Pension Pot,Actual and Potential Part II of a Series

The £100k Pension Pot, Options, Risk

Did you know? For example a £100,000  pension pot equates to £4-£5k  option premium each month. Let’s say you have 2 negative months each year that’s still £40k– twenty times what you’d get with a savings account. Realistic? Alright halve that amount-trade conservative that’s £20k. Use your capital gains  allowance:

https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances

Of course there’s a downside. You have to make a trade each month. But which trade? Here’s our good buddies from Chicago on the subject: https://www.youtube.com/watch?v=pDz10RKJdp0

Many people are happy to trade naked -we are not. We are firm believers in strategies that offer some protection.

When Trades Go Bad

With a decent pension pot you have a lot of wiggle room, for trade adjustment. That might sound like nonsense, but consider this. You shorted the market  in March 2009 https://finance.yahoo.com/chart/%5EFTSE#eyJtdWx0aUNvbG9yTGluZSI6ZmFsc2UsImJvbGxpbmdlclVwcGVyQ29sb3IiOiIjZTIwMDgxIiwiYm9sbGluZ2VyTG93ZXJDb2xvciI6IiM5NTUyZmYiLCJtZmlMaW5lQ29sb3IiOiIjNDVlM2ZmIiwibWFjZERpdmVyZ2VuY2VDb2xvciI6IiNmZjdiMTIiLCJtYWNkTWFjZENvbG9yIjoiIzc4N2Q4MiIsIm1hY2RTaWduYWxDb2xvciI6IiMwMDAwMDAiLCJyc2lMaW5lQ29sb3IiOiIjZmZiNzAwIiwic3RvY2hLTGluZUNvbG9yIjoiI2ZmYjcwMCIsInN0b2NoRExpbmVDb2xvciI6IiM0NWUzZmYiLCJyYW5nZSI6IjEweSJ9 with a 4200 call, and took in great premium as volatility was high. Within a few months you are underwater as the market melts up fuelled by QE. You have to roll those calls up each month. You will play catch up for several years. That has opportunity cost.You cannot freely trade the calls you’d like to. Now imagine you’d used a strategy. Instead of those calls going from 20-400, your call strategy has gone from 20 to 100. Still annoying but it’s not terminal. Each month you can claw back a little.

When Trades Go Good

It’s all too easy to think you are a genius. The market is a fickle beast and bites the smartest. You need………… a plan. A ‘what if ‘. And that is what we try to show here. There is a great deal of data from folk like TastyTrade to help you decide what’s right for you. But, more importantly you have to decide how you are going to cope when things go wrong.

 

 

Filed Under: FeaturedInformativeLearn

About the Author: First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

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