Podcast – Episode 100 – The Best Of OptionGenius First 100 Episodes
Passive traders, welcome to a very special episode of the Option Genius Podcast. This is episode number 100 hundred. No, it’s not a hundred hundred. It’s just 100, but yeah, it’s one zero, zero. We made it to triple digits, which is a pretty good feat. They say most podcasts don’t even make it for the first 15 episodes.
So to get to a hundred episodes, I think it’s been like two years and to have hundreds and hundreds of thousands of downloads and people listening to every episode? Wow. I am so humbled. I continue to be so humbled. I’ve said it before, but it’s like, I can’t believe it. You know, I never thought that anybody would want to listen to me that much, um, much less, several hundred thousand people.
It’s insane. I did want to do something special for this episode. We did go ahead and let’s go be kind of like, uh, the best of, you know, so I looked at all the different episodes, see which one got the most downloads, which ones are the ones that most people email us about and ask questions about.
And I went through and I said, you know, which ones do I want to highlight? Meaning that they’re so good that I want to, you know, make you listen to them again, take the best things and be like, okay, we don’t need the whole episode. Just need little snippets, right? Little pieces of it. So that it reinforces something that maybe you’ve forgotten, or maybe you didn’t know, or you missed it the first time.
So things that I thought were really important to get through, things that will definitely help you. And so that’s what we did in this episode. So I went through identified eight episodes that I thought were really, really good to re go back and rehashing and go back into them. And then we cut and pasted the most important parts.
So each episode might’ve been my 28 minutes or 30 minutes or 20 minutes or whatever, but there was, but three minutes worth of four minutes worth that really just summed it all up and, you know, hit the spot kind of thing, no stories. Cause I know sometimes I can go on and on with the stories, but I think these stories are important that people say they enjoy that. So there you go.
But I also want to take this time to appreciate everybody for sticking with me and for all the wonderful comments and for all of the wonderful reviews that you guys have posted over the years, the last two years or however long we’ve been doing this, I read every single one. I really appreciated all those reviews.
They do help other people find the podcast. They do help tell the different podcast services that, hey look, people like this and it should be shown to more people. And if you have not left a review, please, please go do that right away. It really, really helps. And I appreciate it from the bottom of my heart and it really helps other people because deep down it’s about helping to me, you know, I could go out and trade for my own and I don’t need to do the podcast.
You know, we don’t make money from a podcast. We don’t have sponsors. We don’t, it’s just something that we do to spread the word, spread the message and say, hey, if you’re stuck in life, if you need to make more money, if you want to have more free time, if you want to have less stress, if you’re looking for something and you know that you can do better, then this might be something that would work for you.
So come check it out. And if you like it, then we can tell you more. If you don’t like it, that’s fine too. But even if you just listen to the podcasts, like many people have, they just listen to the podcast, it gives them a little boost and then they go out and they keep doing it.
So that’s the whole point, you know, it’s a motivational home and some people complain.
Oh, why don’t you tell us all the different strategies and how do you adjust, uh, Forty-five day Iron condor trade that’s in the money and all this stuff. And it’s like, that’s really, really specific. And I think maybe in the future we’ll get into those. But I think that that information is already out there in many different sources, right? Many different places.
And if you want, and you have to get visual and you have to do a video where you can actually see the trade and all the different details and whatnot. So I try not to get into the more complicated issues on the podcast. The podcast is really about mindset. It’s really about getting you to see what’s possible, giving you that extra boost of momentum, letting you hear from other people who are doing it, who have done it, we’re doing it.
And me sharing the things that I wish that people had shared with me when I got started. And that’s the really, the big thing about it. You know, we were doing the high probability trading live event this weekend, and there was something that we went through. We went through all of this different content with, through two days of content.
And when I was going through my slides and my notes beforehand, I realized that my god, there is really, really good stuff in here, you know, but the person that he’s new or the person that is not ready to hear will not notice all the depths that is in the session. And we had several sessions, some of them were pretty basic.
Some of them had a lot of content in them. So it was me talking with slides and I just get going on and on and on the surface of it, if you weren’t really paying attention, it’s like, oh, this is basic. But every single line in there was put there for a purpose. So if you were coming at it from somebody who was on the low end of the option continuum where you’re just brand new to options,I put it in a way where it wouldn’t confuse you and you could get understand what I’m talking about.
If you were in the middle of the continuum, I put it in a way where he could tell you, okay, this is the next step that you need to take. You know, you need to do this and you need to do this. And these are the things that you need to focus on.
And then if you’re on the upper end of the continuum, you could have really gone really, really deep because I shared stuff in there that I’ve learned, and he took me 20 years to learn. And I’ve never seen it anywhere shared anywhere before. I’ve never seen videos on it. I’ve never seen any other gurus talk about this stuff because most Gurus don’t last for 20 years, to be honest, unfortunately, they’re good marketers; they’re not really good at trading. So most people don’t last 20 years, I’ve been able to luckily and Option Genius has been around for, I think, 11 years now. So we’ve been doing this a while. We know the same thing over and over and over again, and it just works. And so I appreciate you guys. It’s been a long journey.
But we are making a difference now. And I see it every day. I see it from the people that came to the live event. They were the comments that they made, the emails that we got afterwards, the way that they’re excited about learning to trade options. And they’re excited about what their lives can be like, because they have hope, it really makes life worth living when you can go out and help other people.
And I think that is the whole basic of it. So really, if you are listening to this podcast, I want you to understand, listen to it, learn and go take action and go do the things and go do the trades and go make the money and then go help the other people. Cause that’s when you’ll feel really, really good about yourself, you’ll feel good when you eliminate the stress and the, and the bills and all that.
And you’re doing well and you’re feeling successful about that, but you take it to the next level when you’re starting to help other people in different ways. So thank you for listening to my little lecture there, but now let’s get into the episode.
So for the very first episode, I have a clip from Episode 74, which is the Passive Trading Manifesto.
And I came up with this, I said, what is a passive trader, you know, define passive trader. Describe what I passive trader is thinking is doing, is feeling, and that is what I came up with for the manifesto. And it’s just very, it’s very short, but it’s something that I think you will see yourself in at least part of it.
And you’ll be like, yeah, that’s me. I fit here. This is the group that I belong to. This is what I want to be doing. That describes me. And I can’t wait to get more. So let’s listen.
A passive trader is a new breed of investor. Smarter, confident, relaxed, and free.
Passive traders are winners. They keep the odds on their side, take calculated risks, and make consistent profits over and over.
Passive traders are flexible. They know how to adjust when the market does and still be profitable. They play their own game and use wall street’s secrets to their benefit.
Passive traders are independent and can think for themselves. They know that no one cares about their money more than they do, so they manage it themselves, and better than the experts. They do not rely on financial planners, mutual funds, or robots to charge insane amounts of fess while providing below-average yields.
Passive traders are patient. They sit back and let the gains come to them by keeping things simple.
Passive traders are determined. They know their “why” and it pushes them to stay focused and never give up.
If you asked a money manager they’d tell you that passive trading is impossible – the little guy is not supposed to beat wall street. Yet it is happening every day.
Passive traders know that life is a gift and should be lived to the fullest. Money is not the end goal. So passive tradersmake their money work for them, generating an income 24 hours a day, 365 days a year so that they can spend their time doing whatever makes them happy.
Passive traders are in control of their destiny, their finances, their emotions, and in turn, their lives.
Define their own destiny
March to their own beat
Make the world better
Live their ideal life
Passive traders are motivated knowing that the odds are in their favor.
