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By Kim
Performance Dissected
Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance, and exclude commissions, so your actual results will be lower, depending on the broker and number of trades. Please read 2022 Year End Performance by Trade Type for full analysis of our 2021 performance. We have extensive discussions about brokers and commissions on the Forum (like this one) and help members to select the best broker. Please refer to How We Calculate Returns? for more details.
The 90% annual return was below our long term average, but note that we didn’t use calendar trades this year due to the volatile market climate – and calendars have historically always been our highest average gain per trade. Going with mostly lower risk, short-term long straddles and tight long strangles kept us away from trades with bigger losses, but also kept us away from trades with larger gains. While the markets were down 20-30%+ (their worst year since 2008), we consider a 90% return pretty good.
After 11 years in business, SteadyOptions maintains its position as the most stable and consistent options trading service, with 123.2% Compounded Annual Growth Rate. We proved again that we can make money in any market. As one of our members mentioned:
"I would rate the 3% profit for March 2020 as even MORE successful than the 25% profits for Jan/Feb. If someone can make a profit in a month when there was total carnage in the markets, then that shows resilience and security in the trading strategies. It shows that even during a black swan event, the system works, and the account will not be blown."
Our strategies
SteadyOptions uses a mix of non-directional strategies: earnings plays, Long Straddle, Long Strangle, Calendar Spread, Bitterly, Iron Condor, etc. We constantly adding new strategies to our arsenal, based on different market conditions. SO model portfolio is not designed for speculative trades although we might do some in the speculative forum. SO is not a get-rich-quick-without-efforts kind of newsletter. I'm a big fan of the "slow and steady" approach. We aim for many singles instead of a few homeruns. My first goal is capital preservation instead of doubling your account. Think about the risk first. If you take care of the risk, the profits will come.
What makes SO different?
We use a total portfolio approach for performance reporting. This approach reflects the growth of the entire account, not just what was at risk. We balance the portfolio in terms of options Greeks. SteadyOptions provides a complete portfolio solution. We trade a variety of non-directional strategies balancing each other. You can allocate 60-70% of your options account to our strategies and still sleep well at night. In 2022 we use around 30% of our capital on average, with the rest in cash. 90% return that we reported was on the whole portfolio - if we reported return on invested capital (like other services do), we would be reporting over 300% return.
Our performance is based on real fills. Each trade alert comes with a screenshot of our broker fills. We put our money where our mouth is. Our performance reporting is completely transparent. All trades are listed on the performance page, with the exact entry/exit dates and P/L percentage.
It is not a coincidence that SteadyOptions is ranked #1 out of 723 Newsletters on Investimonials, a financial product review site. The reviewers especially mention our honesty and transparency, and also tremendous value of our trading community.
We place a lot of emphasis on options education. There is a dedicated forum where every trade is discussed before the trade is placed. We discuss different strategies and potential trades. Unlike most other services that just send the trade alerts, our members understand the rationale behind the trades and not just blindly follow the alerts. SO actually helps members to become better traders.
Other services
In addition to SteadyOptions, we offer the following services:
Anchor Trades - Stocks/ETFs hedged with options for conservative long term investors.
Steady PutWrite - puts writing on equity indexes and ETF’s.
Simple Spreads - simple spread strategies like diagonals and verticals.
SteadyVol - Volatility based trades. We offer all services bundle at $2,495 per year. This represents up to 63% discount compared to individual services rates and you will be grandfathered at this rate as long as you keep your subscription active. Details on the subscription page. More bundles are available - click here for details.
Subscribing to all services provides excellent diversification since those services have low correlation, and you also get the ONE software for free for 12 months with the yearly bundle.
We also offer Managed Accounts for Anchor Trades and Steady PutWrite.
Summary
2022 was another excellent year for our members. We are very pleased with our performance.
SteadyOptions is now 11 years old. We’ve come a long way since we started. We are now recognized as:
#1 Ranked Newsletter on Investimonials Top Rated Newsletter on Stockgumshoe Top 10 Option Trading Blogs by Options Trading IQ Top 4 Options Newsletters by Benzinga Top 40 Options Trading Blogs by Feedspot Top 15 Trading Forums by Feedspot Top 20 Trading Forums by Robust Trader Best Options Trading Blogs by Expertido Top Traders and People in Finance to Follow on Twitter Top Trading Blogs To Follow by Eztoolset Top Twitter Accounts to Follow by Options Trading IQ I see the community as the best part of our service. I believe we have the best and most engaged options trading community in the world. We now have members from over 50 counties. Our members posted over 125,000 posts in the last 9 years. Those facts show you the tremendous added value of our trading community.
I want to thank each of you who’ve joined us and supported us. We continue to strive to be the best community of options traders and continuously improve and enhance our services.
Let me finish with my favorite quote from Michael Covel:
"Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between."
If you are not a member and interested to join, you can click here to join our winning team. When you join SteadyOptions, we will share with you all we know about options. We will never try to sell you any additional "proprietary systems", training, webinars etc. All our "secrets" are included in your monthly fee.
Happy Trading from SO team!
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By Kim
Performance Dissected
Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance, and exclude commissions, so your actual results will be lower, depending on the broker and number of trades. Please read 2021 Year End Performance by Trade Type for full analysis of our 2021 performance. We have extensive discussions about brokers and commissions on the Forum (like this one) and help members to select the best broker. Please refer to How We Calculate Returns? for more details.
