SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

It Is Time to Get Real


A few days ago a one of the Steady Condors members asked if the past performance of Steady Condors was in line with our expectations, and would we expect it to perform better over time. His concern was that our real results are worse than the backtesting. My response was:

2012 and 2013 were in line with our long term profit target of 2-3% per month, but 2014 was a very difficult year for most condor traders. We know many services that actually blew out their clients accounts, but Steady Condors at least was able to limit the losses to reasonable amount, which allowed us to recover from the drawdown within the next 6 months. 2015 was obviously very good, producing 56.5% compounded yearly return. 2014 is the main reason why we are below the long term average. Statistically this not unexpected considering it is only 4 years of data.

 

But Jesse provided a much better explanation:

 

This has been on the FAQ page for quite a long time:

 

How much can I expect to make with your service?

 

Our objective is to make a living, not a killing. We like the story of the tortoise and the hare. Income trading is NOT an ATM machine, regardless of what other option based services are marketing to you. It’s hard and it takes discipline, experience, and a well thought out written plan on how to manage risk.  We believe markets aren't perfectly efficient, but they are a lot harder to beat over the long term than most people realize.  Our long term goal is to make an average of 15-25% annually on the whole account after trading costs (commissions and slippage). Options inherently provide leverage and substantial risk of loss when not used properly, and iron condors are no exception.  Many people mistakenly confuse the high probability of success (per trade) that iron condors offer with safety.   

 

 

Return data is useless without also analyzing risk. I expect SC to have a long-term Sharpe Ratio up to 1 (depending on future risk-free rate which is currently almost zero). Recognizing that this is a topic most people have never been educated on, let me explain. This will help you understand how to more properly analyze returns of different strategies that have different leverage and therefore different risk. A huge mistake that I see retail investors make over an over is only looking at returns. The Sharpe Ratio isn't perfect either, but it's certainly better than only reviewing returns and can give you a way to throw a giant red challenge flag on anyone claiming extraordinary returns.

 

4166627-green-road-sign-welcome-to-reality.jpg

 

Sharpe Ratio: Annualized return - risk free rate / annualized volatility

 

All you need is a track record of monthly returns to calculate a strategy's Sharpe Ratio. For your reference, 1 is exceptional, and you'll be hard pressed to find hardly any audited track records of any type that have maintained a Sharpe of 1 over a long period of time (10+ years). Yet people are desperate to believe in fairy tales and hope that they've found magic. If a newsletter is honest with you and tells you to "get real", many retail investors will just move on to the next one who will tell them whatever they want to hear in order to gain subscriptions. We'll tell you to get real here. And if you ever feel like we aren't, throw the challenge flag at us. It's why we have forums in order to have discussions. 

 

Steady Condors has had a Sharpe Ratio of about 1.3 since 2012 which is above long-term expectations. This is based on 19.8% CAGR (Compound Annual Growth Rate) and 14.6% annual volatility. With the expectations that Steady Condors will produce annualized volatility of around 20% over the long term, this would also land expected returns around 20%. 

 

Beware of anything that suggests a massive Sharpe ratio such as 3+ over a long period of time. That would basically qualify them for market wizard status that virtually nobody has achieved for the long-term. Oftentimes you'll find this in a credit spread newsletter where the big loss just hasn't happened yet (it will), or the entire track record is hypothetical, which likely includes overfitting and/or excludes realistic transaction costs. Short volatility strategies like selling options with no risk management can sometimes go for a few years without being tested. Do yourself a favor next time you're looking at a track record and analyze both risk and return, and using the Sharpe Ratio is a great start and a way to possibly save yourself a lot of money.

 

Thank you Jesse for providing such great explanation!

 

At Steady Options, we are committed to promoting long term success to our members which starts with education on having realistic expectationsWe will continue telling people to "get real" and not what they want to hear because this is who we are.

