Oh ho, Genius Nation. Welcome to another edition of The Option Genius podcast. This is Allen comin’ to you and today, man, today I am excited but I do have a question. Actually it’s not a question for you, it’s a question that I get asked a lot, and I hate this question so I thought I would answer it in a way so that hopefully people will listen to it and then they won’t ask it anymore.
So, the question really is, “How much do I need to make X?” Basically, I get this question all the time. For example, “Alan, I want to make $5000 a month. So if I sell options, how much money do I need to make that much?” And I mean, really, that’s your question? How am I supposed to answer that. There’s no way I can answer that. I don’t you. I don’t know how good a trader you are. I don’t know how long you’re doing this. I don’t know how much risk you wanna take. I don’t know what strategies you’re gonna use. I don’t know if you’re gonna adjust or not. There’s no way to answer that question. It’s like a one-line email and they’re like, “Thanks. Let me know.” And based on my answer they either sign up for our Option Genius service or they don’t I mean, it’s kind of crazy.
I think so much of it has to do with the individual. Because I have seen two traders be given the same exact trading plan, and one of them makes a lot of money from it and the other one loses money. The same exact rules. Like, hey, this is how you get in, this is what you do, this is how you adjust, this is how you get out. Everything. Give ’em the same rules, two of them. Let them do their thing. One of them will make money, one of them won’t. But even simple than that, I have seen it where we have people who take the same trades that I’m doing and they lose money. Now I don’t know how that happens. I mean, obviously I lose money too, so I’m not talking about a losing money trade. I’m talking about a trade that I won on, that I made money on.
They get the trade, they get exactly what I’m doing, but then they still lose money on it. And then email and they complain. They’re, “Oh, I couldn’t get it, or I did this, or I did that.” And I’m like, “Well, I mean, I’m sorry that you messed up, but that’s on you.” Right? You cannot come out of the gate and say, “Hey, I’m gonna make this much money, if you’ve never done this before.” Plus, I think this question is the wrong question. “How much do I need to make this much?” I think that’s wrong question. Because you don’t go from zero to making 5000 or 10,000 or 20,000 dollars a month.
You have to put I the time, you have to put in the effort and do the trade. That’s the only way you’re gonna get better. Like in anything that you’ve done in your life? Did you just wake up and be awesome at it? No. It took time, it took trial and error, and learning, and practice and practice and practice for you to get better. Like right now, my oldest son, he’s 6 years old, and he likes to play baseball. We put him in T-ball for a couple of years. But he cannot catch the ball in his glove and he get really, really upset throughout he can’t do it. And he starts crying. He gets really, really upset because he think that everybody can do it and he’s the only one that can’t, and he wants it super quick. You know, I mean, at that age we want everything super quick and if you can’t do it right away we cry. And some adults are still like that.
But, you have to explain to him, “Son, it’s gonna take some time. It’s gonna take practice.” So we practice and we practice and we practice, and eventually he’s gonna get. Still hasn’t got it yet, but eventually he’ll get it. It’s the same thing with trading. You’re probably thinking to yourself, “What? Come on, Alan. You really have to work at this stuff? The money just doesn’t fly into our bank accounts when we push a couple of buttons?” No, you have to work at it. That’s the reason that they give you money to do this stuff. If it was super easy, everybody would be rich. And if there’s something out there that can make everybody rich, then it’s gonna go away; everybody will do it and they’ll stop making money, and it’s gonna stop.
So, you have to, first of all, pick a strategy; something that you understand, something that you enjoy to do, something that you feel good about, you feel confident in it, something that works for you. Some people like to take more risk, so they can trade in one way. Others need to find another way, another strategy, another method to trade. Find what is best for you and your temperament. So if you’re learning how to trade, you’re out there, you’re doing your stuff but you find out that you can’t leep at night because you’re scared of what’s gonna happen, well, then, maybe that strategy is not for you or maybe you’re trading too large, maybe you have too much money at risk. You need to change, you need to do something different because your body is the first mechanism to tell you that something is wrong. And excess on the body is never a good thing, bad stress. So, you have to listen to that.
