This is a special episode because it is a recording of a one on one coaching call with a student. The questions he asked are probably the same questions you have about trading options.
How much can I really make?
How do I get started?
What do I need?
We cover a lot in this call. So listen and learn. And if you think you need a trading coach to help you become a better trader, then email us at [email protected]
Allen: Okay, all right, so Keith, how you doing?
Keith: I’m well, thank you. Thank you very much for talking.
Allen: Good, no, no, no, thank you. What I wanted to do is if you could tell me a little bit about your background, tell me a little bit about yourself, and then after that, then we can go ahead and jump into your questions.
Keith: Okay, I’ll try and be quick.
Allen: Just so I get a little bit of a feel, so where you’re coming from.
Keith: Okay, I could … I’m the one who’d probably sit there and tell you, 35-40 minutes, my background, but I’m not going to do that. I’m going to try to be really concise and get to the point. I have a full-time … I have a wife and four kids, teenagers, a full-time job. It happens to be very luckily a good job. A really good job with a fine schedule. I say that for a reason because I’ve been training for years, like over a decade with no progress. Maybe because I don’t need it. It’s not like I’m hungry. I don’t need it like I want to get out of my job or anything like that. I’ve just delved into it for years thinking some day I’ll get it. Some day I’ll figure out the niche I want and someday I’ll … too much time has gone by. I like spending time learning but I feel like now I’m wasting time. I need to actually do something productive.
I’m 48 and I’m thinking I want to take my retirement account that’s being managed by a firm in New York who’s not really doing the job. They have been up until like I said recently. Just like everyone else. They’re doing well I think with their niche, but I can look at the numbers and say okay, this isn’t gonna do it. This isn’t gonna be my retirement. It’s not gonna happen. I’ve got to do something more active myself. That’s why I’m thinking, okay I’ve got to either stop or get moving. I’ve had some bad losses in the past. I don’t really need to go into those. It’s just one of those things that a lot of traders have gone through. I don’t need to bore you or want to get into that. Enough where I’m like okay, I’ve had enough. I’ve got to do something. Like I said, I’m 48. I’m looking into what’s the future gonna hold. What am I gonna do when I retire? What’s my next leg gonna be like? There’s education, kids education kind of a little bit of a factor.
My brothers, we talk to each other a lot about things we use to practice together, but I moved away and I still talk to them a lot. We talk about ideas a lot. They’re getting into some things business wise after their dental career to account for what are they gonna do in retirement. I look at what they’re doing as pretty cool. I know this trading thing will work and can work. I know it can. I just haven’t gotten it off the ground. Now I feel more like I have the need to. I don’t again, think I’ve gone into as much detail as I wanted, but I don’t want to take all this time just to tell you my background meaning to take up your time. A typical story. I’m not really unique. As far as trading goes, basically why I haven’t been successful number one is rules. I know the rules and I don’t follow them. I follow the rules in my business. I’m very disciplined in my business with overhead and all that stuff. For some reason trading, I did at the casino.
If I ever go to a casino, which is rare, I’m pretty disciplined. I don’t have a gambling problem. But with trading, for some reason that’s different. I don’t follow the rules. I don’t do what I’m supposed to do and I’ve been trying to figure myself out. I think that part of this too is I’ve got these kids that I’m busy with. I sit at the computer for a while and I like doing it. I feel like I got to figure out a niche that doesn’t involve me at the computer a lot so I can hang out with them and do my thing with them and then when they’re gone, maybe learn more. Along the way I want to keep learning. Basically, where’s my niche? I’m going from one method to another without fulling trying it out. I’m floundering. I finally settled on I want to day trade. I love that. I can’t do that. I’ve got a job and other things to do. Anyway, hopefully I’ve kept that as concise as possible because it’s a lot to that. I’ve got to the conclusion where okay, it just seems to me like the iron condor/oil trading is what I want to do. Again, I’m trying to keep this-
Allen: Don’t worry about it. Just let it out.
Keith: … concise for you.
Allen: I’m trying to figure out what your goals are. I’m trying to figure out what is the mental blockage here. Why haven’t you done it before? The more you tell me, the more it’ll help. So don’t worry about it.
Keith: I’ve just done all sorts of trading. I’ve tried all sorts of things, but I don’t stick with it. I see another method comes through, I’m like oh let’s try this. I see something else come through, oh let’s try this. In doing that, I guess I wanted to try out a lot. I took a lot of webinars. I actually probably know a decent amount. If you show me a chart and say tell me what you see, I actually know. I think I know a lot . I can’t really put it to work. I thought of you recently because finally I think I know what appeals to me. I know what I want my niche to be. That doesn’t mean I can’t switch it. At least if I land on something that appeals to me that will work, then I think if I want to delve into something, that’s fine. At least don’t do that until you’ve gotten off the ground there.
Traders that are making money and traders that are losing money. Simple as that. I’m not on the one side. As soon as I get on the one side, even if it’s a little bit with some form of consistency, then oh okay I can branch from there. What appealed to me was and basically it’s this whole building an account thing. All these investment opportunities out there that people are getting into that I hear about that I’m thinking, wait a minute. Trading, it just seems like trading is a lot simpler way to build an account than starting some business. It takes some discipline in that. I just think from what I hear about you and other people on the up and up as far as options trading, that it’s very doable. I thought about you because what appeals to me is iron condor trading on the indexes in oil trading.
It’s almost like right now I don’t want to do any stocks. I just want to keep it very streamlined. Basically I’m here to ask you. I’ve got some ideas, but I wanted to find out from you if they would work or if that’s how you’d do it. Basically like I said, I’ve done scans for stocks. I’ve done all sorts of things. They just seem to make me be stretched to thinly with my whole life. I thought, if I could just streamline this to what I think will work, I can still definitely be … it’s not like I don’t want to learn. I want to learn, but I think I want to learn and learn my method and get really good at that and not try to just learn about other things before I’ve landed on this. Again, what appealed to me is I’ve been on and off oil. Do I do it? Do I not? Do I do it? Do I not? Finally I thought, you know what? Yeah. I want to tackle the oil thing. I think I want to tackle the iron condor on the indexes thing. My question to you was, what would you, as far as let’s take the iron condor thing.
