One of the “best” things for Leveraged Anchor happened in February and March. Up until that point, Leveraged Anchor’s success in a downward market was largely theoretical. We knew the math was correct, and that the strategy was retested in downward markets, but had not received a “real” market correction when investing.

On February 6, 2020, Leveraged Anchor rolled its short position and long hedge when the SPY was 333.72. Shortly thereafter, the markets began to experience some volatility. By the end of February, SPY had fallen 12.6%, the tracking account was shortened, and the Leveraged Anchor portfolio was up almost 9.5% from its high and 5.7% from the previous month. like.

With a market decline of 12.6% from Feb 6 and 9.3% from the previous month, Leveraged Anchor outperformed but declined 9.5% ((from the summit Not from the time it was hedged) was a little worrying and some concerns arose about what would happen if the market continued to fall. Well, keep dropping it. The market continued to plummet over the next few weeks. This rapid slump led to the strategy being reassigned for the short puts on March 23, 2020. At this point the market had fallen as low as 222.33 and was losing over 33% of its value. But in the same period The leveraged anchor rose again.

In other words, as of February 6, 2020, SPY fell 33.4%. During that time, Leveraged Anchor fell just 1.1%. Leveraged Anchor did even better than expected. The double benefit of a large spike in volatility increases the value of the puts and the benefit of using a 90 delta call proved more efficient in a large down market. A 90 delta call loses $ 0.90 for every $ 1 SPY decline. When SPY decreases, so does the delta. In practice, the more dramatic the market decline, the less dramatic the option.

It was then that we realized that the market would eventually recover – and Anchor would not. (If the calls increase in value and the puts decrease in value, we would have been lucky enough to “stay straight” on a rebound). However, our puts were so much cash that we could roll them off, take profits, and free up cash. and Keep the delta of the put above 90. In other words, if the markets continued to decline, we would not suffer from a hedge.

In April, when it looked like the markets were going to return (SPY was already back up to 280), we did just that. Then, with that free money, we increased our position size, which allowed the strategy to participate in some of the upward markets. It won’t be dollar for dollar of course, but if Anchor falls 1% when the market falls 33%, and Anchor rises 25% when the market rises 50% (onAfter a 33% market decline, a 50% recovery is required to break even again. Anchor has a lead of over 20%.

Interestingly, if we had lowered the puts and increased our size when SPY was at 222 as opposed to 280 instead of going from 7 to 8 call contracts, we would have gone from 7 to 10 and Anchor would have ended that year one another plus of another 10%. I know at least one member who has successfully ticked the market and gained over 10% more. To know that the strategy could have worked better than them is just amazing.

As the strategy became successful, we began to think about how we could improve it further, and an obvious solution came up – diversification. Long-term (and Leveraged Anchor is a long-term strategy), diversifying into different stock classes is practically always better than volatility, while reducing volatility at the same time. This also led to the birth of Diversified Leveraged Anchor in April 2020.

The timing of the start couldn’t have been better. Over the past few years, the S&P 500 has been the best or one of the best asset classes. However, in the next few months it would lag behind others.


Members are invited to read the Leveraged Anchor Implementation to see what their expectations are when the anchor is launched.

image.png


Above is a table showing the performance of SPY, then using 25% leverage, 50%, and 75% leverage after certain markets move over a 30 day period. After reviewing the above and similar tables over long periods of time, we decided that using 50% leverage was optimal. As you can see, the strategy has performed better than expected in both the bull and bear markets. If the market is down 40% or more, the portfolio is actually in positive territory.

Leveraged Anchor (SPY only) was up 31.7% year-over-year, while the total return on the S&P 500 was 18.4%. That is an incredible result. However, after applying diversification, the results improved even further. The following results are from the time the diversified strategy was launched (April) rather than the start of the year. The dates listed are the actual days that trading took place:

image.png


The power of diversification is easy to see. If the strategy had only stayed at SPY, it would have returned 35.93% below the performance of any of the other three indices. The mixing increased the performance by nearly fifteen points to 50.74%. We would expect such results every year that the S&P 500 is not the best performing index.

In the coming days we will be:

  1. Rebalance between indexes if necessary; and

  2. Researching long call rolling strikes to increase the money and strengthen the position.

Rebalancing is a simple matter and needs to be done regularly to maintain balance between each part of the strategy. However, possible tax consequences, changes in leverage and, since no partial options are available, what the possible results of the realignment will look like, must be taken into account.

Similarly, passing on the long calls to increase position size (leverage) must be weighed against tax concerns. It makes little sense to increase the leverage by a few percentage points if there is a significant tax impact that can be avoided by waiting a few months.

One of the questions we are often asked is, “Under what circumstances are you likely to lose money in your account?” We covered this in the article The Downside Of Anchor.

Another question is “How do newbies catch up” so that they all play in the same game? ” The members’ forum has a specific topic with detailed instructions on how to start a new portfolio.

While I know 2020 has been a tough, even tragic year for many people, it certainly wasn’t for Anchor, and we hope that a growing portfolio that uses this strategy has at least helped somewhat. Not only did the strategy outperform the markets, but it also allowed our members to sleep well at night and not worry about market timing.

As always, if you have any questions or suggestions please don’t hesitate to post them. Anchor has gone through an incredible decade of evolution to get to this point and I’m always open to improving it in other ways if possible.

Christopher Welsh is a licensed investment advisor based in the State of Texas and president of an investment firm. Lorintine Capital, LP This is a general partner of three different private funds. He is also an attorney practicing in Dallas, Texas. Chris has been practicing since 2006 and is a CERTIFIED FINANCIAL PLANNER ™. Working with a CFP® expert is the highest standard for advice on financial planning. He offers his clients investment advice both in the legal practice and outside of it. Chris holds a BS in economics, a BS in computer science from Texas A&M University, and a law degree from Southern Methodist University. Chris can do it Anchor shops Portfolio and oversees Lorintine Capital

On the subject of matching items:

LEAVE A REPLY

Please enter your comment!
Please enter your name here