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"A lot of folks just look at the return side of the equation," says Wasif Latif, vice president of equity investments for USAA Investments in San Antonio. "But how smooth was your ride to get to that return?" The Sharpe ratio puts those two pieces together. When building a portfolio, the objective is to merge your plan with reality. We want all the return with none of the risk, and it's why a fraud like Bernie Madoff fooled investors for decades. We desperately want to believe in fairy tales, often self-sabotaging our own returns by pursuing unproven complexity over proven simplicity. It's the triumph of hope over experience. For perspective, a Sharpe Ratio of 1 over a long period of time (decades) is extremely rare for any investment or investment portfolio. Just go out and try to find them. Be skeptical of anyone suggesting they can achieve, or have achieved, extraordinarily high Sharpe Ratio's. Here's an example of the Sharpe Ratio of the S&P 500 since 1990: Annualized Return: 9.36% Risk Free Rate (T-bills): 2.87% Annualized Volatility: 14.61% Sharpe Ratio: 0.44 And here's a picture of that reality, from www.portfoliovisualizer.com. One simple way to increase your portfolio's Sharpe Ratio is with diversification. For example, moving half of a portfolio into a bond index fund, and rebalancing annually, has done a nice job of improving your Sharpe Ratio from 0.44 to 0.70 since 1990. Note how much smoother the portfolio growth would have been. Investors would be well served if the finance industry would start showing people a track record instead of simply providing numbers. Just giving investors a bunch of numbers doesn't help them understand the good, the bad, and the ugly of long term investing. At this point, sophisticated investors could get creative and utilize concepts such as synthetic longs with option combos and momentum filters to further maximize risk-adjusted returns, but those are topics for another post and a point to discuss with a competent investment advisor. The point here is to help you think beyond returns to risk-adjusted returns the next time you review your portfolio or a potential investment. The Sharpe Ratio is one proven way to measure how much pain you've historically had to endure in order to achieve a certain gain. Sharpe ratios work best when figured over a period of at least three years, advisers say. Taking our Steady Condors strategy, you might ask yourself: is 17% CAGR (Compounded Annual Growth Rate) a good return? Well, the answer is - it depends. When this return is achieved with only 15% annual volatility - then yes, it's an excellent return. In fact, it is much better than 25% CAGR with 40% annual volatility. Our Performance Page presents Sharpe Ratios for all three our services. We encourage you to check it and compare our Sharpe Ratios to other services (assuming you can even find this info at other services). 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? If you are ready to start your journey AND make a long term commitment to be a student of the markets: Start Your Free Trial

Trading Drawdowns Peter Brandt explains: "There is a statistical concept known as the “underwater curve.” The underwater curve plots the time periods when new all-time high NAV levels are being registered (represented by “0” on an underwater curve) and the time periods in which drawdowns are either underway or in recovery back toward new all-time NAV levels. Most successful long-term traders are underwater the majority of time. Welcome to trading!" You are in a drawdown state 80% of the time and of that, you are in a severe drawdown state (greater than -20%) 67% of the time Did you know that Warren Buffett has had multiple 30-50% drawdowns in his career? Yet he is considered one of the greatest investors of all times. False claims by wolves in sheep’s clothing Peter continues: "Successful market speculation is one of the most challenging endeavors one can pursue. Yet, promoters of get-rich- quick-and-easy schemes run rampant in the email and internet worlds. If they are not registered with the SEC, FINRA or the CFTC/NFA or are not personally managing assets of investors they are free to make exaggerated claims. Their advertising is extremely appealing and enticing. Many of these training and trade signaling services claim to have REAL trading track records. But, as far as I am able to determine, none are willing to provide an attestation or audit letter from a national or regional auditing firm that has reconciled their IRS tax payments for trading profits, brokerage statements and bank deposits with their public claims." This is so true. Here are some of the claims I have seen from those promoters: I turned $12,415 Into $4,155,000 trading penny stocks. 2,062% Weekly Option Gain. Turn $3,000 Into $100,000 in 4 months. I made 29,233% in 12 months trading high flying Internet stocks. We averaged 127.16% Per Month trading credit spreads. We guarantee that our options trading strategies will make you profitable every month. 99% of my recent 326 stock picks have been winners. Trading $150,000 into $650,000 in 8 months. How Jack turned $250 into $16,000 in Just One Month. +9,651.04% day trading return since Jan. 4 2016. Of course none of them has ever provided any proof of those returns. As Bloomberg article correctly concluded, their self-promotional strategies have made them richer than trading ever did. Some of those guys claim they live in mansions worth tens of millions, trade tens of millions in their personal account, but at the same time sell trading advisories for $50-100/month. Does it make sense to you? Many times they specifically mention (in fine print) that their performance based on "HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS". Does it mean anything when they don't actually trade? Red flags to Watch in Alert Services Moneyshow listed 10 Red Flags to Watch in an Options Alert Service. Here are some of them: The service doesn’t have any losing trades. The service won’t show you their closed trades. The trades have huge risk. The service inflates their ROI numbers. No detailed track record is posted. The performance is not based on real trades. Here is another HUGE red flag: If the promoter keeps bragging that he lives in a multi million mansion, drives a Lamborghini and has a private jet, run away. Really successful traders are modest and humble. They don't need all this BS. There are also a lot of ways to inflate your track record numbers, as I described in my article Performance Reporting: The Myths And The Reality. Some of them include: Basing performance on "Maximum profit potential". Calculating gains based on cash and not on margin Presenting "Cumulative return". Holding losing positions indefinitely. Resetting past returns after a large drawdown. And more. Those who want to find out more details about some of those scammers, I highly recommend reading real and objective reviews by Emmett Moore from tradingschools.org. Emmett also describes how some of them game the system and make their profits look real. Fascinating read, highly recommended. SteadyOptions lists all its trades on our performance page, winners and losers. The details of all trades are available on the forum with screenshots of our fills and can be verified with historical prices. Van Tharp says successful trading/investing is 60% psychology...only 60%? Humans desperately want to believe there is a way to make money with no or little risk. That’s why Bernie Madoff existed, and it will never change. Best luck with your investments. Related articles: Can you double your account every six months? How to Calculate ROI in Options Trading Performance Reporting: The Myths and The Reality Why Retail Investors Lose Money In The Stock Market Are You Ready For The Learning Curve? Are You EMOTIONALLY Ready To Lose? Trading Drawdowns by Peter Brandt Winning Trades and Losing Trades by Peter Brandt Want to learn how to trade successfully while reducing the risk? Start Your Free Trial

