Today I’m going to share with you how to build a $10,000 options portfolio.
If you’re brand new to options, check out some of the other option videos or even check out one of the courses we have available.
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With that being said, let’s build out and craft a portfolio using $10,000 with options.
I think a lot of people that get into trading options have a hit-and-miss approach.
Something like this: I’ll buy a call, I’ll buy a put. Stock is going up by a call. Stock is going down by a put.
And it’s not the right approach to trading options. That’s because you have to think about things like a portfolio. You want to have a nice solid base and foundations.
The get-rich-quick scheme and concept sound all nice, but that is not working that way.
Things like: Make $300, $500 today, or $700 tomorrow. Then you lose a $1,000 the next day. And all that is just fluctuating. But it’s not a systematic approach to making it work for you.
If I’m starting and I want to build a $10,000 options portfolio, I probably want to pick a few vehicles or a few areas that I want to invest in.
I always like to give this example here in my idea concept of a portfolio.
There you have:
- long term trades
- medium-term trades
- short term trades
If I’m looking to break these things down, this will be my long term investment.
This is the medium-term (think of it like 30-60 day trades), and this could be a speculative (14-day or less option contracts).
Long term trades: think of it like long delta or long duration.
That’s how I want to break it down if I have $10,000. I probably want to put about half into long term trades. I want to use about $4,500 or $5,000 probably. That would be about half. That’s about 50%.
Then for my medium-term, I probably want about $3,500 and the remaining amount for spec trades.
That’s my portfolio allocation.
Now we have to figure out what vehicles do I want to trade this in.
For long term duration or portfolio, you want things like Microsoft, a McDonald’s, a PNG. It could be a Johnson & Johnson. Any kind of those stocks that pay dividends.
Medium-term – it could be SPX or RUT is pretty good. You don’t have to worry about earnings.
And a 14-day – this could be a speculative thing. It could be something like Amazon, Tesla, or something else, maybe that you find.
Let’s build this out and craft or portfolio. And I probably don’t want to do more than five positions max. That’s because once you get into five positions or more than five positions, it starts becoming too much.
I might just do this based on capital. I might only just have three positions, maybe even like four positions just to balance a couple of things out on the long term scale or perhaps the medium term scale.
And maybe one speculative play. But let’s take a look here on screen and start building out a portfolio.
I’m going to start crafting things out. If you have an idea in mind for what it is that you want to do the long portfolio, then you use or trade those things.
If not, you can do some research on dividend stocks or those kinds of things.
I mean there are tons of them out there:
- PNG
- Microsoft
- Apple
I’ll go with Microsoft just because I like it.
There’re two approaches to doing this.
#1 I could do something like a diagonal and do it every single month
#2 I could go out further in duration and just hold on to it
In this case, I’ll go 70 days out, and I’ll just do that duration every one or two months.
- Why does this work?
Well, the whole point behind it is that, anyway, if you owned the stock, if the stock pulls back, well, you don’t sell out of it.
And you still hold it on for an extended time. And in our case, within 67 days, we’re probably going to have an option that’s expiring.
In that case, we would reset it. And the difference here is I don’t have to make it or skew it as huge or as major.
I can set up a diagonal, and I’m going 70 days is going to be short. That’ll be the 120. And I’m going to buy my protection on January 20. That’ll be 90 days out.
You could set up campaign calendars more advanced, but let’s just keep things simple for now.
Let’s do the call side, and let’s check this out here. If I want to go in and I’m going to go about 140 and 150. Then analyze the trade.
This is what it looks like, Think of it as a covered call strategy.
It looks very similar to that risk profile picture. And now what I can do is tweak this. I don’t like the curvature, and maybe I’ll tweak it like this.
Maybe I don’t like it that far out, so I’ll bring it back in because I think perhaps the market is toppy.
I’ll do something like this.
Now what I’ll do is bump up some of the contracts. I’ll do it because now we’re using only about $1,600 on four contracts.
You can bump up the contracts. Maybe I’ll spend $2,000 on Microsoft. Perhaps another $2,000 somewhere else.
I’ll bump up the contracts to about 6. Let’s go with six, and that gives me a nice situation. And then I’ll do something else with McDonald’s.
Maybe with McDonald’s, I say well I don’t think it’s going to go as high because it’s doing that pullback and maybe it’ll stay a little stable.
What I could do is go ahead, and I might only do a 36-day contract. Since long portfolio typically long Delta. What I want is either long Delta or long Vega.
Why?
Because when that pullback happens that Vega will help me out. I’ll go to December to buying my protection, and let’s go to about the 220 and analyze this trade.
Now you can see I’m still long delta overall. My delta here if I zoom in still got long delta. And you can see I’m bullish on that position.
And if it explodes, that actually might be a little bit of a problem. I could tweak it just a little bit. Some of these are not traded. Here is what we need to do.
Because it’s a flat calendar, I might just move it to the 230. And that way I’m risking a little bit less. But it’s still a long portfolio.
That trade is costing me about $60 on the contracts. But I have room to run. I don’t want to use my full capital or anything like that. But it gives you a little bit more room.
This is possibly a losing trade meaning that the theta works a little bit against me. I don’t want to go too high on the amount of contracts. Because we have $2,500 or so and Microsoft, we might do about 500 or 700 on this. I want to pull this off fairly soon.
The other thing I could do is to change this to maybe five contracts and analyze the trade. And maybe go to 220.
This might be a better approach. Now I could do more of a double calendar like this, and that slowly adjust my position. And even place one over here at the 210.
You can see it’s a triple calendar that’s skewed and stacked. What a position, right.
