Anything over and above average market returns during a particular period of time is called Alpha Returns.
Historically, Index returns e.i. Nifty has been giving around CAGR 16%. If your portfolio is performing better without additional capital requirement and with risk managed the way out is Portfolio Margin.
I love the detailed explanation of Wikipedia,
Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index. An alpha of 1% means the investment's return on investment over a selected period of time was 1% better than the market during that same period; an alpha of -1 means the investment underperformed the market.
Doing Alpha Returns the Right Way
The stock in your portfolio should be meant for the purpose of a very long term.
The Portfolio of stock that you own should not be highly volatile. If they are highly volatile the portfolio margin would change very often.
What is Portfolio Margin?
In simple words, the stock that you would own your broker is pledged to get additional margin in your account for the purpose of trading.
Wikipedia says so,
The goal of portfolio margin is to align margin requirements with the overall risk of the portfolio. Portfolio margin usually results in significantly lower margin requirements on hedged positions than under traditional rules.
Now the Margin which is made available to you few things cannot be done with it
- You Cannot Buy Stock Again
- You Cannot Buy Options
This is a limitation which most of them feel. Rather one should see this as an opportunity.
Here is what can be done.
- You can Write Options
- Buy/Sell Futures
Most of the brokers these days are offering Portfolio Margin and it is not very difficult as it was earlier. There are certain other rules that one should follow regarding portfolio margin. Only Liquidbees is considered as Cash. Another portfolio one would have to maintain at least 50% of the amount of cash for the purpose of mark to market.
More details you can visit brokers website or ask the broker for details since it varies from broker to broker.
Alpha Returns with Portfolio Margin
Now that we have a stable portfolio and portfolio margin.
Our target is to use the most conservative option trading strategies to get a consistent income over and above the returns received from the stock.
Some of the Conservative Options Trading Strategies are below:
- Covered Call
- Collar Strategy
- Cash Secured Puts
These are the options strategies that are very often used to generate consistent monthly income.
These will be explained later on the blog.
Back to You
Let us know if you are having any difficulty in getting Portfolio Margin.
Also if you are finding it difficult to understand certain concepts.
Having said that, Portfolio margin is a great tool if used wisely. If you are aggressive portfolio stock investor and aggressive options trading taking high risks this could wipe out your account in few days.
Remember that options trading should be hedged all the time. Leave no naked Positions in options trading.
Capital Preservation should be the key in Stock Trading.
Don’t Hold Back Your Portfolio Margin.
I am sure you would have things to tell regarding your experience in Portfolio Margin.
Let us Know in Comments.