I like the monthly butterflies, the monthly calendar, the monthly double diagonals, I’ve learned those from another source. They’re the monthly workforce trade that you just kind of rinse and repeat. You’re a big iron condor guy. I guess in order to find out what I would like to do works, would work, if you took … that’s why I’m gonna ask a pointed question. If you took an iron account, let’s just call it a hundred thousand dollars because that’s just a round number. You just traded iron condors off the XPS and the [rustle 00:09:21], they might be long balled, they might be shorter ones. If you just said, okay I’m dedicating this account to iron condors where I’m not white knuckling anything and just following the rules, what could you do a year percentage wise? You Alan.
Allen: Is that your question?
Keith: Well, that’s one of them. What am I gonna do with my chunk of money that I just transferred to an IRA? That’s one of them. Iron condors and oil but I just have some ideas on how I would do it. You might say, no, no, no. That’s not how-
Allen: Let me come back to that. I’ll get you the answer, but let me come back to that. Before we go any further, I have to tell you and everybody listening, first of all, thank you for letting this be recorded. I wanted to record this because like you said, you said you’re not unique. I believe that you are unique. Everybody’s situation is a bit different. The boat that you’re in, the situation that you’re in, there are a lot of people that are in a very similar situation. The questions that you had asked me in the email originally I thought of that. I was like wow, there are so many people that are thinking the same exact thing. If we can get this as a two way conversation. You having questions, I’m sharing my experiences and trying to lead you in certain directions. I think it would be beneficial for everybody that’s listening. Then I have to preface it and say that I’m not a licensed financial planner. I can not give you specific financial individual advice. It’s about telling you hey do this or buy this or securities or what not. I can get in trouble if I do any of that.
We are going to basically give you some advice in a sense of what I would do if I was in your situation. What I do because I am in a similar situation to you as well. Maybe I’m a little bit further down the line. I have my answers or what I want to do. What we need to figure out is exactly what you want to do. Then get you on the right path so that you can learn exactly what you need to do so that you can get it done. That being said, I do have some questions for you. The four teenagers that you have, are they going to be going to college any time soon? How old are they?
Keith, you there?
Keith: Yeah. Yep. Can you hear me?
Allen: Yes. I can hear you.
Keith: Somehow I got dropped.
Allen: My question to you is I want to start off with talking about … not talking about. Just I want to get a bit more details. How old are your kids?
Keith: Senior, freshman, freshman, seventh grade.
Allen: College is taken care of or you’re still gonna be paying for that or they’re doing scholarships and doing their own or how’s that gonna work?
Keith: I’m not worried about college right now. I’ve got college taken care of without trading, without trading. I brought that up because it’s just something I’m obviously involved in right now and dealing with. Mainly I’m thinking about a future as in retirement during retirement.
Allen: Are any of those kids financially minded? Would they be interested in trading?
Keith: Yeah, I think so. That brings up a good point and I’ll be quick about it. Part of the reason why I want to learn this too is because I want to pass it onto them to some extent. I just feel like it’s a great opportunity. If I don’t learn it, I feel like I’m doing them a disservice because I know a decent amount about it and if I don’t actually land myself somewhere, I feel like I won’t be able to teach them what I think I should or lead them where I should. So yeah, I think they do. Some of them, yeah.
Allen: Cool. Because you told me that the following of the rules is an issue for you. That’s really a mental thing. I think in the past it’s because you didn’t really take it that seriously. It wasn’t that important. It was great, hey this is cool and all, but you lose interest very quickly. I think we really need to dial down on the goal or the why. Why are you doing it? If you really need to figure that out, what is the actual goal that you have? Is it to retire from your job? Is it to have a certain [inaudible 00:14:58]? Is it to buy a house? Whatever it is, we need to make that more concrete. Once it is more concrete and you review that every day before you go into your trades or before you go to work or while you’re brushing your teeth, you look at that goal, that is gonna solidify that in your brain this is important. I need to pay attention to this. That’s one of the tricks you can use to help you start following the rules.
The other one that you can do is, and I talk about this in one of our training camps program. You can get somebody to trade with you. If it’s a child or a spouse that’s interested, that’s great. They don’t have to be completely interested, but they have to have … how do I say that? They have to have authority over you in a sense where you give them some basic information about what you’re doing. They don’t have to know intricate details. If you’re trading iron condors, they don’t need to know what are your strikes every day and what is a deuton and all this stuff. But they need to have a sheet where they come in every day at a specific time or they text or whatever and they ask you specific questions. What is your [inaudible 00:16:26] short strike? It could just be them just reading off a sheet. When are you gonna adjust? Are you close to being … what is your rule for this? What happens if the market goes up one standard deviation? What happens if the market goes down? Then you have to answer them.
To them it doesn’t matter what the answer is. They’re only job is to make you go through that process every single day that you’re in the trade so that you follow the rules. After you supplement trade or after you lose on a trade, then they’re gonna come back with a separate sheet and say, why did you lose? Give me a specific reason. Then you have to come up with that reason. Then eventually they’ll see a pattern. If you keep losing trade after trade for the same reason, they’re gonna be like hey dad what’s going on. You have to answer to them so you can’t just blow them off and say, hey son I’m not answering you today. I didn’t focus on my trade, well I’m not answering you. No. That’s part of the discipline you have to instill in yourself if you want to do this seriously.
When I did it, I was just like you. I didn’t check in on my trades. A lot of times if there’s not much going on, the markets are not moving much, I don’t check in on my trades very much. Then I have somebody else that asks me. It’s like, hey what happened? How is this trade doing? How is this trade doing? How is this trade doing? I have to actually go in, log into my computer, log into my broker’s account, check everything, and then make those answers. For me, it’s a livelihood thing. It’s not just for fun. If I mess up, that’s money that’s not gonna come into the household for that month. I had to figure out a way that okay, I know that this is a problem for me. I lose interest just like you do. These trades are boring because there’s not so much excitement every day that’s up and down, up and down, getting in and out. There’s no dopamine hit every single day. You see it, oh okay. It’s moving. Oh yeah, hey market’s up ten points. Oh market’s down 20 points. Okay my trade is fine. I don’t have to do anything.
