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Today I want to talk about risk. If you have looked into some other options services, you probably have seen it: "Learn to Trade in Just 7 Minutes a Week" "This strategy brings money into my clients account weekly. Every Sunday my clients access their accounts and see + + +" "Selling credit spreads is a safe option strategy because we’re combining an option purchase with an option sale resulting with a credit into your account.” "Trading with just $25,000, our members can earn between $2,500 to $3,000 in monthly income" Those are real examples from real services. You won't hear such promises from me. Options trading is not easy and involves a lot of risk. Let me repeat it: OPTIONS TRADING IS RISKY. Let's see some examples of the risks. You buy a call. Then you set a stop loss of 25% and think you are safe. The next day, the stock gaps down 10%, your option gaps down 60% right through your stop loss. You sell a credit spread. You think you are safe because you hedged yourself with another option. But if the stock goes beyond your purchased option strike, you still lose 100% of the margin. You buy a covered call. You think you are safe because you protected your stock. Then 2008 crisis comes. Your stock is down 60%. Your covered call reduced the loss by 5%, but you are still down 55%. I can go on and on, you got the idea. Now let's talk about our earnings plays. The idea is to buy a straddle (or a strangle) and let the increasing IV to offset the negative theta. As you could see from our results, even if it doesn't happen, the loss is usually fairly small, most of the time in the 7-12% range. Sometimes the loss can be 15-20%, and our biggest loss this year was 25% (two 25% losers out of over 100 trades). However, it is possible to lose much more than 25% on those trades. When it can happen? The biggest risk for those trades is earnings pre-announcement or early announcement. It happens when a company releases its earnings earlier than scheduled. It happened to us two times this year: with ORCL and COF. In both cases, we were lucky enough, the stock moved after the announcement and the trades have been closed around breakeven. In fact, some members waited and were able to close the COF trade for 30-50% gain (this was pure luck, and we don't want to rely on luck in our trading). Now, imagine what would happen if the stock didn't move. We owned the COF 55 straddle, the stock was sitting right on the strike, and it was 1 day before expiration. With IV collapsing, and very little time value left in both calls and puts, the risk of 70-80% loss was real. The fact it didn't happen so far doesn't mean it will never happen. Why I'm telling you this and how can you mitigate the risk? My goal is not to scare you. I still think this is one of the safer options strategies. But "safer" is not equal to "no risk". Every strategy has its risks - if someone tells that he found a holy grail, please don't believe him. I want my members to be aware of the risks and to handle them. The most obvious way to control risk is via position sizing. Never allocate more than 10-12% to a single position. One way to reduce the risk is to allocate less capital to weekly trades. By its nature, they are more risky since most of their value is in IV and there is very little time value. Be especially aware of companies that have a history of pre-announcements. On a separate note, I would not trade very large amount of contracts for those trades (or any options strategies). I don't want you to put all (or most) of your trading capital into my service (or any other service). No strategy will work all the time or under all market conditions, so please diversify. Be always aware of liquidity. Always look at the OI (Open Interest) - as a rule of thumb, don't trade more than 10-15% of the OI. Please let me know if you have any questions.