Ask Mike:
I'm thinking about switching portfolios and need some advice.

Question:

Hi Mike,

I have been happily trading stocks and ETF s with you for a year. I now see volatility picking up and am thinking that it may be the time to look at your options ideas.

I auto trade with OptionsHouse. Can you give me your thoughts on the financial opportunity of trading covered calls in a flat market ,as we have had, versus what now appears to be the start of an increase in market volatility?

What are your thoughts going forward as to the best return going forward ? Stocks and ETF versus Options or a mix?

Thanks for your Wisdom.

Jim from Sarasota, FL

Mike's Response:

Hi Jim,

At this point, I can only tell you that I believe my net total return with my covered call strategy will dramatically outperform the other two portfolios.

However, with this portfolio being only 8 months old and with the new strategy that I have just added to it within the last couple of weeks, I don't have a historical record to prove that belief.

I also think the current rise in volatility may be short lived. So, I am not ready to assume that the success we've had with ETFs is going away. Even if volatility picks up, it will only take a few weeks before my mathematical models will have the new volatility factored in. The higher the volatility, the higher the risk, but the formula will still work for calculating Expected Moves and stop loss settings.

As far as which portfolio to follow... It also depends on how much money you have to invest and how risk averse you are. To adequately follow both the Market Trend, which is 50/50 stocks/ETFs and the Stock & Option portfolios, you would need at least $180,000. With the Stock and Option model portfolio, the minimum to be able to match me trade-for-trade is $100,000.

With $75,000 to $100,000, you can consider putting 1/3rd into the ETF Total Return and the rest in the Market Trend. With less than $50k, I would just follow the ETF Total Return.

My theory and back testing tells me the Stock and Option strategy will be, by far the best performer. But, I would like to have a few more months under my belt on this one before getting any more confident in its net performance.

Best,

Mike