By: Steve Smith
My kids came down from NYC to spend the week with me in hot and humid Florida. It had been six months since we’ve seen each other; the longest period since the COVID lockdowns.
The first thing that my son, Ethan who turned 15 in April, said upon seeing me was, “I’m taller than you.”
I’ll let all of you be the judge…
My daughter Natalie, 17, just got her driver’s license, but doesn’t have a car to drive in New York City. So, I took her while she was here. She loved being able to practice on the roads down here, away from the clogged roadways of Manhattan. Against my better judgment, I also let her drive on I-95 when we went to visit my brother in West Palm.
She proved wiser, and more mature, than me when after two exits she said she felt uncomfortable as maniacs whizzed by, passing on both the left and right lanes going 90 mph or more. We pulled over and I took the wheel. I also let my son tool around the quiet neighborhood streets and he almost drove us into a ditch…
He was expecting a berating so he was relieved, as well as surprised, when rather than getting mad I calmly took responsibility and apologized for putting him in a risky situation.
There is a trading lesson here: As I’ve repeatedly said, much of the Options360 comes from mitigating risk. It’s important to know when to cut your losses in trades. Note – the most successful traders in the world have losing trades. They’re successful because they know when to admit they’re wrong and get out.
When it comes to managing risk, I aim to set up my Options360 trades with a 2:1 reward-to-risk. If I’m right 60% of the time, this would provide us with an 80% annual return. In fact, in 2021, we finished the year up 82%.
Over the past 7 years, Options360 has an average return of nearly 75%.
Limiting losses is key to consistent returns. Remember the math; if you find yourself down 50%, it will take a 100% gain just to get back to even. That’s a tough hill to climb, even for the best traders.
Take a lesson from my daughter, and don’t drive yourself — or your portfolio — into a ditch.
Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.