I know we can sell UK options and US options. Which is the best?
That was the question posed by one of my clients in our Inner Circle meeting today. It’s a great question.
At FIRE Revolution we specialise in selling options on the shares of big well-known companies. It’s a great way to generate an income stream and reduce the volatility of owning the shares outright. In fact, I’d go as far as saying that once you learn these techniques, you’ll never go back to the old way of buying shares again.
But I digress. Back to the question — is the UK options market or the US a better market to run the strategy?
It is possible to sell options on UK and US shares, and both markets have their pros and cons.
The US market — like many things across the pond — is bigger, cheaper, and better served than here in Blighty. There are options available on hundreds of well-known stocks, and they are well traded, which means they have keener pricing and a bigger selection to choose from. And, because there are multiple markets and many brokers, the commissions are lower.
So, a slam dunk for the US?
Not so fast, Kemosabe. There are also some definite advantages to selling UK options on FTSE 100 stocks right here in the UK. Firstly, you are probably very familiar with the companies involved. Behemoths such as Aviva, National Grid, Tesco, GlaxoSmithKline, and BAE Systems all have options available to sell and pay hefty dividends. That’s a very attractive income proposition.
And there is no exchange rate risk. We all know that sterling has been a little jumpy these last few years, and all that movement can play havoc with your profits. So, staying close to home definitely has its advantages.
But I think what swings it for me at the moment is the relative price of the two markets. There is a well-respected measure called the Cyclically Adjusted Price Earnings (CAPE) ratio that financial experts use to measure how expensive a particular market is. The higher the number, the more expensive the stocks that make up the market are to buy.
The UK is currently trading on a low CAPE ratio of 12.6, whereas the US has one of the highest ratings of any market in the world at 31.9. In other words, the UK market is currently cheap as chips, whereas the US market is definitely looking a tad on the expensive side.
Now, maybe It’s because I’m a Yorkshireman, but I do like a good bargain and I especially hate overpaying. So, for me, the current choice is straightforward. As messed up as this country feels at the moment, I’m very happy to go bargain hunting for UK options in my own backyard rather than joining the frenzy in the US.
I have every faith that we will look back at this period as being a fantastic opportunity to pick up Great British companies at bargain-basement prices. And selling UK options is a great way to do that.
Disagree? That’s no problem at all.
There are plenty of opportunities to sell options on both sides of the Atlantic, and we regularly discuss many of them as part of the FIRE Revolution training programme.
If you interested in signing up, we offer a cast iron 14-day money-back guarantee if you are not 100% happy. I don’t think I can say fairer than that, can I?
Third Friday Ltd are not regulated by the Financial Conduct Authority and the FIRE Revolution training programme is purely educational in nature. Under no circumstances do we provide any financial trading or investment advice. Any examples used are for educational purposes only and should never be construed as advice. We accept no responsibility for any investment losses you may incur. Please consult a financial advisor or other qualified professional if you are in any doubt as to the suitability of the strategies we teach.