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2011 Stock Market Performance vs Option Alpha Performance

By Kirk Du PlessisStock MarketsJan 05, 2012 08:53AM ET
2011 Stock Market Performance vs Option Alpha Performance
By Kirk Du Plessis   |  Jan 05, 2012 08:53AM ET
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If I could sum up the stock market performance for 2011 in one word it would be: choppy. With some of the largest percentage swings in a single year since 2008 the Standard & Poor’s 500 Index closed at 1,257.60. For those who fell asleep all year, that’s exactly 0.04 points below where it started the year. Talk about another lost year for equity investors?


Including dividends, the S&P 500 total return index (which is what we track against) returned 2.11% for 2011. Better but still poor performance. Think about it this way; even including dividends you lost money after inflation, which is running at 3.4% trailing 12 months.

Slow & Steady Wins Again!

Each year it amazes me how conservative trading with options out-performs when used with proper risk management. I never had shot for unrealistic returns that cannot be duplicated month after month – and this has been very profitable for me.

This year all 3 Option Alpha portfolios beat the major index by a large margin. Funny how consistently making 1-3% each month really adds up at the end of the year and in my opinion is much safer than blindly putting money into the stock market and praying for returns.


Doing a quick review of the year this week, I have some general comments that I thought might be interesting to share…

1) Notice that you don’t have to trade each month to have amazing performance. Notice that we did NO trading for the Iron Condor portfolio in the 2nd half of the year and yet still made 26%+. Lesson: wait for the right time to trade and don’t force trades into the market.

2) Trading was much more profitable on a monthly basis early in the year. During the 2nd half of the year we scaled back our positions and focused more on risk management and rolling trades to protect against the summer sell-off. Although we sacrificed  some income, I feel the added risk aversion was a big winner for us this year. It’s how I got through the 2008 crash profitable. If it works don’t fix it right?

3) I still believe that we report earnings better than anyone else. We have a model portfolio which includes cash allocations and only report on trades actually filled. More often than not other sites will say they make 40% or more when in fact they just made 40% on 1 small trade and left the rest in cash. This is NOT an accurate description of their returns. They should factor in the amount of money left in cash earning 0%, and thus their returns should be much lower.
2011 Stock Market Performance vs Option Alpha Performance

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2011 Stock Market Performance vs Option Alpha Performance

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