I AM A PASSIVE TRADER!
Okay. So for our second clip, we have one of the most popular episodes that I’ve ever done. It is episode number 26, which is called the Ultimate Options Trading Strategy. Now, there are lots and lots of strategies to trade options. Many of them work. I can’t say all of them because I have tried all of them, but I know the ones that we teach, they do work.
And if you only do each one individually, if you only do covered put, covered calls or they get books or credit spreads or condos or butterflies or calendars, or if you gonna do any of those or any variations you can do very well. If you’re good at, and you practice, you only need to do one, but if you do more than one, that’s fine too, depending on what you need.
So in this episode, I break down. What is the ultimate, the ultimate options trading strategy?
With our account balance what do we want? Do we want up and down roller coasters? No, we want slow and steady increase. In order to have that you have to be trading in a way that is actually boring because you know what you’re doing, that’s why it’s boring. You’ve mastered it, because you’ve excelled at it. The alternative is to do what you’re doing right now jumping around from strategy to strategy.
I know what you thinking. Say, “Hey Allen, what about diversification, don’t I need to diversify? If I have maybe some earnings trades over here or maybe I have some naked calls over here or maybe I have some box spreads over here.” Yeah, you should diversify if you have an account that is well over six figures and you are already consistent and profitable. That’s it right there. If you are over six figures, and I’m talking about mid-six figures; $400,000, $500,000, more than that, and you are already consistent and profitable then you can diversify as much as you want.
If you’re on the top end of the continuum, level’s nine, level 10, then you are making money so you are going to stick with what you know automatically. You’re going to go to the bread and butter and you’re going to do those every month or every week or whatever your timeframe is. Then with a little bit of extra cash you’re going to try other stuff. That’s the smart way to do it. If you don’t have over six figures, if you’re not consistent, if you’re not profitable already, then forget about diversification.
Until you can make money with one strategy month after month, trade after trade. You have to be consistently profitable before you add another strategy to your arsenal, are you getting this? Is this sinking in? Yes? Hope so. Anybody that tells you otherwise is full of it and probably just wants to sell you something, that’s the truth.
Stop all the noise, stop listening, stop jumping around, because the noise is there, the offers will always be there. If it’s not options, it’ll be Bitcoin. If it’s not Bitcoin it’s going to be marijuana stocks. If it’s not marijuana stocks it’s going to be sports betting, that’s the newest thing that’s going to come on, right? The Supreme Court just announced on Monday that states can now make it legal to bet on sports. Well, guess what? There’s going to be stocks on sports betting and they might even have options on sports and betting and all this stuff. Who knows what they’re going to come out with in future? That’s going to be the new hottest thing.
If you keep jumping from one to another, to the nother, to the nother, you’re never going to get good at anything, you’re never going to be profitable, you’re never going to be consistent. Go back to the basics, back to the fundamentals. Choose one strategy and work on it until you know it inside out and you are profitable because that is the name of the game, that is the goal. That is the only thing that matters. I don’t care what strategy you use, I don’t care how you do it, I don’t care when you do it. If you are profitable you are winning.
That’s the only way to know if you are winning, I don’t care how much you know. I don’t care if you know more than me, I don’t know if you know more history than me, I don’t care if you know more math than me, more about statistics, more about options, more about everything. If you are not profitable it doesn’t matter so go back to the fundamentals, go back to the basics, one strategy. You focus on it, you work on it, you back test it, you paper trade it, you real money trade it until you are profitable. That’s it, that’s the answer.
Now, if you can’t figure it out, if you already tried, you tried your best and you can’t do it, then reach out to me, maybe I can point you in the right direction. Maybe I can work with you like I did with Simon and we can identify what it was that works best for you or that makes the most sense for you, and then how to actually implement it. In the beginning you don’t need complicated stuff, you don’t need complicated indicators. You don’t need complicated chart patterns, you need a strategy that you understand, that makes sense to you and you need to
Then if you can do that then you tweak it. Then you work on it. Then you look at, like Simon did, you look at the entrance of the trade, you look at the management of the trade, you look at the exit of the trade, and then you improve your percentages. That’s how it works. Right now, Simon, like I said, he’s only doing one strategy and, yes, he is well over six figures in his trading account.
That’s okay, it doesn’t matter. He doesn’t need to be doing anything else. I know people who only do one iron condor every single month. They do it on the same underlying, they do it on an index, and they trade literally over $100,000 worth of one iron condor every month. That’s the entire trade, that’s the whole strategy, one iron condor, six figures in that condor, every month.
I hope this makes sense, I hope this is sinking in. I hope you got to this. Then finally, no matter which strategy you choose, whether it’s the condor, the credit spread, the ratio, the butterfly, I don’t care what it is, whatever it is, no matter which one you choose, make sure that the odds are in your favor. Peace.
Okay now let’s get into some serious topics. Okay. This is episode number 96. It’s called how fast can you start trading for a living? And really the basic here is that I got an email from one of our students. He got laid off and he needed to know what to do to get up to speed as fast as possible.
And this was the advice that I gave him. Just an update for him – he did take the advice he is doing it. He did happen to go back and get a job. But his trading is on par to be doing very, very well. So there’s always hope, right? Like it says this too shall pass. So whenever you’re in a bad situation, whenever you think everything is falling apart, just remember that everything works in seasons.
You know, winter comes and it’s hard and it’s tough, but then there eventually is a spring. There is a summer and things get great again. So just all you gotta do is get to it, get through it, use the people that want to help you, take advantage of their help and do the best you can to get through it.
I got an email from one of our members and I wanted to read it to you because he just got laid off and he wants to know how he can replace his income with trading.
It’s crazy that we get so many people in this same situation. It’s great that when you have a job, right, you have an income source. You want to get into trading. You don’t really like the job or you don’t really like your business or whatever. You’re like, oh man, I wish this trading thing could work out.
I could get it. And you know, you, you invest in one of our programs and then you don’t really follow through because life gets in the way. And I know how that goes. You know, it’s, it’s really the why. Right? Your why about trading? Wasn’t strung out until something happens. Any jars you can. It’s like, you know, it’s like you, you might be driving along the street and you’re not really paying attention to the road.
And then all of a sudden the car comes out of nowhere, almost hits you. So here’s, Todd’s email. It says CLO Allen, I’m going through a life change. I want to get your opinion. I’m currently a member of your programs. I joined almost a year ago, have not been able to devote enough time due to work and family obligations.
Totally understandable. I’m an engineer and work in the construction industry for a healthcare organization or read your book, listen, all your podcast sessions, at least once while going to work. Thank you for that last week. I was laid off from my job. And now I’m trying to decide my next moves. My wife works full-time and we have funds to carry us along for a couple months, but I will need to replace my income fairly soon and relieve the stress on my wife as an aside.
Yes, that’s very, very, very important because you are not, you know, when you get laid off, you’re not the only one that suffered the whole family suffered, especially the other spouse, because that person has to carry the load, right? They’re not used to carrying the full load. Now they have to carry the full load, and then they also have to worry about you and your mental status and the pressure on them.
You also have to work off, so you don’t want to add divorce to your problems. So be very, very careful about how your spouse is handling the situation. Make sure you give them enough time and enough attention to leave their pressure, take some of their work, you know, their homework or whatever other work is off their plate while you can.
And if you’re looking to go into trading. Discuss it with your spouse, explain what you’re doing with them. So they don’t think that you’re just sitting at home, doing nothing all day playing with computers, watching TV. Okay. So that’s a really important point. So let me continue. He says, I’m trying to decide if I should jump back into the construction rat race again, so I can draw a salary and benefits.
