I use options like how an insurance company uses policies and premiums to earn money, to create a consistent cashflow, but you require the right knowledge and you need to understand your risks.
Insurance companies sell a lot of policies and they do have to pay out at times. Take motor insurance, where one out of 10 drivers is likely to get into accidents two to three times a year. But the insurers earn money overall as they are able to cover those losses while earning profits.
I do the same thing for options but on a monthly basis. I may make mistakes from time to time, but over the long term, the premiums I get should supersede those losses.
Many people look at vertical spreads or use strategies like iron condor (where you have four different bets on the same security).
I found those work nine out of 10 times, but for that one time of loss you could end up losing everything you earned before. I've been through that.
Now I just sell options - instead of buying and selling. It's not about being rich quick but increasing your portfolio over a long time.
After more than one year of losing about US$50,000, I came to this revelation.
What I look out for are certain companies like Alibaba that I understand, as my business relies on Alibaba. When the market is unsure, the premiums are higher, as in Alibaba's case - like when the policy premiums are higher for a motorist who gets into an accident twice a year - and that supersedes losses that come my way.
I backtested my strategy on stocks which can be hugely affected by recessions, like oil companies.
I can be wrong about a stock and when it drops from US$70 to US$30, I should lose US$40. But with options, I lose US$5 or US$10 instead, as the premiums I get month after month cover for such falls.
I settled on options as the success rate of those who learn about it tends to be higher than the success rate of those who learn about foreign exchange or derivatives like contracts for difference. Don't even get me started on binary options as courses on those tend to be scams.
Q What's in your portfolio?
A About 90 per cent of my portfolio, which I grew from US$10,000 to US$1.5 million (S$2.2 million), is made up of options. I look at my portfolio only once a month.
I choose firms with good economic moat (a term popularised by investor Warren Buffett, referring to the competitive advantage a firm has over others in the same industry). I study the business and ask questions like: "Is it easy for the company to be swallowed by another?"
I've got companies like Visa and Budweiser maker Anheuser-Busch InBev, which also owns brands like Stella Artois. It's hard to penetrate the market they are in. I like Facebook as it has no competition and it also buys competitors all the time. The only threat is Snapchat.
I've two properties in Britain - a terraced house I bought in 2014 for $100,000 and I get $800 in rent each month. I also have an airport carpark - an instrument that citizens there can also use their pension funds to invest in - which has a yield of about 8 per cent a year. I bought those to diversify my portfolio.
I've earned a six-figure sum annually for three years now.
Every year I take US$100,000 to invest in Yoonly, which has an annual turnover of seven figures. Since I took over, it's changed from purely manufacturing items such as trophies to include services as well.
Q What's the most extravagant thing you have done?
A I stopped spending money frivolously a few years ago and I need only $30,000 a year now. I used to spend all my salary as a civil servant and never saved.
The last time was when I bought a second-hand Honda S2000 for $100,000 about five years ago. I still remember a brand new one was $200,000. I sold it in 2012.
Q What are your immediate investment plans?
A I just got into an exchange-traded fund (ETF) in the emerging markets and China, which is rather undervalued now. You can invest in sectors through ETFs.
I may be looking into the oil industry too. Jet engines need jet fuel, there's no alternative aeronautical fuel; a plane with passengers can't be solar-powered yet. There's still a need for fossil fuels, so for 10 to 20 years I think it'll be fine.
Q Home is now…
A A four-room flat in Sengkang. One thing that I learnt in a property course - if the Government places a lot of cooling measures, it doesn't make sense to go against them and I can wait.
Q I drive…
A My company van, a Renault Kangoo. I'm happy driving it.