Recipe for Better Sleep: Lower Volatility + Higher Returns

Sean McLaughlin
January 10, 2023

In the Spring of 2022, JC came to me and said: “What do you think about managing an options income portfolio for me? I’m looking for some more strategy diversification in my portfolios. It doesn’t need to be anything sexy, just steady.”

Ok, I’m probably paraphrasing a bit, but that was the gist of his ask.

So I got to work on putting a plan together for him. When we looked at it together, it became obvious that we should offer this portfolio to the All Star Charts community who might also be interested in some further diversification. Even if people don’t take our trades, it could be a productive learning experience for everyone.

So we got to work and we launched the All Star Options Paid-to-Play (P2P) service in May 2022.

Each trading day, we either enter a new delta-neutral options credit spread in a liquid ETF (from a list of the most liquid Index and Sectors ETFs), or we play defense on an open position with an adjustment to put us in a better position to win. And we leave resting GTC (good-till-canceled) limit orders to close our credit spreads at profit targets which get filled periodically at the whim of the markets.

So far, so good.

Here is our calendar year 2022 Performance (launch date May 11th) with an overlay of S&P 500 performance:

As you can see, there were periods of time where we both out- and under-performed relative to the S&P 500. But more importantly, our portfolio experienced dramatically lower volatility than your typical S&P 500 index investor. And by year-end, we closed with a 477 basis points outperformance.

It was a challenging year for many equities investors. Yet we enjoyed smoother returns and a better (and positive!) end result – what’s not to love about that?

If you like to nerd out on performance statistics, we’ve compiled this screen of portfolio analytics, courtesy of our friends at Fundseeder.com:

If our annualized return continues trending the way it has been, I expect our Sharpe Ratio (which compares the return of an investment against its drawdown risk) will increase to north of 1.0 in 2023, which is the sweet spot for Sharpe Ratio enthusiasts.

If this sounds like something you’d like to learn more about and/or that might benefit your trading, head here to learn more about Paid-to-Play.

Trade 'em Well,

Sean McLaughlin (@chicagosean)
Chief Options Strategist
All Star Charts, Technical Analysis Research

Filed Under: