Aggressive strategies

A few weeks ago I wrote about defensive strategies (link). I thought a counter point about aggressive strategies might be useful to some readers. This isn't meant to be a market timing call, just an educational post.

Again, I'll start with buy-and-hold investors. Going 100% to equities, or whatever the max allocation where a person can still sleep at night is a common option. There is also buying stocks or ETFs on margin (borrowed money). For ETF investors, high beta stocks and higher beta ETFs (eg:IWM for Russell 2000) are other ways to increase upside potential.

Some aggressive traders gravitate towards momentum stocks, others seek stocks in an uptrend that are near the lower band of their recent up channel. Other timing tools are moving average crossovers or MACD (2 moving averages crossing over).

For option traders, the straight play is to buy calls. At the money calls provide plenty of leverage with about a 50% probability of making money. Out of the money calls can increase leverage, but the odds of success decline. I tend to favor vertical call spreads, buying calls and selling slightly further out of the money calls for the same month. Calendar call spreads (buying calls and selling the same strike in a closer in month) has lower time decay and less upside than verticals (calendar vs. vertical article at link2).

Leveraged ETFs are popular. There are double (SSO QLD RRY) and triple leveraged bull ETFs (see longer list at link3). These are not for me, as I tend to try and limit volatility and smooth out the ride. They may be suitable for younger, higher income, more aggressive investors (pros and cons of leveraged ETFs at link4).

With call option strategies, timing is as important as getting the price move correct. Call calendar spreads lessen the need of timing it exactly. Buying on margin or buying leverage bull ETFs are other ways to increase leverage and upside exposure.

Again, this isn't a market timing call, just a discussion of some aggressively bullish stock market strategies. Many other asset classes (TLT for bonds, GLD for gold) have the same kind of products available.

I can close with a quip. Some guy is talking to an aggressive trader and asks him what the secret is. The traders says "be bold and be right." The guy says "what if you are wrong?" Trader looks down, "you go down with the ship."