Day after day after that, you forget about it because it’s not a routine. You really need to build a habit. If you can build a habit of checking your trades every day, then that’s great. If not, you need to use a hack like getting somebody else to come in and ask you these questions. Does that make sense?
Allen: Cool. If you can find somebody like that, that’d be great. Somebody that’s already trading. Somebody that’s a spouse or a child that is interested or not even interested but they’ll be like, yeah I’m gonna hold your feet to the fire and I’m gonna ask you these questions every day at a certain time frame so that you have that reliability. Even if you forget, even if you fall down on the job, they come in and they’re like okay. What are the answers? You just answer them and that’s it. It takes roughly two or three minutes of your time every day to just go through them and say, this is what’s going on. If you need to do something, then you do it. Most of the time we don’t follow our rules is because we don’t make the adjustments that we need to. If it’s in black and white and the person is standing right there, you’re like according to my rules, I need to adjust. Okay well then go ahead and do it. That is something that I would look into as well.
You are from what I checked in our records, you have both of our iron condor course and you have the blank check, which is the oil options course. Correct?
Keith: Yes. Yes.
Allen: Yes, okay. Have you been through both of those?
Allen: You face another problem that’s very common where people get sidetracked. Once you get on one email list about options, somehow you get on a hundred different lists about options and trading and this and that. A lot of these other companies, they’ll sell your information and they’ll sell their list to other people. You’re just bombarded every single day. Bombarded. That’s their job. That’s the company’s whole main goal is to get you to buy more, and more, and more stuff. You got to clean the clutter and you got to get off all these email lists. A lot of them, most of them. If it’s not providing you value, if it’s just sending you offers to buy stuff every day, then you need to get out of it. One of the things that we focus on is what is the one thing or the one strategy that makes the most sense to you? If you told me I’m looking at oil and I’m looking at condors so I’m gonna take a step back and say, no. Right now you’re not allowed to do that. You’re allowed to pick one. Whether it’s a simple credit spread and not even the condor, or if it’s a condor, or if it’s the oil, but you can pick one.
If you need to go even simpler than that, then let’s go simpler than that. Let’s just do a covered call. Let’s get consistent in that so that you build up your confidence and you build up the account. Say, okay I’m doing this right. In the beginning, I don’t know how much cash you have available, but until you are consistent for at least three or four months, I would even say you do this and you do paper trading. You don’t put your real money in because as you mentioned, you’re doing different things. You’re not focused. I don’t want you risking your money until you do have that focus, until you have figured out what is my goal. Why am I doing this? You make it a must. This is not a I’m just dabbling kind of thing. It’s like, okay you had a realization. You woke up to the fact that hey I’m 48. Time is running out and I’m not gonna have the money that I need, that I want to retire so how do I do it? Well you have all the tools. You have all the courses. You have access to everything that you need. You’ve already paid for it so you don’t need to buy anything else.
You just need to find the one strategy that makes the most sense to you and then just plug in and just single minded focus. Put the blinders on. Just go at this and forget everything else. Do not worry about anything else. Do not read all this other crap, all the emails that come in and all the financial media ads and all that stuff. Just focus on one thing that makes the most sense that you think that you can learn or get good at consistent the fastest. Once you have that one and then you put real money at it, you’ll start seeing it and you’ll start feeling good. Then and only then would you want to break out and say okay, now I’m gonna add strategy number two because I want to diversify or what not. Some of these you don’t really need to. In both of these, iron condors on indexes and the oil trade, we have people that are trading these with hundreds of thousands of dollars and that’s the only thing they do. I got a friend who lives on Lake Tahoe. He does one-
Keith: I know who you’re talking about, yeah.
Allen: He does one massive iron condor trade every month. Now, it doesn’t stay as a familiar iron condor with four legs. He’s always adding lines and subtracting and adding contracts and subtracting contracts. He’s more into it. He’s looking at the Greek. He’s managing by what the Greeks are telling him. It changes, it morphs. It starts off as an iron condor and he does just one trade every month. That’s how he has his lifestyle living in Lake Tahoe, which is pretty expensive. Then we have plenty of our students in the blank check course, which are only doing oil and are making a living doing that. It’s definitely doable, it’s possible. I don’t think your there yet. You told me that you’ve been doing this for ten years. You know enough about it. We have this thing called the option continuum which is from option zero to option ten where option zero is you don’t know anything about options. Option ten is you’re a professional money manager managing money for other people using options.
I think you’re somewhere in level six or level seven where you know enough to be dangerous. I think that’s level five, but you’ve been studying this so that you don’t need a lot of hand holding. You can figure it out. You know the lingo. You know the jargon. You put on trades, you have experience. What we need now is just a little bit of discipline and just picking on one. Just focusing on one and the discipline to stay in that one thing until you go further. Does that make sense?
Keith: Yes. Mm-hmm (affirmative)-
Allen: The other thing that you had asked me in the email was how I manage my stuff. Up til maybe two or three years ago, I was doing everything. I was doing oil. I was doing more and more oil. I was doing the condors that do all the option genius stuff. Simon puts on his trades for our Simon Says Advisory. I do all those as well. Then we also do the weekly trades. Then I have my own retirement accounts that I manage in which I own stocks in those. Then I do cover calls on those, I do naked puts on those, and then credit spreads on the stocks that I own. I was all over the place doing lots of different things. I got to the point where I hit … I’m 42 now. This was roughly when I was hitting 40 or a little bit after 40. It was like, okay what do I want to do with my life? I’m spending time trading all this stuff. What comes after you have all the money? With your job, you have enough money coming in so you’re not worried about it. What comes after that? What’s the next step.