 

On a related note, we are one of the few services that report performance on the whole account, not P/L on margin. For example, if we keep 20% of the account in cash and make $400 on $8,000 margin, we would report it as 4% return on $10,000 account. Most services would report it as 5% return. in the long term, it makes HUGE difference. We also include commissions in our reporting, which reduces the numbers by another ~0.3%/month. Always make sure to check how the service reports returns and compare apples to apples.

 

Let me know if you have any questions.

 

Want to learn more?

 

Start Your Free Trial

 

Related Articles:
Why Retail Investors Lose Money In The Stock Market
Are You Ready For The Learning Curve?
How to Calculate ROI in Options Trading
Performance Reporting: The Myths and The Reality
Are You EMOTIONALLY Ready To Lose?

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • The Benefits of Rebalancing

    A portfolio with multiple funds will drift away from the original allocation over time if it is not rebalanced. In this article I’ll show how rebalancing can be implemented and how it can be beneficial. It's called buy, hold, and rebalance.

    By Jesse,

    • 0 comments
    • 786 views
  • How To Manage Fear And Greed In Trading

    Why doesn’t everyone get involved in trading? And why doesn’t everyone “hit it big” on the stock market at least once? If you eliminate the main factors that drive the human mind (emotions) and only consider knowledge, logic, experience, and reason, everyone should be able to earn money from trading.

     

    By Kim,

    • 0 comments
    • 1,061 views
  • Probability vs. Certainty Trap

    We all would like all our trades to be winners, but we know this is not possible. We know some of the trades will be losers. Many traders think that if a trade has lost money, it was a bad trade. They try to identify what errors they made that lead to losses. Why? "Because I lost money! So surely I have made a mistake somewhere?”

    By Kim,

    • 2 comments
    • 6,710 views
  • How To Choose The Right Platform For Your Stock Trading

    The interest in stock trading has increased due to its higher returns and profit potentials. Like the many traders available, there are numerous approaches and platforms to set your trading environment. Online trading platforms provide adequate resources and tools for their clients' trading success.

    By Kim,

    • 0 comments
    • 2,952 views
  • How To Approach Passive Investing

    Passive investing refers to an investment technique that seeks to increase returns by limiting purchasing and selling. One of the most popular passive investment strategies is index investing, this means that a group of investors buy a representative benchmark, and keep hold of this over a long period.

    By Kim,

    • 0 comments
    • 2,768 views
  • How Anchor Survived the 2020 Crash

    We are often asked how the Anchor strategy performed during the market crash of 2020. The monthly performance can be seen on the performance page, but it shows the End of Month values and doesn't tell the whole picture. This article will shows a detailed analysis of the Anchor portfolio during the crash.

    By Kim,

    • 2 comments
    • 4,624 views
  • Lumpy Dividends and Options

    Dividend payments, like oatmeal, may be smooth or lumpy. Smooth dividends are predictable, usually once per quarter. It is easy for options traders to believe these dividends are guaranteed, because they usually continue uninterrupted quarter after quarter. This also makes it easy to predict total return over a longer time span.

    By Michael C. Thomsett,

    • 0 comments
    • 4,586 views
  • Got Crypto? Here's How to Use It

    Cryptocurrencies are fast becoming an accepted personal and corporate finance method - much to the chagrin of centralized banks and established financial institutions. The reasons are numerous, but in a nutshell, the decentralization of massive amounts of currency poses a threat to their systems.

    By Kim,

    • 0 comments
    • 3,255 views
  • Option Payoff Probability

    Many options analyses focus on profit, loss and breakeven. These show what occurs on expiration day, assuming the option remains open to that point. But this is not realistic. Most options are closed or exercised before expiration, is calculation of how probable a payoff is going to be, how likely the loss, or the exact neutral outcome (breakeven), are all unrealistic.

    By Michael C. Thomsett,

    • 0 comments
    • 2,094 views
  • How to Open Your Own Trading Office

    Are you ready to break out on your own? Have you been trading for a company for years making tons of money for yourself and others? Are you ready to take home a bigger piece of the pie? If you answered “yes” to these questions then you have the skills necessary to take your passion for trading to the next level.

    By Kim,

    • 0 comments
    • 3,412 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido