We’ve talked a lot about options this week, including how my Power Options service came about and my specific options trading strategy. As you may recall, it’s all about using my proprietary market-beating system to find fundamentally superior stocks, and then I do a second deep dive to find the right option to leverage the long-term, upside potential.
Today, I want to discuss how to build an options portfolio, which is an important part of options trading.
First, it’s important that you diversify. Just like with a stock portfolio, you must own the right mix to limit your risk and maximize your profits. With stocks, I recommend investors follow my simple 60%/30%/10% rule. In fact, I divide my Buy Lists into three distinct risk categories: Conservative, Moderately Aggressive and Aggressive. I encourage investors to allocate 60% of their portfolio to Conservative stocks, 30% to Moderately Aggressive stocks and 10% to Aggressive stocks.
When you do this, you give your portfolio the perfect mix of stocks that will protect and grow your wealth while giving you exposure to the kind of home run returns that will jolt your returns.
I apply this same diversification strategy in Power Options. My Portfolio is also broken into Conservative, Moderately Aggressive and Aggressive categories.
Conservative and Moderately Aggressive trades are mostly in-the-money call option trades on the bigger, slower-moving stocks. Simply put, they will be less volatile. My Aggressive trades are out-of-the-money call options. These spicier trades come from small-cap, lesser-known companies with big upside potential. So, expect high volatility with these trades. Given their volatility, my advice to my Power Options subscribers is to allocate no more than 15% of their options portfolio to my Aggressive trades.
The reality is you never want to invest all of your hard-earned money into just one trade. If you do this, you run the risk of your total investment being wiped out if the trade turns south. This is why I tell folks to never invest more than you’re willing to lose.
So, when you diversify your portfolio, it’s okay if your options trade doesn’t hit it out of the park every time. Not every trade will be a winner, what’s important is the overall return of your portfolio.
Since my Power Options service launched on Wednesday, I have been very busy building up my Power Options Portfolio. On Wednesday, I added six new Conservative options trades and then a seventh Conservative options trade today.
Every trade is a play on companies that posted strong earnings results in their most-recent quarters. In fact, every one of these stocks has posted at least double-digit earnings and sales growth. And they all beat Wall Street’s earnings estimates, too.
All seven options trades are currently under their buy limit prices, making now a good time to jump in before these trades take off.
But these are just a taste of what’s to come. I look to continue adding plenty more trades to my Power Options Portfolio.
The Editor (Louis Navellier) hereby discloses that as of the date of this email, the Editor (Louis Navellier), directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: