by Shelley Seagler
As you’re probably very well aware, the Snider Investment Method is at the center of Snider Advisors’ business. It is the primary tool we use in our asset management services and the cornerstone of all of our financial education courses. Of course, people often ask. “What is the Snider Method?” When we say, something like, “the Snider Method is a long-term investment strategy that focuses on producing portfolio income through a specific system of using stocks, options, and cash management techniques,” we can tell they’re right along with us until we mention the “O” word…options.
So many people still have a negative perception of option trading. They’ve seen too many people who have been burned by the use of options. While that is certainly unfortunate, it does not change the fact that options are perhaps the most flexible and useful investment tool available. But like any powerful tool, you have to know how to use them correctly.
The good news is that there a number of places you can go to learn how to use options. However, not all option strategies are created equal. Keep in mind – the Snider Investment Method uses options in a very specific way to produce the result we want, which is a steady stream of portfolio income. You can learn more about how we use options at our free information session on April 18th. As you evaluate different option strategies, we recommend that you follow these general guidelines:
Start with the Basics
If you are looking to add an income-producing strategy using options, compare the risk/reward profiles of every strategy and pick one that matches your objectives, risk tolerance, time horizon and temperament.
Ease of use
Some strategies require you to make detailed charts and issue guesses based on possible trends, while others offer a simpler, systematic approach that leaves no room for interpretation.
Ability to do it yourself
Does the strategy give you the ability to implement yourself, in your own brokerage account, or do you have to let someone manage your account for you? What are the fees involved?
Studies show investment success is more closely tied to low recurring investment costs than any other factor. Furthermore, total transparency, which comes from managing your own portfolio, is the best way to guard against conflict of interest.
Will you need to constantly watch your stock holdings, or can you spend the day away from your computer screen? Do you need to take action or review your account daily, or can you check in just once a month? Taking a more hands-on, time-intensive approach does not necessarily result in better performance. Studies show the opposite is often true.
Focus on risk management
Does the strategy employ tools and techniques to limit your risk exposure? Remember your job is to manage and optimize the tradeoffs between risk and reward – to make certain that every unit of risk produces the maximum benefit, that the risks are those you can most afford to take, and the rewards are those that will be most beneficial. Make sure risk is handled with open eyes and as much information as possible. To learn more about the risks of the Snider Method, check out the Snider Method’s Owner’s Manual.
You should also remember that all investments have risk – even U.S. Treasuries. Are those risks discussed in an understandable and forthright manner? If an investment is being presented as all upside and no downside, the person presenting it is not being honest. Run! (Learn about benefits and risks of the Snider Method)
Verifiable track record
Does the strategy have a reproducible result, or is it just a set of tools and suggestions with theoretical outcomes? Does the strategy’s support team make its performance record available and does that record include every single trade since inception?
Quality customer support
Who do you call when you have a question? Is there a team of dedicated advisors who can walk you through a process, or are you left to figure things out on your own?