Keep in Mind, Stocks Rose 1,100-fold During This Period From Morgan’s article: The S&P 500 rose 1,100-fold over the last 70 years, including dividends. But look what happened during that period: May 1946 to May 1947. Stocks decline 28.4%. A surge of soldiers return from World War II, and factories across America return to normal operations after years of building war supplies. This disrupts the economy as the entire world figures out what to do next. Real GDP declines 13% as wartime spending tapers off. A general fear that the economy will fall back into the Great Depression worries economists and investors. June 1948 to June 1949. Stocks decline 20.6%. A world still trying to figure out what a post-war economy looks like causes a second U.S. recession with more demobilization. Inflation surges as the economy adjusts. The Korean conflict heats up. June 1950 to July 1950. Stocks fall 14%.North Korean troops attack points along South Korean border. The U.N Security Council calls the invasion “a breach of peace.” U.S. involvement in the Korean War begins. July 1957 to October 1957. Stocks fall 20.7%. There’s the Suez Canal crisis and Soviet launch of Sputnik, plus the U.S. slips into recession. January 1962 to June 1962. Stocks fall 26.4%. Stocks plunge after a decade of solid economic growth and market boom, the first “bubble” environment since 1929. In a classic 1962 interview, Warren Buffett says, “For some time, stocks have been rising at rather rapid rates, but corporate earnings have not been rising, dividends have not been increasing, and it’s not to be unexpected that a correction of some of those factors on the upside might occur on the downside.” February 1966 to October 1966. Stocks fall 22.2%. The Vietnam War and Great Society social programs push government spending up 45% in five years. Inflation gathers steam. The Federal Reserve responds by tightening interest rates. No recession occurred. November 1968 to May 1970. Stocks fall 36.1%. Inflation really starts to pick up, hitting 6.2% in 1969 up from an average of 1.6% over the previous eight years. Vietnam War escalates. Interest rates surge; 10-year Treasury rates rise from 4.7% to nearly 8%. April 1973 to October 1974. Stocks fall 48%.Inflation breaks double-digits for the first time in three decades. There’s the start of a deep recession; unemployment hits 9%. September 1976 to March 1978. Stocks fall 19.4%. The economy stagnates as high inflation meets dismal earnings growth. Adjusted for inflation, corporate profits haven’t grown for eight years. February 1980 to March 1980. Stocks fall 17.1%. Interest rates approach 20%, the highest in modern history. The economy grinds to a halt; unemployment tops 10%. There’s the Iran hostage crisis. November 1980 to August 1982. Stocks fall 27.1%. Inflation has risen 42% in the previous three years. Consumer confidence plunges, unemployment surges, and we see the largest budget deficits since World War II. Corporate profits are 25% below where they were a decade prior. August 1987 to December 1987. Stocks fall 33.5%. The crash of 87 pushes stocks down 23% in one day. No notable news that day; historians still argue about the cause. A likely contributor was a growing fad of “portfolio insurance” that automatically sold stocks on declines, causing selling to beget more selling — the precursor to the fragility of a technology-driven marketplace. July 1990 to October 1990. Stocks fall 19.9%. The Gulf War causes an oil price spike. Short recession. The unemployment rate jumps to 7.8%. July 1998 to August 1998. Stocks fall 19.3%. Russia defaults on its debt, emerging market currencies collapse, and the world’s largest hedge fund goes bankrupt, nearly taking Wall Street banks down with it. Strangely, this occurs during a period most people remember as one of the most prosperous periods to invest in history. March 2000 to October 2002. Stocks fall 49.1%. The dot-com bubble bursts, and 9/11 sends the world economy into recession. November 2002 to March 2003. Stocks fall 14.7%. The S. economy puts itself back together after its first recession in a decade. The military preps for the Iraq war. Oil prices spike. October 2007 to March 2009. Stocks fall 56.8%. The global housing bubble bursts, sending the world’s largest banks to the brink of collapse. The worst financial crisis since the Great Depression. April 2010 to July 2010. Stocks fall 16%. Europe hits a debt crisis while the U.S. economy weakens. Double-dip recession fears. April 2011 to October 2011. Stocks fall 19.4%. The U.S. government experiences a debt ceiling showdown, U.S. credit is downgraded, oil prices surge. June 2015 to August 2015. Stocks fall 11.9%. China’s economy grinds to a halt; the Fed prepares to raise interest rates. ____________________________________________________________ I like Morgan’s article, it reminds us that economic uncertainty has always been a regular part of the past along with frequent corrections (10%+ declines) and deep bear markets (20%+ declines). His intention is to help us have a long term perspective. Many times throughout the past seven decades, “this has never happened before”. Yet the US continued to show its strength and resiliency. For some, this is effective. For others, they need something more to help them follow their plan. Dual Momentum In the equities portion of our dual momentum model, we rotate among US Large, US Small, and International stocks based on twelve month relative strength momentum[2]. When all three asset classes have negative absolute momentum[3], we switch into bonds. The idea here is to earn the risk premium in stocks with less exposure to the downside volatility and bear market drawdowns that frequently have occurred in the past and will frequently occur in the future. We emphasize less in an effort to promote proper expectations. Empirical data suggests that dual momentum can be used to earn higher returns with less risk than buy and hold, but it’s not a Holy Grail. Holy Grail strategies tend to fall apart in real time because they were over fit to a limited amount of past data with no economic argument to support why they work. Researchers refer to this as data-mining. With dual momentum, we believe having a proven rules-based method in place to exit equities ahead of the majority of major bear market declines can be all that is needed to help investors have the confidence to stick with their strategy for the long term. And the right strategy for every investor is the one they will stick with. This is key. Since Morgan is using data since 1946, we thought it would be fun to look at showing our dual momentum equities model during this same period (note: international is excluded in this example due to lack of data prior to 1970 although we use it in our actual trading model). Here are a few things to take notice of on both the chart and in the statistics. On the chart, it’s important to notice that our dual momentum approach did NOT outperform an equal weighted buy and hold portfolio in the first thirty years, but slightly lagged or matched buy and hold for most of the period. Thirty years is the investment time horizon for many investors, not seventy. If only relative strength momentum would have been used during this period, outperformance would have occurred. Absolute momentum, or trend following momentum, will take you out of the market at times when doing nothing would have ended up being the better short term outcome. We call these whipsaws, and they are expected as a short term price to pay for risk management that can allow us to sidestep the majority of painful bear market drawdowns. Over the long term, relative strength and absolute momentum tend to contribute fairly equally to excess returns. If the future ends up looking more like this specific period of the past, we still would prefer dual momentum’s slight underperformance as a small cost to pay for the psychological comfort of knowing a plan is in place to protect capital against 50% drawdowns. The total outperformance of dual momentum in the last seven decades comes in the more recent four decades where three separate bear markets of 50%+ losses occurred for buy and hold investors. Two of these occurred in the last fifteen years. This is when absolute momentum does its job of taking us out of equities in the early stages of bear markets. Even during the first thirty year period, dual momentum still produced lower volatility and maximum drawdown[4], and a higher Sharpe Ratio. The period of 1946-1972 produced an annualized return of 12.1% for buy and hold and 11.78% for dual momentum, while over the entire duration dual momentum produced both higher returns and less risk. We make clear to our clients that beating the market isn’t a financial goal, and it would be intellectually dishonest for us to suggest we can guarantee anything about the future. What we can guarantee is that we have vigorously researched a robust investing plan supported by decades of historical data and third party validation. When combined with disciplined execution and realistic expectations, we believe the probabilities are highly in favor of a successful long term investing experience. Investigate carefully Choose wisely Follow faithfully Fama/French (2008): Momentum is “the center stage anomaly of recent years…an anomaly that is above suspicion…the premier market anomaly.” [1] The Credit Suisse Global Investment Return Yearbook shows how both US and World ex-US (in USD) equity risk premiums have far exceeded those of bonds and bills since 1900 forming the portfolio theory basis for focusing on equities in our dual momentum model. [2] Relative strength momentum compares total returns of one asset class to another over an applicable lookback period. The asset class that has risen the most is held for the next month. [3] Absolute momentum is defined as having a total return less than the risk free rate (such as US T-bills) over the applicable lookback period. [4] Maximum drawdown measures total peak to trough loss suffered prior to reaching new equity highs. Maximum drawdown is much more important to most investors than the more frequently mentioned measure of risk known as standard deviation or annualized volatility. Past performance doesn’t guarantee future results. The concepts of dual momentum were pioneered by the research of Gary Antonacci. We recommend using his best-selling book and blog as an additional resource for studying momentum. This is a hypothetical model intended to show the efficacy of dual momentum, and is not intended to represent specific investment advice. Data is gross of any applicable taxes and transaction costs, and investors should always consult with their tax advisor before investing. All investments carry risk, may lose value, and are not FDIC insured. We provide the hyperlink to Morgan Housel’s article as a convenience and do not endorse nor guarantee the accuracy of any information he has presented. Feel free to contact us if you’d like to discuss your specific situation further. We welcome every opportunity to discuss how we could add value to your financial life. Related Articles: Buy The Winners: The Power Of Momentum Momentum – The Premier Market Anomaly

Yet it’s well known how difficult it is for a fund manager to beat it over the long term. A big part of the reason why the S&P 500 beats most fund managers is because of its simple discipline. It continues to apply the same set of rules over and over again. The whole concept of “smart beta” shows numerous ways to create indices that would have beat the market cap weighting process of the S&P 500 over long periods of market history. Perhaps the greatest form of alpha is the ability to follow a simple approach with rigid discipline over the long term. Howard Lindzon of StockTwits recently shared his top ten takeways Stocktoberfest conference. Here was #5: 5. Any system of investing is better than NO system of investing. As Jerry Parker from Chesapeake pointed out to me that is why the $SPY beats most. It may be a rudimentary system for investing in stocks, but it is a system. I found this Forbes interview with Jim O’shaughnessy on February 23, 2009 particularly interesting. Keep in mind, February 23, 2009 was within a couple weeks of the market bottom. The Dow was trading around 7,000, more than 50% below its October 2007 high. Predictions for Dow 5,000, 3,000, even 1,000 were being made. With recency bias clouding our better judgement, many investors saw this as all but certain and needed to do something to intervene. The fear in the marketplace was unbelievable and people were in the process of officially devastating their life savings by abandoning their long term plan and selling towards the bottom. This is also a great example, which I wrote about here, on why you can’t rely exclusively on historical data. Given enough time, your maximum drawdown is always ahead of you. Yet read how Jim is telling the exact same story as he always does as a true quant, whether at new highs, or in this case, during a record drawdown. Keep it simple, trust your exhaustive research and data, and follow your plan. It’s simple, but not easy. On the importance of staying simple and using only easy-to-understand ratios, O’Shaughnessy says: “If the math gets higher than algebra, it’s pretty certain you will lose your money. If you look back to the most spectacular blow ups in history, you can always tie them to a couple things: They were extraordinary complicated strategies that maybe even the practitioners themselves didn’t understand and they were overleveraged.” Although his approach is purely quantitative, O’Shaughnessy also does emphasize the importance of having the right mindset when putting money to work in the stock market. In particular, he tells investors to stay focused and disciplined. The problem for many investors, he says, is that they hit down markets like the one we’re in now and, suddenly, they change up their strategies. This is a terrible mistake and one that ends up costing people a lot of money. The smarter way to invest, he says, is to choose a proven method of separating winners from losers and then adhere to it, in good times and bad. “Generally speaking, when things are going against you, as they inevitably will, you have to stick to the underlying strategy,” he says. “Only by doing so will you be around for when it comes rebounding back.” It’s also just as critical, he believes, to try to remain emotion-free. This is obviously easier said than done as 24/7 news broadcasts second by second tumult in the markets. But only those investors that can distance themselves from such emotions and passions can benefit, in the long term. “Fear, greed and hope have destroyed more portfolio value than any recession or depression we have ever been through,” O’Shaughnessy says. “By relying on the statistical information rather than a gut feeling, you allow the data to lead you to be in the right place at the right time. To remain as emotionally free from the hurly burley of the here and now is one of the only ways to succeed.” As Charlie Munger said in his BBC Interview During the Financial Crisis: "If You Can’t Stomach 50% Declines in Your Investment You Will Get the Mediocre Returns You Deserve." Jesse Blom is a licensed investment adviser and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 achieving multiple industry achievements including qualifying membership in the Million Dollar Round Table for 5 consecutive years. Membership in this prestigious group represents the top 1% of financial professionals in the world. Jesse has a Bachelor of Science in Finance from Oral Roberts University.Jesse is managing the LC Diversified portfolio. Start Your Free Trial

