Dual Edge Research publishes two powerful newsletters that work great individually — and even better together. The Bull Strangle Newsletter focuses on stocks and options, combining stock ownership with premium-selling strategies to generate consistent income and market-beating returns. The Smart Spreads Newsletter specializes in seasonal commodity futures spreads, offering a diversified approach with low correlation to equities. Together, they deliver a complete investment perspective — one focused on income, the other on diversification — all under one simple subscription.
Introduction
By the time the weekly Bull Strangle watch list is complete, the hard work has already been done. Thousands of stocks have been screened, earnings announcements have been removed, liquidity requirements have been met, and each remaining candidate has been evaluated using the Bull Strangle Ranking System. The result is a list of approximately twenty high-quality opportunities.
A common misconception is that the final step is simply selecting the five highest-ranked stocks. In practice, portfolio construction requires one additional layer of judgment. The objective is not simply to own the five "best" stocks. It is to build a portfolio that can perform consistently across a variety of market environments.
Diversification Still Matters
Every Bull Strangle position has three sources of return: the stock, the covered call, and the cash-secured put. Although option premium helps reduce volatility compared to owning stock alone, the strategy remains exposed to movements in the underlying companies. If every position comes from the same industry, the portfolio can become far more concentrated than it appears.
For example, imagine the five highest-ranked stocks are all semiconductor companies. Each stock may individually satisfy every Bull Strangle criterion, yet they are all influenced by many of the same economic forces. A single industry event—a disappointing earnings report from a major chip manufacturer, new export restrictions, or a change in technology spending—could pressure every position simultaneously. The research may have identified five excellent companies. The portfolio, however, may still carry unnecessary risk.
Looking Beyond Individual Stocks
Diversification begins with sector exposure. Instead of concentrating capital in one industry, the goal is to spread positions across different parts of the economy whenever practical. Technology, healthcare, financials, industrials, consumer staples, energy, and utilities often respond differently to changing economic conditions.
Sector diversification does not eliminate risk, but it reduces the likelihood that a single event will negatively affect every position simultaneously. This is one reason the weekly watch list intentionally includes stocks from a broad range of industries whenever possible.
Diversification Does Not Mean Equal Representation
Diversification should never override quality. Some sectors naturally contain many stocks that consistently satisfy the Bull Strangle criteria. Others may offer only one or two acceptable candidates—or none at all. Forcing equal exposure across all sectors would often require selecting lower-quality stocks to meet an allocation target.
Instead, diversification is applied within the framework established by the research. When several high-quality candidates exist in the same sector, only the strongest may be selected. When another sector offers fewer opportunities, a Core- or even Secondary-rated stock may be included to improve balance, provided it still meets the strategy's overall standards. The objective is balance—not perfection.
Position Size Is Part of Diversification
Diversification also involves how capital is allocated. Owning five stocks does not automatically create a diversified portfolio if one position represents twice the size of the others.
The Bull Strangle Strategy uses relatively consistent position sizing so that no single trade has an outsized influence on overall performance. Equal or near-equal dollar allocations help ensure that both gains and losses remain proportional across the portfolio. This complements the position-sizing principles discussed in the previous article while adding another layer to overall risk management.
The Portfolio Is the Investment
It is easy to focus on selecting individual stocks because each trade receives its own analysis. Successful investing, however, is measured by portfolio results—not by any single position. Some trades will outperform expectations. Others will disappoint. A diversified portfolio allows those individual outcomes to balance one another while preserving the long-term edge identified by the research.
Final Thoughts
Building a diversified portfolio is the final step before entering trades each week. The watch list identifies high-probability candidates, but portfolio construction determines how those opportunities work together. The goal is not to own every attractive stock. It is to combine the strongest opportunities into a balanced portfolio that manages sector concentration, controls position size, and allows the Bull Strangle Strategy's historical edge to compound over time.
In the next article, we'll discuss how to manage positions after they are established, including monitoring existing trades, handling assignments, and preparing for the next option cycle.
Want to build a more complete trading toolkit?
The Bull Strangle Newsletter focuses on stocks and options, combining stock ownership with disciplined option-selling techniques designed to generate consistent income while managing risk.
The Smart Spreads Newsletter focuses on seasonal commodity spreads, a historically proven approach that seeks opportunities across agricultural, energy, metal, and financial futures markets.
Each strategy is designed to stand on its own, but together they provide a diversified approach that can perform across a wide range of market environments. For traders looking to deepen their education, The Bull Strangle Strategy and Trading Commodity Spreads are both available on Amazon.
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Darren Carlat
Dual Edge Research
(214) 636-3133
DualEdgeResearch@gmail.com
Disclaimer
This information is for informational purposes only and should not be considered as investment advice. Past performance is not indicative of future results, and all investments carry inherent risk. Consult with a financial advisor before making any investment decisions.