After 10 years in business, SteadyOptions maintains its position as the most stable and consistent options trading service, with 126.6% Compounded Annual Growth Rate. We proved again that we can make money in any market. As one of our members mentioned:
"I would rate the 3% profit for March 2020 as even MORE successful than the 25% profits for Jan/Feb. If someone can make a profit in a month when there was total carnage in the markets, then that shows resilience and security in the trading strategies. It shows that even during a black swan event, the system works, and the account will not be blown."
Our strategies
SteadyOptions uses a mix of non-directional strategies: earnings plays, Straddles, Calendar Spreads, Butterflies, Iron Condors, etc. We constantly adding new strategies to our arsenal, based on different market conditions. SO model portfolio is not designed for speculative trades although we might do some in the speculative forum. SO is not a get-rich-quick-without-efforts kind of newsletter. I'm a big fan of the "slow and steady" approach. I aim for many singles instead of few homeruns. My first goal is capital preservation instead of doubling your account. Think about the risk first. If you take care of the risk, the profits will come.
What's New?
We added a new contributor to our official trades. We introduced few opportunistic trades using a variation of a diagonal spread. We introduced directional butterflies and verticals strategies. We also introduced a new service Simple Spreads to our offerings. What makes SO different?
We use a total portfolio approach for performance reporting. This approach reflects the growth of the entire account, not just what was at risk. We balance the portfolio in terms of options Greeks. SteadyOptions provides a complete portfolio solution. We trade a variety of non-directional strategies balancing each other. You can allocate 60-70% of your options account to our strategies and still sleep well at night.
Our performance is based on real fills. Each trade alert comes with screenshot of our broker fills. We put our money where our mouth is. Our performance reporting is completely transparent. All trades are listed on the performance page, with the exact entry/exit dates and P/L percentage.
It is not a coincidence that SteadyOptions is ranked #1 out of 723 Newsletters on Investimonials, a financial product review site. The reviewers especially mention our honesty and transparency, and also tremendous value of our trading community.
We place a lot of emphasis on options education. There is a dedicated forum where every trade is discussed before the trade is placed. We discuss different strategies and potential trades. Unlike most other services that just send the trade alerts, our members understand the rationale behind the trades and not just blindly follow the alerts. SO actually helps members to become better traders.
Other services
In addition to SteadyOptions, we offer the following services:
Anchor Trades - Stocks/ETFs hedged with options for conservative long term investors. Anchor Trades produced 35.9% gain in 2021, beating its benchmark by 9.0%.
Steady PutWrite - puts writing on equity indexes and ETF’s. Steady PutWrite produced 14.2% gain in 2021.
NEW: Simple Spreads - simple spread strategies like diagonals and verticals. Simple Spreads produced 0.4% return in 2021.
Steady Futures - a systematic trendfollowing strategy utilizing futures options. Steady Futures produced 21.0 gain in 2021. We offer a 5 products bundle (SteadyOptions, Steady Momentum PutWrite, Anchor Trades and Steady Futures) for $745 per quarter or $2,495 per year. This represents up to 57% discount compared to individual services rates and you will be grandfathered at this rate as long as you keep your subscription active. Details on the subscription page. More bundles are available - click here for details.
Subscribing to all services provides excellent diversification since those services have low correlation, and you also get the ONE software for free for 12 months with the yearly bundle.
We also offer Managed Accounts for Anchor Trades and Steady PutWrite.
Summary
2021 was another excellent year for our members. We are very pleased with our performance.
SteadyOptions is now 10 years old. We’ve come a long way since we started. We are now recognized as:
#1 Ranked Newsletter on Investimonials Top Rated Newsletter on Stockgumshoe Top 10 Option Trading Blogs by Options Trading IQ Top 4 Options Newsletters by Benzinga Top 40 Options Trading Blogs by Feedspot Top 15 Trading Forums by Feedspot Top 20 Trading Forums by Robust Trader Best Options Trading Blogs by Expertido Top Traders and People in Finance to Follow on Twitter Top Trading Blogs To Follow by Eztoolset Top Twitter Accounts to Follow by Options Trading IQ I see the community as the best part of our service. I believe we have the best and most engaged options trading community in the world. We now have members from over 50 counties. Our members posted over 125,000 posts in the last 9 years. Those facts show you the tremendous added value of our trading community.
I want to thank each of you who’ve joined us and supported us. We continue to strive to be the best community of options traders and continuously improve and enhance our services.
Let me finish with my favorite quote from Michael Covel:
"Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between."
If you are not a member and interested to join, you can click here to join our winning team. When you join SteadyOptions, we will share with you all we know about options. We will never try to sell you any additional "proprietary systems", training, webinars etc. All our "secrets" are included in your monthly fee.
Happy Trading from SO team!
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By Kim
Well, every trade should be put in context. Before evaluating a trade (or an options strategy), the following questions should be asked and answered:
What is the holding period of the strategy? What is the maximum risk? What is the profit potential? What is the average return? What is the winning ratio? Why holding period is important? Well, making 5% in one week is not the same as making 5% in six months. In the first case we are talking about 250% annualized return. In the second case, 10%. See the difference.
Maximum risk is important because it doesn't make sense to aim for 5% gain if your strategy can lose 50-100%. For example, when you are trading a directional strategy, and the stock gaps against you, the losses can be catastrophic. Since the risk is high, you should aim for higher return to compensate for the risk.
However, if your maximum risk is limited, you can aim for lower return and still get excellent overall performance.
Lets examine our pre-earnings straddles as an example.
As a reminder, a long straddle option strategy is vega positive, gamma positive and theta negative trade. It works based on the premise that both call and put options have unlimited profit potential but limited loss.