Assuming I can find a job fairly quickly. Otherwise I would really like to immerse my time into your programs and start trading. I realized I have to get up to speed and take some time to learn your methods and develop my own trading plan. My main concerns are being able to learn your program soon enough and be able to replace my income.
I was making 120,000 a year, but need to replace approximately 5,000 a month. Take home. I plan to start paper trading this week and scale up as I learn more, eventually I will have $250,000 in capital that I could scale up into an account. How realistic is it for me to replace my income with this size of an account?
I would appreciate your opinion and any comments. Thank you. So that’s the email I want to read to you what I wrote to him. And then I want to give you my thoughts on this and a little bit going a little bit more detail. So I told him, you know, Hey, I’m sorry that this happened to you. Very, very, sorry. My first thought was, Hey, you know, you need to get out of where you are.
I know where he is. He’s in a different state where things might be slowing down. So I’m like, Hey, you know, get out of there and get your butt here to Texas, because we can’t find enough people to do construction, but that might not be possible. Um, so I don’t think the issue here is if you can generate 5,000 from 250,000, the issue is how long it will take you to get there.
And from what you wrote, this is me talking to you from what you wrote, you would be in your best interest, I believe for you to get out of the job for now as a fail safe. Okay. Maybe not a full-time thing, just something to bring in some guaranteed capital and keep the health insurance, if possible. Cause that’s a big.
Concern for a lot of people trading when you are super stressed out and you have to win is super hard. Trading already is very hard, but doing it with one hand timing on your back, it’s much harder while you are looking for the second job, or even after you get the part-time job, spend three to five hours a day on your trading.
Do that with the courses and programs you already have. You should be able to have the skills to do it full time in a few months, but having the skills is different from being emotionally ready. So you’re going to have to overcome that aspect as well. So if you can start with a smaller goal, say 1000 a month on a a hundred thousand dollar account, that would be a great place to start.
And then you can scale it up from there. And then I told him, because he’s in the programs, I want to see you on the coaching call on Thursday. I want to see you and your paper trades, you know, groups. I want you to posting that. I want you to get a critique. So I want you to get my opinion, my advice. And I want you to send me a man told him, Hey, I want you to send me your training plan and a concrete plan of how you expect to get to 5,000 a month, including your asset allocation.
And this is covered in one of the programs that he’s already fired. You can do it, but having a job would relieve a lot of the pressure, but even with a job three to five hours a day, learning and trading, because enough is enough. Screw these jobs. It’s time to learn how to make it from trading.
Okay. Here’s clip number four. This comes from episode 87 – How to Scale Up Your Trading.
So now let’s say you’ve already been doing trading for a little bit. You’ve been pretty safe. You’re being conservative and now it’s time to get big, right? You’re you’re feeling good. You’re feeling confident. How do you go from where you are now to the next level? And it’s, and it’s not what you think.
It’s not about more strategy. It’s not about more complicated stuff, more trading or more analysis or more software. It’s all mental, it’s all mental scaling, all mental 90%. There might be some things you need to do a little bit different because you’re playing with bigger numbers and then there’s less there’s limitations to what you can do at bigger, bigger, bigger, bigger numbers.
You know, we’re talking about in the millions, but when your individual and you’re scaling up 99%, I would say is mental. So take a listen.
This is the question I get often and got this question recently from a listener. The question says, the one thing I struggle with is constantly being scared out of the market. I have a trading plan with iron condors and credit spreads and failed to follow it by not trading frequently enough or with enough size. How is the best way to scale up your trading to make a bigger income out of it? Basically, the fellow is saying that he does trades, mostly spreads, but he’s hesitant and scared to not do it enough and not do it with enough money when he does do it. He’s thinking about how can he scale up his trading to be better at it or make more money from it? The first thing you need to realize is that fear is not always a bad thing. I mean, it’s there to alert you to danger, right? That’s why we get scared, something dangerous happening, but it’s also there to alert you to opportunity as well.
We look at fear as a negative thing, but fear is just a common response, right? It doesn’t have to be something that is bad for us that we are afraid of. Anything outside of our comfort zone can be scary, but that doesn’t mean that it’s bad for us. A lot of people are scared of placing their first trade. They’re scared of investing money in the stock market because they’re afraid to lose it, which is one possible outcome. Yes, but you can mitigate that and you can protect against that. When you look at it and you say, look, there are trillions of kazillions of dollars, whatever invested in stocks around the world, what do those people know that I don’t, that I’m afraid to put my money in the stock market? What are the people that are trading profitably and consistently? What do they know that I don’t know that I’m not consistent? That’s why I’m afraid of making trades or making bigger trades.
How much do you actually want to make? If you’re trading too small to hit your goal, right? If your goal is a thousand dollars a month, but you’re only doing one trade that can only make a hundred dollars a month, you’re never going to hit your goal.
Then the goal will help you scale because that’s just mad. You’re like, oh man, I can’t get my goal. Okay. I need to do more because I need to get to my goal. The other side is to have confidence. That comes with doing the trades over and over and over and over. If you use real money, it can take years as you go through the different markets, right? You go through a bear market. You go through a bull market. You go through a sideways market. You go through a correction. You go through a dip. You go through all these different things. It takes years to understand how to trade through all those different environments. Now, as passive traders, we have the odds on our side and the trades are built in to withstand these shocks, but it can still impact us. The biggest impact is on us mentally.
Number one, like I said is you have confidence in your trading plan. If you’ve put on a whole bunch of trades and you’ve seen them work, you’re going to have more confidence. If you are trading with a group or other people are doing it, or if you have a mentor that’s been doing it and he’s telling you, hey, look, this is the way we trade. This is how it’s going to work. If you’ve seen it work, then you have confidence. Number two, if you have experience doing the same strategy hundreds or thousands of times, that’s basically how you get the confidence in the trading plan. Then step two of scaling is to increase your position sizing, obviously, right? Yeah. I want to scale. Okay. Step two. Step one that we talked about was, what did we talked about? Step one, being able to control yourself. Step one to scaling is being able to control yourself.
Step two is to go ahead and then do it to increase your position sizing. Now remember, remember how you thought about going to school or training for whatever you do now for a living, for your job, right? Do you remember getting trained for that? If you had to go to college or get a certificate or go to a seminar or whatever, you did all that, you put up with all that because you were training. You were learning and it took time. It’s the same thing here. Trading takes time to learn, but this puts you in a real life seminar and you are paying your dues every day. The time that you put in, you’re paying your dues. You put your trades on, you monitor them, you debrief them at the end, right? What happened? What went wrong? What went right? What did I do right? How can I change it? How can I make my results better?
You rinse and you repeat. You got a good plan, keep doing it over and over and over again. As your account size gets larger, you can go from one contract to maybe two, then maybe to three, then to five, then to seven. You go at your own pace. There is no race. There is no time limit. As long as you’re doing constantly better, you’re being consistent like I said earlier, the account will grow in size and you’ll get more confident and you can trade more. It’s up to you. You want to go from one to five? If you got the money and you’ve had the experience, okay, fine. I wouldn’t advise it. I’d go from one to two, two to four, four to six, six to 10. Take it small jumps. It doesn’t need to be overnight because there’s no rush.
