Podcast – Episode 106 – A Thing About Scaling Your Options Trading


Podcast Transcript

I’m going to call this episode, a thing about scaling. And when I’m talking about scaling, I’m talking about scaling up your trading in terms of trading larger amounts and larger quantities of contracts. So this comes into play, because we have several students who are going through one of our, I guess, our credit spread mastery program. And we teach them the fundamentals, we teach them how to do the trades, we work with them, we show them how to do it. And then at the end, after they’ve had really great success, and they’re ready for it, we talk about scaling, how to go from, you know, one to two to three contracts to 510 50 100 or more, depending on the size of the account. And so, we’ve been having these discussions, and that’s why it’s in the top of my head, and I noticed something recently, that I wanted to share with you. Now, I tell everybody, and I’ve said this many times on that podcast as well. trading is 80% Mental 20% Physical, right?

So whatever you do, the thing, the analyzing, the research, the clicking, the monitoring, the trading itself, the stuff that you do with your hands on their broker, and moving money around all that stuff, that’s 20% of trading. 80% is what goes on in your mind, and how you process how you handle things, your emotions. And when it gets to, when it comes to scaling, that really, really starts to play a bigger role, the emotions, how to handle those things, that is really important to have a handle on before you start scaling. Because otherwise, you’re going to have issues. And those issues are going to be very expensive. So one of the things that I noticed recently, is I was doing a I had a $15,000 trade on. And it was a normal spread that I had put on, and it had hit my goal, which was 10% for the month. So it’s like a great, you know, $1500.. not bad for a trade. I’ll take it very nice. And so according to my plan, I’m supposed to take the trade off, I’m supposed to finish it exited, take my money and relax, right? Or move it to another trader or do whatever.

But as I’m looking at this trade, it was not in my regular brokerage account, it was in a different brokerage account. And so the way that trade looks is different. Maybe that’s why I felt or felt differently. But normally, you know, most of my trading is done in thinkorswim. This one was done in a different account. And so it looked like I said it looked different. It felt different. And so maybe that’s what what threw me. But when I looked at the trade, it showed me that oh, I had made 15 $100, which was great. But there was plenty of time left. There was still another maybe another week, week and a half left in the trade. And I could have made another I think $600. I said “huh this is interesting. I made 1500, I got my goal, but I can make another 600. Now 600. That’s a lot of money, right? I mean, I just have to sit in it for maybe like another 10 days, the stock is really far away from from my short strike. What are the chances of this trade going bad, pretty little probabilities on my side time is on my side, you know, data is gonna pick up and every day I stay in the trade, I could probably make another 100 bucks. Do I want to do that? Or do I want to stick to the rules? Now normally, I’ve gotten to the point where it’s not even a question. I just take the trade off. But something caused me to pause. Something caused me to think about it like $600 that’s a lot of money that give me for some people that’s maybe not a house payment, but that’s definitely a car payment. Right. Hmm, interesting. So I paused and I thought about it. I’m like maybe I can stay in it. Maybe I can stay in it. Now here I am. violating my rules. My rules is you get your gain, you get your 100% your your 10% profit and you get out. That’s it. There’s no ifs, ands or buts. You get your money get up. But here I am thinking about it. Eventually, I did get up. I took my money and I got out. But it really bothered me that I was sitting there thinking about it and trying to try to reason with myself. Oh, maybe I can stay in one more day. Maybe I could stay until the weekend. Maybe you can stand on Monday. You know get the whole weekend time decay. Yeah, maybe you could do that. How much can I make? Oh, and I kept like I kept going back and forth and thinking about and checking the trade over and over again when I didn’t have to. And it just was not normal.

And so that’s what I wanted to share with you. It’s like, Yeah, when you scale, you do the same things, you know, you press the same buttons, you do the same analysis, the same stock, same trade, same strategy, everything is the same. But emotionally, it’s very different. Because the numbers get bigger. The numbers get bigger, you just add more zeros to it. Now, yes, technically, depending on how much you’re trading, I have to tell you that you should probably do more in hedging, and you should probably change it up a little bit your trading. So that the trade is a little bit different, maybe you’re hedging a different way, maybe using different strikes or different underlyings to make sure there’s plenty of volatility and liquidity and all that stuff. So yeah, it varies a little bit depending on how much you scale and what strategy you use, and all that stuff. That’s way beyond this episode. But my point here, is that while you’re scaling, you got to have a handle on your emotions. And it’s really important that you stick to your game plan. Now what happened with that trade? It expired, I could have made the extra money. But I’m happy that I stuck with my plan. I didn’t let my brain in my emotions and all that get a better of me my greed, basically, right? the greed of wanting to Oh, that extra $600 could go far, you know? Nope, I had my gain, I heard everything. Now, normally, if this was a small trade, you know, maybe you would be like, Oh, I can make an extra 60 bucks, that wouldn’t be a big deal. Okay, I can get out of my trade, no problem, I’m gonna, you know, I’m a good boy, I’m a good trader, I’m sticking to my plan, I’m following the plan getting out. But when you get to taking it off, and there’s still $600 left on the table. $600 leaving on the table, that feels different, feels really different. And when you get into those extra contracts, you know, that that commission adds up to then, you know, what about if it’s not 600? What if it’s 6000?