Straddles are a good strategy to pursue if you believe that a stock's price will move significantly, but unsure as to which direction. Another case is if you believe that Implied Volatility of the options will increase - for example, before a significant event like earnings. I explained the latter strategy in my Seeking Alpha article Exploiting Earnings Associated Rising Volatility. IV usually increases sharply a few days before earnings, and the increase should compensate for the negative theta. If the stock moves before earnings, the position can be sold for a profit or rolled to new strikes. This is one of my favorite strategies that we use in our SteadyOptions model portfolio.
This is how the P/L chart looks like:
How We Trade Straddle Option Strategy provides a full explanation of the strategy.
Lets take a look at 2022 statistics for this strategy:
Number of trades: 148 Number of winners: 103 Number of losers: 40 Winning ratio: 72.5% Average return per trade: 4.9% Average return per winning trade: 8.7% Average return per losing trade: -10.2% Average holding period: 7.2 days Lets do a quick math. If you can do 10 trades per month, each trade producing 5% gain on average and 10% allocation per trade, your monthly return is 5% on the whole portfolio. That's 60% non compounded annual return, with minimal risk.
To answer the original question: for a strategy that has 70%+ winning ratio and loses on average 10% on losing trades, with average holding period of one week, 5% is an EXCELLENT return. In fact, I would consider it as Close to the Holy Grail as You Can Get.
Related Articles:
How We Trade Straddle Option Strategy Buying Premium Prior to Earnings Can We Profit From Volatility Expansion into Earnings Long Straddle: A Guaranteed Win? Why We Sell Our Straddles Before Earnings
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By Kim
AGGREGATE vs. ROI
When you start looking at the different ways in which trading results are analysed, you’ll notice that they fall into two broad categories, Aggregate Analysis and Return on Investment analysis. Most investment services use versions of Aggregate Analysis which is a slippery slope into results that are at best misleading, at worst, deceptive.
Let’s say, for example, that a service did one trade in the month. They make 10% on that trade. According to Aggregate Analysis, they would then claim that they had made 10% for the month. But did they?
In another instance a service does 4 trades for the month, averaging 10%. They claim, according to Aggregate Analysis, that they made 10% for the month. Really?
And probably the most common example is when they’re calculating yearly returns. Say they did 20 trades for the year and the sum of all those trades (that is, the return for each trade added together) was 100%. Their claim, according to Aggregate Analysis, was that they made 100% return for the year.
How most services report returns
So all Aggregate Analysis does (and this is where its name comes from) is add the results of the individual trades together. And you can understand why a service would do that – it’s not only simple but, most importantly, it shows off their performance in the best possible light. Hey, if you could do one trade and make 10% a month, why wouldn't you subscribe?
Because you haven’t actually made 10%, that’s why. Not in the way that most people would think about trading or investment returns. 10% return assumes that you allocated your whole account to that single trade - which of course is insane.
Let’s assume you have a bank of $10,000 and you’re risking 5% per trade because you’re trading options and options are risky. So that’s $500 maximum per trade. The trade makes 10% which is $50, so you’re out for $550.
What return did you make for the month?
$50 / $10,000 = 0.5%
No, you did not make $1,000, as the 10% return suggested you would. You only made 0.5% because, normally, returns are calculated based on the total investment. And your total investment wasn't just the $500 you put at stake for that particular trade, it was the entire $10,000 you have in your trading account, because while it’s sitting there in your trading account it isn't doing anything else. You can’t have it invested elsewhere earning money for you – it has to be in your trading account so you can practice proper money management and risk allocation.
How SteadyOptions reports returns?
We will always report our returns based on the whole account. The performance of the model portfolio reflects the growth of the entire account including the cash balance. Some services consider a $500 gain on a $1,000 investment to be a 50% return when the whole account is worth $10,000. We consider this to be a 5% return — and that is the honest way of doing the calculations.
We also always report performance based on the same allocation. Imagine a service making 3 trades per month and making 10% per trade. They would report 10% return. That means allocating 33% per trade. But wait - what if you need to adjust the trade? You absolutely need to keep at least 20% in cash for adjustments, so your real return is 8.0%. To add insult to injury, if they make only 2 trades in a certain month, they would still report 10% return. That means allocating 50% per trade. But how could you do that if you usually make 3 trades?
Our Model portfolio is based on starting value of $10,000, compounded monthly and reset every year.
We start with $10,000 each year and compound as the year progresses. Initial full position is $1,000 (10% of the portfolio) and half position is $500 (5% of the portfolio). The allocation for each individual trade is based on 10% of the current value of the performance tracking portfolio (5% for half allocation trades). This means that a 10% allocation when the portfolio is at 10K is smaller than a 10% allocation as the portfolio value increases. For example, a trade closed at the end of 2018 when the portfolio was around 20K had a 10% allocation of around $2000. This is simply following the standard for the performance reporting.
Therefore, the dollar gain/loss for each trade in the performance tracking will likely be different from the dollar gain/loss of the official trade. This is because of both the 10% allocation size for the performance tracking changing as the portfolio value increases and also because option trades cannot be allocated at an exact dollar amount.
For example: FB trade on 12/28/17 (last trade of 2017) produced 40% gain. If we make 40% on $500 it is $200. But we base the positions on the new portfolio value at the end of each month (23,551 at the end of November 2017) so full position is $2,355 and half position is $1,177. 40% of $1,177=$471, so the portfolio increased from 26,014 to 26,485. This is what compounding means.
