In this video we are talking about retirement portfolios. Specifically we are talking about how selling SPY S&P 500 Put Options in your portfolio massively outperforms bonds in a portfolio.
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This communication/content is for informational purposes only and is not intended as personalized investment advice, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon for purposes of transacting in securities or other investment vehicles.
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Selling SPY put options conservatively—typically selling far out-of-the-money puts with lower delta (e.g., 0.10–0.30)—can often outperform bonds in a retirement portfolio due to a unique combination of reliable income, risk management, and growth exposure. Here’s a detailed breakdown of why and how this strategy can be advantageous over traditional bonds:
1. Premium Income vs. Coupon Yield
SPY Put Option Selling: Each week, selling puts at conservative deltas collects a premium. Even after accounting for assignment risk, typical annualized yields (on notional cash) often exceed what is available from 10-year Treasuries or investment-grade bonds during the same period.
Bonds: The yield is fixed at purchase and can be low, especially during periods of suppressed interest rates or if bond prices fall due to inflation or Federal Reserve hikes.
2. Downside Risk/Drawdowns
SPY Puts: The maximum loss is limited to owning SPY at the strike price minus premiums collected. Because you’re cash-secured, assignment simply means buying SPY at a discount, and subsequent put sales can continue. Historically, selling far out-of-the-money puts results in fewer, shallower drawdowns than direct stock ownership.
Bonds: While considered safer, bonds have suffered multi-year declines due to unexpected inflation and rising rates (notably 2022–2024). Drawdowns in bond ETFs have exceeded 10–20% during rapid rate hikes.
3. Risk-Adjusted Returns
SPY Puts: Conservative weekly put selling has produced consistent positive returns when adjusted for volatility. The Sharpe ratio (a measure of risk-adjusted return) often exceeds comparable bond portfolios, especially in low-rate or rising-rate environments.
Bonds: Risk-adjusted returns may lag if rates are low or rising, or if credit/default risk materializes.
4. Portfolio Diversification and Flexibility
SPY Puts: Offers a systematic, rules-based income stream while maintaining liquidity. You can dynamically adjust strike, delta, and contract size in response to market risk or portfolio needs.
Bonds: Less flexibility once bonds are purchased—liquidity can be lower, and exiting early may lock in losses if market rates rise.
5. Real Math—5-Year Perspective (2020–2025)
Bonds (e.g., Aggregate U.S. Bond ETF): Annualized returns were negative or near-zero during 2022–2024 due to rising rates.
Conservative SPY put selling approaches (e.g., 10–15 delta, weekly, cash-secured): Historically produced annualized net returns between 5–12% over the same period, with smaller drawdowns than SPY itself and much higher than bonds.
6. Psychological and Practical Benefits
SPY Puts: Clear, repeatable process with weekly income, boosting retiree confidence in portfolio income generation—even when traditional “safe” assets like bonds struggle.
Bonds: May not meet income needs or inflation protection in persistently low yield or rising rate environments.
Key Takeaway
Conservatively selling SPY puts integrates consistent cash flow, risk control, and flexibility, outperforming bonds especially when rates are volatile or bond prices are under pressure. This strategy is not risk-free—market corrections can result in temporary assignment and holding SPY at a lower price—but for retirees seeking income and capital preservation, it provides an effective, rules-based alternative to traditional fixed income investments.
“How Selling Cash-Secured Puts Can Outperform Bonds”
“Comparing Systematic Put Writing to Bonds, 5-Year Backtest”
“Bond Alternatives for Modern Retirement Portfolios”
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