That feels logical, as two years can seem like an eternity for clients that tend to check their account balances almost every day. On a separate side note, I believe this behavior is rooted in an investors tendency to not completely trust their advisor which is legitimate in a field chock-full of conflicts of interest and bad advice which can largely be eliminated by a fiduciary standard. But historical and statistical evidence suggests that even the most efficient strategies and portfolios are almost guaranteed to have a period of losses or no growth that last at least a couple years during any investor’s lifetime. Nobody can predict when that will happen. Does the fact that Warren Buffett underperformed the S&P 500 by almost 100% and the Nasdaq 100 by more than 350% for almost a two year period matter, or does this matter? Source: http://awealthofcommonsense.com/buffetts-performance-by-decade/ Obviously the long term performance is what matters, yet investor’s actions regularly tell a different story and unfortunately this will never change. Are you mentally prepared to experience significant periods of underperformance? It’s inevitable. In fact, just about everything has underperformed the last few years relative to US stocks. Living through a track record is a LOT different than reviewing one on paper when you know how the story ends. In our firm we believe pretty good is better than constantly pursuing perfection, and maximum risk-adjusted returns come from proper portfolio construction instead of concentrated bets. Every strategy, including Warren Buffett’s, has periods that appear where it’s broken. For us mere mortals with a plethora of emotional baggage and behavioral biases that come attached to our money, I contend the best, perhaps even the only way towards a successful investment experience, is through diversification. “The most powerful tool an investor has working for him or her is diversification. True diversification allows you to build portfolios with higher returns for the same risk. Most investors…are far less diversified than they should be. They are way over-committed to stocks.” -Jack Meyer “Thus timing, and in particular the selection of the beginning point and end point for studying a performance record – plays an incredibly important role in perceptions of success or failure” -Howard Marks “No strategy is so good that it can’t have a bad year or more. You’ve got to guess at worst cases: No model will tell you that. My rule of thumb is double the worst that you have ever seen.” -Cliff Asness, AQR Jesse Blom is a licensed investment adviser and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 achieving multiple industry achievements including qualifying membership in the Million Dollar Round Table for 5 consecutive years. Membership in this prestigious group represents the top 1% of financial professionals in the world. Jesse has a Bachelor of Science in Finance from Oral Roberts University.Jesse is managing the LC Diversified portfolio. Start Your Free Trial

Background An Anchor trade's goal is to prevent loss of capital while still generating a positive return in most market conditions. This strategy began with the premise that it must be possible to hedge against market losses without sacrificing all upside potential. The Anchor strategy's primary objective is to produce positive returns on an annual basis. How? Step 1 - Purchase ETF's highly correlated to the S&P 500 Step 2 - Fully hedge with S&P 500 put options Step 3 - Earn back the cost of the hedge over the course of a year You can read the full description here. Performance Since the strategy went live in 2012, Anchor has produced an 11.5% CAGR (Compound Annual Growth Rate) with 9.1% volatility, resulting in a 1.27 Sharpe Ratio. You can see the full performance here. In the same period of time, the S&P 500 index (including dividends) produced a 14.5% CAGR, with 10.7% volatility, resulting in a 1.36 Sharpe Ratio. Anchor has met its performance goal of lagging the S&P 500 by up to three percent in positive markets. Anchor performance includes commissions and fees. Since you cannot buy the S&P 500 directly, real life performance of your investment in S&P 500 will be reduced by commissions and fees, so the real life difference will be probably closer to two percent. Observations The S&P 500 has substantially outperformed it's long term average CAGR and Sharpe Ratio since 2012. It historically has a Sharpe Ratio of about 0.3 going back to 1926, yet has a Sharpe Ratio in excess of 1.3 since 2012. One universal principle in markets is reversion to the mean, which will eventually catch up to the S&P 500. The Anchor strategy could have potentially preserved capital during crisis periods such as 2008. In real trading, you can get a feel for how the option hedge can protect your portfolio by looking at August 2015 and January 2016, where the S&P 500 was down 5-6% while Anchor avoided losses. The goal of the Anchor strategy is to provide protection from bear markets and unpredictable surprise events. The S&P 500 has experienced four years of negative performance since 2000, for a cumulative loss of more than 80%, and multi standard deviation downside price shocks occur much more frequently than probability distributions predict. The day following "Brexit", the S&P 500 moved 4.7 standard deviations which is expected to occur less than once a century based on probability distributions, yet there has been close to 50 one day losses of 4 standard deviations or more since 1950. Markets can't be contained to probability distributions or academic theories, just ask Long Term Capital Management. The strategy is continuously being improved. For example, we switched from 2 week short options to 3 weeks. That has materially improved results, and would also have improved backtested results. Conclusion The impact of minimizing or potentially even avoiding losses in down markets should not be overlooked both mathematically and psychologically. Consider the following table, which displays the gain required to recover a prior loss. The key to the success of the strategy is combining exposure to market gains while permanently hedging against downside risk. The strategy is designed to participate in most of the market's upside while avoiding most of the market's downside. Easier said than done, but we are certainly pleased with the results to date on both a relative and absolute basis. Is the Anchor Strategy the Holy Grail? The answer is NO - in fact, no single strategy is. But we continue to improve the strategy designed to give investors the courage they need to invest confidently in the stock market for the long term. Start Your Free Trial

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. 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 expectations. We 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?

