Options Sage submits:
“Never risk what you do have and do need on what you don’t have and don’t need”
Smart portfolio management is a world apart from conventional portfolio management. While conventional portfolio management offers generic guidelines to diversify capital, smart portfolio management is tailored to your personal circumstances. With that in mind this article has been divided into a three-part series. The first discusses a $10K portfolio while the second will offer suggestions for a $100K portfolio and the final article will discuss $1M portfolios.
Although this first article in the series addresses prudent strategies for a $10K portfolio, many conservative investors are likely to find the strategies addressed throughout suitable for their own portfolios – though the % allocations will differ as we will see in the future articles. No matter what your risk tolerance, a portfolio comprising some relatively conservative trades is always prudent!
$10,000 Portfolio
Phil once commented that, when trading a $10,000 portfolio, “every $100 counts”!
Capital should be allocated judiciously in a $10K portfolio. NEVER allocate a majority of your capital to any single trade. Dedicating 20% of your portfolio to relatively conservative trades (shown below) is appropriate but exceeding 30% is far too risky when dealing with limited capital. With a $10K portfolio, it becomes increasingly imperative to be right first time. Financial constraints limit your ability to scale into trades at different threshold levels and that makes timing critical unless….
Unless you figure out how to trade without requiring perfect timing of the market! Those of you trading along with Phil’s earnings spreads have already seen some of the ways we take advantage of stock movement, whether they go up, stay flat or even drop to some degree…
Strategy A: The Covered Call – With a Twist
Instead of placing the short call out-of-the-money in the conventional format, the short call is actually placed in-the-money.
Example 1: 10% in 7 Weeks
C closed on Friday at $4.37. Since the C has had come down a lot , we’re a lot more comfortable establishing a position. Rather than spending $4.47 a share for the stock, we can leverage $500 and buy 5 June $3 calls for $1.40 ($700). C was at $5 two weeks ago and hasn’t been lower than $3.15 since July of 2009), an in-the-money bullish call spread can be employed which will produce a 10% return in 7 weeks should the ETF keep rising OR stay flat and it leaves you with a profit even if the ETF pulls back 10%.
IN PROGRESS