For me, I decided the next step was gonna be to help other people and tell more people about options. Also, I wanted to create a way where I could still have the income from the options but not spend so much time on it. And not have the big risk. We don’t talk about this much in options, especially if you’re an iron condor trader. The biggest risk is a big bear market or a flash crash market. When the market is down 20, 30% in a month, that’s gonna kill your iron condor unless you’re very quick to the trigger and you’re really good at it where you’re buying ports and hedging all your positions and what not. As an option seller, we make money in calm markets. If the market is going up, we’re fine. If the market is going down, we’re fine. Markets going sideways is fine. When we get hurt the most is when the market changes direction very quickly. If it’s been going up and up, and up and then boom one week is just down 10%, that’s gonna kill a lot of our positions. Or just the opposite. It’s going down and then it just V shapes recovery back up. That’s gonna kill a lot of positions.
How do you remove that type of risk without letting go of the gains or the benefits of options? That’s when I came up with something that I call passive trading. I’ve been working on that, moving over my retirement accounts and transitioning that into my other stuff. We’re working on a course. We have a course right now that we’ve created based on these strategies. We’re working with a bunch of people that are in the course right now and trying to get them results as soon as possible. We haven’t released it yet but basically the idea of that is we want a foundation. This really depends on how much money you have. If you had 500, 600 thousand dollars or more, that would be your end goal. This is how much money I have, I need to have enough money out of this so that I can live comfortably, retire early, whatever the goal is. If you had this larger amount of money, the foundation would be in dividend paying stocks. Good, high quality dames, dividend paying stocks.
Then we would trade around those positions. Meaning we would do iron con … not iron condors. We would do cover calls and we would do naked puts and we would do credit stripes on those stocks. It’s a matter of picking a handful of names. Four, five names that we want to own, getting good dividends from those, reinvesting our dividends into the same stock, and then using options to boost our return on those. If we’re getting a seven, 8% return from the stock, we’re getting 3% from the dividend, so that would be like maybe 10%. We’re adding another 10% a year from our options. We’re getting not 10% but we’re getting 20%. We’re doubling what we could make if we were just in the stock itself. That literally takes maybe ten minutes a month. You’re breaking it down and you’re making it just cookie cutter. These are the stocks I own. These are the only ones I’m watching. These are the only ones I’m gonna be trading. This is the trade I’m doing, so all I need to do is just if I’m doing covered calls, all I need to do is either roll a call or let my current call expire and sell another one.
If you’re doing puts, it’s the same thing. Either do another one or just roll it. Do another one or just roll it. That to me, is the easiest way for anybody to get started with options and to really ramp up their money. If you don’t have that money in the beginning, you don’t have four or five hundred thousand dollars to put in the stocks, then we also talk about you can do what’s called the poor man’s covered call, which is you’re using long options or I’m sorry. Leap. Leap options and then selling covered calls on those. Or you just do credit spreads on the same stocks that you want to buy until you have enough where you can actually start buying those and investing in those. What I found, especially in, what was it? This past November when the market … or was it December? I forgot when it was. November, December time frame, market dropped like 20%. I wasn’t really worried because my stocks are losing, yes, but my options that I’m selling on these stocks are all expiring. We’ve had a good bull run for the last several years. Starting in January, I remember I was selling calls on all of these stocks.
They’re all going up, up, up. I’m still selling calls, again so I’m enrolling them higher, and higher, and higher, and higher, and higher. Then they all went down and then finally all those options expired. I had this big really nice windfall and then now that their stocks are going back up, then I’m repeating the same process. Does that make sense?
Keith: Mm-hmm (affirmative)-
Allen: That is something you can do as well. That is what I’m focusing more and more on. I’m still gonna be doing oil because I love it. I’m still gonna be doing iron condors. More and more my money is going to the sense because I’m looking at the future. I’m looking like when I stop doing option genius, what do I want to do? What do I want to do with my life? I want to be in a position where I have the money coming in. I don’t want to give it to a money manager and make four or 5% after all their fees and what not in a good year. I want to still be able to manage it, own good quality stuff, have good income, at least 20% a year. But I want to spend ten minutes a month. This is what I found looking at a thousand different things. This would be the simplest way for me to get the result that I wanted without putting up a lot of time. I think that was one of the things you asked for. How do you trade without spending a lot of time on it? If you don’t have the time because oil is very fast moving and you got to watch it daily.
Iron condors can be laid back. It’s like playing poker. Somebody told me this about poker. They’re like, poker is hours and hours of boredom and then 30 seconds of super much excitement where you have to be on the edge of your seat. That’s what an iron condor is. Most of the time it’s gonna be very slow, very methodical, very easy to do. Then when the volatility spikes, you have to be ready to change your mentality as well. That’s when a lot of people get lulled into a sense of security where they don’t move fast enough when the volatility strikes. That’s when they get hurt with iron condors. That’s the biggest drawback to the condor is that it puts you to sleep. Then when it’s time to wake up, you’re groggy and you’re not moving fast enough. Based on that, I would say you have already two things that you have an interest in. I showed you a third one just now if that’s the way you’re going. Really what I would like you to do is just pick one of those, focus on it, spend some time on it, spend two, three, four months putting on these trades. Just really getting that experience and just doing it over and over, and over again so that it’s second nature. Not paying attention to anything else. Does that make sense?
Keith: Yeah. Mm-hmm (affirmative)-
Allen: Because even if you were to … I would even say go as far as not even paying attention to the news. If you’re doing the iron condors on the indexes, forget the news. Don’t even watch CNBC or Bloomberg or whatever. Just watch the charts. Watch the volatility and trade based on your trading plan accordingly. You’ll do probably better that way in the beginning without all these other instances coming in. A lot of times we don’t adjust properly is because oh hey, there’s a meeting coming out from the fed in two days. Even though I need to adjust right now, I’m gonna wait for that fed meeting. By then it might be too late for your trade. Forget the news, forget all these other advertisements and stuff. Pick one thing, focus on it for three or four months. If you have to get help, get somebody to help you out and come and ask questions for three or four minutes a day just so that you have to go through the mental process of looking at every single one of your trades every single day.
