Break-Even or Better Strategy

The Break-Even or Better strategy is designed to either (1) show a profit for the year or, (2) at least, show no loss.

How: A portfolio invested in 1 year Treasury bills, purchased at a discount and maturing at face value provides the cash, through the interest earned, to purchase attractively priced options.

Results:

Best case: If an investor is good at picking the right options on the right stocks that rise or fall a good distance during the life of the options, the profits can be significant. And the investor gets to reinvest the interest.

Worst case: The interest earned on the maturing Treasury bills offset the option losses.

Advantages: Leverage and truncated risk (no margin calls; no short squeezes). No fuss, no muss.

Heads you win, tails you get your money back.

Sort of like visiting a casino that pays off if you win or returns your bets if you lose. Not bad.

Caveat: In an inflationary era, simply holding the same number of dollars over any period of time constitutes a real loss of capital. Capital value hinges on purchasing power and, as purchasing power erodes, so does capital.

That being said, I'm sure, at the end of some years, there are more than a few investors that wouldn't mind being in a break-even or better position. Know what I mean?

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