Any subscriber who mirrored the trades of all 8 portfolios would have gained 39.7% after commissions for the first two months of 2012. Six of the 8 portfolios had gained in value. The only losing ones were a strictly bearish portfolio (the market rose 9.4% during this time) and a non-10K Strategy portfolio that lost only $510 and was discontinued because the special circumstances that caused us to set it up had changed dramatically.
Most investors would be happy with a 20% gain in a year. We almost made that goal in each of our first two months.
The Long-Term Track Record at Terry's Tips
Terry’s Tips has operated sample option portfolios since 2003 for their subscribers to follow or mirror in their own accounts. These portfolios are actual portfolios, and results include all commissions that an investor would pay at thinkorswim, Inc. by TD Ameritrade. Many option newsletters conveniently (for them) do not include commissions in their performance numbers. This makes their results look a lot better than they actually are because commissions are a significant cost of trading options (unlike stock trading which involves much lower commissions).
In 2003, two actual Terry’s Tips portfolios racked up an 80% average gain for the year. However, 2004 was awful, and most of the previous year’s gains were lost. This experience caused a dramatic change in the strategy.
The 10K Strategy
We called our new way of options investing the 10K Strategy (it is not a marathon nor a sprint, but somewhere in between). The 10K Strategy had three consecutive years where the portfolios outperformed the market by a large margin. In fact, the average gains were over 50% for a 3-year period (2005. 2006, 2007). However, in the market crash in the fall of 2008 our portfolios fell by approximately the same amount as the market in general (our most popular portfolio managed to make a small gain for the last six months of 2008, however).
New Weekly Strategy
In March 2011 (after experimenting with several different ways to trade Weeklys), we settled on a modification of the 10K Strategy which we call the Double Diagonal Strategy. In late 2011, we set up two new portfolios that use a double diagonal strategy. They own true LEAPS, both puts and calls, and sell Weeklys against them. Since both puts and calls are employed about equally, these portfolios are our most conservative, and both of them were trading above their $10,000 starting value two months after they were established.
We conduct 3 portfolios using SPY Weeklys. One portfolio, 10K Bear, is designed to rack up huge gains only when the market falls, and can be used as a hedge against other investments that do best if the market goes up. In the expiration month ending in November 2011, this portfolio gained 73% while the stock fell 14%.In the first two months of 2012, the market gained 9.4%. causing this bearish portfolio to lose 47%.
The Weekly portfolios are not appropriate for the faint of heart – commissions are extremely high because of the frequent trading, and double-digit weekly changes in portfolio value (in both directions) are quite common.
One long-standing portfolio (called Boomer’s Revenge) was set up with the 10K Strategy trading only the monthly options in February 2009 and gained over 61% in its first 14 months until the Weeklys came on the scene. We made an unwise choice to switch this portfolio to trading Weeklys before we had developed a firm strategy to handle them. In early September 2010 we stopped trading Weeklys in this portfolio and returned to the monthly options exclusively. The portfolio has enjoyed some consistent gains since then (although unusually high volatility in the fall of 2011 has depressed results somewhat).
Shoot Strategy Demonstration Portfolio
For several years we have maintained a portfolio which shows how options can outperform the purchase of stock in a company that you believe will go up in price. This is an entirely different strategy than the 10K Strategy that we use for our other portfolios (which makes the assumption that we have no idea which way the market will move in the short run).
If you are correct and the stock you choose goes up in value, the Shoot Strategy should produce a much greater percentage gain than the stock makes. If the stock stays flat, a small profit should also be made. If the stock falls a little bit, the portfolio could break even. However, if the stock falls more than a little, the portfolio could incur a greater percentage loss than the stock.
The Shoot Strategy is similar to buying stock on margin in some respects, except that no interest is paid, and the portfolio should make money if the stock stays flat (two features that make this portfolio better than buying stock on margin).
Over the years, different companies have been used in this demonstration portfolio, and many times, over 100% annual gains were achieved. From April 2010 until the present, we have conducted only one Shoot Strategy portfolio, this one using AAPL as the underlying (we call it the William Tell portfolio). We started the portfolio at the end of April 2010.
We were lucky. By the end of February 2012, AAPL had gained 104%. The actual William Tell portfolio has gained 539% (after commissions), proving that the Shoot Strategy works as promised if the stock goes up. The options portfolio gained more than 5 times as much as the stock.
Once Terry’s Tips subscribers see how the Shoot Strategy works, they can conduct it themselves on almost any stock that they believe is headed higher.
For more than 8 years, Terry’s Tips has conducted actual portfolios for paying subscribers to follow (or mirror in their own accounts, or have trades placed for them through Auto-Trade at thinkorswim, Inc. by TD Ameritrade). In most of these years, the option portfolios have beaten the market averages by a very large margin. In some years, the portfolios have incurred losses similar to the magnitude of the market losses.
Option trading involves leverage, and leverage works in both directions. Gains (and losses) are often greater than changes in the market. However, we have tried to minimize the losses in down years so that our losses are less than those of the markets in general, and to enjoy greater gains than the markets in good years. Most of the time, we have been successful in carrying out these goals.