I know you have the time. You said that, right? You have the time, so it’s not like you can do it during the day. You don’t have to do it at night after the market closes. That’s a benefit. If you could do that, if you could do those three or four things that are laid out, I think within six months you’ll have a much better idea of how much and how much you can actually do from this. Your question earlier was, if I was only trading credit spreads on indexes, what is a normal return that you could get? I think it really depends on each individual and it depends on the trading plan that you use. Now for option genius, my trading plan is a little bit more conservative and more hands off because we go out a little bit further in time and further away from the money. You can also come in closer to the money with less time, get a much higher premium, get much more greater percentage and then be out of the trade faster. That model, you have to watch it more and you have to be able to adjust faster.
It really depends on how much time you can put into it and what your temperament is. If you’re willing to take the risk a little bit for a bigger gain, then you might want to go for a shorter time frame. If you want to be more conservative and just be more hands off and just look at it once in a while, then the further away from the money is better. Now I know I’ve been throwing a lot of stuff at you. What are you thinking?
Keith: A lot of what you say makes sense. I understand it. What you said real quickly about the news, it’s funny how you listen to the dudes and listen to these events and then later on you look at the charts. It doesn’t seem … the charts still generally speaking seem to do what they were gonna do. It’s odd how the news definitely can effect the movement, but overall it seems like you can’t look at a chart and look back and go, where was the news? It’s just like the chart is gonna do what it’s gonna do. I’ve heard that from somebody else. They go, I don’t care what synopsis for the day, I don’t watch that. They end up being fine because they end up almost being influenced by pre announcements instead of just going with their plan. That was interesting that you said that too.
Allen: That applies only to the indexes. That applies to the indexes. That applies to all the financial news about, oh the chair wars we got going on and the wall stuff and everything else. That stuff is just secondary noise. If you’re watching a stock, if you’re trading a stock, then you have to know when earnings is gonna be.
Keith: Yeah, that is a definite. You’re right. I was just thinking about the XPS or the [rustle 00:39:02] when you said that. Just non stock, just indexes. I think that sounds good. I had some more targeted questions about the condors and the oil. I can ask you those later too if you like as it relates to a plan that I was thinking about. I’m not sure how you want to-
Allen: Yeah, that’d be fine. Are you in the Facebook group for the oil?
Keith: Yeah. yeah.
Allen: If you want to put them up there, that’s fine. If not, we’ll have a group coaching call coming up this month. Towards the end of the month you can come on there and as there. That’ll be fine. If you want to send them to me in advance, and then we can do that on the group coaching call. That’ll be fine.
Keith: Okay that sounds fine. Can I ask you some after we’re done with this? Or do you want me to …
Allen: Yeah. If they’re specifically, then I would rather do it there. If you have anything about which one should you pick or how much can you make or any of those type of general questions, then we can do it now.
Keith: I’ll ask you those now then. Here was what I’m thinking before I called you. First of all, for oil, it seems like you’re going off a ten thousand dollar account on Facebook when you’re putting your trades on. Your two calls or your one put. Generally speaking, what are you looking to do per year when you trade the blank check plan? What’s the general idea?
Allen: I go into each month and it doesn’t matter the account size. I only use that as an example. I had separate accounts that are much larger. For this reason I want to have … I do this with option genius as well. I’ll have a separate account for that with ten thousand dollars so that I can tell people how many contracts I’m actually doing. I always get that question like, how much do I allocate? Do I allocate the whole … if I have ten thousand, do I put all ten thousand into this first? No. I have ten thousand as well, I’m doing two contracts. That’s what you should do. Obviously there’s a lot more money sitting in the account. We’re gonna save that for adjustments or other trade. That’s why. If somebody has 20 thousand, then they can do double what I’m doing if they want to follow along in that way. That’s the only reason. I go into each month with blank check looking for or trying to get, or wanting to get 10% and that’s 10% on the entire account, whatever is in that account.
If it’s ten thousand, I want to make a thousand bucks every month from that account. We don’t get it all the time. There are months that we’re gonna make less. There are months that we’re gonna lose money. Overall, if I can get 5% I’m very happy. I feel that it’s a wasted month if I lose money. Unless it’s something that came out of the blue that I couldn’t … because oil it moves much faster. It can move to the point where we really couldn’t do anything even though we followed all the rules. We took a small loss and we got out and we’re done for the month. We’ll make it up next month because it doesn’t stay volatile very long. It doesn’t stay volatile forever. We can easily make that up in the next month. In that sense, it’s very important that we don’t try to, how do you say this? We don’t try to win on every single trade because sometimes you don’t want to be in it because it’s just too volatile. You have to be aware of that as well.
Keith: That’s good to know.
Allen: It’s in the rules as well. Part of the rules we talk about, these are the adjustments that we make. If we’re doing an adjustment, that’s fine. If you’re forced to do another adjustment, then you’re on the wrong side. We did something wrong either the market changed and it went against us, or we didn’t read the chart properly and we’re on the wrong side. That’s it. If this second adjustment doesn’t work, we’re done for the month. That’s how you limit your losses.
Keith: That helps because it helps me look at opportunities. Let’s say you’ve got a hundred thousand dollars. Do I give it to a private lender? Do I invest in this realty or this? A lot of colleagues and friends or doing that with some success. I look at that like for instance at the blank check trader [inaudible 00:44:00]. If I could learn to do even 3% a month, that’s 36% a year. That’s double what anyone else is doing. That leads me to believe, like jeez, I need to learn how to do this because it’s very streamlined as opposed to running a business or doing a new business venture. That’s why I was trying to get out of what you’re looking to get per month. If I even lowered it to 3%, you probably would say, that’s a brief. I don’t know. If I say your goal is 3% a month, if that’s the case, that makes me feel like yeah, I do need to tackle this because that might be the low end. That’s still better than anything else you’re gonna do by giving your money to somebody else. The other question I had about iron condors was I always wanted to do a situation where …
Like where’s the sweet spot? It seems like it’s a 45 day ish pen delta iron condor. That seemed like it reoccurred in some other people’s teaching methods also. Let’s just say that’s the case and I’ll ask you if that’s true or not in a minute. You take a 45 day iron condor, pen delta and you’ve got a hundred thousand dollars, I’m using a round number. Say well I’m only gonna put a third of my … let’s say you’re doing 50% of your money is in the market out of this hundred thousand dollars because you need to save some for adjustments. I don’t know if that’s a good rule too. I just talk to myself. 50 is half, half. Then you do a third of your position, meaning I’m gonna put on iron condor today and then ten days I’m gonna put on a second one. Then another ten days, they’re all gonna be 45 days out. Then another ten days I’m gonna put on another. I’m basically putting on three a month and then every ten days let’s just say they went to [inaudible 00:45:55]. Every ten days I’d be taking one off. I stagger them.