Secondly, you start small. You make small trades, and in the beginning your goal should just be to be consistent, month-after-month or trade-after-trade, you want to have good trades. You want to stay above zero. Do not lose money, that’s the goal, especially in the beginning. Hopefully, maybe even for your first year of trading that would be your goal, don’t lose money. Forget about making money. Forget about crazy returns. Forget about that Lamborghini that you’re thinking about buying with all these profits you’re gonna make. That’s not the goal. Eventually you can get there, but in the beginning it’s about being consistent and it’s about not losing money. Because if you can do that, then you can tweak what you’re doing and you can very easily start making the gain. You can start off smaller; you can start with 2%-3% a month, then you can take a little bit more risk and go to 4 or 5% risk, take a little bit more risk to go higher.
But, in the beginning you shouldn’t be having a goal of saying, “Hey, I’m gonna make 20% a month.” You’re gonna blow up like that my friend. In the beginning your goal shouldn’t even to make 10% a month. Have as conservative a goal as you can, and that’s why I say set it a zero. Don’t lose money, be positive. I don’t care what you make, jut be positive. Don’t lose money. Because other than that we can work together, we can tweak it, we can improve it, we can take the strategies that you’re using and change it a little bit so that you are having nice-sized gains. And that’s where the fun is. The fun is not in being able to make 15% a month and then losing 15% the next month. That’s not fun. That is a heart attack waiting to happen.
And that happens a lot in this industry. People make money, make money, make money, and then boom they blow up. Why? Maybe they got over-confident. Maybe it was a bad strategy or what-not. But, you have to pay the dues you have to be consistent. You have to start out small and grow from there, and get bigger. And then, only then, can you figure out how much money do you need to make X. Once you know what is consistent, once you now what is possible with the strategies that you’ve chosen, then you can decide and say, “You know what, based on my past, I’ve been making this much, so I’m gonna need this much …” If you’re paper trading that’s great, if you’re doing the real money that’s great. But then if you do switch over to real money, then you know how much money you would need.
Now I mean sure, I could throw a number at you. Let’s say 5%. You should be able to make 5% a month. Right? I don’t know, maybe. Huh? But let’s say you’re making 5%, lets just use that as our example. You can make 5%. If you want to make $5000 a month then you need to have $100,000 in your account. Well, what if you lose money one month? Well, I guess then you’re gonna need more than $100,000 in your account. Hey, what about taxes. Oh, we forgot about those things. Jeez, okay. I don’t know what tax bracket you’re in, I don’t know how much you pay in taxes. So, I guess you’re gonna need a lot more than $100,000. Hey, what if 5% is too aggressive? Oh, okay. Well, what if you can only make 2% enough? That’s a safe number, it’s a safe bet. If you could only make 2% a month then you’re gonna need $250,000 in your account before taxes.
So, I mean the math is not hard. But I find that most of the people that are asking this question, “Hey, I need to make X. How much do I need?” They don’t have the $100,000 that they need or the $250,000 that they need to put to work right away. They want to be told that, “Hey, if you want to make $5000 a month, you only need $20,000.” They want LaLa Land numbers. That’s what I call it, crazy LaLa Land numbers. Because they think you can make millions overnight. And I’m sure that there are people out there, and I’ve seen them, I’ve seen the people out there selling courses that tell you that you can make LaLa returns. Like the advisor who ways,”Oh yes, I trade a hundred-million hedge fund. I started out with eight dollars in my pockets and now I’m making millions.” Oh, wonderful, man. Prove it. Show us the real numbers.
It’s LaLa Land. If you fall for one of those scams, I’m sorry for you, but you gotta use your head folks. I’m not gonna be here to tell you that you can make LaLa numbers. Even though the stuff that we do, the stuff that I already say is LaLa Land to most people. To 99% of the population of the world, everything we’re talking about, making 5% a month, is LaLa Land. Because most of the people in the U.S., they’ll be happy to make 5% a year. You know, they get less than 1% at the bank. The stock market is too risky for a lot of people, even though it makes 7% a year.
If you fall for a scam, I’m sorry. I don’t know if you have anybody to blame but yourself, because you can’t let it go too far. You can’t go and put your skepticism and your disbelief on the side. I tell people myself, and this sounds like LaLa Land, that I try to make 10% a month and if I make 5% I’ll be super happy. Have I made 10% a month? Yes, I have. There are months I’ve make 10%. There are months I’ve made 12-15%. I don’t do it every month. That’s not really possible or doable. I mean, yes, there have been years in the past when I have made over 100% over a year. But those are outliers, that’s not the norm. If you’re making such high numbers you also have to take a look at the risk on the other side. There is risk. The more you try to make, the more you’re gonna be risking and so you have to really, really be good at what you’re doing.