It’s not like, oh, my next door neighbor just bought a Mercedes. I got to buy one too so I need to do a hundred trades this month. No, forget him and his Mercedes. Who cares? Right? Be confident with who you are and what you have. Don’t rock the boat. We don’t want to take unnecessary risks we don’t have to. For most people, it’s better to move from say three contracts to four contracts, to six to 10 small increments because there’s no such thing as missing out on the trade of the century. There is no trade of the century. It’s like, oh my God, if I don’t invest now, I’m going to lose. I’m never going to get this opportunity again. No, it doesn’t happen. There’s no such thing. They said that before years ago, 20 years ago, 10 years ago, six months ago, they’ve been saying that forever. As long as you get in and you can consistently make money, you’re fine.
It’s just going to grow. Everything is the same. You don’t need to put all your money in one trade when you’re not ready to do so. Okay. Now, step three to scaling. Once you have increased contract size, you need to increase the account size, or maybe you need to do this in the account size before you do the contract size. Either way, but one usually comes after the other. You do this obviously by adding more money to the pot, put more money in your account. Right? Now, you can do it the other way and you’d be like, you know what? I’m just going to grow the account, and whatever I make, I’m going to keep it and just scale that way. Or you can say, hey, look, I’ve got the confidence. I’ve got my emotions under control. I got a good strategy. I got a good mentor. I feel confident to be able to go to the next level so I need to add a few thousand dollars more into my account so I can go from say, two contracts to four or four to eight, right?
I’m going to go incrementally higher. I’m not going to go from two to 10. Don’t do that. Two to four, two to five, slowly, slowly, build it up. Go to the next level, trade there for a little while, get comfortable. Then you can go again to the next level. It’s like going up steps, right? Once you’re adding more money to the pot, you can do something or you can add something to your account that’s called portfolio margin. What portfolio margin means is that you get additional leverage and you get the ability to make money quicker where less money tied up actually. For most brokers that I’ve seen, portfolio margin starts at $125,000. If you have that in your account, you get portfolio margin. Normally, when you open an account and you apply for margin, they give you two-to-one margin. If you put in $10,000, they’ll let you buy $20,000 worth of stock, but they charge you interest on the money that they lent you. We don’t really advise that.
Right now, when you’re passive trading, you need to have a margin account. If it’s a non-retirement account, if it’s not an IRA, then you got to have margin enabled so that you can do spreads. You can do naked puts. But we don’t borrow the money. Portfolio margin is a little mix of both. Portfolio margin, I believe it’s like four to one or five to one in terms of margin. If you have a hundred thousand dollars, you can actually trade with $400,000. Big difference. You could buy a lot more, but I’m not telling you to buy a lot more. I’m telling you to do it because on your trades, they can charge you less in margin. What I mean by that is if you do a naked put that is very, very, very, very far away from the money. If you have a regular margin account, they might charge you, I don’t know, they say $3,000 in margin to do that trade for example. I’m just making it up. Okay.
If you have a portfolio margin account, they look at it, they calculate that margin differently. They look at the actual risk of the trade. Because they can tell that you’re so far away from the money and that the odds are so far in your favor, there’s not a big risk of you losing money and so the amount of margin that they’re going to charge you or hold for doing that trade is going to be a lot less. It might be, say $500 compared to 2,000 or $3,000. With a regular account, they’ll charge you $500 a margin for a portfolio margin account. What happens there? Well, I can make a much greater return percentage-wise on my money. Right? Dollar-wise, they’ll be the same thing, but then I can decide, hey, what? Do I want to do two of these or three of these instead of one? Because I can, right? Because I have more leverage. I can do that. If the trade goes against me, of course, I’m still going to end up losing money and I’ll lose more because now I have three contracts versus one.
I need to be able to know and be good with that. That’s why they only give it to you if you have over a hundred or $125,000. But that’s what I did. Right? For myself, when I started scaling, I went horizontally. I’m going to lay it out, two different types of scaling. What I did, I went horizontally, meaning I put small amounts into many different accounts. I had a Roth account. I had a regular IRA account. I had one each for my wife. I had a SEP account. I had a corporate account for the company. I had a couple of personal accounts. Then I would do different trades in all the different accounts, so I got a little bit, a little bit, a little bit in all of them, right? Yes. I have a lot of money in the market but they’re spread out in all of these different accounts. That’s what I call horizontally.
In hindsight, the process worked and now all of the accounts are fairly large, but it took a lot longer than necessary because each account did not have enough money in the beginning to do everything I wanted. I was limited in the trades I could do. I was limited in the strategies I could do in the beginning because each account did not have that much money. If you have, let’s say a hundred thousand dollars, right? You put it in one account, you can do certain things with it that you can’t do if you open 10 different accounts with $10,000 each. That makes sense? What I’ve done now is I still have those accounts, but I went vertically right now. That’s how I’m scaling right now. I’m going vertically. I’m working on growing just one account to a certain level.
Okay. Episode number 64 is next. This is our 5th episode. Title is called Selling Puts Versus Owning Stock. Now I brought this one up because when I first started in options, selling puts wasn’t very enticing to me. I really didn’t understand it. It wasn’t something that I practiced. It wasn’t something that I did. It wasn’t only until years later when I actually understood the power and the reasoning behind it.
I mean, I always understood the theory behind it and why you should do it and why people do it, but it wasn’t until I actually started doing it where it came and fell in place. When I came up with the whole passive trading situation and the whole brand and the whole formula and you know, the fact that, yeah, I don’t want to be trading all the time.
I want to be just relaxed, less stress free and not having to be stuck in front of the screen all day. And for that, the naked put works really good. So in this episode, I compared selling naked puts to versus owning stock and see how we did.
So I am finishing up the book called Passive Trading. Has been taken me I think over two years, but I’m finally getting close to completion. My editor told me that it’s probably better to add a few examples of trades that I’ve done in the past and some examples of the different strategies that we’re talking about. So I was like, “Yeah, that makes sense.” So what I did was I decided to go into the past and pick a stock and say, “Okay, this is a stock. What if I did what I’m telling everybody to do? How would it work out without knowing anything about the future or anything like that?”
The example was for naked puts, selling naked puts. That’s one of the strategies I cover in the book. I talk about it, say how to do it, this and that. And I said, “Well, what would happen if I take my strategy, how to do it, and go and apply it in real life?” So I picked Walmart because Walmart is not a stock that I own. I don’t follow it on a regular basis. It is on my watch list because it’s a good company and it pays dividend. It might be one that I want to get into, but up till now I don’t own it and haven’t traded it very much. So I said, “You know what? Let me go into Walmart. Let me try it and see.”
So 2018, January 2018, Walmart was trading at $98.59. That was really good because in 2017 the stock was up 42%, so had a great year in 2017. What’s it going to do in 2018? I don’t know. I don’t remember. And I haven’t traded, so I don’t know. So what I decided was I am not going to own the stock. I am only going to sell naked puts on it. If I get assigned on those puts, then I will see what I have to do there. Maybe I will sell the stock and keep selling more puts or maybe I will keep the stock and start selling covered calls. Either way, I’m going to have to do something, but I’m not going to roll. That was the decision. I wasn’t going to roll my putts. I was just going to take the stock.
So I started on the 2nd of January, okay? First trade I did sold some puts, made 3.6% because the puts expired. Nice. Did another trade in February after that one expired. After the first expired, I did it in February. That one also expired. 3.2% gain. Then I did do one in March. 3.54% gain. Did one in April. 5.54% gain. Geez. This is easy, right? All I’m doing is selling naked puts on Walmart away from the money and I’m getting really nice monthly gains, and I’m not having to watch it. I’m not following. I’m not adjusting. I’m not doing anything. I’m selling the put, waiting till it expires, and then selling another one. That’s all I’m doing.
Then, May came. Those puts expired. 2.83% gain. June, 1.85% gain. July, 3.9% gain. August, 2.53% gain. September, 2.75% gain. October, 4.89% gain. And November. Oh, November I finally get assigned. So on December 21st, Walmart closed at $87.13, which was 37 cents lower than my sold strike, so I had to buy the stock at $87.50.
Now, you might be thinking, “Oh wow, Allen, yeah, anybody can make money selling naked puts in a bear market.” Walmart went up 42% the year before. It probably went up close to that in 2018 when you were doing it, right? Well, yes and no. 2018 was a year when Walmart traded from $98.59 at the beginning of the year. That’s when I started trading. It went up to $109.55, so it did go up. But then once it got there, it turned around and went down all the way to $82.40, and then it ended the year at $93.15, which means that the stock was actually negative 5.6% for the year. So if you had owned this stock, if you had bought it on January 2nd, first day of trading in 2018, and you held it to the end of the year, you would’ve lost 5.6%. Now, you would’ve gotten the dividends, so maybe it’s an even, but still that’s dead money. You’re not making any money on this stock if you are only buying it and holding it for the whole year.
But if you had done what I did and you had sold naked puts the whole way, you would’ve made 34.65%. Let that sink in here. I was selling naked puts on a stock that went up and down and up again and closed down. So this was not a stock that just went up in a straight line. This stock lost money on the year. But because of the naked put strategy, I made 34%, okay?
This is without owning any stock. I didn’t own the stock until very end of the year, until December 21 when I actually had to buy the shares. Until then, I didn’t own any stock, and I didn’t really spend much time on it. I just put the trade on, let it expire, and then put on another one every month. Takes literally five minutes or less. Didn’t watch the news on Walmart. Didn’t care about earnings, or announcements, or what they were doing, or how the stock was doing. Doesn’t matter. Didn’t care. All I did was sell a naked put every month. Let the one expire, sell more, let it expire, sell more, let it expire, sell more, let it expire, some more on a stock that went up or down. Now, I understand if this was a stock that had just gone straight up, then yeah, you could say, “Oh, yeah. It just went straight up. Of course you’ve made money.” True, but this was not that. This was a stock that went up and down, right?
The next one’s gonna be a little bit weird. This was episode number 54. Learning to trade is learning is like learning how to snorkel. It’s like, what snorkel did he say snorkel? Yeah. I said snorkel like snorkling, you know, you put the little two with your mouth, you put the goggles on and you go put your hand in the water and bring it through the tube and you look at all the grass or fish or whatever you could see down there right? So this was a video actually that I shot in Cancun when I had gone with my family and my boys and I, we were, it was an all-inclusive place. So they give you circling equipment if you need it and whatnot. So we took it and were snorkeling, and really, they were learning.
I had done it once before, but I had forgotten about it. So I was trying to get used to it again. And then I was showing them how to do it. And they both loved it and it was awesome. It was a great experience. But while I was watching them learn, I kept thinking to myself, oh my God, the stuff that they’re saying, there’s stuff that the behaving new traders do the same things.
And so I saw the parallels and I said, okay, how do I get them to up on how to get them to be successful at it? And at the same steps that you need to take also work when you’re learning how to trade. So take a listen and maybe you’ll learn how to snorkel, enter it at the same time.
I just wanted to shoot this quick video podcast to let you know that I learned something yesterday that I wanted to share with you guys and it’s really …
Right behind me in the water, we took our kids snorkeling for the first time, the seven year old and eight year old boys. Sorry about the squinting it’s really sunny today, but we took them snorkeling for the first time and I don’t know if you’ve ever been snorkeling, but you get a little mask you put on and you get a little snorkel and you breathe through the snorkel and you look down in the water and you see whatever’s in there.
Now, there wasn’t much to see out here. There was some fish. You go a little bit further over there, there’s some seaweed and stuff. There were some pretty cool fish, a couple of big fish actually. They were really excited about that, but when they first started, I had prepped them ahead of time before we came on the trip. I told them, “Hey, we’re going to do snorkeling. It’s really cool. It’s really cool. You put this thing and you can see all the water and all this different world, all that stuff.”
They were all excited. They were wanting to go. When we got here, it’s kind of like trading, right? You hear about it, you picture it in your mind. It’s like, “Oh my God, this is so cool. I want to do this. I want to do this. Yeah, I’m going to be awesome at it.” Then you get your equipment, you get your mask, your snorkel, you get some instruction. “Yeah, this is what I’m going to do.”
Then you go do it for the first time and you totally freak out because it’s not easy and it’s not normal. You’re not used to it because you’re not breathing with your mouth anymore. I mean, you’ve got breathing with your nose, you have to breathe with your mouth. Then if you get a little water in the top of your snorkel, then drinking water and then the water is coming in your mask and your eyes are burning from the saltwater. Believe me, we had that same experience.
Basically, we walked them through it. It’s the same thing with trading.
The first thing you have to do is you have to put your mask on, cover your nose, get used to breathing with your mouth. Open mouth breathing, breathe with your mouth. Once you got that done, you put the snorkel on. You got to make sure it’s all tight and snug and then you have to breathe with the snorkel. You’re just breathing with the snorkel. Once that’s done, then you stand in the shallow water, you put your head down and you just look around, focus on your breathing, don’t even worry about what you’re looking at, just focus on your breathing, making sure all your technical aspects are right, making sure you’re following all the rules, making sure step-by-step you’re not making any mistakes. Then once you have all that done, then that’s when you get into the water and you go deep and you start floating and then you can go a little bit farther.
First time is going to freak out. You’re going to … It’s going to be like, “Oh, it’s not happening. It’s not happening the way exactly that I planned in my mind.” There’s a fish and you’ll freak out or there’s a piece of thing, something touching my foot. All that stuff happens, especially in trading. It doesn’t go exactly as you want, but if you go back and you stick to it, eventually you end up like my boys. I mean, they loved it. They loved it so much, they want to go again today and they want to go … There’s some shipwreck off the coast of the Island. They want to go over there.
It blew me away how I couldn’t get them out of the water. I couldn’t get the snorkel off their faces because they were like, “No, no. More, more, more.” There’s nothing to see here, but they were so excited and that is how I want trading to be for you. Whatever your issues are right now, if it’s not going well, if you don’t know what steps to take, if you don’t know exactly what instruction you need, it’s there where it’s available.
You just got to take the simple, simple, slow, slow steps, right? Get your stuff, get all your equipment, practice the easy things. Practice putting on paper trades. Getting on the trade, putting it on, getting out, putting it on, getting out. Practice finding trades. How do I find a trade? What do I go through? How do I make it streamlined as possible? Right? Because I don’t want you to just put on your stuff and just jump in the deep water right away. That’s what most people do. That’s why they get burned. I have a lot of people, a lot of students that told me, “Oh no, I don’t want to do paper trading. I’m going to put … I got $20,000 I’m just going to let it ride on one trade.”
You’re freaking crazy because you’re going to lose a lot of money that way and they do. Then they come back and they’re like, “Yeah, I should’ve listened to you.”
Well, that’s too late now. You just learned a very, very expensive lesson. Let’s not do that. Let’s do it snorkel time, right? One at a time, because in snorkeling, you mess it up, what happens? You just stand up. You drink some salt water, no big deal, but what could have happened and what almost happened with my second son is that he almost gave up. He tried it the first time. “Oh man, daddy, I don’t like it. This is horrible. I don’t want to do this anymore.” He threw the mask down and he threw the snorkel down and he just stormed away.
