Using Options to Generate Cash Flow from Your Investment Portfolio

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Maz Esmailbeigi, AIF®, CFS®, CAS® Founding Partner Chief Investment Officer

One of the primary objectives for investors is generating income from their portfolio. While traditional fixed-income investments, such as bonds, can provide income, they may not be sufficient to meet the distribution needs or specific objectives of the investor. Options strategies, if implemented correctly, can offer an additional method to generate cash flow from your investment portfolio.

How is Cash Flow Different from Investment Returns?

Cash flow represents the actual cash generated or received from an investment. It is important to distinguish cash flow from investment returns. Investment returns represent the overall performance of an investment taking into account both income and appreciation or depreciation. Generating cash flow from your portfolio can help meet your current distribution needs and increase your total return.

Using Traditional Fixed-Income Investments

Fixed-income investments, such as bonds, are a traditional method for generating cash flow from a portfolio. They offer a fixed interest payment, often paid semi-annually or annually. Dividend-paying stocks also provide a source of income. However, these traditional methods may not be sufficient to achieve your desired level of cash flow.

Complementing Traditional Methods with Options Strategies

Options strategies can complement traditional fixed-income methods of generating cash flow. They offer additional income potential that could help you achieve your cash flow objectives or meet a specific rate of return. For example, a traditional 60/40 (60% Fixed Income and 40% Stocks) portfolio may achieve a 2-3% cash flow. Adding options strategies could potentially increase the cash flow to north of 5-6% annually.

Impact of Interest Rates and Inflation

Interest rates may impact traditional fixed-income investments as the yield offered by bonds can change based on the current interest rate environment. Options strategies, however, are not as directly impacted by interest rates. Instead, the two primary impacts on options are volatility in the stock market and the duration of the options strategy. With regard to inflation, while it does not directly impact options strategies for cash flow generation, in a high or hyper-inflationary environment, the higher cash flow offered by an options strategy may help keep up with increasing costs compared to traditional fixed-income investments.

Managing Risk

The primary risks of options strategies involve limiting the upside exposure and market appreciation. Through an options strategy, investors can limit their upside exposure. However, the market may appreciate quickly, limiting the investor’s potential gain. It is important to work with a professional advisor who can help mitigate these risks and optimize the strategy for your specific goals.

Using Options for a Specific Rate of Return

Using options strategies for cash flow generation can be particularly helpful for those investors seeking a specific rate of return. For example, if you are seeking an annual rate of return of 8%, historically this would be achieved through appreciation. With a cash flow options strategy, however, you may be able to achieve the desired rate of return, even if the underlying investment does not appreciate as much as anticipated.

Determining Appropriate Strategies

While options strategies can be suitable for many investors, they may not be appropriate for all. Those who are very tax-conscious or who cannot withstand short-term capital gains may not find them suitable. Additionally, investors who are very assertive in the market and do not want to limit their upside may not find them appealing. It is important to work with a professional advisor who can help determine the most appropriate strategy for your unique needs and goals.

Why Work with a Professional?

Working with a professional advisor who has experience with options strategies can help ensure proper implementation and monitoring. Options strategies require daily attention and can involve emotional investment and money related decision making. A professional advisor can help implement the strategy based on fundamental and technical research, removing emotional decision making from the equation.

Getting Started

To get started with options strategies for cash flow generation, it is important to have a clear understanding of the risks and benefits involved. From there, opening an account with a professional advisor and determining the appropriate strategy, based on your unique needs and goals, can help take advantage of the potential for increased cash flow from your portfolio. While options strategies are not suitable for everyone, they can offer a complementary approach to traditional fixed-income investments and potentially help investors meet their cash flow objectives.


This material is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument or to participate in any trading strategy. This material has been prepared based on information believed to be accurate at the time of publication, and the views of the author are subject to change without notice. This material is not intended to provide, and should not be relied on for, accounting, legal, or tax advice, or investment recommendations. Readers should consult their own tax, legal, and financial advisors concerning their specific situation. Any securities or financial instruments mentioned in this document are not intended to suggest that they are suitable for any particular investor. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. Unauthorized use, duplication, or modification of this material is strictly prohibited.


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