There might be a slight difference in reported performance and actual performance for the 10k portfolio due to the fact that we cannot buy partial contracts. For example, if we make 10% on a trade, we will always report $100 gain (10% on $1,000 trade), adjusted for compounding. For trades requiring $800 margin the actual gain on $10k portfolio is $80, and for trades requiring $1,200 margin the actual gain is $120, but we will always report $100 gain. There are a lot of other dirty tricks that some services use to push up their numbers. It might include reporting based on "maximum profit potential", calculating gains based on cash and not on margin etc. You can read my article Performance Reporting - The Myths And The Reality for full details.
Still skeptical? Why not to join us and see by yourself how we are different from other services. Please refer to Frequently Asked Questions for more details about us.
If you liked this article, visit our Options Trading Blog for more educational articles about options trading.
Related Articles:
Why Retail Investors Lose Money In The Stock Market How To Calculate ROI On Credit Spreads Are You Ready For The Learning Curve? Can you double your account every six months? Performance Reporting: The Myths and The Reality Are You EMOTIONALLY Ready To Lose? Subscribe to SteadyOptions now and experience the full power of options trading at your fingertips. Click the button below to get started!
Join SteadyOptions Now!
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By Kim
The graph below highlights the fact that while less than 2% of assets were negative in 2017, 90% of assets are negative YTD in 2018 -- they highest percentage since... ever.
2018 was a unique year in many areas. For example, 2018 was the only positive year for VXX since inception. On Monday, February 5, the Dow Jones Industrial Average declined by 1,175 points — its largest point drop in one day ever. VIX more than doubled in a single day — for the first time ever. The VelocityShares Daily Inverse VIX Short-Term exchange-traded note (XIV), a product issued by Credit Suisse, and the ProShares Short VIX Short-Term Futures exchange-traded fund (SVXY), both plunged by 80 percent in the hours after the VIX’s spike.
Those unprecedented events caused many funds to blow up their clients accounts. We covered the The Spectacular Fall Of LJM Preservation And Growth and James Cordier: Another Options Selling Firm Goes Bust, among others.
Many investors also learned in 2018 that “Blue Chip” is a marketing term. Owning these stocks will not shield you from losses. For example, IBM’s share price finished 25.6% lower in 2018, and it is one of many blue chip stocks that were punished by the market in 2018.
Some of the previous market darlings have been also punished hard in 2018. Facebook ended the year 25 percent down for 2018, and Apple was down 7 percent.
There was virtually no place to hide in 2018.
As Charlie Bilello mentions, in 2018, more than any year in recent history, the overwhelming majority of asset classes are down. In the table below of 15 asset classes ranging from stocks to bonds to REITs to Gold and Commodities, only one is higher: Cash.
If you maintain a globally diversified portfolio, this has likely been the worst year for you since 2008, with a 60/40 portfolio (AOR ETF) down just over 6%.
During periods like 2018, many traders started to realize that incorporating options strategies into their portfolios might be not a bad idea. Here is how our strategies performed in 2018:
Steady Options: This is our flagship service, trading variety of non directional strategies like Straddles, Iron Condors, Calendar Spreads, Butterflies, etc. The service produced 129.5% gain in 2018, proving once again that those strategies can make money in any market if implemented correctly. The model portfolio produced 17.3% return in December 2018 while most major indexes were down double digits.
Anchor Trades: An Anchor trades goal is to protect long portfolios and to prevent loss of capital while still generating a positive return in all market conditions. It produced 5.4% loss in 2018, slightly outperforming the S&P 500. If the correction continues, the outperformance should continue, and the hedge should start to kick in. We will be implementing more changes in 2019 to improve the strategy performance in all market conditions.
Steady Condors: This is a variation of Steady Condor strategy managed by the Greeks. It produced 12.9% loss in 2018, mainly driven by two huge corrections in February and October. While it is not pleasant to lose money, it is near impossible to make money with gamma negative vega negative strategy when the indexes move 3-4 SD in a matter of days and volatility doubles. Considering the market conditions, the strategy managed to keep the overall loss under control.
Creating Alpha: The service has two model portfolios, trading mostly VXX and TLT. The strategy produced 13.0% gain in 2018. Considering that it was short volatility during a year when VXX almost doubled and some short volatility fund blew up their accounts, we consider it a remarkable result. The Incredible Winning Trade In SVXY provides some insights on how we trade the strategy. When volatility stabilizes, the strategy should produce much better results.
2018 was a wake-up call for a whole new generation of investors who entered the stock market after 2009 and watched their long portfolios going up year after year. As we have seen, the markets can go down as well. And when they do, you are better to be prepared. This might be just the beginning.
Related articles:
SteadyOptions 2018 - Year In Review The Spectacular Fall Of LJM Preservation And Growth James Cordier: Another Options Selling Firm Goes Bust The Astonishing Story Behind XIV Debacle The Lessons From The XIV Collapse The Incredible Winning Trade In SVXY -
By Kim
I would like to share some of the thoughts expressed in the article and add my own perspective.
Honesty and Transparency Above All
Dan writes:
"As we wrapped up the month of April, the sample account took another loss. Once again, due to RUT. When you take two monthly losses in a row with a high probability trading system, it stings a bit. My goal is always to accurately represent what I’m doing and not pretend to be some guru with a 100% win rate or who conveniently fails to disclose trading results. I firmly believe in honesty and transparency rather than deception or what you’re hoping to hear."
