The end of June and the beginning of July has been great for the Exponential Dave portfolio, sending my cumulative results to 301% since beginning tracking in January of 2020. Specifically this includes gains of 225% in all of 2020 and gains of 24% year to date in 2021. Think of it like starting with $100 in 2020, ending 2020 with $325, letting that $325 sit in the market for all of 2021 and watching it grow to $401 as of July 9, 2021. This is exponential growth!
I received a comment on my June portfolio update asking about my options strategy, and so I will be describing it in this post. The strategy is actually incredibly simple. I have been employing this strategy since March of 2020, and on average, I have seen returns of 198% per option on average.
Before I describe the strategy, I want to make a few points about options. As I’ve said elsewhere, I am not an investment advisor, this is not advice, and I have no crystal ball. This is true with stocks but even more true with options: I highly advise that you do your own due diligence before buying options and fully understand what you’re doing. Do not just blindly follow what I’ve done.
The kind of stocks I buy tend to be established billion plus dollar market cap companies with an extremely low chance of going out of business. Hence there is a low chance that any stock I buy becomes worthless, although anything is possible. However, with many options (especially the out of the money ones), there is a very high likelihood they expire worthless. So you must be extra careful when picking them, and you must never buy more in options than you are willing to entirely lose.
Now that the warning disclaimers are out of the way, here is my simple options strategy. I buy LEAPS call options on growth companies when growth stocks are “cheap”, especially during sector rotations. “But Dave, market timing is impossible and a worthless endeavor!” This statement is false. I do think that most of the time, no person really knows where the market is going tomorrow, next week, or the next few months. But I think sometimes it’s pretty obvious when growth stocks are cheap. On the other hand, I also believe it’s very difficult to tell when growth stocks are overpriced.
The way I determine if growth stocks are cheap is just by looking at price drops from all time highs of WCLD, which I think is the most comparable grouping of companies to my portfolio.
I implemented this strategy lightly in Spring of 2020 and then more heavily in Spring of 2021. Let’s see how I did:
| Date of Purchase | Description | Option Gain/Loss | Underlying Equity Gain / Loss | Beat Equity By | Option Price (as of 6/30/21) | Cost Basis Per Share |
| 3/10/20 | CRWD JAN 21 2022 $60 CALL | 2179% | 421% | 1759% | $191.90 | $8.42 |
| 4/3/20 | ALTERYX JAN 21 22 $170 CALL | 170% | 56% | 114% | $23.50 | $8.70 |
| 3/25/21 | NET JAN 20 2023 $90 CALL | 169% | 60% | 110% | $33.75 | $12.51 |
| 5/6/21 | FVRR JAN 20 2023 $290 CALL | 119% | 34% | 86% | $54.30 | $24.70 |
| 5/14/21 | LSPD DEC 16 2022 $80 CALL | 100% | 48% | 52% | $23.90 | $13.09 |
| 3/16/20 | ROKU JAN 21 22 $160 CALL | 97% | 63% | 34% | 21.59 | $10.97 |
| 6/4/21 | TWLO JAN 20 2023 $540 CALL | 91% | 25% | 66% | $49.50 | $25.81 |
| 3/8/21 | CRWD JAN 20 2023 $360 CALL | 89% | 40% | 49% | $28.45 | $15.01 |
| 3/4/21 | NET JAN 20 2023 $135 CALL | 87% | 58% | 29% | $15.15 | $8.08 |
| 3/8/21 | ZS JAN 20 2023 $340 CALL | 70% | 28% | 42% | $14.30 | $8.41 |
| 3/25/21 | DDOG JAN 20 2023 $115 CALL | 69% | 36% | 34% | $20.75 | $12.21 |
| 3/5/21 | DDOG JAN 20 2023 $130 CALL | 58% | 30% | 29% | $15.85 | $10.01 |
| 5/10/21 | SNOW JAN 20 2023 $320 CALL | 57% | 22% | 35% | $38.00 | $24.11 |
| 3/25/21 | SNOW JAN 20 2023 $420 CALL | 29% | 9% | 20% | $23.10 | $17.81 |
| 3/4/21 | DDOG JAN 20 2023 $175 CALL | 16% | 25% | -8% | $7.00 | $5.99 |
| 4/7/21 | LSPD DEC 16 2022 $80 CALL | 13% | 27% | -13% | $23.90 | $23.00 |
| 3/15/21 | TWILIO JAN 20 23 $640 | -56% | -16% | -40% | $15.00 | $34.50 |
Some quick things to note: in the above results, numbers are as of June 30th, 2021. Options that were sold (such as Roku, Alteryx, Twilio $640’s) show performance up until the date I sold them. Some of you may look at that big gain from CRWD $60 call options and determine it’s an outlier. Although true, I don’t think excluding it from the portfolio’s results makes sense. The portfolio I’ve built is meant to find outliers and soak up the gains as much as possible during the hypergrowth phase. Lastly, my options on Upstart are excluded, since I have only owned them less than a month, and I didn’t buy Upstart options because of the sector rotation, unlike most of my other options.
Summarized results:
| Average Option Performance | 198.0% | Average Beat of Underlying Equity | 141.1% |
| Average Option Performance w/o outlier CRWD | 74.1% | Average Beat of Underlying Equity w/o outlier CRWD | 40.0% |
In general, I start getting interested in LEAPS when I see that growth stocks have dropped around 15%. The more of a drop you wait for, in general the higher possible return you could get from a future bounce back. But if you wait too long for the right drop, and it rebounds while you are waiting, you can miss out entirely. This is why I like to buy in tranches. I like to diversify my entry points by price and date. If I decide that I am willing to have as much as 10% of my portfolio in options, if WCLD drops 15%, I may convert 3% of my portfolio to options. Then if WCLD keeps dropping to 22%, I might buy another 3%, and so on. Keep in mind that it’s pretty normal for growth stocks to drop 30%-50% once or twice a year. So if you get too excited about a 15% drop and buy in too much, you may get crushed if growth stocks go down to 30% or 45%.
The strike prices I buy tend to be way out of the money. On the low end, they may be 20% out of the money, and on the high end, sometimes they may be 50% or even 60% out of the money. An important piece of advice to remember is that you don’t need the stock to go beyond the strike price in order to make money. For a concrete example of this, look at my FVRR $290 LEAPS. It’s up 120% and still considered far out of the money.
My friend GauchoRico has done a superb job detailing options strategies on growth stocks. For further reading on this topic, definitely check out his website here: https://gauchorico.com/blog/stock-options/