The right way to use options for distributions

Fifty Ways to Trade an Option

The closest thing to alchemy is modern finance.

Whether it’s clever accounting, bank structured products, or everything you’ll find in an ETF wrapper, the most powerful service finance provides is converting one type of cash flow into another.

There are important reasons for this. Different bond investors are willing to absorb various tranches of risk. Other investors can’t manage or don’t have access to the swaps and derivatives that create defined outcomes. True gold comes when you can convert IRS income into something else.

Cash flow engineering isn’t always about pure numerical optimization. Sometimes it’s just to make it easier. Spending money is easier than spending investments, and the complexities of converting assets into offsets for your bills is not always straightforward. A mix of stocks, real estate, and crypto looks great on a spreadsheet, but what about distributions.

That’s a complicated word. They’re not necessarily a dividend, and might be some mix of capital returned and profit. All sorts of flavors of tax are involved, but most significantly they are cash. Cash buys things.

I’m pretty clearly not a fan of the grocery store sushi that most ETFs produce. You can almost always do it better yourself. But don’t just take it from me, Moontower has a great compilation of other thoughts on this subject.

And yet, I’m starting to appreciate the “why” here, and what problems investors are using these to solve. Even if it’s their own principal getting kicked back, the steady drip of payments may even solve problems beyond comfort and ease. A $2 trillion dollar annuity market didn’t manifest because investors like the load fees.

There are clear use cases for retirement spending, but this kind of structure and plan can also be used to divest from a concentrated position. Think RSUs or equity grants. Runway for launching a breakfast sandwich chain. Whether it's for spending or diversification, the investment structure is identical.

You’ve got some stock, but what you really want is a regular check to pay for something else.

Today in Fifty Ways to Trade an Option we’ll talk about options portfolio management strategies to create the cash flow you’re looking for, with greater precision, lower fees, and optimized targets.