I received this very upsetting note yesterday. Dear Mark, I read in your book about volatility as one of the important factors of the price of an option I have a few question about, what you wrote. Implied Volatility vs. Future Volatility 1) In your book you say that volatility is unknown and different traders can get different values… but I have account with 3 brokers and they show the same (or very similar price) for the volatility… Future volatility is unknown. However, the market makers must make some volatility estimate or else they would be unable to establish bid and ask quotes. Your brokers are showing the IMPLIED VOLATILITY (IV) OF THE OPTIONS. They do not make estimates for the future volatility. They use the implied volatility because that is the best current estimate for future volatility. And that estimate changes, depending on many factors, including order flow (supply and demand). IV is often the best value we can use – unless you want to make your own estimate – and I doubt you want to try that. By definition IV is the volatility estimate that makes the fair value of any option equal to whatever price it is trading at in the marketplace. I was writing about people who make their own volatility estimates. They are the ones who cannot agree on what the volatility estimate should be and they are the traders who have different opinions on the value of an option. Those are the traders who could believe an option to be over- or under-valued in the marketplace. Not the brokers. They do not have an opinion. You will probably never make an estimate, but others can and do. You and I usually trade based on the assumption that the current IV and the current option prices represent fair value. But we can decide to go longer short vega, based on the current ‘fair value’ if we believe it is too high or too low. You can trade volatility if you so desire. Selling Leveraged ETFs Options 2) Since a lot of volatility, means that I can sell “expensive” options, doesn’t it make sense to sell options on Leveraged ETFs, such as FAS or FAZ, that have a lot of volatility? NO. If the underlying asset is VOLATILE then the underlying asset will undergo big price changes. If you sell options on stocks that make BIG MOVES, there is a good chance that the options will move ITM and that you will lose money. To compensate for the risk of selling options on volatile stocks (or ETFs), the options are priced higher. In other words, you get a higher premium, but that premium is justified. Your question frightens me. The pricing of options is a very basic concept. It may not be easy for us to know whether an option’s price is fair, but we have to accept the fact that the option premium that we see is the premium we can trade. If we choose to sell that premium, we do so believing that we have an edge. Volatile stocks have options with a high premium. Non-volatile stocks have options that carry much smaller premium. Surely you know that is true. When the stocks are volatile, option buyers are willing to pay higher prices because there is a decent chance the stock will undergo a significant price change that favors the option buyer (assuming he correctly bought puts or calls). Low-volatile stocks trade with much smaller premium because they are not likely to move far. People do not pay much for options when there is a high probability that the stock price will not vary too much during the lifetime of the option.. You must understand this. There is no way you can survive if this concept is not understood. Selling high-priced options because they are high-priced is foolish. The options carry a higher premium for a reason. What we want to do – and it is quite difficult – is to sell options when the implied volatility is higher than the future volatility of the stock will be. In other words, option buyers are paying for future volatility of the underlying. If that underlying asset is less volatile than expected, then we collected more premium than our risk deserved. Thus, we stand to profit over the longer term. But we do not know the future and we do not KNOW which options are priced too high. The bottom line is: It is wrong to believe that you can earn more money by selling options on volatile stocks or a leveraged ETF. You cannot trade options if you do not understand this principle. and last question Should I Use Portfolio Margin? 3) Do you think that a “portfolio margin” account, with more leverage, is a good idea? I would use all the leverage to sell options with 95% or more chance to expire worthless (and with the 5% I either get assigned, or roll out). Is this plan too risky? Portfolio margin allows traders to take a lot more risk. Reg T margin is far more limiting. I prefer Reg T margin because it removes the temptation for a trader to get in over his head. Yes, a lot more risk. If you are positive that you can handle the risk; if you are certain that you will NEVER, EVER allow yourself to have too much exposure to a big loss; if you are already a consistently profitable trader; if you are disciplined and will not use all available margin (above, you suggest that you would use all available leverage), or anywhere near all of it; then maybe you can use portfolio margin. But not now. Not if you do not understand the most elementary concept mentioned above. Let’s examine your question. You want to sell 5-delta options and expect to win 95% of the time. You plan to roll out or accept assignment on the 5% of the trades that end up with your short option being in the money. If that is true, then the plan is to hold all shorts until they expire worthless. All by itself that adds to risk. Some of those short options will be worth covering before they expire – just to minimize risk. You also must understand that you will not win 95% of the time unless your plan is to hold through expiration and not apply any risk management. But if you plan to roll out some trades that are not working, that already tells you that the 95% success expectation is just too high. Many times you will get too frightened to hold the trade and be forced to cover because even rolling out will leave you with a dangerous position. Consider this: You will not like the size of any loss. When you sell an option at a low price, it becomes very difficult for the undisciplined trader to pay 10 times as much to cover the short. Rolling out will not help. If your plan is to roll to a new 5-delta option, that will be a costly roll. If you plan to roll out for even money, then the short option will have a delta much higher than 5, and you will be taking more risk than your plan calls for. Please consider all aspects of your plan before taking action. So will you do it? Will you have the discipline to cover your shorts and lock in a good-sized loss? If the answer is not ‘ABSOLUTELY, YES’ then you cannot afford to use portfolio margin. Nor can you expect to make money by selling 5-delta options. That strategy is viable only for the disciplined (and experienced) trader. In my opinion, selling those low-delta options is not a good plan. There will be a day when those 5-delta options KILL you. It will not occur too often, and it will not necessarily come soon, but that day will arrive. There will be a big gap opening with a huge IV increase. There will be a day when those options you sold for 40 cents or one dollar will be trading at $20. At that point, the option’s delta easily could be between 35 and 60. Your account will be in deficit and you will be forced to buy back all of those options and your account will be worthless and you will owe your broker hundreds of thousands of dollars. If that sounds bad, the reality is even worse. The bid ask spreads would get very wide and your broker will buy those options by entering market orders. They will not ask your permission. You would be blocked from trading and your positions would be closed. Thus, you would not only pay that exorbitant implied volatility, but you would pay the ask price on a wide market. See for yourself. Lower the underlying price by 20%, double IV and see how much those options are worth And doubling IV may not be enough. IV is so are low right now that tripling of IV is a reasonable possibility. DO NOT DO THIS. No portfolio margin, and more importantly, if you do sell 5-delta options, you MUST watch position size. That is most important. I know that you do not want to believe that these warnings apply to you. But they do. I wish you well. But you scare me. Mark Mark Wolfinger has been in the options business since 1977, when he began his career as a floor trader at the Chicago Board Options Exchange (CBOE). Since leaving the Exchange, Mark has been giving trading seminars as well as providing individual mentoring via telephone, email and his premium Options For Rookies blog. Mark has published four books about options. His Options For Rookies book is a classic primer and a must read for every options trader. Mark holds a BS from Brooklyn College and a PhD in chemistry from Northwestern University.

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 Start Your Free Trial 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

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. Start Your Free Trial 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

Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance. Performance Dissected It is important to mention that those numbers are pre-commissions, so your actual results will be lower. 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 2-3% per month, depending on the broker. Please refer to Performance Dissected topic for more details. For the first time, I also provided an update on My 2015 Personal Account that produced 80.2% return, after commissions, trading exclusively SteadyOptions and Steady Condors strategies. November was our only losing month in 2015. Our biggest loser was 60%, and only 11 trades have lost more than 20%. 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. We continue expanding the scope of our trades beyond the earnings trades, Iron Condors and calendars. We are trading SPY, GLD, TLT, VIX 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. Looking at specific strategies, VIX trades were our best performing strategy in 2015, producing 28% average return with 90% winning ratio. Pre-earnings calendars were big winners as well, producing 15% average return with over 80% winning ratio. We will continue trading what works the best and adapt to the market conditions. 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. 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. 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. 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 closed to new members. If you are not a member and interested to join, you can join the waiting list and we will notify you when the subscription re-opens.. 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! Start Your Free Trial