That’s what we cannot have happened to you because if it does, then you lose out on a passive income stream that has the power to change your life. I mean, take a look around. I’m here on a weekday in Cancun, enjoying with my family and my trades are still working, right? I mean, you can see … There are not there many people here, right, because this is a private beach for a private resort. There’s not going to be a lot of people here. This is not like the cheapest resort on the place as you can imagine. That’s what comes with from trading properly and passive trading and the ability for you to be able to take vacations, not have to worry about your trades as much.
I mean, I checked on my trades this morning. It’s actually the same time frame here in Mexico as it is back home for me. I checked on my trades this morning and they’re fine. They’re doing great. I’m making money, my options are … They got [inaudible 00:06:13] going on everyday so I’m not worried. I checked it. It’s all done, but I got to take the chance and the day, or at least a few hours, to teach my kids a skill or have an adventure with them that they are probably going to remember for the rest of your lives because I remember the first time I went snorkeling and it was with a school trip. It wasn’t with my parents, but they were here with their parents and I think they’re going to remember that for the rest of their life, which is pretty cool.
All right, for our next clip, I am going to say something maybe a little controversial, maybe, maybe not. It depends on your perspective. Now there’s a lot of people out there talking about FIRE, which is financially independent and retiring early.
This one is coming from episode 47, where I talk about the same thing, but I talk about it with options. And I talk about why the fire thing sucks the way normally it’s taught to do and why using options makes it so much better. You get the same result, but you have a lot more fun and you live a lot better until you get to the results.
So if you’re interested in retiring early, this one is a really good one for you to listen to.
The title of this episode is “FIRE”, which is Financially Independent Retire Early. That is a new movement. It’s not really new, but it’s a movement that has become popular lately, and you can read articles about it, and people are writing books about it, and blogs and there are even podcasts about it and everything. It’s basically retire early, become financially independent. They call it FIRE. Cool. Okay. This is especially big amongst millennials, because I guess they don’t want to work for the man, and they don’t want to work till they’re 65 years old. But it’s really cute, though, how millennials think that they create things that have been around for generations. It’s like the desire to retire early. It’s like, “Yeah, this FIRE thing. It’s cute that you gave a name to it, but you guys didn’t create this. People have been wanting to do this since the start of time, really.”
Anyway, according to the tenants of FIRE, you have to do three things. You have to earn as much money as you can at work. You do have to work. You have to earn as much money as you can. And, you have to get a side hustle. A side hustle, just another name that they gave to a second job. Whether you’re working online, for yourself, as a freelancer or you actually have a second job, or you do something else like trading options, you have to have a side hustle to make as much money as you can.
The second thing you have to do is you have to save as much money as you can. And they do this by basically living as paupers. That’s what they tell you to do. Live like a poor person, like a homeless person. You don’t need a car. You can ride the bus to work and take a bike, because that’s healthy for you. Eat less food. Don’t eat so much. Don’t go out to the movies. Watch Netflix at home, all these kinds of things, where you’re trying to save as much money as you can. And then, with that money that you save, you invest it in something like index funds. You put it away, let other people manage it, and that’s the cycle. Earn as much as you can, save as much as you can, invest it.
Now, if you follow that formula, it works. There are people in their 30s that have enough money saved that they can live off the interest off of their investments. Their investments or whatever they invested in is making money, and they can live off of that interest, which is awesome. They don’t have to work. Most of them don’t have kids. Even if they did, they still have to live frugally, of course. Because even in your 30s, even if you’re making $100000 a year as a job, you’re still not going to be able to save that much that you’re going to be earning a lot of income, or a lot of interest from your savings, from your investments, to live middle to upper class. These folks, they have retired. They’re not working, but they are living low to middle class, somewhere around there. That’s cool if you like that sort of thing. I don’t. I think you can have your cake and eat it, too. I want you to retire early and still be rich. That is doable, if you take control of your money.
Now, I agree with the “make as much money as you can” part. I agree with that part. I agree with the “save as much as you can” part. Now, I don’t think you should live like a pauper. I think you should enjoy your life, even now, while you’re working, and you’re saving. I love driving. I love my car. I’m never going to give that up to save a couple hundred bucks in gas and insurance a month. But if that’s something that you want to do and that will get you to your goal faster, then do it.
But your side hustle should be to learn to grow the savings you have as much as possible, instead of losing control of your money inside of a mutual fund. Does that make sense? Your side hustle, you have to make as much money as you can. You go to your job, you get your income, you save your money. What do you do with that money? Well, you can give it to somebody, index fund, mutual fund, and let them do it for you, and hopefully the market goes up or maybe it will go down and then pay fees for all that information and whatever. Or, you spend your time, and you learn how to do it for yourself, because there are people out there that will charge you to manage your money that are not going to do anything that you cannot do for yourself. You can actually do it much, much better.
That’s what we’re all about. That’s what we’re trying to teach you. That’s the point of this podcast, to help you to learn how to do that. Take advantage of your own future, instead of giving it to somebody else, and then you can fire yourself much faster, years and years sooner. I did some calculations to prove my point, here. Over time, the stock market has averaged about eight percent a year, eight percent yearly return. That’s pretty good. But when you sell options like we do, we have the ability to make 10% a month. A month, not a year. Stock market, 8% a year, options 10% a month. Hmm. Which one is bigger? I don’t know. You could sell options one month out of the year, make 10%, and then take the rest of the year off if you wanted to. But these trades and these option selling I’m talking about is very high probability trades that can make you at least 10% a month. Ten percent, that’s my goal. That’s what I try to make every month. But I know traders that do a lot better than that every month. It’s definitely possible.
Now, look. I know right now that might seem like a bit of a stretch to you, maybe if you’re not making 10%, or you don’t understand the strategies. Ten percent is a lot. That’s 120% a year. That is fabulous. If you asked me, “Oh, nobody every does that, Alan.” Uh, yeah. I do. I’ve done it before. It’s not impossible. But let’s be a lot more conservative. Even though 10% is possible, let’s just aim for 5% a month. That’s 60% a year. Still, very, very impressive. There are guys on Wall Street that will chop off their right arm if they could make 60% in a year. That’s really good. If you start with a $10000 account … Let’s say you start off with $10000 in your trading account and you’re making 5% a month, in 5 years, you would have over $186000. Five years from now, $10000 to 186000. That’s really, really good. What could that kind of money do for you? What would your life look like? Would you have a new car? Or maybe a new bike for you FIRE people? A new house? a new plane?
I know, okay, okay. Maybe 5% seems a little high right now for you, maybe because you’re new to options and maybe you’ve tried to make it work before, and it didn’t work for some reason. All right. Let’s say you screw it up, and you don’t make 5%. You only make 3% a month. Let’s cut down our expectations. Do you think you could do that? If 5% is possible, and the odds are in your favor, do you think you could make 36% a year? That’s in addition to whatever you’re making on your stocks right now. You take that, and you add it to the 36%. That would be really good, right? Would you be happy with just 36% a year? That’s really good. I’d be happy with that, because in 5 years, if you have a $10000 account, your account goes from $10000 to $59000 in 5 years. That’s almost six times what you started with. We’re still talking about life changing money. It would be awesome, right?
