10-Minute Options Trading and ETF Investing

1. Traditional Investing: Slow, Risky, and Emotionally Draining

Watching 50% of your money disappear while you helplessly sit there and watch it happen is terrifying.

Buy & Hold flaws. Traditional buy & hold investing, while historically effective over the very long term, is a painfully slow process and offers little control over losses during market crashes. Experiencing significant drawdowns, like losing 40-50% of your account value, can be emotionally devastating, especially for retirees who rely on their investments. This lack of protection against severe downturns is a major drawback.

Active trading challenges. Conversely, active trading offers more control but demands significant time, emotional resilience, and mental energy. It requires constant monitoring, research, and decision-making, making it unsustainable for busy individuals or those facing personal stress. The high failure rate in active trading stems from these demanding requirements and the difficulty of consistently outperforming the market after costs.

Emotional roller coaster. Both passive buy & hold during crashes and the demands of active trading can turn investing into an emotional roller coaster. The fear of losing money or the stress of constant market watching can lead to poor decisions, causing investors to underperform or even abandon their strategies at the worst possible times. A better approach is needed to mitigate these emotional pitfalls.

2. Enhanced Buy & Hold: The Passive Path to Wealth and Protection

I integrate buy & hold with options trading!

A hybrid solution. Enhanced Buy & Hold (EBH) combines the best aspects of passive buy & hold and strategic options buying. It aims to capture the long-term growth of the stock market while using options to accelerate returns and provide crucial protection against crashes. This integrated approach seeks to overcome the limitations of relying solely on one method.

Market-beating potential. By strategically incorporating options, EBH offers the potential for higher returns than traditional buy & hold, even with similar overall investment amounts. The goal is to enhance performance in up markets while safeguarding capital when markets decline, leading to more consistent and predictable results over time. This contrasts with the "average" results often associated with pure passive investing.

Designed for busy investors. EBH is structured to require minimal time commitment, often taking only about 10 minutes a year to manage. This passive nature makes it ideal for individuals who want to build wealth and protect their investments without turning investing into a second job. It allows investors to make money safely and avoid going broke in the process.

3. Leverage Call Options for Accelerated Growth and Funding Puts

Call options allow investors to place small bets that a stock will rise in price without buying the stock upfront.

Growth engine. Call options are a key component of EBH, providing leveraged exposure to stock price increases. By buying long-term call options (LEAPs) on an index ETF like SPY, investors can benefit significantly when the market rises, often achieving much higher percentage returns on the capital allocated to options compared to owning the underlying shares. This leverage is the "enhanced" part of EBH's growth potential.

Funding protection. Beyond accelerating growth, call option profits serve a crucial secondary purpose: paying for the cost of put options. While puts provide protection, they typically lose value over time in rising markets. The gains from calls can offset these costs, effectively providing market crash insurance at a reduced or even zero net cost over the long run, especially in favorable market conditions.

Strategic allocation. A small portion of the total portfolio, typically around 10-20%, is allocated to call options. This limited allocation ensures that even if the calls expire worthless (which can happen, especially in sideways or down markets), the overall portfolio impact is manageable. The goal is a profit boost, not risking the entire account on leveraged bets.

4. Insure Your Portfolio with Put Options for Peace of Mind

This tool allows you to live free from the worry of market crashes, and it’s the secret to why my clients don’t panic during market declines.

Stock market insurance. Put options function as insurance for your stock holdings, providing protection against significant price declines. By buying long-term put options (LEAPs) on your core ETF holding, you gain the right to sell shares at a predetermined price (the strike price), even if the market value falls far below that. This limits your potential downside risk.

Peace of mind. Owning protective puts significantly reduces the emotional stress associated with market volatility and crashes. Knowing that your portfolio has a floor, preventing catastrophic losses, allows you to remain disciplined and avoid panic selling during downturns. This emotional stability is invaluable for long-term investing success.

Balancing risk. While puts typically lose value in rising markets due to time decay, their cost is a premium paid for protection. In EBH, this cost is often offset by call option gains. Puts are not intended for short-term trading profits but as a portfolio stabilizer, similar to how bonds are traditionally used, but with the specific benefit of gaining value when stocks fall.

5. Simplify with a Core S&P 500 ETF Holding

With just one investment, you get instant exposure to the entire market at a low cost.

The foundation. The core of the EBH portfolio is a broad-based index fund or ETF that tracks the S&P 500, such as SPY. This provides diversified exposure to the 500 largest U.S. companies, capturing the long-term upward trend of the American economy with minimal effort. It's a simple, low-cost way to participate in market growth.

Simplicity and stability. Investing in a single, highly liquid ETF like SPY simplifies portfolio management dramatically compared to picking individual stocks or managing multiple funds. Its inherent diversification reduces single-company risk and provides more stability than individual stocks, making it an ideal underlying asset for the EBH options strategy.