Our performance reporting is on the whole account and based on real fills. We put our money where our mouth is. Our members already know that we execute all trades that we share with members in our personal accounts. You can read here what our members think about us. But today I'm going to take one more step toward complete transparency. I'm going to provide an additional reference to the current and prospective members and share with you my personal account performance. I'm going to show you the summary of my actual 2015 account statement, directly from my broker. Here it a screenshot from my broker's 2015 statement: Just to be clear, I have several accounts trading/investing different strategies, but this account is exclusive to trades that I share with my SteadyOptions and Steady Condors members. It uses a very conservative allocation of 5-7% for SteadyOptions trades and 15-20% allocation for Steady Condors trades, leaving around 30-50% of the account in cash on average. I followed the same allocation guidelines that I share with my members and started with account value consistent with what majority of our members allocate to our services. As you can see, the account return was 80.2% in 2015. You might have the following questions after seeing my performance: Q: Why are you revealing your personal performance? A: My goal is to show you that SteadyOptions performance is not a myth or hypothetical performance. By showing you my real numbers, I want you to see what is possible to earn by trading options if you have the patience, the discipline and the perseverance. I also want to silence the doubters who claim that I don't trade with real money. Q: Will I be able to replicate this performance if I subscribe to SteadyOptions and/or Steady Condors? A: That depends. If you just started trading options, then most probably the answer is NO. It will take time. I know this is not what people want to hear, but that's the truth. If you have some experience and spend the time to learn our strategies, then I see no reason why not. In fact, some of our members do better than our official performance. Q: Is 80% per year really that good? A: You might see sales pages showing you 200%+ returns on some cheap options they bought. But what they don’t tell you is that those trades happen once in a while and are not consistent. The real question is not how much you made on few isolated trades, but how much you made on the whole account. Performance Reporting: The Myths and The Reality shows a lot of examples of performance manipulation, so be careful. Q: How much risk did you take to achieve this performance? A: Trading is a risky business in general. However, we implement advanced techniques to reduce risk. For example, the Steady Condors trades are hedged and protected much more than "standard" Iron Condor trades. In SteadyOptions portfolio we balance the trades in terms of the Greeks to reduce risk. Position sizing also plays a big role. But those techniques can only reduce risk, not eliminate it. This is why I still don't recommend allocating more than 20-30% of your net worth to options trading, especially if you have big portfolios. Q: Can you achieve similar performance with $1,000,000 portfolio? A: NO. It is a well known fact that achieving very high performance numbers becomes more difficult as your account grows, for various reasons. One of the issues is liquidity, and this is why I don't recommend allocating more than $100,000 to SteadyOptions. Q: What is the impact of commissions on performance? A: As you can see, even with cheap broker, I still paid over $16k in commissions in 2015, which reduced the performance by ~20-25% per year. Commissions is the cost of doing business, but you should do whatever is possible to reduce them. Brokers and Commissions discussion can help you to pick the right broker. 2020 update: with availability of brokers like RobinHood, Tradier etc. the impact of commissions is much less than it used to be. Q: Why your performance page presents much higher returns for SteadyOptions service compared to your personal account performance? A: Few reasons: The performance on the performance page excludes commissions. My account traded mix of SteadyOptions and Steady Condors strategies and Steady Condors performance is lower. I kept relatively large portion of the account (around 30-50%) in cash most of the time. I might use slightly different allocation. I might execute some trades in my personal account that I don't share with the members, for various reasons (liquidity, higher risk etc.) Generally speaking, my personal account performance might be different from the official performance for the reasons outlined above. Q: Do you trade other strategies besides SteadyOptions and Steady Condors? A: This specific account is exclusive to SteadyOptions and Steady Condors strategies only. I have other accounts (retirement account, corporate account etc.) where I have longer term investments, including Anchor Trades strategy. I also have some Real Estate investments. Q: I would love to join, but I have a full time job and no time to dedicate to trading. Why don't you offer auto-trading? A: SEC considers newsletters that engage in auto-trading to be investment advisers, and I am not licensed to be an investment adviser. So most newsletters that engage in auto-trading are breaking the law and are exposed to lawsuits like this one. You can read more details here. Please let me know if you have any questions. I invite you to try our services and see how we can help you to become a better trader. I'm not going to promise you the Holy Grail. What I can promise you is that if you are willing to work hard and learn the craft, the sky is the limit. Watch the video: Start Your Free Trial *** Free trial is for new members only ***

As I’ve done the past few years, I’ve broken down the Steady Options 2015 trade performance by trade type (there are a few open trades but these may not be closed until January). Here’s are this year’s stats along with some comments from my perspective... Pre-Earnings Calendars 51 Trades – 41 win, 10 loss (80% win) Average gain 12.67% Comments: Again one of our best performing trade types. Basically the same number of trades as last year (51 vs 48). We were probably on pace to have significantly more of these trades than last year, but large volatility jump in the Fall made entry prices not good from a historical perspective and therefore not many of these trades were placed during that timeframe. Win rate up from last year (80% vs 71%) Average gain down slightly from last year (12.67% vs 13.80%) Note that there are a few non-earnings calendars in here (like GOOG), but I included all company calendar trades in this section. Pre-Earnings Straddles/Strangles 34 Trades - 23 win, 11 loss (68% win) Average gain 2.61% (3.88% if you exclude the large QIHU loss) Comments: Count of these trades way down from last year (74 down to 34). Avoided trades on low IV stocks that were the poorest straddle/strangle performers in past years. Win percentage and average gain both up from last year’s percentages of 62% and 2.54%. Despite modest gains on straddles/strangles compared to some of the other trade types, these trades receive a lot of discussion in the forums. Rolling strikes as the stock price moves around is a big topic – note to some of the newer members, rolling does not lock in profits! (it may do so on one leg of the trade but the overall trade may still be down). There is no right answer to the rolling vs not rolling question as sometimes each will perform better. Index trades (RUT, SPY, SPX, TLT) 31 Trades - 21 win, 10 loss (68% win) SPY/TLT Combo: 6 win, 4 loss, avg loss -0.32% SPX and RUT Iron Condors: 3 win, 1 loss, avg gain +4.95% SPX and RUT Calendars: 5 win, 1 loss, avg gain +4.73% SPX Butterfly: 7 win, 4 loss, avg gain +3.49% Average gain 2.69% Comments: Large market moves this Fall were not good for these trades. When the market was relatively calm these trades performed well, when the market was volatile they performed poorly. VIX trades 11 trades - 10 win, 1 loss (91% win) Average gain 28.15% Comments: Overtook pre-earnings calendars as our best performing trade type this year. 8 of the 11 trades were VIX calendars and the ability to place these trades is very broker-specific. If you are not using IB ($150 margin per calendar) other brokers margin requirements are much higher and some will not even allow you to open the trade. I fear that many SO member missed many of these trades because they use brokers other than IB, which is a real shame as the stats clearly show that these trades were the best performers.