SteadyOptions took three monthly losses in a row, also with a high probability trading system. Yes, it stings. But do you really believe that anyone is able to trade without losses? Whoever claims to not having any losses simply fails to accurately report his performance. Our results are fully documented, every single trade is on the performance page, winners and losers. Similar to Dan, I believe in full transparency. For a trading strategy that produced triple digit returns 5 years in a row, 3 losing months in a row is statistically expected at some point.
Dan continues:
"Armchair traders will say that we should change our strategy or not have been trading the strategy, but changing strategies every time we lose means we effectively have no strategy. Additionally, knowing when a strategy will work or won’t work is 100% impossible unless you’re Goldman Sachs, the Fed (arguably the same as GS), or a high frequency trading firm.
Wise words.
Probability Is Not Certainty
One of the reasons to our performance this year was a new strategy (RIC - Reverse Iron Condor) we introduced and described in Lessons From Q1 2016 Earnings Season article. It was those 4-5 losers that contributed the most to the negative performance. We discussed why this happened in the article and in more details on the forum. This is a high probability strategy - however, probability doesn't mean certainty. Sometimes even high probability strategies produce few losers in a row.
The RIC strategy bets on big post-earnings moves which happen 90% of the time for some stocks. To put things in perspective, NFLX, GOOG and LNKD produced some of the smallest post-earnings moves in history. What are the odds?
Dan mentions that the start of 2016 has been challenging for many, if not most or all, non-directional options traders. We experienced it with our butterfly strategy. After booking 7 winners in a row, our last two trades became big losers due to wild market moves in February-March. Again, those are strategies that we have been using with great success, but no strategy wins 100% of the time. Those two big losers along with few big RIC losers impacted the most our 2016 performance. Rest of the strategies actually performed pretty well.
How could the Fidelity Magellan fund make 29% per year from 1977-1990 while the average investor in the fund lost money? It's because investors always visualize the path to look like "your plan" and when it's not, the powerful impulse of fear and greed wins out (causing inflows around tops and outflows around bottoms).
After a string of losses, what's next?
SteadyOptions produced outstanding returns in the previous 4+ years. To put things in perspective, consider this: if you started investing in the stock market in 2007 based on historical returns of ~10%/year, then watched your money losing half of its value, would you quit? Some people would. Those who didn't, watched their money triple in the following 7 years. If you quit each time few losing months happen, you will just become part of DALBAR statistics. Losses are part of the game, and if you can not endure losses, you should not be trading.
I would strongly advise not to think in terms of "how and when to recover". Just continue executing your trading plan if you believe it still has an edge, and the results will come. This is exactly what we intend to do. Focus on following your trading plan not the short term results of it. Robust strategies are profitable in the long term time frame.
“It is critical to understand human nature if you want to succeed at investing. I’ve seen this time and time again. I’ve had investors who have been with me for years, getting great performance, and then suddenly we have a bad year or a bad couple of years, which we’ve told them about ahead of time, right, because we can always show them that nothing works all the time, and they still bail. Basing their decisions on short-term results is in fact the biggest mistake investors make.” - Jim O’Shaughnessy
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Related Articles:
Are You EMOTIONALLY Ready To Lose?
Why Retail Investors Lose Money In The Stock Market
Are You Ready For The Learning Curve?
Can you double your account every six months?
Performance Reporting: The Myths and The Reality
Lessons From Q1 2016 Earnings Season
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By GavinMcMaster
I was speaking to one trader the other day who had a $20,000 win with his first trade. I explained that this was almost the worst thing that could happen, because he started thinking “this is easy” and “if I can make this much when I don’t know anything, imagine what I can do when I get some more experience.”
Sure enough, this trader blew up his account not long after.
He was taking on too much risk without knowing how to handle it.
For new traders, it is much better to start with a small account size. Even if you have $200,000 available for trading options, just start with $10,000 and get a feel for how things work. Then, when you’ve been trading for a year or so, SLOWLY build your account from there.
You don’t want to jump from $10,000 to $200,000 overnight.
The psychological aspect of trading a $200k account is much different to a $10k account.
All of a sudden a 1% loss has gone from $100 to $2,000.
So, the big question is how much do you need to get started trading options?
I believe there is no real minimum.
You can start trading with $200.
The experience you gain will be with you for a lifetime, so the earlier you get started the better.
That being said, there are certain strategies that will not be available to you with only a small amount of capital.
Iron condors for example will be hard to trade with less than $5,000.
Also, you need to keep in mind that commissions and fees are going to have a much larger impact on a small account.
Ideally, you want to have around $5,000 to $10,000 at a minimum to start trading options.Call Course
HOW TO TRADE OPTIONS FULL-TIME
To become a full-time options trading requires a big commitment both financially and mentally. As the old saying goes, “It’s the hardest way there is to make easy money”.
Trading is hard, there will be good times and bad times. Will you be able to handle the emotional upheaval the bad times can cause?
The first step to figuring out if you can go full-time, is to figure out how much you need to live off.
If you want to make it as a trader, you need to be prepared to live pretty frugally. We’ve all seen the images of hot shot traders driving Ferraris, but that’s not the reality for 99% of traders out there. Most full-time traders I know live very frugally.
First things first, you should audit your spending behaviour and see if there is anywhere you can cut back without sacrificing your lifestyle.
The next step is to build a track record over a few years and figure out what sort of return you can expect on a consistent basis. It would be good to have this track record through a variety of different market conditions. There are a lot of “bull market geniuses” out there right now, but how will they fare during the next bear market?
Let’s say you’re pretty confident that you can achieve 15% per year. If you can live off $50,000, then you need a capital balance of $333,333.33. If your results indicate you can only achieve a 10% return then you need $500,000 but if you can achieve a 20% return then you only need $250,000.
