June 10, 2020 – Welcome back to another post dealing with an investing strategy that’s central to our own retirement strategy here in the ERN household. Just a bit of background: about 35% of our financial net worth is currently invested in this strategy. But it accounts for more than 50% of our taxable assets, so for our early retirement cash flow planning, this is really serious business. This puts food on the table in the ERN household!
If you’re not familiar with this strategy, I’ve written about the topic of option writing to generate (retirement) income in general and my personal approach here:
- Trading derivatives on the path to Financial Independence and Early Retirement
- Part 1 – Intro
- Part 2 – Extended Intro
- Part “2.5” – Trading like an Escape Artist: October 2018 update
- Part 3 – Strategy details as of 2019
- Part 4 – Surviving the 2020 Bear Market!
- Part 5 – A 2018-2020 backtest: Guest Post by “Spintwig” (plus a quick update on last week’s volatility)
- Part 6 – A 2018-2021 backtest with different contract sizes: Guest Post by “Spintwig”
- Part 7 – Careful when shorting long-dated options!
- Part 8 – A 2021 Update
- Part 9 – A 2016-2021 backtest: Guest Post by “Spintwig”
The first three links are more about the general philosophy and the last link, Part 3, is about how I’ve been running the strategy most recently. The strategy involves writing (=selling/shorting) put options on the S&P 500 index with a little bit of leverage. And one can also keep the majority of the account in income-producing assets (bond funds, preferred stocks) to generate additional cash flow. Sweet!
In light of the recent market volatility, of course, it would be a good time to do an update on my strategy because I’ve gotten a lot of questions on how that strategy has been holding up during the bear market. Did it blow up? You are all a bunch of rubbernecks, aren’t you? 🙂
Long story short, my strategy did pretty well so far this year. Not just despite but even because of the volatility spike. Let’s take a look…
Continue reading “Passive income through option writing: Part 4 – Surviving a Bear Market!”