This is a tool to diversify your long term portfolio.
I want you to imagine your investments are a body of water. I use water, because it can change shape, just like your investments do. It can be Bonds, stocks, mutual funds, gold, silver , real estate….whatever.
Now I want you to imagine you hold your water in Buckets. Each bucket can hold a percentage of your investments. Ideally, each bucket will hold 5%. If one bucket gets knocked over (The investment goes bad, it happens from time to time) We don’t get wiped out.
We are only risking 5% in each trade.
So, if you have $100k, each bucket can hold $5k worth of investments.
Now, the real world is fuzzy, and not precise. The reason I say this is because we want to buy stocks in groups of 100, so we can sell options on them, and it will be very rare for 100 shares to fit in a componet of $5k.
For example AGNC trades around $30.00 per share. 100 shares only fills up ½ of a bucket and 200 shares overflow the bucket. It is a fuzzy world, go ahead and get the 200 shares for $6k.
It just means that another one of your buckets can only hold around $4k instead of $5k.
ARR trades at around $7.50 per share, so you could have 500 shares ($3750) and carry the extra space to the next bucket.
Now if you have a DRIP (Dividend Re-Investment Plan) in any Bucket and it grows over 5%, you don’t need to worry. You just re-direct your new money into additional buckets. More buckets is usually better.
If you don’t have $100k to start with, consider having 10 buckets at 10% instead of 20 buckets of 5%.
Now don’t panic and think you need to go find 10-20 positions right away. We play it safe and only pick the low hanging fruit. Only the positions with the best ROI (Return On Investment) for us!
So, go out and start your own “Bucket List”.
Until Next Time
The Options Oracle