You can see there is a massive variation in the amount of capital needed depending on your returns.
The best bet is to build that track record and figure out what sort of return YOU can achieve. Every trader is different after all.
Also note, that I haven’t met many traders consistently earning over 20% per year (despite what all those internet ads tell you), and I’ve met A LOT of traders in the last 15 years. Your Options Trading
DEALING WITH LOSING MONTHS
Losing months are never fun for any trader, but they are a double whammy for full-time traders. Not only has your account balance gone down, you’ve also had to withdraw funds to live off.
So your account has taken a double hit, and now you need an above average return next month.
Can you handle that kind of stress?
Having a minimum account size that you’re aiming for is a great idea, but it might be worth waiting until your balance is a little higher than you think you need in order to safely handle those losing months.
Some traders will have 12 months’ worth of expenses set aside (outside their trading account) before making the jump to full-time.
Trading is a tough game, and if you’ve got the added pressure of needing to make a certain return to put food on the table only adds to that stress. Having some emergency funds put aside can help you focus on the business of trading.
ADDITIONAL EXPENSES
One thing a lot of people don’t consider is the additional expenses that can be incurred as a trader. Does your current employer cover your health insurance? Do they pay for your smartphone? Do they provide you with a fast computer? A gym membership?
All these things and more will be your responsibility going forward. If your computer breaks and you don’t know how to fix it, you need to pay a computer guy to fix it for you. Previously your employer would take care of all of this. Same goes for your phone etc.
Be prepared for some additional expenses when you work for yourself.
CONCLUSION
Hopefully I haven’t stressed you out too much, but the reality is, you need a significant amount of capital before even thinking about becoming a full-time trader.
Those of you who have $50,000 and think you can go full-time, I’m sorry but it’s just not going to happen. Unless you’re a single guy who can live the backpacker lifestyle in Thailand.
But, trading is one of the most rewarding jobs there is. No boss, work from home, travel, the list goes on.
Stick at it, take it step by step and slowly build your account, and you will get there.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. He likes to focus on short volatility strategies. Gavin has written 5 books on options trading, 3 of which were bestsellers. He launched Options Trading IQ in 2010 to teach people how to trade options and eliminate all the Bullsh*t that’s out there. You can follow Gavin on Twitter.
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By Kim
The assumption is that with careful stock selection, this strategy has a very high probability of success.
I performed extensive backtesting on number of stocks, and the results were very promising. Stocks like AMZN and LNKD showed average gains of 30-35%. However, I also mentioned that this strategy has higher risk than other strategies that we use since earnings are unpredictable. High Probability High Risk is the right definition of this strategy.
Not a good start..
Our first trade was NFLX. The stock has been selected based on its historical moves. It moved 13.7% on average in the last 8 cycles. The options predicted 17% move. The RIC trade was structured in a way that it required only 8% post-earnings move. What are the odds that the stock will move only 0.13% post-earnings? Slim to none if you asked anyone before earnings. Yet this is exactly what happened.
We had a chance to close the trade at small loss or with some luck, even a small gain. But with 3 days left to expiration, we decided to wait. The stock reversed, resulting a 46.9% loss. Not a good start.
The next one was AMZN. This one actually worked not bad. It did not move as much as expected, but still moved enough to produce a 21.2% gain.
The real disaster came with the next two trades, GOOG and TSLA. The stocks moved much less than expected, reversed after the initial move and the trades have lost 70.6% and 100% respectively. With better risk management, all three losers could be closed for a small loss or even a small gain. I posted a full post mortem here (members only forum).
Some members with higher risk tolerance decided to hold longer and were able to book 30-40%+ gains on AMZN and GOOG. In some cases the difference between significant loss and decent gain was a pure luck.
What went wrong?
This strategy is based on probabilities. If a stock moves xxx% in the last 8 cycles, there is a high probability that it will follow the same pattern the next cycle. However, probability is not certainty. There is always a chance that this cycle will be different. What are the chances that ALL 4 stocks will not follow the last cycles pattern? Not high, but this is exactly what happened. This is why you always need to have plan B. You always need to know in advance what to do if the trade does not behave as expected. It's called an exit plan to cut the loss. Instead of trying to cut the loss (and give up some potential gains), we continued holding, "hoping" that the stock will eventually make a move consistent with its historical patterns. It just did not happen.
It all comes to what kind of trader you want to be. Is your goal to limit the losses or to maximize the gains? You cannot have it both ways. Higher gains come with higher risk and inevitably will produce some big losers.
My first priority has always been limiting the losses. This time I tried to go for higher gains instead of limiting the losses, and it fired back big time. To be fair, all four trades could easily produce 30-40% gains with some more luck and more favorable market conditions.
Main lessons
Look for a good setup. Even if a stock is a good candidate historically, the options might be too expensive this time, decreasing your chances. Get out quickly once it becomes clear that the stock did not produce the expected move and the trade is borderline. Most of the time it should be possible to limit the loss to 10-20%. This rule might miss some gains, but at least we won't have catastrophic losses like we had this cycle. Close the short options of the losing side early, especially if there is still couple days till expiration. This way if the stock reverses, the losing side will benefit more. The probabilities will eventually play out, but while they don't, do everything you can to stay in the game. Limiting losses is all that matters. Always follow the rules.
Generally speaking, if you consider this (or any other) strategy too risky, reduce your allocation or don't trade it. In a broader context, I always recommend that new members start with paper trading, then start small and increase the allocation gradually. Prove yourself that you can make money with 10k account for few months, then increase it to 20k etc. Don't jump right away from 10k to 50k or 100k.
