Synthetic Stock Strategy Details

Our third session on our synthetic stock strategy dug into the details of how we are using this strategy as a means to invest rather than simply trade.  We covered how to select a ticker (and why we are using only SPY), selecting an expiration month, and selecting a strike price.

We also talked about how and when to roll synthetics out in time and up in price, as well as the methods that we use for placing protective trades to ride through (and profit from) short term down trends.  Lastly, we talked about how we will allow our protective positions to become our primary investment vehicle during bear markets and how our bullish positions turn into the new protective trade while a bear market is in place.

The slides used during this session are available here.

Synthetic Strategy Overview

During our second session, we went through an overview of the strategy that we are using.  This is builds upon our introduction and explains how the strategy is implemented.  We focused on the difference between short term sentiment and long term posture and how that relates to investing with this strategy. 

The slides used during this meeting are available for downloading here.

If you have any questions or comments, please feel free to leave them as a comment to this post.  During our next session we will be going into the details of how we are executing this strategy.

Introduction to Synthetics

Over the next several weeks we are going to be re-starting our instructional series on our synthetic long stock strategy.  This introduction describes how options can be used to create a position that mimics owning 100 shares of stock while tying up about a quarter of the funds that it would if we were to purchase those shares outright.

There are several benefits to this strategy over other option strategies, starting with the fact that it can be managed essentially the same way that one might manage their position if they owned the stock itself.  This means that we manage these positions as investments, not quick trades.

The presentation material is available here.

During the next meeting, we’ll be discussing an overview of the strategy that we have been  using in our group paper-trading account.