Too Early To Call The Bottom

Portfolio allocation is approximately 50% equities and 50% call options with a typical holding horizon of 3–24 months. The author follows a contrarian, high-risk strategy focusing on illiquid options and stocks that sold off after non‑recurring events, screening for insider purchases at lower prices. Investment process combines fundamental analysis (leverage, financial ratios vs. sector/industry medians) and technical analysis (weekly multi‑color support/resistance and trend lines) to time entries and exits. Author discloses no positions, no compensation beyond the platform, and no conflicts of interest.

Analysis

Retail-driven, contrarian buying after idiosyncratic sell-offs can produce persistent pockets of mispriced single-stock option volatility: implied vols spike and remain elevated because flow is one-way, market-makers widen spreads, and escape routes are thin. That creates a repeatable edge for disciplined liquidity providers and directional option buyers who size for execution risk and use index hedges to neutralize market-level gamma.

Insider buying is a useful filter but is noisy: small-dollar or token purchases often move price without changing fundamentals, so treat insider activity as a signal requiring cross-checks (operational cadence, seasonality, debt covenants) and require conviction thresholds (e.g., >0.5% of float bought or multiple insiders participating). The second-order risk is behavioral concentration — retail long-dated OTM calls can create non-linear short-gamma shocks into earnings or macro jumps; your downside is not just valuation but a liquidity trap where exits are unavailable at reasonable prices.

Practical trade construction should therefore marry single-name optionality (to capture asymmetric upside) with liquid index/vol hedges (to cap systemic drawdowns). Time horizons of 3–24 months fit well: use LEAPs or multi-month call spreads for directional exposure, and fund or protect them with short-dated index put spreads or VIX exposure; calibrate sizing so a 10% index move south doesn't blow the position (target 3–8% NAV max per trade).

Key Decisions for Investors

• Selective long-insider basket + funded hedge: Build a concentrated basket (3–6 names) that meet strict insider thresholds (>0.5% float, 2+ insiders, filings within 30 days) and buy 9–18 month LEAP calls 25–35% OTM (or buy call spreads to limit premium). Fund ~30–50% of premium by selling IWM 60-day 3–5% OTM put spreads sized to keep net delta ~0. Position size: 1–1.5% NAV per name; target return 2.5x–4x in 6–18 months, max loss = premium paid (capped by call spreads).
• Volatility pair (single-stock long vol vs index short vol): Buy 1–3 single-stock 3–6 month straddles/strangles on names with credible insider buys and elevated IV; simultaneously sell 14–30 day ATM IWM straddles or 30-day SPY put spreads to collect premium and roll. Hedge residual vega with short VIX futures when appropriate. Allocation: total vega-neutral sizing capping loss to 2–3% NAV; target carry 10–30% annualized with a defined tail risk (buy SPY 3-month 5% OTM puts as catastrophe cap if needed).
• Liquidity-provision + mid-market capture: Act as a passive market-maker in illiquid single-stock options where spreads exceed 30–50% of mid IV by posting limit orders (both sides) and delta-hedging with the underlying or a small IWM hedge. Keep gross exposure small (0.25–0.75% NAV per name), enforce strict time-in-market limits (e.g., exit after holding >5 trading days without fill improvement). Expected execution alpha: capture 20–100bps per filled trade; tail risk bounded by immediate delta-hedge and daily P&L stop-loss of 1% NAV.
• Tail hedge for strategy: When running concentrated single-stock option exposure, maintain a dedicated tail sleeve: buy SPY 3-month 5% OTM puts (or 1–2 VIX 30–60 day call contracts per 1% NAV of single-name exposure). Size to limit simultaneous portfolio drawdown to <10% in a rapid market drawdown; cost target 0.5–1.0% NAV annually. This keeps asymmetric upside from microcaps while protecting against marketwide liquidity shocks that would otherwise amplify losses.