Why I am going to utilize options more to manage my portfolio

Back in 2021, I once responded to someone on X (formerly twitter) why I didn’t want to engage in trading options. While that choice sounded “wise” to me, reality hit me in 2022. As you can see here, I came to 2022 with a significant exposure to big tech companies (Meta, Amazon, and Alphabet) all of which got hammered throughout 2022. To make things worse, I kept averaging down through much of 2022 and by Q4 of 2022, I was looking at the drawdown abyss with no money left to buy more. Since the stocks I owned continued to bleed, I had to do an about turn on my “wisdom” related to options trading. I decided to buy call options (see last section) on Meta, Alphabet, and Amazon. I know this sounds like a victory lap and indeed, those call options were by far the largest contributors to my performance since inception. At the same time, Ray’s tweet below was also perhaps prescient in how one would behave after such a home run. Indeed, I ended up buying LEAPs on Lululemon in 2024 which then led me to suffer ~80% loss in those options, by far the largest ever loss in my career. Since the Lulu debacle, I haven’t used options in my portfolio yet. That changed yesterday and since I expect myself to utilize various options strategies going forward to manage my portfolio’s risk, I wanted to explain my approach today and elaborate on my thinking. I will do so behind the paywall.

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