Then with watching your iron condors from hell video, I thought to myself well jeez. Or even two a month, I forget how I did the math. Let’s say you did two a month so you had to split your position. You’re actually doing … you’re staggering. You’re having a same day expiration but you’re putting, you’re staggering them two weeks apart. I thought if you could win on one, your goal and you could scratch on the other and not really lose, on that money you’d be making 10%. You notice you’d be making 10% a month on half of your accounts because half of it is sitting on the sidelines. That would be 60% a year on your account because 10% a month times 12 is 120. You’re only doing it on half of your account. Does that seem reasonable or is that way up in the clouds? A 60% number sounds high, but then when you break it down and say I’m gonna win on a one and scratch on the other every month. Even if I don’t have an iron condor from hell video, it seems like that iron condor method might fly. Yes or no I guess.
Allen: It’s more tricky when we’re talking about iron condors because there are so many different ways to do it. I would say that if you take a look at it, because we like to think of okay, what can I get in a month? What can I get in a year? You’re like, if I can get 5%, then that’s 60%. Okay, that’s great. Are you gonna do 60% every single year, or does the market change? Obviously I think the market changes. There are going to be some months or some years, if we take a little bit longer time frame. If we go after ten years or 12 years, or 15 years, there will be some years where you’re doing iron condors and you’re going to make over 100% a year. Then they’re are gonna be some years where you’re actually gonna lose money. You’re looking at a month to month picture. Year by year it’s the same thing. There are gonna be some times where you’re just gonna hit it out of the park. Then there are gonna be some times where you’re actually gonna be negative for the year because of market volatility and it just unexpected stuff going on in the market.
Two thousand whatever, a little financial crisis. That was a horrible time for iron condor people because it just kept bouncing up and down and up and down with no rhyme or reason. At that time it was a great time to be out of the market and just be like, okay I’m gonna stay on the sideline until the fix comes down to something a little bit more manageable for my iron condors. What could you normally expect? It depends on the trading plan and what it is. Then the other thing is you mentioned the 4510 delta. That is very common. That is a lot of people talk about that. Putting on the trade, I think that one is pretty conservative. You have a very good chance of making a good amount of money with that. Then also in that iron condor course, I talk about it where putting on the trade is super simple. You go to XBS, 45 days of expiration look for ten delta, boom sell it, done. Anybody can do that. The point of what separates the winners from the losers is how you adjust and what is your methodology for adjustment.
I had a friend, he’s in real estate. One of his real estate buddies was like, oh man I just got to tell you about this iron condor thing. It’s so awesome. He knew that I was trading options. He learned a little bit from the guy and then he learned the strategy and then he came and asked me about it. Basically it’s the same thing. It’s you do an iron condor XPS, 45 expiration. I think it was 40 days or something. Ten delta, you put it on, and then you just don’t do anything. It’s either gonna win or it’s gonna lose. I told my friend. I said I think that doesn’t make a lot of sense because you’re losing control of the trade. The reason that we’re managing our own money is because we control it and we can use our brains. If you’re just putting on a trade and then not doing anything, even if you can tell, look this trade is gonna be 100% loser, then it doesn’t make a lot of sense because in the iron condor it’s very, very, very, very crucial that you don’t have those 100% losers. Because they’re very hard to recover from.
One of those is gonna mess up your whole year. We use the adjustments so that we can keep our losses smaller and get out at a quicker basis. His whole thing was, that was a strategy. Just put it on and he got it from these famous guys on … they were with Think or Swim. Now they have their own brokerage. That was what they used to preach. That you put this on and you just don’t let the percentages work in your favor and don’t worry about it. My friend, he did it for a few months. He was like, this is working great but he’s very analytical. He goes, you know what? I want to test if this actually works over the long term. He found somebody. He hired them and they went back in time I think about 15 years. They put the trade on every single month on XPS and rut. The did both. XPS and rut for like 15 years. Can you take a guess of what the results were? If you did that without touching it on both of those for 15 years, what do you think their results were?
Keith: I got to believe they’re gonna be … I’m about to be safe. Maybe break even at best just because I’ve gone to max and lost on a couple. I know that, that blows out. That takes nine trades or ten or 11 winners out of your way. I know that, that … I don’t know. Break even or losing money?
Allen: They broke even. It pretty much broke even. After all the fees and everything, they lost money. Yeah, you’re right. After doing that for years, he’s like, what the hell? He’s like this iron condor stuff doesn’t work. I’m like, well yeah do it that way it doesn’t work. You do it my way, it’s a little bit more work, but yeah you can actually do something with it. To me that was eye opening. I was like, this is really cool. This is real legitimate data. What he did to do that was he back tested. That is something that I would advise you to do as well. If you have the time and if you don’t want to wait, get a back testing software and go back the last ten years, 20 years, whatever, take your trading plan, your iron condor trading plan and just trade it month after month, after month on the software day, by day, by day and see how you would do. The one I use is called option net explore. I think it’s 600 or 700 dollars a year for it.
You can buy a shorter time from if you want. The thing is that you can actually trade one month of iron condor in five minutes or less.
Keith: That’s cool.
