Introduction to The Theta Tortoise
Strategic diversification, proactive risk/reward management, and income
Hi fellow reader,
We’re excited to introduce our brand-new Substack! If you’re reading this, chances are you’re already familiar with The Compounding Tortoise, our research newsletter focused on enhanced quality investing. That’s where we share deep-dive analyses, earnings recaps, discussions on serial acquirers, and much more.
A research hub on fundamental analysis as it were.
But for many investors, quality investing is just one part of the puzzle. You likely hold other asset classes like bonds, cash or cash equivalents, and real estate.
Personally, while 75% of our investable (and liquid) wealth is allocated to a select group of compounders, there’s another key component to our strategy: using options (derivatives) to generate additional income out of excess cash with substantially small market exposure.
Here’s what well-tailored option strategies can do to your returns:
avoiding high dividend withholding taxes, transaction costs;
benefiting from sideways and/or moderate markets;
hedging risk;
buying stock at a discount compared to the current share price;
creating similar market exposure with less capital at risk
So, why start a separate Substack?
Over recent months, we’ve seen growing interest in options-related topics within our private Discord community for quality investors, and via e-mail. To keep discussions focused and organized, we decided to create a brand-new newsletter dedicated solely to quality stocks and options. This space will center on educational information, managing risk and return through options, and sharing insights on our live positions.
On our other Substack, we conducted a poll to gauge interest in an introductory course on "Portfolio Overwriting" as an add-on/byproduct of our approach. There was significant interest, both from those eager to learn and those looking to apply the knowledge in practice.
For any strategy, one should be able to elaborate on the puts and takes: what to expect, what’s the performance during bear markets, bull markets, how random are the returns, et cetera. Testing statistical robustness and keeping real-life consequences (taxes, transaction fees because of portfolio turnover) in mind, rather than taking the average return for granted, and hoping for a similarly good outcome over the next years.
What’s the benefit of selling calls on a basket of defensive, lower-volatility, high-quality companies (think of your Colgate, Procter & Gamble, McDonald’s, Danaher, PepsiCo, Linde)? The fact that we’re talking about stable compounders is crucial: everything starts with the right underlying on which you sell the call option. We’ll share the basics of portfolio overwriting (i.e. longer-term covered-call writing) and the findings of our 2022 papers (>20 years backtest).
What we’ve been talking about previously, low-volatility, quality factors outperforming the index and high-beta low-quality stocks, is reflected in the options market. Longer term, options premiums for steady compounders are relatively rich compared to their actual volatility.
Optionality, Market Extremes & Probability of Profit
During periods of both high and low market volatility, implementing options strategies can enhance returns while reducing risk. This is because the risk/reward dynamics in options markets are inefficiently priced.
It’s not about short-term trading or leveraging, but rather about building a well-defined framework for diversifying risk, improving the odds of success, and generating income on so-called idle cash.
The title, The Theta Tortoise, reflects the importance of “probability of profit” in crafting a sustainable income strategy. Theta, one of the Greeks used in options trading, measures how quickly an option loses value over time. Don’t worry if this sounds complex - we’ll break it all down in our webinars and blogs. Simply put, as time passes, the value of an option diminishes, and option sellers (who collect premiums) benefit from this erosion. Earning positive theta helps lay the foundation for consistent income generation.
Our Services
On this Substack, we’ll provide you with the following information:
💡 Educational Content
Deep-dive articles on options strategies, key factors to consider, and practical examples to help you make informed decisions.
📅 Bi-Weekly Webinars
We’ll break down our strategies, discuss quantitative research, answer premium members’ questions, discuss overall market sentiment, review our live positions.
💬 Private Discord for Annual Members
Gain exclusive access to live portfolio updates, market sentiment analysis, and in-depth discussions with a community of like-minded investors.
💎 More Than Just a Subscription - A Partnership
We treat our members as Partners, offering:
Transparent insights into our portfolio
Objective, research-backed strategies
Discussing our calculators and simulations
If you’re keen to expand beyond quality growth investing and learn how options can complement your financial goals, this is the perfect place to start.
Become a Premium Member
Join for just $14/month or $110/year, and unlock the full experience. PLUS, if you subscribe by December 31, 2024, you’ll enjoy an early bird 20% discount on annual plans!
💡 Don’t miss this opportunity to access actionable insights, an exclusive community, and educational resources tailored for the savvy investor.
Sign up today and take your portfolio to the next level! 🚀