As you noticed, we closed our December trades two weeks before expiration, to reduce the negative gamma risk. We recommend reading the Why You Should Not Ignore Negative Gamma article to understand the gamma risk. This is another thing we do differently from many other services. We open our trades early and close them early. We would typically open the trades 6-8 weeks before expiration and close them 2-3 weeks before expiration. Here is the P/L chart for 2008-2015 (live trading began in late 2012 as shown on the performance page): The chart presents non-compounded P/L on 20k account, including commissions. Total P/L since Jan. 2008 is $38,502 or 192.5%. Anyone who has traded more than a handful of non-directional iron condors knows they can be extremely challenging in a trending market potentially causing a lot of stress, large drawdowns, and significant losses. They aren't the Holy Grail (no single strategy is). It’s normally relatively easy to make money with high probability condors 9 or 10 months per year when the markets are range bound…But many condor traders give back most or all of their profits during the usual 2 or 3 losing months each year when the markets do make large moves because they lack a detailed plan for risk management. “I would have had a great year if it wasn’t for one or two months”. If you trade condors without a detailed risk management plan you will eventually experience large losses. Since our trading strategies naturally have a high expected monthly win rate our risk management objective is to avoid giving back much more than one month’s average earnings during our losing months. This is why we introduced the Steady Condors. We tweaked the traditional Iron Condor strategy to address the issues and make the P/L curve much smoother. As we always say, you can't control returns, only manage risk. I really dislike when people make trading sound like if you are really good at it you somehow have control over your returns. The only thing you can do is build a winning strategy (better yet, multiple winning strategies with low correlation) and then manage your risk and position size so that you stay in the game long enough to let your edge work out over the long term. What risk management does is lower your win rate in order to maintain positive expectancy. It often sounds counter intuitive to new traders to learn they need to win less in order to make more money (or make any money at all) over the long term. We urge you to be very cautious about any service that only promotes a high win rate. Win rate alone tells you absolutely nothing. How many times do you get emails about a "options strategy with 99% winners" and "make $xxxx dollars per month". Unfortunately, humans desperately want to believe there is a way to make money with virtually no risk. That’s why Bernie Madoff existed, and it will never change. It is also important to remember that Steady Condors reports returns on the whole portfolio including commissions. Our 20k unit will have two trades each month (the RUT MIC and the SPX MIC). With 20% cash, we will allocate ~$8,000 per trade. If both trade made 10%, that means $800 per trade or $1,600 total for the two trades. In our track record, you will see 1,600/20,000=8%. Other services will report it as 10% (average of the two trades). In addition, our returns will always include commissions. If you see 5% return in the track record, that means that $100,000 account grew to $105,000. Plain and simple. If we were to report returns on margin as most other services do, our returns would be about 50-60% higher. For example, 2015 return would be 80.8%% and not 46.7%. Another point worth mentioning is rolling. If you look at some services, you might see few last months of data missing. That would usually mean that the trades were losing money and have been rolled for few months, to hide losses. In some cases, the unrealized losses can reach 25-50%. Rolling might work for some time - till it doesn't, and unrealized losses become realized. By then it's usually too late. It is very important to know how returns are reported, in order to make a real comparison. Always make sure to compare apples to apples. As a reminder, Steady Condors is a strategy that maximizes returns in a sideways market and can therefore add diversification to more traditional portfolios. Selling options and iron condors can add value to your portfolio. They aren't the holy grail. Just like everything else. Both our Anchor and 15M strategies (available on the LC Diversified forum as part of any membership) have had negative correlation of monthly returns to Steady Condors and therefore have blended together nicely for a diversified and relatively low maintenance portfolio. Click here to read how Steady Condors is different from "traditional" Iron Condors. Related Articles: Why Iron Condors are NOT an ATM machine How to Calculate ROI in Options Trading Why You Should Not Ignore Negative Gamma Can you double your account every six months? Can you really make 10% per month with Iron Condors? Want to join our winning team? Start Your Free Trial

Since I started an options trading newsletter over 3 years ago, I met a lot of interesting people. I also learned a lot about human psychology. I would like you to take a look at this article. It provides some good perspective about Wall Street and human emotions. Click here to view the article

If we were as impatient about gardening as we are investing: Sam plants some seeds in his backyard. He checks back four hours later. Nothing. He digs them up and replants them. Four hours. Still nothing. A week later he is dismayed that he has no oak trees in his backyard. He calls oak trees a scam. If we checked our physical health as much as we check our portfolios: Ryan wakes up in the morning and checks his blood pressure. He checks it again before breakfast, during breakfast, after breakfast, and before leaving for work. When he gets to work he checks his cholesterol, again before lunch, and twice before bedtime. During one of the four times he weighs himself during the day the notices he lost a quarter of a pound. He calls his doctor to find out what the hell is going on. Does it apply to people who jump from strategy to strategy, from service to service, in a desperate search for a "holly grail"? Do you have unrealistic expectations regarding your potential returns? Maybe you are just not ready for the learning curve that the service requires? You decide. Humans. Van Tharp says successful trading/investing is 60% psychology...only 60%? Humans desperately want to believe there is a way to make money with no or little risk. That’s why Bernie Madoff existed, and it will never change. Best luck with your investments. Related articles: Can you double your account every six months? How to Calculate ROI in Options Trading Performance Reporting: The Myths and The Reality Why Retail Investors Lose Money In The Stock Market Are You Ready For The Learning Curve? Are You EMOTIONALLY Ready To Lose? Start Your Free Trial

Today we closed our VIX calendar trade for $0.80 credit, after opening it just two weeks ago for $0.25 debit. What percentage gain did we make? This is not a tricky question. Well, maybe a little bit. Any high school student would tell you that 0.80/0.25=220% gain. Correct? Not so fast. Click here to view the article

The problem is that VIX calendar is not a "standard" calendar where the only capital requirement is the debit paid. Your risk is not similar to regular calendar spread. You may lose more than the debit you pay for. The reason is that VIX options are priced based on VIX futures, not VIX cash index. Regular long calendar spreads don’t require margin. Your cost is the debit you pay. However, VIX calendar spreads requires margins. How to calculate margin requirement for VIX calendar spreads? Margin requirement varies between brokers. I'm using IB (Interactive Brokers), and I believe they offer the most reasonable margin requirements: $150 per spread. Same requirement for put and call calendars and all strikes. So what was the gain in our case? We paid $0.25, but the capital requirement was $175 ($25+150). $55 gain equals to 31.4% gain, and this is what we will be reporting in our performance. This was our seventh VIX winner this year. Previous winners included 65.5%, 38.9%, 22.2% gains, among others. All gains have been calculated using margin requirements. The subscription is now open for limited time. We already booked 125.4% ROI in 2015. We invite you to join us and learn how to trade VIX and other strategies. Start Your Free Trial