Why would I do something like this?
My risk is about $1,000 between all those contracts. I have two contracts on the 210. I have three contracts on the 220 and 5 contracts on the 230.
I’m offsetting and giving myself a cushion and room to make money from the theta on the 210. And that way, it helps pay for if the stock doesn’t move. And I’m still long delta if that continues to move and run up, that’s perfect.
And what I can do is I could make about $1,200. You could see over here about $1,200 at the maximum.
Let’s say you’re aiming for about $700-$800 on about $900 of risk. It’s pretty much a one to one return. Fantastic. This could be the next setup. I’m still long delta. I have good theta I have good Vega.
What might I do next?
Looking at our portfolio here, I want to do a 30 to 60-day trade.
Which could be like an iron condor. Why did I do these? Some of these are 30 or 60 days.
Once this 30 and 60-day trade is over, I’ll put another 30 to 60-day trade. And I keep doing it because I’m long the stock. It is just like in a regular investment account. You’re just holding on to it in the same way here – it’s no different.
Long Delta similar concept. It’s just you’re also making profits if that stock stands still as well.
If we look at this as a portfolio basis, you can see here’s our portfolio. And that means I have a Microsoft and I have the McDonalds.
So far, we’re using about $3,000 cash. It’s the basic scenario. Let’s go to Microsoft or another trade here.
And that’ll be the SPX. This is my 30 to 60-day trade since I have a lot of long Vega. I want to shorten that up.
And to shorten that up, I might do 43-day trade on the weeklies. That’s the SPX. I’ll sell an Iron Condor. These are the weeklies.
Let me just go back to a single symbol here.
Currently this the stock is 2946. Call it 3140 and my puts 2670 and 2640.
Go there and see where we’re at.
Now I have this SPX.
I still want a negative Delta because now we’re getting some negative Vega. Since the other ones we have are positive Vega, this will help balance things.
And I’ll sell a couple of contracts. This will put me at about $5,000. That might be a little too much.
What I could do to compensate this is to reduce the strike prices a little bit by ten. And reduce that by about ten. Now I’m using only about $2,600, and I think I might bump it up one more.
There we go – $3,500 about a negative 100 Vega, and now if we do a portfolio beta weighted, you can see what’s going on. I have in our breakdown list I have McDonald’s.
There are my contracts. I have Microsoft, and I have SPX. When you look at this total portfolio, that’s my portfolio.
It’s still somewhat long Delta. My Vega, when you can see it’s only about 20. I’m still a little bit long Delta. I’d prefer a little more long delta because I have more of my cash and capital in the long term.
But we could easily tweak that by reducing of the SPX. I could trade less contracts there. Or skewing one leg versus the other. I could turn it a little bit more bullish.
Let’s wait for a specular trades because I’m going to do a little bit more of a bullish speculative trades. And that’ll help balance things out.
Here we go. There’s our portfolio — still long Delta.
Let’s do on Amazon.
I’m going to put a speculative trade. I’ll go about 15 days out.
Also, I’m going to do a quick butterfly.
There’s Amazon. You can see it’s trying to bounce here. That could put on a bit of a butterfly – 15 days out.
You could do an Iron Butterfly if you want. Here are our butterfly and a single symbol. And let’s rearrange and move some of these things around.
Here I have the lower end. Let’s do about 1780. Now what I want to do is take into account where I’m at. The whole point of this butterfly – take a look at the cash and capital that I’m using.
It’s only about $320. It’s not a lot. It’s a speculative play. I’m looking for this stock to move.
How do I do that?
Well, I position it further out, call it 1800. This one now I’ll go to about 1830. And this one may be about 30 points under.
It’ll be 1770. Now I have a little bit more of a speculative play. 1800 is pretty far out compared to where we are. So 70 points higher in the next two weeks. And it could be a little bit of a spec play.
The whole point is because it’s directional, much more directional spec play. But I still have a little bit of negative Vega. I still have that Delta.
And you can see I’m only risking about $310.
It’s not a lot of a risk right there.
Let’s see our total portfolio. It’s going to be a little bit skewed or weird with this Amazon trade just because it’s going to take that first expiration.
Our total portfolio risk on this will be less than $10,000. We’re looking at about $6,000 on that one. We’ll bump this up to two contracts.
Let’s check it out without Amazon. We’re using about $6,000 on all the other trades without Amazon. I’ll bump up against one of these contracts on the McDonald’s and Microsoft. We’re about $7,500. We have about $2,500 left for our Amazon trade.
And if I just go to Amazon on its own, I’m using about $1,000. You know $620 and gives you a little bit more cash on the side. That’s just in case things move against you, or you need adjustments.
Let’s leave it like that. And that’s how you would build a portfolio with $10,000. If you want to trade differently and you want to see these expirations match up, you’d have to go more in November or December.
That’s because now the curvature starts to match up more closely. Right now, Amazon is skewing those things differently.
With that being said, that’s how you would do it. That’s how you would trade it. I would go with October, November weeklies there.
Leave out Amazon out as you’re doing these setups, and you’re looking at it because it’s going to skew your profit picture. And you can see the majority of the movement still long Delta. And you have a neutral Vega as well.
And that would be building out your portfolio the smart way.
Hopefully, this gave you an idea and insight on how you would do it when you’re building out a portfolio with $10,000.
If you’re serious about learning to trade options the right way, check out some of the video courses I have, which is a good foundation and fundamental a starting point.
Then, of course, you could join us in our group coaching sessions, get a one-on-one coaching session, or even join one of the live webinars that we have.
