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Long-term Trend Strategy

Basic overview #

Sell 90+ days to expiry (DTE) bull put credit spreads on highly priced, fundamentally solid companies that are in long term up trends.

Detailed Overview #

I screened for companies that are fundamentally (financially) solid; with a price chart that is in a long term uptrend; and currently undervalued.

Selection of companies is similar to that of the Naked Put Strategy.

The main difference is that these companies are around (or over) $200 per share, which means I would need around $20k of capital/margin to sell naked puts on them.

Basically, I would like to own these companies outright, but I can't afford to.

So, I am selling bull put spreads on them instead.

I also used backtester on optionalpha to see how well they performed over the last 5 years or so.

Companies #

For now, here are the companies I will be using this strategy with:

I may add more in the future, but three is enough for now. I also tried to select companies in different industries, although they're all kind of related. Aren't we all?

Entry rules #

Around the middle of each month, sell a 90 DTE bull put spread on the selected companies. Here are the spreads for each:

Exit rules #

No stop loss on any of the companies.

Slightly different profit take target on each:

Note: May experiment with percentages a bit

Allocation/Risk amount #

Will start with selling 1 spread per month, per company, and work my way up (or down) from there.

This should work out to a bit under $5k of risk.

Since there is no stop loss, I put the risk at the total of the spread. For example, selling a 230/220 spread on MCD is $1000 of risk.

Summary / Notes #

This trading strategy is basically an alternative to actually investing (i.e. buying shares) in solid, profitable companies.

i.e. If I had a lot of money, I would probably just buy 100 shares of Visa. At time of writing, it's around $245/share, so I would need $24,500 cash to do that.

I could just buy a few shares, but then I would not be able to sell covered calls on it.

Optimally, this strategy will provide a steady source of income each month. Almost like dividend payments.

The main downside, of course, is that any of these companies could tank suddenly for whatever reason, and I would lose the entire cost of the spread.

I tried to be meticulous choosing financially strong companies that have exhibited years of stable price growth. Anything can happen though.