The Rules Of Engagement – 1% portfolio (Leju Holdings)

We have three stocks to add to the 1% portfolio. We call the portfolio the 1% portfolio to really get across the message of keeping positions small. If for example, each position in the portfolio only uses up 1% of the portfolio balance, then this imemdiately decreases portfolio risk especially if the dportfolio is well diversified. We have researched these companies and believe all of them have very limited downside risk which is exactly what we want. Remember, the play with this strategy is to buy 100 shares and sell one out of the money call option (usually in the next month at around the 30 delta).

This immediately reduces our cost-basis which improves our probability of success. Furthermore let´s take our first stock- Leju Holdings (LEJU) for example which is currently trading at the $2.42 level. The January $2.50 calls can be sold for approximately $0.25 per contract. So basically, one can collect more than 10% of the premium and the call option is still well out of the money. Exactly what we are looking for.

Equate the above though with a $20 stock. For the life of me, it is very fifficult to find a $20 stock which pays $2+ per contract (or 10% of the price of the shares) for the sale of an out of money call. But even if we did, our risk would be up to 10 times more the risk you have in a 100-share investment in LEJU for example. This really is what it all boils down to in the markets. It is all about position sizing and being able to come back the following day with your capital intact. One´s ego many times is one´s enemy in this game.

Very limited downside in Leju Holdings

Very limited downside in Leju Holdings

This entry was posted in Leju Holdings and tagged . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.