What's next?
I feel the pain as much as my members do since I trade the exact same trades in my personal account. This was a very expensive lesson for all of us. However, I believe each lesson should benefit us and make us better traders.
After a losing streak, your first impulse might be to overtrade in attempt to recover the losses. HUGE MISTAKE. The market doesn't know that you have lost money. And it doesn't care. If you tell yourself "now I really need some nice winners to cover for the losses", it's a safe path to more losses.
What separates good traders from bad is how you react to your losses. "There's a difference between knowing the path... and walking the path." - Morpheus. To paraphrase Morpheus sentence, "there's a difference between knowing that there will be losers... and actually experiencing them". In a probability game, it is guaranteed that we will eventually experience a string of losses.
The right thing to do is continue to execute our trading plan that has worked so well for us in the last 4+ years.
Summary
It gets tough when we experience losses or poor performances and that's where most traders quit because in the first place they never accepted emotionally that they are playing a probability game. As soon as a few losing trades and/or a drawdown of any kind occurs they hit the eject button and continue in their search for the Holy Grail strategy that always wins. Jumping from one trading system to another will only lead to more frustration. Only when you will accept emotionally that you are playing a probability game, you will be able to take your trading to the next level.
We present a variety of strategies to our members. Some are more risky than others. Members have different risk tolerance and should take the risk levels of different trades into consideration before trading. Before entering each one of those trades, I made a full disclosure that those are relatively risky trades, so members have all the information to make an educated decision.
To put things in perspective, the current string of losers is our biggest losing streak since inception. I encourage current and prospective members to look at the big picture. The big picture is that SteadyOptions produced over 770% non-compounded ROI since inception. The big picture is our history of 800+ trades and not only the last 10 trades. One bad month does not erase 4+ years of exceptional gains.
Losses are part of the game, and if you can not endure losses, you should not be trading. Your maximum drawdown is ahead of you, not behind you. We will continue executing our trading plan, and those who have the discipline and patience to stay the course will be greatly rewarded.
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Related Articles:
Are You EMOTIONALLY Ready To Lose? Why Retail Investors Lose Money In The Stock Market Are You Ready For The Learning Curve? Can you double your account every six months? Big Drawdowns Are Part Of The Game
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By Kim
Performance Dissected
Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance, and exclude commissions, so your actual results will be lower. Commissions reduce the monthly returns by approximately 1-2% per month, depending on the broker and number of trades.
As with every trading system which uses multi leg trades, commissions will have a significant impact on performance, so it is very important to use a cheap broker. We have extensive discussions about brokers and commissions on the Forum (like this one) and help members to select the best broker. Commissions reduce the monthly returns by approximately 2% per month, depending on the broker. Please refer to How We Calculate Returns? for more details.
2017 was probably our most consistent and steady year.
Our strategies
SteadyOptions uses a mix of non-directional strategies: earnings plays, Iron Condors, Calendar spreads etc. We constantly adding new strategies to our arsenal, based on different market conditions.
SO model portfolio is not designed for speculative trades although we might do some in the speculative forum. SO is not a get-rich-quick-without-efforts kind of newsletter. I'm a big fan of the "slow and steady" approach. I aim for many singles instead of few homeruns. My first goal is capital preservation instead of doubling your account. Think about the risk first. If you take care of the risk, the profits will come.
Looking at specific strategies, pre-earnings calendars were our best performing strategy, producing 13.8% average return with 84% winning ratio. We will continue trading what works the best and adapt to the market conditions.
What's New?
We continue expanding the scope of our trades beyond the earnings trades, Iron Condors and calendars. We are now trading SPY, TLT, VIX, VXX and other ETFs to diversify the portfolio. We will continue refining those strategies to get even better results. This gives members a lot of choice and flexibility.
We launched a PureVolatility portfolio that trades exclusively VIX based products. It is currently included as bonus in SteadyOptions subscription.
We have implemented some improvements to the straddle strategy that reduces risk and enhances returns.
We introduced a Mentoring Program where experienced members help newer members to get up to speed. The mentors provide guidance and answer questions on the forum.
We introduced an "Unofficial Trades" forum where veteran members share their trading ideas that don't make it into the official portfolio for various reasons. There are dozens unofficial trading ideas every month.
We started using the CMLviz Trade Machine to find and backtest some of our trades. This is an excellent tool that already produced few nice winners for us. What makes SO different?
First, we use a total portfolio approach for performance reporting. This approach reflects the growth of the entire account, not just what was at risk. We balance the portfolio in terms of options Greeks. SteadyOptions provides a complete portfolio solution. We trade a variety of non-directional strategies balancing each other. You can allocate 60-70% of your options account to our strategies and still sleep well at night.
Second, our performance is based on real fills. Each trade alert comes with screenshot of my broker fills. Many services base their performance on the "maximum profit potential" which is very misleading. Nobody can sell at the top and do it consistently. We put our money where our mouth is.
Our performance reporting is completely transparent. All trades are listed on the performance page, with the exact entry/exit dates and P/L percentage.
It is not a coincidence that SteadyOptions is ranked #1 out of 704 Newsletters on Investimonials, a financial product review site. Read all our reviews here. The reviewers especially mention our honesty and transparency, and also tremendous value of our trading community.
We place a lot of emphasis on options education. There is a dedicated forum where every trade is discussed before the trade is placed. We discuss different strategies and potential trades. Unlike most other services that just send the trade alerts, our members understand the rationale behind the trades and not just blindly follow the alerts. SO actually helps members to become better traders.