But I get it. Okay. Maybe 3% is a little high. How about if you totally, totally screw it up and you don’t even get 3% a month. What if you only get 2% a month? That is 60% less than our goal amount. But that’s still 24% a year. How would your account do, then? Making 2% a month? That would triple your account in five years. Your $10000 account in 5 years goes to $30000. And then, in another 5 years, from $30000, it goes to $98000, because it compounds. Every year, it’s just going to compound and compound and compound. Remember, we’re only starting with a $10000 account, here. $98000 in 10 years, that’s fire your boss money, right there. That is actually 2% a month is more than what Warren Buffet has made. He’s averaged 22% over his life. If you can do 24%, it’s possible you can do better than Warren Buffet. Now, he started with millions of dollars that other people gave him. I’m not going to compare that and say you can be the second richest man in the world, or whatever. I’m not going to say that. But you can do better, have better returns, than he does.
These are all hypotheticals. Now, let’s look at a real example. Let’s figure this out. For most people, a really good average income would be about $100000 a year. Is that fair to say, you think? Would you be okay with that, if we used $100000 as an example? Let’s say we want to make that. We want to make $100000 a year income. That is $8334 a month, $100000 divided by 12 months. I’m going to leave taxes out of this, otherwise it’s just going to get too complicated. But first, what we need to do is we need to figure out how much money our account would have to be worth, because we’re trying to make $8334 a month. How much money would we need if we were making 2% a month, to be able to make that? That number is $416700. If you have an account that size, $416700, and you make 2% a month, you would be making $8334 a month. You would be making $100000 a year. We need an account of that size, $416000. But we don’t have that right now. Most of us don’t. You don’t have it. Okay. I get it. No problem.
Right now, let’s say we only have $50000 in our account. I think that’s more normal. I think most of us have at least that, or maybe more, maybe a little bit less. It’s okay. But let’s just say we have $50000, and you can make 2% a month. If you have $50000, and you make 2% a month, question. How long do you think it will take you to get your account to be able to give us an income of $100000 a year? You start with $50000, you make 2% a month. How long will it take to get to $416000? You think it will take 20 years? You think it will take 30 years, 40 years, maybe? Well, I did the math on investor.gov. It’s a website. They got all these nice financial calculators that you can play with. It would take just nine years. Imagine that. If you’re 50 years old right now, you could be making $100000 a year in income before you hit 60. When you actually do retire, you’ll still be getting your Social Security, your pension and whatever else that you have in your investments. Sounds like a really sweet retirement to me. Am I right?
If you have $50000 right now, and you only make 2% a month without any stock appreciation, in 9 years you would have a 6 figure income from just the income from your option trades. Oh, and on top of that, you’d be working about a couple hours a week. I think that’s the kicker. Oh, yeah. I forgot about that. We’re going to be working hard? Uh, no. Now, for some of you, you might not have the $50000 right now, and that’s okay. This is an example. You could start with a lot less. We have traders in our community that are starting with less than $5000. When you have a smaller account, it just takes longer, but you can still do it. Trades are the same, strategies are the same. Everything is the same. But the important thing is that you need to start now. Can you imagine it? No more credit card debt. No more worries about college costs. No more worries about not having enough money for emergencies. That’s pretty cool, right? I think so. It is. It’s an amazing way to live. You could lose $80000 a year and not even be mad about it.
My wife got mad, to be honest. She did. I told her it was going to be a slam dunk. I was like, “Yeah, yeah. It’s going to work. It’s going to work,” and then we lost the money and she got mad. I didn’t get mad, but she did. All right. But what if you are super, super new to investing, and you’re just awful at trading. You’re the worst. And you don’t even get 2% a month. What if you only get 1% a month? That’s 12% a year. How many of you guys would be happy with 12% a year. I would. I think so. That would mean that your $10000 account, in 5 years, increases to $18000, and that’s without any stock appreciation. That’s just the income from your option trades. Even if you’re only making 12% a year, 1% a month, it’s still significant money. It’s still better than what you can do in the stock market, because you put your money in the stock market … Stock market is getting 8% average, sometimes 7. Some people say seven, some people say eight. I just went eight. But if you calculate all the fees, all the commissions you pay, you’re going to be looking somewhere around 4%, 4 and a half percent is what most people get out of the stock market.
If you can make 12% on your own, and you compound that money month, after month, after month, after month, because when you look at the stock market and when you put your money in an index fund or a mutual fund or whatever, that money doesn’t compound every month. It compounds every year. When we’re doing our option trades, these are monthly trades, sometimes less than a month. If you have $1000 in your account, or let’s say $10000, to keep it simple. Let’s say $10000, and you make 10% in a month, well now you have $11000. The next month, you’re not playing with $10000 anymore. You’re now playing with $11000. It compounds every single month, and that’s why it can grow so fast, much faster than in the stock market if you put it in an index fund. Does that make sense? Good. Because that’s what I want for you.
If you want to retire early, if you want to be financially independent, you don’t want to live like a pauper, like a poor person, like a homeless person, then the best thing for you to do is follow the plan that I just laid out. Number one, try to make as much money from your job as you can. Number two, you’ve got to have options as your side hustle. You’ve got to be selling options. You’ve got to be trading options, selling them, not buying them. Number three, save as much money as you can. If you don’t need to go to that five star restaurant, don’t. If you don’t need to go to the movies, get Netflix. It’s fine. You’ll watch the same movies later on. Once in a while, you want to splurge, do it. Enjoy your life. Don’t live like a pauper, but don’t live above your means, either. Save as much money as you can. Spend your time that you have, your free time, your side hustle time, learning how to trade, selling options, practicing, practicing, practicing, getting better, asking questions, getting education. Find other traders that you can talk to and ask questions from, learn from, model what works, because I’ve done it. Others have done it. We have hundreds of people in our community that have done it and are doing it right now. We’ve interviewed people on the podcast that are doing it right now.
Okay. And lastly, we have episode 30. What should my first trade be? So this is for you folks who haven’t tried options yet.
Usually thinking, Hey, what do I do? What do I do? I’m afraid to get in. I don’t want to lose money. I don’t understand all this stuff yet. What should your first trade be? And that is the answer that I expose. In this next clip. So take a listen.
Really, what I would say is, okay, if you have an account already and you own maybe 100 shares of stock, okay? Hopefully it’s maybe an ETF, maybe it’s a big company like Coca Cola or Disney or something like that. I would go ahead and just place a covered call. That would be my first trade. That would be my advice to go in, take a look at it and say, you know what, let’s say Disney is trading at $100. In the next 30 days, I don’t think it’s gonna get to 110. That would be a 10% gain, it’s not gonna get to 110. I want to go and sell the 110 call. And maybe I only get $20 for it. That’s okay. This is not about how much money you can make, it’s about just getting your toe wet, just doing it, popping your cherry so to speak.
And so, that’s what my advice would be to be for that. Your first trade, if you have some stock, never done this before, covered call, it’s easy to get approved for. Almost nobody gets rejected when you apply to add options trading to your account if you just say, “Hey, I just want to do covered calls.” Because that’s the one that the brokers for some reason, they really think that’s the safest one even though it has as much risk as a naked put on the risk graph. That’s another story, we can get into that later so, if you have some shares and you want to just do it and you just want to get a taste of it, what option selling is all about, go ahead and sell one call above where your stock is trading at right now. We don’t want to lose your stock, we don’t want anything to happen with your stock, we want this option to expire and we want to take that money that we get, right?