Right? bigger numbers. So that’s why you have to have a check on your emotions. And when you scaling, you know, we don’t want to go from five contracts to 50 contracts, we want to go from five contracts to maybe eight, I don’t even I wouldn’t even want to go double, I’m gonna go step by step slowly, slowly, slowly, until you get the hang of it. One month, you maybe go to five, then 10, 15, 20, 25. As long as you’re staying consistent, as long as you’re staying true to your trading plan and trading by the rules that you’ve already set out. Right? Eventually, you’ll get to the point where hey, I’m increasing this, maybe I need to tweak my rules a little bit, maybe I need to hedge myself a little bit more, maybe I need to change what my goal is, instead of making 10%, I’m going to try to make 8% and use 2% for insurance. Or maybe I’m going to change the underlyings that I’m trading in in my larger, larger trades, I’m going to go into some underlyings that are very liquid. So you change things up. Right. Now that comes with experience. And if you’re one one of our programs, we can talk about that when you get to that level. In the beginning. Of course, you don’t need to worry about that man as much. In the beginning, you stick to the plan, that’s the biggest thing, focus on the plan, understand the plan, understand how the trade works, put it on, take it off, put it on, take it off over and over again, make it methodical, make it consistent, so that you’re doing the same thing over and over again, so that you get consistent results. And then once you’re consistent once the money is coming in, we can tweak it, we can improve it, and then eventually get to the point where Okay, now it’s time to scale. And at that point, it gets emotional. So be careful for that when you’re scaling. Be careful. And big plan here. No matter how big you get, no matter how much you’re trading, you got to stick to the rules, no matter how much money is being left on the table, because you got to remember, hey, look, I got my goal. I got what I wanted. I’m playing it safe.

And the more money you trade with, the more you have to keep it safe. Because I heard somebody going again on another call. And you know, this guy was talking on the podcast, he was talking to a billionaire. And a billionaire had a different mindset about investing. That billionaire was saying that, hey, when I invest in something, and they’re talking about real estate, when I invest in a real estate property, I don’t care as much about how much money I can make. I am more concerned with getting my capital back. I’m more concerned with return of capital, then return on capital. And so when you get to that level, when you get rich, right, when you get to multimillion dollar status, then your mind shift changes, your goals change, everything changes. So as you’re scaling, when you get to that point, it becomes really I got to make sure that my money comes back. And then if my goal changes, maybe I don’t need to make 10% on every trade. Maybe you make 3% maybe you make 2% even 1% on a lot of money is a big deal. Because eventually we know we’ve talked about this in the past that after you get to a certain level of net worth, you know, adding more money doesn’t make you happier. It allows you to do more things, you know, your, your nest egg gets bigger, and you’re, you know, you can buy more toys if you want to, but eventually, that stuff doesn’t really make a difference in your life. At this point, we’re talking, you know, maybe $30 million or higher in terms of net worth, you know, very few of us are at that level, eventually, I want to get there, you know, hopefully you get there too, and we can get there together. But for now, you know, we focused on scaling, focus on trading on a plan and getting our goal and getting out.

Because the less time we’re in the market, the less bad things can happen. Yes, we’re leaving money on the table. But that’s okay. Because I got the lion’s share. You know, I got what I wanted, I’d be happy before I got into when I got into the trade was like, Okay, what would you want this trade to do? Well, I wanted to get my next goal, which is 10% for the trade. If I get that I’m happy. Good. So when you get that you should be happy and get up. Forget about whatever’s left on the table. Let somebody else have the scraps, we got the lion’s share. So when scaling, remember, you got to stick to your plan, keep your emotions in check. If you have any issues, you can reach out to us, we’ll help you out. But I wanted to give you this quick lesson. This is something I noticed doing myself. And you know, I think mainly it was because that I was trading in a different environment. I was trading in a different software. And so what I was accustomed to seeing was different. You know, normally if I’m on my thinkorswim, I look at you know, what’s my margin? And then what’s my profit and loss on the trade. And if it’s 10% of that I just get out. I don’t even look at how much is left. But on this particular software, I couldn’t see that. And so I had to figure it out by myself and like “Okay, did I get my 10%?” Yes, I did. Okay. Oh, wait, there’s a lot of premium left. Oh, okay. Yeah. And so it gave me pause. But eventually I’m going to get used to it. And so hopefully, it doesn’t bother me and I can stick to my emotions and stick to my plan. So I hope that helps. I hope that’s something that you can keep in mind as you scale up. Again, trade with the odds in your favor, and we’ll talk to you next time.


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