My philosophy on investment is very simple. No gimmicks, you don’t need PhD to understand it. I have everyday common sense approach to investing
Buy at discount to current market price: I am a bargain hunter and look for buying stocks / ETFs at discount from the current market price. If I like it at current market price, I will love it at discounted price. If someone promises me to sell it at discount, I am willing to wait for some time. Selling Puts is favorite trade for this
Consistently reduce the cost basis of holdings: Once I have the stocks/ETFs in my account, I would like to reduce the cost basis. Do that by generating cash flow from the stock holdings. Receiving dividend is one way of reducing cost basis, but then you’re dependent on company management to pay dividend. I’d rather create my own cash flow stream on stocks. I sell Covered Call (Out of money) to reduce cost basis
Sell at higher than market price: No brainer. If there’s an opportunity to sell at higher than the current market price, why not ? I can wait for a few days if someone promises me that they will buy at higher than current market price. I sell Covered Call (with higher delta) if I want to sell the shares
Context awareness: While I am firm believer in the fact that no one can predict the direction of a particular stock / ETF in short term, I still keep an eye on the larger context playing out. What’s the drift in market? Where is the tide flowing?
We all know that rising tide help all boats – whether it is a super expensive yatch or a small dingy boat. Similarly a positive drift in market helps all stocks and a doom and gloom will push down everyone. Hence keeping market context is helpful . I use directional option strategies to express my market opinion
Higher Probability of Profit: For me, higher probability of profit is more important than higher $ amount of profit. Higher probability trades help me generate consistent income stream and that increases confidence. That’s reason why I focus on Out Of Money Options Selling because these trades have higher probability of profits
Reduce Volatility in Portfolio value: I use option strategies to reduce the volatility while keeping the average return same . So I don’t like to hit the ball out of park in one month and and then lose for next few months. I would rather prefer small gains consistently every month