So, let’s say we sell 10% above the price. So, if your stock is trading at 100, we sell 10% above that so at 110, we sell that 110 call option, do it for about a month, maybe a month to 45 days away and whatever you get. Maybe you get $15, maybe you get 30, $40, whatever you get, that money goes into your account. That’s yours. No matter what happens, that money is yours, you never have to give it back. And then for the rest of the time, until that option expires, I just want you to watch it. I just want you to look at it and be like, “Okay, I sold it and I got $30 for it,” let’s say for example. Let’s say you got 30 cents for it, which is $30 credit to you so, you got $30 and every day, that option goes down in value.
Little bit, by little bit, by little bit, by little bit, it’s gonna go down, down, down in value until hopefully, it will expire worthless and you’ll still have your stock, you’ll still have any dividends that you’ve gotten from the stock but you’ve also gotten the $30 that you got from the call option. So, that will give you a nice taste of what option selling is all about. It’s very basic, it’s the simplest trade you can do and if you hone the stock, you can do that. Now, if you do not own stock you can do that. Now, if you do not own stock already or if you have a small account then covered calls might not be the best for you.
There is something that I’ll call the, “Poor man’s covered call,” but that’s a little bit more complicated. We’re not gonna get into that right now. What I would say if you don’t have any stock and you still want to do your first option trade. I would say probably you do something that at our company, we call, “The layup spread.” Now, the layup spread is a credit spread with some twists to it.
The criteria for getting in and if you want to learn how we do layup spreads, then you can go to simonsaysoptions.com/layup and get the guide. It’s really cheap and it walks you through exactly how do you pick a trade, how does a trade work and what are you looking for, okay? So if you need, if you’ve never done it then pickup the guide, it’s really cheap and it will go step by step tell you how to do everything. Now, the reason that we call it, “The layup spread,” is because in basketball, the easiest trade you can make for most people is the layup, right? You’re standing really close to the basket, you just jump up, bank the ball and just throw it into the net and percentage wise, that’s the most made shot.
So, the other shot … we were thinking about calling it, “The dunk spread,” because if you go for a slam dunk, that’s kind of easy, right? That’s probably the easiest … that might be easier than the layup but for myself and for Simon, Simon is the one who wrote the guide and who does these, we really have never dunked in our life and so for us, a dunk is not the easiest trade or not the easiest shot in basketball because we have never done one, we couldn’t do one if our lives depended on it and so for us, it wasn’t the dunk that was the easiest, it’s the layup that’s the easiest and so, we called it, “The layup spread,” because it’s probably the easiest trade you can make and so, that’s why we call it that.
It’s a spread, meaning it has two options, you sell one and then you buy another one but really it’s something simple and basically what you do is you find a stock that you like, you want it to be … for your first trade, you want to find something that’s really big. Like an ETF, you can take a look at SPY, that’s the S&P 500 ETF, that’s a good one. Or find a large company, maybe Apple, Facebook, Google, any one of these large tech companies or just … those would be good to work with and you see the chart. Now, you don’t want to find a chart that’s just moving up and down, up and down all over the place, you want to find a stock that’s moving in one direction, smoothly. So, relatively if it’s going up, you want it to go on your screen, if you look at the chart, you want it to go from the lower left to the top right and you want it to go up slowly, slowly, slowly, not have really, really big moves but small moves and just generally going up, up, up. Or if you want one going down, you do the other way but you don’t want it to have big jumps and big movements.
You want it to be [inaudible 00:11:48] have a decent slope going up but smooth. We don’t want it to look like big hills and have gaps in the middle and what not. So, you go through some charts, find one that you like and then what you do is you want to sell away from the direction. So, if it’s going up then we want to sell some puts. So you take a look at the chart and say, “Okay, in the next month of so, I don’t think it’s gonna drop more than 15% in price,” and I can’t go through all the mechanics here. If you want to know in detail, then you have to get the guide but the answer to the question is what I’m trying to get to here.
So basically, how it works is if the stock is going up, we think it’s gonna keep going up, we don’t think it’s gonna drop but if it drops a little bit, it’s okay. We’re gonna pick a point where we do not think the stock is gonna go so, if it’s training at $100 and it’s just been going up, up, up, up, we don’t think it’s gonna go all the way down to 90 or 04 or 85 or even 80 so, we pick a number or we pick a price where we do not think the stock is gonna go in our timeframe. Maybe 30 days or 60 days, however long we want to sell the option for and then, that’s the option that we sell. That is the put option that we sell and then we buy another put option right below it, the next put option there. And you can get into this trade for as little as $100. The average trade is probably gonna be around $500, sometimes … you do that, that’s the spread you have. The probability’s in your favor, probably 80 to 90% probability of that working out and you can make 5%, 8%, 10, 12% in that short timeframe of a month or so.
So, I think it’s a very good strategy because it’s less risk, it’s very calm. Basically, you’re just selling some options, have the odds in your favor, the trend is also in your favor, which is a good thing and then you just sit back and you just watch it and you just let it expire. In this particular strategy though, you have to know when you’re gonna get out. So, you can say, “I’m not gonna do anything. I’m not gonna adjust it, I’m not gonna change it. And so, if I’m risking $100, I have an opportunity to make $10 but I’m gonna risk $100 so if I lose it, I lose it.” So, in this case if you’re putting up $100 as your margin, you’re gonna lose $100 if you don’t do anything and the trade totally goes against you, 100% against you if it goes. If it doesn’t, the other option you have is that you can get out if you’re down a little bit or if you can learn to adjust, you can do that. There are different ways to play the trade in the beginning.
If this is your first ever trade, I would probably put up 100 bucks and just not do anything, I would just watch it. That’s it. See how it goes, see how it feels. If you lose the 100 bucks, see how that feels. That’s a learning experience right then and there. You know? It’s like, “Oh man, I just sat here, I didn’t do anything. I lost 100 bucks, this is horrible, I don’t like this. I’m not gonna do this anymore.” But if you understand how it works, most of the time it’s gonna be profitable so, if it’s something that you enjoy doing, then you can look into it further. Because for some people, selling options might just be too boring. Putting on a trade and just waiting for it for a month, man, that sucks. I don’t want to do that. I want to be a gunslinger and I’m gonna be a better, I’m a poker player. I want to just, bet, bet, bet and hopefully I’ll hit the lottery. If that’s you, then option selling is not for you and this is not the Podcast for you anyway.
But if this is your first trade, like I said, if you have 100 shares, covered call would be good. If you don’t have 100 shares, the layup spread is something that is right up your alley. Now, of course, you could do other things. You could be selling naked puts, you could be doing condors, butterflies, straddles or something. That is pretty popular, strangles and straddles are good for people but I think if this is your first ever trade, you’re just looking to get in, you’re just looking to get your toe wet, get an experience of what it’s really like, covered calls or layup spreads.
And again, covered calls are really simple. You can get more information on our website and credit spreads are … the layup spread is a credit spread with a little bit of the twist and the twist is how Simon actually chooses the trades that he does because you can go into any stock and say, “Okay, I’m gonna do a credit right on this trade, on this stock.” But to really get maximum gain out of it, to make sure you win on most of your trades, you’re gonna have to do a little bit of digging, you’re gonna have to look at the chart, you’re gonna have to look at what stocks should you be trading and what stocks you should not be trading and so, Simon actually goes through that in the guide, in the layup guide and you can pick that up if you want to.
It just puts more odds in your favor, so to speak, those are the two things I would recommend. Again, if you wanted to learn about covered calls, you can go optiongenius.com/covered calls, we’ll put the link in the show notes and then, if you want to learn about the layup guides, you can pick it up at at simonsaysoptions.com/layup guide. Alright? If you have any questions, please let me know and remember, trade with the odds in your favor.
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