How much do you charge?
Our services cost either $85/month for self-managed, or $115/month for autotrade. We charge a flat rate to your credit card each month. You may cancel at anytime. All of our products have either a free 30 day trial where no credit card is required, or a $5 first month special.
When was MCTO founded?
Monthly Cash Thru Options was founded in 2005. We initially focused on non-directional options trading strategies. Over the years we have expanded into directional strategies leveraging quantitative and algorithmic methodologies. MCTO Capital Management, a sister company, was established in 2018 to service high net worth and institutional clients through managed accounts.
What is the best way to diversify my portfolio?
Monthly Cash Thru Options LLC, which services the retail client, offers five actively managed strategies that can help an investor diversify an investment portfolio. These strategies can be either self-managed or autotraded. A recommended approach is to take a portion of your total investable cash and allocate it to 2 or 3 MCTO strategies.
First you will need to decide what percent of your total investable cash to allocated to a single strategy, such as Small Cap Momentum, as an example. A good rule of thumb is to not invest more than 25% of your cash into any single strategy. It’s highly advisable to diversify your total portfolio across multiple strategies.
As an example, let’s say you have $100k of total investable cash, and you decide to allocate 25%, or $25k to Small Cap Momentum. You also decide to allocate 25% to Sector Rotation, 25% to Contrarian Fund, and to hold 25% as cash.
Next, we recommend to allocate 4% to 5% of the $25k to each position; 5% of $25k is $1250. So $1250 would be the maximum you would allocate to any single position. We will usually allocate up to 70% of the cash to bullish trades in each of the strategies mentioned above, as long as the market is in an intermediate and long-term confirm uptrend.
A typical hold time for each position in the above three mentioned strategies is 30 to 120 days.
I already have a financial advisor. Why do I need your services?
We recommend that you continue to work with your registered investment advisor (RIA) and have them continue to manage a certain % of your total investable assets. Financial advisors offer value when it comes to macro-level planning of your assets along with tax, estate and wealth-transfer planning. However, most financial advisors are not well trained in actively managing money, and are usually slow to exit an investment when it starts to show fatigue or demonstrate valid exit triggers.
Because some RIAs understand that they are not well trained or experienced in active portfolio management, some will outsource the investment management task to 3rd party investment managers. This is a positive for the client. However, the negative is that the client will be paying higher fees because the RIA and 3rd party investment manager will be splitting the fees.
Other RIAs, the ones that manage the assets themselves, usually just “buy the market”, which is not optimum for the client. This means that most RIAs will allocate a certain % of the portfolio to a large-cap index, possibly some to a mid-cap or small-cap index, maybe buy some ETFs that represent specific industry sectors or emerging markets, and probably buy a bond ETF. Many times the chart of one of these investments, to the trained eye of an active portfolio manager, will say “don’t enter this ETF until it breaks above a certain level”; or, “get out of this position if it closes below this level”. Unfortunately, many RIAs don’t understand this and will still put you into these investments regardless of what the chart is saying to the trained technician. Moreover, they will be slow to get you out of an investment, if ever, when they should be selling and going to cash. Because most RIAs are not trained portfolio managers and don’t have strong technical skills, they will be slow to react to any sell signs that a stock, index or ETF may be exhibiting.
Overall, it’s recommended to keep a certain % of assets with an RIA to take advantage of the macro-level asset, tax, estate and wealth-transfer planning capabilities. Additionally, keep a certain % in cash or gold; and then allocate a portion of your assets to active strategies run by experienced portfolio managers. Because we are active managers that are expert technicians, who also monitor macro-level market-timing indicators, we know when certain investments are flashing “yellow” or “red”, and we know how to get out of positions quickly when sell-signals are triggered, which is key to capital preservation.
What type of analysis does your firm do to drive your strategies and convictions?
We do a robust analysis each week to help guide our investment thesis and trading.
At a macro-level, which helps us modulate our bullish and bearish exposure levels, we analyze approximately 80 charts weekly that represent macro-level technical, fundamental, breadth and sentiment data.
At the micro-level, which provides specific entry and exit triggers for our trades, we analyze the technicals of hundreds of charts weekly of individual stocks and ETFs, and combine this with stock-level fundamental and factor-based quantitative analysis.
The analysis that we perform weekly is available for FREE and can be downloaded here.
For additional information on the analysis that we perform please go to Education -> Learning Center Macro & Technical Analysis
My financial advisor never pushed me to get out of stocks during the last downturn and I lost a lot of money. Are your portfolio managers different and more nimble?
Our portfolio managers are trained to be fast moving and to get out of positions quickly when our exit rules are triggered. We are trained as traders, so we follow entry and exit rules for all holdings and we follow these rules in strict form. If a market starts to become unhealthy, we will usually see it a week or two in advance through our stock holdings, and our exit rules will trigger us to close positions in incremental fashion. If a chart starts to look unhealthy we’ll know it, because we are expert technicians, and most likely we’ll be out of that holding before our loss gets much greater than 5%. We also monitor the macros of the US economy (major indexes, bonds, economic data, breadth) along with Europe and Asia, which provides us visibility into “storms” developing, where we are quick to reduce exposure until the storm dissipates. With this said, taking losses is part of the business; the key is to keep the losses small and to protect our capital by following strict exit rules and by modulating our exposure levels from week to week.
On the contrary, financial advisors are not trained like active portfolio managers or market technicians, and they move slowly. When the market gets volatile, or if a position starts to roll over, they will usually just say, “let’s hold on because the market (or stock) will eventually come back”. Unfortunately, we know what happened in 2008 where most portfolios where cut in half, and some were down as much as 70%. With this said, we believe that you should continue to work with your financial advisor, if you already have one, as they can offer you many services, but we don’t recommend to have them manage much more than 30% of your total investable assets.