While most major indexes continue to straggle, SteadyOptions continues to deliver strong gains. SteadyOptions flagship service produced 121.5% ROI in First Half 2015, based on fixed $1,000 allocation per trade (non-compounded) and 6 trades open. This translated to 72.9% return on the whole account, based on 10% allocation per trade. The winning ratio was a remarkable 82%. Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance. Click here to view the article

Please note that those results are based on real fills, not hypothetical performance. Performance dissected It is important to mention that those numbers are pre-commissions, so your actual results will be lower. 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 2-3% per month, depending on the broker. Please refer to Performance Dissected topic for more details. According to Pro-Trading-Profits.com, our Average Annual Return since inception is a remarkable 124.6%, including commissions. Current Year Annualized Rate of Return is 284.9%. SteadyOptions strategies SteadyOptions uses a mix of non-directional strategies: earnings plays, Iron Condors, Calendar spreads etc. The pre-earnings strategy is based on my Seeking Alpha articles ‘Exploiting Earnings Associated Rising Volatility’ and ‘How To Rent Your Options For Free’. This strategy aims for consistent and steady gains with holding period of 2-7 days. 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 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. 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. The LCD is our most diversified, comprehensive and scalable portfolio. I highly recommend that members check it out. It is offered as an added bonus of all subscription plans. You can also read a comprehensive overview of the strategy here. We also offer Managed Accounts for Anchor Trades and LCD. Subscription will reopen to new members on July 9 for a limited time. We invite you to join one of the most successful options newsletters.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! Related articles: SteadyOptions 2014 - Year In Review Steady Condors: The Comeback SteadyOptions 2014 Half Year Report: 95.3% ROI Steady Options 2013 - Year In Review How to Calculate ROI in Options Trading Start Your Free Trial

This week we closed our June trades with gains of 10.1% on margin, and 7.9% return on 20k unit. This makes the year to date non-compounded return 31.6% on a whole account (including commissions). If we reported returns like most other services do (Compounded ROI before commissions), we would report 48.9% gain. As you noticed, we closed our June trades three weeks before expiration, to reduce the negative gamma risk. We recommend reading the Why You Should Not Ignore Negative Gamma article to understand the gamma risk. This is another thing we do differently from many other services. We open our trades early and close them early. We would typically open the trades 6-8 weeks before expiration and close them 2-3 weeks before expiration. Click here to view the article

In one of my previous articles I described how we are going to play the current earnings season. I shared our plans to trade some of our favorite names (NFLX, GOOG, FFIV, CMG, FB, AMZN, MSFT, LNKD, TSLA and more). I expected this period to be good for SteadyOptions members. I was wrong. This earnings season was not good. It was outstanding! We closed CMG and AMZN trades for 20% gain, GOOG for 37% gain, TSLA for 34% gain, MSFT for 13% gain, among others. We also booked 22% gain in VIX calendar, 13% in RUT calendar and 17% in SPY/TLT combo. We closed 15 trades in April, 13 winners and only 2 losers, for an overall ROI of 30.0%! Our ROI in 2015 is an amazing 85.5%, in just 4 months. Click here to view the article

We closed CMG and AMZN trades for 20% gain, GOOG for 37% gain, TSLA for 34% gain, MSFT for 13% gain, among others. We also booked 22% gain in VIX calendar, 13% in RUT calendar and 17% in SPY/TLT combo. We closed 15 trades in April, 13 winners and only 2 losers, for an overall ROI of 30.0%! Our ROI in 2015 is an amazing 85.5%, in just 4 months. You can see the full track record here. The earnings season is not over yet. We still have CSCO, NKE, FDX, ORCL among others. We also trade SPY, VIX and RUT on regular basis. Our favorite names (TSLA, LNKD, NFLX and GOOG) continued to deliver excellent results. Here are our results from trading those stocks in the recent cycles: TSLA: +34, 28%, +31%, +37%, +26%, +26%, +23% LNKD: +9, +30%, +5%, +40%, +33% NFLX: +30, +10%, +20%, +30%, +16%, +30%, +32%, +18% GOOG: +37, +33%, +33%, +50%, -7%, +26% You read this right: 25 winners, only one small loser. This cycle was no exception: all four trades were winners, with average gain of 27.5%. So what's our secret? First, a lot of hard work. There are no shortcuts in trading. Our first concern is how not to lose, not how to win. Our big edge is trading similar setups cycle after cycle. When you do something time after time, you become very good at it. At SteadyOptions we spend hundreds of hours of backtesting to find the best parameters for our trades: Which strategy is suitable for which stocks? When is the optimal time to enter? How to manage the position? When to take profits? The results speak for themselves. We booked 147% ROI in 2014 and 85% ROI so far in 2015 (ex-commissions). All results are based on real trades, not some kind of hypothetical or backtested random study. A full track record is presented on the performance page. If you want to learn more how to use our profitable strategies and increase your odds, we invite you to join SteadyOptions before it closes to new members next month. Start Your Free Trial

Our long term members know that we like to use few non-directional strategies to play earnings. There are few things we like about those strategies: They are predictable. They are repeatable. They are flexible. They can be used on the same stocks cycle after cycle. The following article described few stocks that we use over and over again, cycle after cycle. We said "$TSLA, $LNKD, $NFLX, $GOOG: Thank You, See You Next Cycle".Well, the Next Cycle is already here. Click here to view the article

The following article described few stocks that we use over and over again, cycle after cycle. We said "$TSLA, $LNKD, $NFLX, $GOOG: Thank You, See You Next Cycle". Well, the Next Cycle is already here. NFLX is one of those stocks. Here are our results from NFLX in the recent cycles: +10%, +20%, +30%, +16%, +30%, +32%, +18% Another earnings cycle has arrived, and NFLX delivered another nice winner for us. We opened a pre-earnings calendar at average price of $3.50 and exited at average price of $4.55, booking a 30% gain in the process. That marks eighth consecutive NFLX winner in the last few cycles. But some of our members did even better. Here is a screenshot from the forum: This member booked 47% gain! Here is another one: And one more: Those are real fills from real members. Not hypothetical returns. REAL RETURNS FROM REAL TRADERS. Those returns are even more remarkable when you consider the fact that the stock moved 15%+ in the last few days. We played it non-directionally, so we didn't really care which direction it will move, but booking 30-50% gains on a non-directional strategy after such a move is truly amazing. Earnings season is just starting. We are planning to play GOOG, FFIV, CMG, FB, AMZN, MSFT, BABA, LNKD, TSLA and more. Each stock has its own "character", the best time to enter and its unique setup. We already booked 57.6% ROI since the beginning of 2015. We can help you. If you want to learn those profitable options strategies: Start Your Free Trial