Passive income. Holding SPY shares also provides passive income through dividends paid by the underlying companies. While not the primary focus of EBH's growth component (that's the calls), these dividends contribute to overall returns and can be reinvested to accumulate more shares over time, further building the passive income stream.

6. The EBH Blueprint: Stocks, Calls, and Puts in Harmony

Enhanced buy & hold is my 10-minute options trading and ETF investing blueprint.

Three core components. The EBH blueprint consists of three integrated parts: owning shares of a broad-based S&P 500 ETF (like SPY) for stable long-term growth, buying long-term put options on that ETF for market crash protection, and buying long-term call options on the same ETF for accelerated growth and to help cover the cost of the puts.

Strategic allocation. The typical allocation is roughly 80% in the core ETF shares and 20% split between the call and put options. This 80/20 split ensures that the majority of the portfolio benefits from the stability of buy & hold, while the smaller options allocation provides the "enhanced" performance and protection without risking the bulk of the capital.

Option-to-share ratio. The number of option contracts purchased is linked to the number of shares owned, typically aiming for a 1:1 ratio (one call and one put contract per 100 shares). This ensures the options provide adequate coverage and leverage relative to the stock position, scaling as the portfolio grows.

7. Master Your Emotions: The Biggest Profit Killer

My experience as a coach has taught me that the one variable that prevents most from achieving stock market success is emotions. It’s the number one profit killer!

Emotional pitfalls. Fear and greed are the primary emotions that derail investors. Greed can lead to taking excessive risks, over-allocating to leveraged positions like calls, and chasing unrealistic returns. Fear can cause panic selling during downturns, locking in losses and missing subsequent recoveries.

Logic vs. emotion. Successful investing requires making logical decisions based on a sound strategy, not reacting impulsively based on market fluctuations or emotional triggers. The EBH blueprint is designed to minimize emotional reactivity by providing protection against catastrophic losses (puts) and preventing excessive risk-taking (limited allocation to calls).

Discipline is paramount. Sticking to the EBH plan, especially during periods of loss or when tempted by excessive gains, requires discipline and patience. The system works over the long term, and deviating from it based on short-term emotional responses is the most common reason for failure, even with a robust strategy.

8. Grow a Small Account Strategically Before Shifting to EBH

I have, however, discovered that the more you sacrifice, the quicker you can build wealth.

Initial aggressive phase. For investors starting with a small account (e.g., under $100,000), an initially more aggressive approach focusing on high savings rates and leveraging call options can accelerate growth. This phase might involve a higher allocation to calls or simply using calls and stock shares without puts, accepting higher risk for faster potential gains.

High savings rate. A critical component of growing a small account quickly is a high personal savings rate. Consistently adding new capital to the investment account significantly boosts growth in the early years, often contributing more than investment returns alone. Making temporary sacrifices in spending can free up substantial funds for investing.

Transition to EBH. Once the account reaches a certain size (e.g., nearing $100,000), the strategy shifts to the full EBH blueprint, incorporating put options for protection. This transition prioritizes capital preservation and sustainable growth over aggressive accumulation, recognizing that recovering from large losses becomes much harder with a larger account.

9. Annual Rebalancing for Consistency and Tax Efficiency

Once the enhanced buy & hold portfolio is set up, it’s left alone until a year later when it’s time to rebalance it.

Systematic management. EBH involves a simple annual rebalancing process, typically done at the end of the year or beginning of the next. This involves selling the existing long-term call and put options and buying a new set with farther-dated expirations, following the established rules for strike price and number of contracts based on current share count.

Capturing gains and resetting. The annual reset allows investors to capture any profits accumulated on the options over the past year before time decay accelerates significantly. It also ensures the options remain long-term (LEAPs) by rolling into new contracts, maintaining protection against time decay and aligning with the long-term market trend.

Tax considerations. Holding options for over a year before selling allows potential profits to be taxed at lower long-term capital gains rates in taxable accounts. While not a concern in tax-advantaged retirement accounts, this is a valuable benefit for taxable portfolios and influences the timing of the annual rebalance.

10. Simplicity and Discipline Beat Complexity and Emotion

The more you simplify and systemize your investment plan, the better you will do.

Avoid overcomplication. Many investors believe that complex strategies lead to higher profits, but often the opposite is true. Overly complicated plans are harder to understand, manage, and stick to, increasing the likelihood of errors and emotional reactions. EBH's power lies in its straightforward, repeatable process.

Systematize decisions. By establishing clear rules for buying and managing the core ETF, calls, and puts, EBH removes the need for constant subjective decision-making or market timing. This systematic approach reduces the influence of emotions and makes the plan easier to follow consistently over the long term.

Consistency is key. Success with EBH, like any effective investment strategy, depends on consistent execution over many years. Discipline to stick to the annual rebalance, resist tinkering, and continue contributing (especially in the early years) is more important than predicting market movements or chasing short-term gains.

Last updated: May 16, 2025