What % of my total investable cash should I allocate to a single strategy?
A good rule of thumb is to allocate a maximum of 25% of one’s total investable cash into any single strategy, and to hold a certain % as cash.
As an example, let’s say you have $100k of total investable cash. You decide to allocate 25%, or $25k to Small Cap Momentum, $25k to Sector Rotation, $25k to Contrarian Fund, and to hold $25k as cash.
Next, we recommend to allocate 4% to 5% of the $25k to each position; 5% of $25k is $1250. So $1250 would be the maximum you would allocate to any single position. We will usually allocate up to 70% of the portfolio to bullish trades in each of the strategies mentioned above, as long as the market is in an intermediate and long-term confirm uptrend.
A typical hold time for each position in the above three mentioned strategies is 30 to 120 days.
What differentiates MCTO’s strategies from other managed products?
Below is a summary of how we are different:
1) Our strategies blend technical, fundamental and factor-based quantitative analysis.
2) Most of our strategies are long/short where we allocate a certain percent of the portfolio to short hedged trades.
3) We dynamically modulate our bullish and bearish exposure through robust, macro-level technical, fundamental and sentiment analysis.
4) These strategies are available to autotrade where it’s easy to setup an autotrade rule through a participating broker to get started.
5) We follow strict exit rules and don’t hold positions with the hope that they will bounce back. Case in point, our strategies went from 70% allocated down to 15% allocated in the 5 days prior to the Oct 10, 2018 correction. Our stock holdings started to trigger exits, so we were exiting trades rapidly over a 5 day period as dictated by our strict exit rules. This allowed us to mostly go to cash just prior to the correction and to lock in our gains.
Actively managed strategies with this level of sophistication are usually out of reach for the retail investor.
What is factor-based quantitative analysis?
Factor-based, quantitative predictive analysis (QA) is a technique that seeks to understand and predict behavior by using mathematical and statistical modeling. In the financial services industry, QA is used to analyze investment opportunities to provide predictions of when to purchase or sell securities, and the potential magnitude of a move. The input factors, or independent variables, that are fed into a quantitative model include financial ratios such as price-earnings ratio (P/E), earnings growth, revenue growth, cash flow, among others.
I just buy the S&P500 index ETF (SPY) and other index ETFs and have done well. Why do I need actively managed strategies?
When the market is in a confirmed, long-term UP trend it’s okay to allocate a certain % of one’s portfolio to an ETF like the SPY that tracks the S&P500 index. However, it’s strongly encouraged to have a good understanding of technical analysis to help you set exit levels to protect your capital; especially since the major indexes are looking less healthy as of late Nov 2018.
As we head into 2019 the market is going to become more difficult to navigate as the Federal Reserve continues to raise interest rates, and fiscal stimulus from the corporate tax cuts begin to wear off. The Fed’s interest rate hikes will most likely slow the US economy to sub 2% growth by late 2019. There is a moderate to high probability that the US economy will go into a recession in 2020, which will cut most portfolios by 40% to 50%. Be aware that the stock market is forward looking so stocks will start to have a higher frequency of volatile trading and strong corrections up to 9 months prior to a recession, so portfolios can get hurt many months prior to the start of the actual recession.
As we head into 2019 where the Fed continues to raise interest rates, it will be less optimum to “buy the market” by holding broad indexes and ETFs and better to focus on specific stocks within specific industries. That is, stock picking and nimble long/short strategies will most likely outperform the broad markets in 2019. Moreover, strict exit rules are required to control downside risk and for capital preservation. It’s never recommended to “just hold on because we think it’s going to come back”. We know what happened in 2008 where most accounts lost 50% of their value. Having strict exit rules and an understanding of where and how to execute the exits is imperative to locking in gains and preserving capital.
As a general rule for the investment management industry, most investment advisors are not traders, they are not trained to be nimble and fast moving, they don’t obey or really understand the concept of having strict exit rules, and most will tell you to “just hold on because it will eventually come back”. As of late 2018 the market is becoming a lot more volatile and “just holding on” is not a good game plan.
As of November 2018 it’s still okay to allocate a small % of one’s total investable cash to a broad-based index ETF like the SPY, because the stock market is still in a confirmed, long-term up-trend. However, the market is becoming more volatile and the indexes are not looking healthy. It’s imperative to have an exit strategy for all holdings based on predetermined levels. If you are not sure what these levels are please contact us and we can help you set exit rules for your current holdings. It’s also recommended to start reducing your holdings of passive indexes and ETFs and to either go to cash, or allocate some assets to actively managed long/short strategies that are managed by a nimble portfolio manager. Portfolio managers within MCTO Capital follow strict exit rules, are quick to move to cash when the technicals trigger exits, and dynamically allocate more to bearish trades when the charts and indicators warrant it.
How much money do I need to get started with the MCTO strategies?
For the iron condor strategy you can start with $6500. For the other MCTO strategies the minimum is $10,000.
When a strategy is Long/Short what does this mean?
A long/short strategy, such as Directional Alpha, actively opens bullish and bearish trades, usually at the same time. Sometimes this type of strategy is called a market neutral strategy since it can make money in both directions.
What brokers do you work with and how much do they charge?
We work with the following brokers that support autotrading:
Interactive Brokers, through Global Autotrading
E*Trade, through Global Autotrading
Since 2014 the commissions that brokers charge for options and stock trading has narrowed as the industry became much more competitive. For option trading, most brokers charge between 50 and 75 cents per contract plus a flat ticket charge of $4.95 per option leg. As an example, for an option spread that has two options legs, the broker’s commission would be a ticket charge of $9.90 plus 70 cents per contract.