Allen: Because you go to a specific date and it looks just like your broker software. You type in I want to sell two of these, buy two of these, sell two of these, buy two of these. Commit the trade and then you just walk through it day by day and it shows you the charts. It shows you the deltas of your options, the prices, everything. It tells you. You can even look at the chart before you put on a trade. Say okay, I think it’s [inaudible 00:54:08] whatever. This is how I want to do it. Then you just walk through it day by day, by day. Then when your trade gets to an adjustment point, then you can just adjust it. Of course, it’s not real time pricing but it’s close enough. You adjust it and you commit it. Then you keep going through it. You do that for five or six years and you’ll realize this particular trading plan either works or it doesn’t. Most of the time you’ll find out that the trading plan works. Some of the times you’ll find out that you take the same trading plan and you start doing it for real in real money and you start losing money.
You’re like, what the heck happened? That happened to me a lot too. It was working on the back testing. Why is it not working now? There’s a couple reasons. Number on, maybe it’s a different market. Most likely it’s because you are doing it differently. When you’re doing the back testing, you’re not looking at the news. You don’t know what’s going on. You’re just looking at the chart. You’re just hitting the button. What happened the next day? What happened the other day? You show me the price, you show me the price, you show me the price. That’s how you’re trading. You’re not looking at anything going on around you. Your focused on the trade. It’s not like a day goes by where you’re not looking at the trade because you’re just pushing the button day by day, by day. You’re examining the trade every single day. You’re completely focused on it. You’re not watching the news and you’re completely focused. You’re just gonna trade better naturally because of that. That goes back to the stuff that we were talking about originally.
Keith: That’s interesting.
Allen: Having the discipline.
Keith: That’s interesting actually. That goes back to are you gonna be consistent and do it how you’re supposed to do it every time? Period. Just rain or shine are you gonna do your consistent rules. Is there iron condors that you can still lose on? I watched your video on iron condors from hell. It almost seemed like you could almost trade your way out of any one of them. At least for extremely small loss or scratch. That way you let all your winners run and you pretty much lose on little or none. Is that not true? How does that work? I saw you winning on … coming up even at least on all three of those. I thought, well jeez. If he can come even on those, you can probably scratch trade at least every iron condor.
Allen: The point of that video was I took three of the worst ones over the years of us doing option genius. I wanted to walk through them. Actually I used this specific software that I just mentioned, option net where I go through it day by day. I wanted to show and expose what is going through my mind. Which adjustments do I use, why do I do it, and I wanted to verbally just go through it day by day so you guys would have a feeling and understanding of what is he thinking while he’s making adjustments. Why is he choosing that adjustment over something else? Sometimes I looked at two or three different adjustments. I can do this, I can do this. Which one am I gonna do? Okay I’m gonna do this one. Why? Because of this, this, this. You have a better … like as if you were sitting right next to me every day.
I don’t want you to feel that you can’t lose. I lose on iron condors. It’s part of the game. You’re gonna lose. It might be something that you don’t control. It might be a different circumstance. For example, it was recently on one of our trades for option genius. We had an XPS condor and it was doing fine the whole month. The whole time it was doing great. Everything is fine. Two weeks before expiration, XPS starts to move in one direction. That put my calls, I think it was my calls at risk. All right, what do I do? I only got two weeks left. Not a lot of time. I can either adjust it to the next month, which is a possibility or I could just get out of it now. At that point, I got out of it now which was a 5% gain or something and I didn’t want to take the risk. If you had not done that, because it was not at an adjustment point. If I’m just following my trading plan without thinking about it, I would’ve just sat there and said oh hey I don’t have to adjust yet because it’s not at a whatever, 20 delta, 25 delta, whatever the plan was.
If that thing kept moving up, and up, and up, and it got to that 25 delta, now my trade is sitting at a loss and I got three days left until expiration. Great. What do I do now? Then it’s the only option.
Keith: Okay, it’s not automatic then.
Allen: No. Then the only option is okay I got to take it to the next month. Buy me some more time, which is something I didn’t want to do. In those cases I’d be like, okay do I take it to the next month or do I not want to trade it at all because something has shifted in the marketplace? Let me just take a small loss here and get out of it. Then I will wait until things calm down to get back in.
Keith: That’s a good point because I didn’t know whether you would say, no, no you got to live and die by the rules. Because if you do that, you’re gonna start cutting your wins. I guess you really do have to be judicious because you don’t want to cut your win. You want to let them run, but you definitely want to do what you just did. The question is, how do you know when to do that? Maybe that just goes back to, hey it’s got an automatic gain. You’ve got to have experience and just make some good judgment calls. Make sure they’re conservative I guess.
Allen: When you’re trading with a different account and different trades, you also have to look at say how do I do the rest of the on everything else. In that particular account, I had already done two trades that had already made me 10% each. Here’s the thing. I have two trades done that made 10% each. Now I have this one trade that’s up 5%. I can either take my 5% and have a very nice month and I’ll be done. Or I could roll the dice and try to make another five, 6%. If I lose on that, then I’m gonna wash everything I already made. What’s the risk reward in that scenario? Sure, I’ll take the burn on the hand in that sense instead of I can make another 5% on this trade, which to my overall account might make an extra 1%. If I lose on this trade, I could lose 20% on this trade. That means for the overall month I break even. That really sucks.
Keith: That goes back to the philosophy that I learned.
Allen: Burn on the hand is better. What really hurts people is when they have a thinking where they’re going into a trade and they’re saying, you know what? On this particular iron condor I can make 12% but I’m gonna get out when I’m up 6%. I’ve seen a lot of people teach this particular strategy and it hurts because your purposely limiting yourself in how much you can make. You’re gonna have months where the month is awesome. XPS behaves beautifully. You don’t have to touch it, you don’t have to do anything. Those are the months where you have to take the maximum. You got to get 10%, 12%, whatever you can make. Then there are the other months where it’s a wild child and it’s like, bouncing up and down. You’re like, man if I could just get out of this with a break even, I’d be super happy. Or even losing 5%. Those are the months both of those are on the different ends of the extreme.