So, somebody coming in brand new and saying, “Hey, I need to make this much money, how much do I need?” That’s the wrong question because, first of all, you don’t have the experience, you don’t have the knowledge. I mean, look at Warren Buffet. The man has averaged 22% a year over his lifetime and he’s the second richest man in the world. I’ll give you another example. Take a look at Bernie Madoff, the Ponzi scheme guy. Yeah, he didn’t make any money, but the reason that people gave him billions and billions of dollars was why? Because he was making, or showing that he was making 12% a year. Yes, 12%. Not 15-20-30%, some crazy number, no! He was making 12% a year and people found that so amazing that they gave him billions and billions of dollars.
Now, selling options is a great way to make a living, maybe the best way out there. But it is a real business. It’s not LaLa Land. You have to be realistic. You do have to treat it like a business. And if you do, you can do well, amazingly well. You can be the envy of all your friends. When I talk to people they ask me what do you do? First of all, they don’t really understand but I try to break it down for them. And they’re like, “Oh my god, that’s so amazing! That’s so cool. Can you really do that? That’s not real.” And I’m like, yeah. I’m doing it. And it’s awesome. It is really awesome, but you have to pay the price, you have to do the trades, you have to get the experience. And, unfortunately for most people, you’re gonna lose some money in the beginning. That happened to me. I lost thousands and thousands of dollars that I couldn’t afford to lose. I didn’t do it the right way.
And please, don’t risk the rent money. That’s kind of what I was doing. I mean, it wasn’t the tent money, my wife was working two jobs at the time and I was playing with our savings. But for us, luckily it worked out. But you gotta be realistic. Treat it like a business. Treat it seriously. Start with the plan that I gave you. That’s the best way to move forward. Let’s say your goal is to make a thousand dollars a month. Awesome. You have a goal, you got a plan. Go get yourself a paper trade account, any broker, it doesn’t matter, and place enough trade to make you a thousand dollars. It might take you $20,000 in your account, maybe 30,000, maybe 50,000. The actual amount of your account, the size of your account doesn’t matter. What does matter is that you learn and that you do it consistently. You accomplish your goal and that you could do it over and over and over again. With that confidence you can then improve. And then if you move to real money you can start off properly.
So, that’s my main, main concern for this month. I mean, I get this question all the time. It’s the wrong question to ask first of all because that’s not how you’re gonna get ahead in trading, that’s not how you get ahead in any business. It’s a question that by law I cannot even answer, because there are no guarantees. There are no guarantees in anything. If anybody tells you, hey, put this much money in, you’re gonna make this much back. Well, no. That’s illegal. You can’t do it. It’s against the law for me to even answer this question that, hey, you know what? I need to make this much, how much money do I need to put at work? You’re actually looking at it backwards. For most people it should be, “I have this much to work with, what’s the best plan for me to learn this and slowly, slowly get better and better and better.”
Because, right now we’re talking about we looked at a 5% example. Maybe you get really, really good at this stuff and 5% is chicken feed for you. Maybe you get awesome and you’re making 10-12-15% a month. Well, then, the numbers that I gave you or I could have given you would be wrong. So, it’s really dependent on you, depending on your style, depending on how conservative you are or how aggressive you are, or how much you want. I mean, if you want to be doing this for generations, maybe not generations, but if you want to be doing this for years and years, then you have to do it in a more consistent conservative manner. If you’re just looking for one big score, like, hey, you know what, I want to buy this new car that’s coming and I need a hundred thousand dollars, then you could take a gamble and you could do it maybe. Maybe you get lucky, maybe not.
There was one guy, this is a true story, he took his whole life savings and he went to Vegas and he put it on black. I think he lost. But that was the story. I don’t remember what happened to him. I think he lost and I the casino actually gave him all his money back and kicked him out, or something like that, so he wouldn’t sue them. Something happened. But folks, that’s my thoughts for today. That’s this episode. I hope it was worth it. I hope it put something, it kind of flipped the switch in a way. Part of my reason for doing this podcast is to make you think in a different way, to look at it from a different avenue. So, don’t look at is how much money do I need to make X, because it’s not as easy as that.
So, folks, that’s it for me today. Remember, trade with the odds in your favor.