Other services
In addition to SteadyOptions, we offer the following services:
Anchor Trades - Stocks/ETFs hedged with options for conservative long term investors. Steady Condors - Hedged monthly income trades managed by the Greeks. LC Diversified Portfolio - broadly diversified, absolute return, multi-strategy portfolio. All services produced double digit returns in 2017.
We now offer a 3 products bundle (SteadyOptions, Steady Condors and Anchor Trades) for $745 per quarter or $2,495 per year. This represents up to 40% discount compared to individual services rates and you will be grandfathered at this rate as long as you keep your subscription active. Details on the subscription page.
Subscribing to all three services provides excellent diversification since those services have low correlation, and you also get the ONE software for free for 12 months with the yearly bundle.
The LCD is our most diversified and scalable portfolio, I highly recommend that members check it out. It is offered as an added bonus of all subscription plans. We also offer Managed Accounts for Anchor Trades and LCD.
Summary
Overall it has been an excellent year for us. SteadyOptions is now 6 years old. We’ve come a long way since we started, but we still have a long ways to go. We are featured on Top 100 Options Blogs by commodityhq, Top 10 Option Trading Blogs by Options trading IQ, Top 40 Options Trading Blogs by feedspot and more.
I see the community as the best part of our service. I believe we have the best and most engaged options trading community in the world. We now have members from over 50 counties. Our members posted over 4,400 topics and ~100,000 posts in the last 6 years. Those facts show you the tremendous added value of our trading community.
I want to thank each of you who’ve joined us and supported us. We continue to strive to be the best community of options traders and continuously improve and enhance our services.
Let me finish with my favorite quote from Michael Covel:
"Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between."
Subscription is now open to new members for a limited time. If you are not a member and interested to join, you can click here to join our winning team. When you join SteadyOptions, we will share with you all we know about options. We will never try to sell you any additional "proprietary systems", training, webinars etc. All our "secrets" are included in your monthly fee.
Happy Trading from SO team!
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By Kim
Pension Partners published an excellent study about relation between big winners and big drawdowns.
Big Winners And Big Drawdowns
By Charles Bilello of Pension Partners
Apple, Amazon, Microsoft and Alphabet…
All among the largest and most revered companies in the world. All have returned unfathomable amounts to their shareholders. All have experienced periods of tremendous adversity with large drawdowns. When thinking about big winners in the stock market, adversity and large drawdowns probably aren’t the first words that come to mind. We tend to put the final outcome (big long-term gains) on a pedestal and ignore the grit and moxie required to achieve that outcome.
But moxie is the key to long-term investing success, for there is no such thing as a big long-term winner without enduring a big drawdown along the way…
Apple has gained 25,217% since its IPO in 1980, an annualized return of 17%.
Incredible gains, but these are just numbers, masking the immense pain one would have endured over time. Apple investors from the IPO would experience two separate 82% drawdowns, one from 1991 to 1997 and another from 2000 to 2003.
Amazon has gained 38,882% from its IPO in 1997, an annualized return of over 36%. To put that in perspective, a $100,000 investment in 1997 would be worth just under $39 million today.
Breathtaking gains, but they were not realized without significant adversity. In December 1999, the initial $100,000 investment would have grown to $5.4 million. By September 2001, less than 2 years later, this $5.4 million would shrink down to $304,000, a 94% drawdown. It took over 8 years, until October 2009, for Amazon to finally recover from this drawdown to move to new highs.
Bill Gates is the richest man in the world, having amassed his $80 billion fortune as the founder of Microsoft. Microsoft has returned 25% a year over the past 30 years, a remarkable feat.
The path to riches in Microsoft looks deceptively easy on the surface. The calendar year returns from its IPO in 1986 through 1999 were incredibly high and consistent, masking significant underlying volatility. In 1987 Microsoft advanced 123% but would suffer more than 50% decline in October during the stock market crash. It would not recoup those losses for two years, until October 1989. Its largest drawdown in history occurred over a 10 year period, a 70% decline from 1999 through 2009.
Alphabet (formerly Google) has been one of the great growth stories in recent history, returning 26% per year since its IPO in 2004.
It did not achieve these returns, though, in a straight line. Its largest drawdown: a 65% decline from 2007 through 2008.
It should be clear from these four examples that large drawdowns are an inevitable part of achieving high returns. If you haven’t yet experienced such a gut-wrenching decline, then you probably haven’t owned something that has appreciated 10x, 20x or more. Or you simply haven’t been investing for that long.
I know what you’re thinking. There has to be a better way. You want that big juicy return but without the big drawdown. Yes indeed, as does everyone else.
The problem, of course, is in trying to hedge or time your exposure to big winners, you will likely miss out on a substantial portion of the gains. Or your emotions will cause you to sell at precisely the worst time (after a large drawdown). Your volatility and drawdown profile may be lower, but that tradeoff will come at a price. As I wrote earlier this year the price for hedge fund investors seeking lower volatility/drawdown in equities has not been a small one, with the HFRX Equity Hedge Index (an investable index of Long/Short equity funds) posting a negative return since 2005 while the S&P 500 has more than doubled.
Many investors in these funds were seeking the Holy Grail, a high return (often 15-20% in their “mandates”) with little risk (no large drawdowns). They expected their managers to pick the Apples and Amazons of the investment world without incurring the inherent volatility that comes along with it. As we know, that is a complete and utter fantasy.
All big winners have big drawdowns. Accepting this fact can go a long way toward controlling your emotions during periods of adversity and becoming a better investor.
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