If you’re going into the thing and saying that I’m only gonna take 6%, even though I could get more because it’s so calm, I’m gonna get more. If you only take 6%, then when you lose 20%, then it’s just too hard to overcome the math.
Keith: That makes sense too. Yeah, I can see that side also. I guess it just takes … that’s a big question that you answered today. It’s like, can I do this and just follow the rules and make a little less? I guess if you truly follow the rules to the T too much without using any judgment, then that’s disadvantageous too. I can see how you’re saying, all right that’s another reason for just concentrating on one strategy because then you really become good at it. Instead of being decent at two or three strategies, being really good at one. You might be doing better financially and with less stress. That supports that point very well I think.
Allen: Exactly. Another thing is we’re not algorithms. We’re not computers. You have the ability to not just focus on that. You can use your own methodology. You can use your own brain. That’s why I’ve never seen a bot or a trading software that does iron condors or credit spreads that has actually worked over the long term. You have to use your common sense sometimes. Then the other sense was if you’re picking one. If you’re picking XPS to trade or rut to trade condors on, or if you’re picking oil on, those are very specifically chosen where it’s only one thing. Even when I told you about my past trading thing, I didn’t tell you that I’m in 25 different stocks. No, I was like I’ve narrowed it down to a very short list of things that I want to own so that I don’t have to watch everything. I don’t have to focus on everything. Even if you’re only trading oil, that’s one thing that you watch. Everything else it doesn’t matter what’s going on in the world. It doesn’t really matter. I’m just watching my oil. That’s what I’m trading and that’s what’s gonna work for me.
Or if I’m only trading XPS. That’s why I don’t like doing condors on stocks because they move around too much and the news effects them. Indexes, ETFs, if you don’t have the money, those are the best for trading condors. Even then, if you want to focus on one, XPS or rut, or if you want to diversify, then you can do both. Then add the other indexes. Even though all three of them, they trade pretty much close together. A little bit here and there. They normally trade pretty close together. Even if you just do one of those, you should be fine.
Keith: Do you also do oil directionally on your own, on the side? Or do you on your accounts just trade larger, but the same philosophy as a blank check?
Allen: Very rarely will I play it directionally. Very, very rarely.
Keith: That’s good to know too because there’s times where I want to but I can see how it works sometimes. It’ll burn you sometimes. I’m trying to figure that out too. That helps. I’ll have to let the dust settle in my brain and take in everything you’re saying and develop a plan based on all that, which I think I can do. The only thing I might do is trade on contract. If I’m doing instead of paper trading, at least have some skin in the game by even doing a contract in the spies on our entire condor. At least the max losses are still small. I’ll never get there, but at least doing something. [crosstalk 01:06:46]
Allen: Then you got to watch it. Then you have to have the discipline to stick with it, follow the rules, and watch it. That’s the habit I want you to develop. The simplest way to do that is to [crosstalk 01:06:57]
Keith: I think I will if I have money to gain. I think if I have money in the game, the skin in the game, I’ll do that more.
Allen: That’s what I used to say. I found out that wasn’t always the case.
Allen: Yeah. You get bored. Even if it’s a hundred bucks. All right, got a hundred bucks. Big deal. We spend more. You’re going to dinner, you pay more than that. It’s like, it’s not enough. You have to know yourself. I can’t tell you yes or no.
Keith: You’re right.
Allen: You think you can do it? Go for it. I would prefer you focus on one in the beginning because your goal here, it doesn’t … I don’t care if you’re trading oil or condors or what-you-ma-call-it. It doesn’t matter. You’re only goal is to be consistent. To be profitable on a monthly basis and to be consistent. If out of 12 months, you’re positive eight months out of the year and you lose four, but you come out way ahead, that’s great. If you’re losing one month and then making money and then losing money and then making money and then losing money, that’s not what we want. That means you’re out of control. You don’t know what you’re doing. The odds, putting them in your favor, trading high probability. You’re gonna win a certain amount of time anyway, even if you have no clue what the hell you’re doing. If you’re not consistent month after month, profitable or at least break even, that means you’re doing something wrong.
That is what I would want all of my students to get to. That level of consistency with one strategy. Then once you get there, okay fine. Now I want to branch out into something else. Go for it.
Keith: That makes sense too. It’s also a little bit liberating to know that I’m gonna let go of everything else and just focus on one thing. It really is. The streamlining, at least to me, is liberating. I don’t like to have all those balls up in the air. Especially when I don’t know where they are.
Allen: It’s so much less stress and so much easier just to manage. It’s really, it is. Like you said, it’s liberating. We got some people that trade, 30, 40 trades a month selling options. I don’t know how you do it. I can’t do more than ten, 12 trades at a time. I can’t follow all of them.
Keith: I’ve done that before. You lose track of some. I wasn’t even watching this and it’s down. I totally see that. You really have to narrow it down and if you want to eventually branch out, fine. It’s got be gradual. I can see how just throwing yourself in the lines and went too early. That’s good advice. Thank you.
Allen: Cool. Anything else?
Keith: Gives me good perspective. No. Like I said, I’m all over. I may have a question here or there later. I at least want to take in all you’re saying and develop a plan. Try it for a few months and then call you with questions once I’ve actually done something and had a track record with something.
Allen: If you’re really cool, we could do a follow up and maybe four or five, six months from now. We’ll do a follow up. Say, okay where were you Keith? Now what’d you do? Where are you now and what’s going forward?
Keith: That would hold me accountable. That’s good. That really is good. That’s good.
Keith: Well we’ll keep in touch. I really appreciate, yeah. This is very helpful. Very helpful.
Allen: Awesome. Great. Again, thank you for letting it be recorded. I think we touched on a lot of different things here. I would expect you to even listen to it a few more times. Anybody else that is in a similar boat as Keith, go through this one again and again. There might be a sentence or two that I just mention and I just glanced over. There was a lot of depth for somebody who actually knows what they’re looking for in this particular interview. Keith, this was fun. Thank you so much.
Keith: Thank you. Talk to you soon. I will correspond soon. Thank you.
Allen: Okay. Great.