By: Steve Smith
As many of you know, I’ve been involved with options trading in one form or another since I was 13 years old, running order tickets to and from the Comex gold pit.
And for the last 20+ years, I’ve been writing and managing option-based newsletters for thousands of happy followers.
In that time, I have developed a variety of strategies designed to minimize risk and maximize gains – strategies that even the most novice traders can use to profit.
In 2015, I launched Options360, a trading service that brings my holistic approach to options to new and veteran traders alike.
The results have not only been consistently positive on a standalone basis, but have beat the S&P 500 each and every year, often by a wide margin, through bull markets, bear markets, and everything in between.
Check this out…
- In 2015… Options360 was up 122%. The S&P 500 was down -0.7%.
- In 2016… up 39%. The S&P 500 was up 9.5%.
- In 2017… up 61%. The S&P 500 was up 19.4%.
- In 2018… up 67%. The S&P 500 was down –6.2%.
- In 2019… up 77%. The S&P 500 was up just 28.9%.
- In 2020… up 46%. The S&P 500 was up just 16.3%.
- In 2021… up 82%. The S&P 500 was up just 26.9%
- In 2022… up 26% The S&P 500 is down -16% YTD.
If you joined Options360 in 2015 with $10,000 and compounded the gains through the years and adjusted your risk accordingly, your account would now be over $537,000!
Today, I’ll share with you some of the key elements of my holistic approach to options trading…
Risk Management Is Priority No. 1
Most traders – especially newbies – focus on how much they can PROFIT from a trade.
But the key to making money in options is to focus on how much you can LOSE.
That’s why managing your risk is so important.
Some of the tools for managing risk include; identifying specific entry, exit and stop loss levels. Employing spreads and hedging techniques. All positions have a defined risk/reward profile. And we never sell any ‘naked’ options.
We use specific position sizing and allocation to help manage risk as well. Position size will vary through different market conditions. Higher volatility results in smaller positions with more flexibility.
This also means we keep approximately 50% of the portfolio in cash – way too conservative for long-term retirement savings.
But for an active option-based account, having a cushion of cash is crucial not just for being able to make adjustments to current open positions, but having the ability to take advantage of new opportunities as they present themselves.
So flexibility is key, which brings me to…
My Holistic Approach Offers Maximum Flexibility
This is important.
Having a variety of tools at your disposal means you can trade any market with the strategy that best aligns with your thesis and will provide you with the best risk/reward.
For example, if I see a consolidation pattern, I want to employ a strategy that will benefit from a big, fast breakout and take advantage of the leverage options afford. I might buy a put or call outright, or use a wide or out-of-the-money spread, which gives the stock room to run.
Or if a stock has been trending upward smoothly, I might choose to ride this trend by selling a credit spread, collecting premium to benefit from time decay.
If you’re just buying puts or calls outright, that’s a losing proposition in this scenario.
And if you’re JUST selling credit spreads or iron condors to collect premium, your strategy may not align with a given trade setup, and you’ll miss the opportunity completely.
Options360 members have a variety of tools at their disposal to be applied to maximize returns.
Keep It Real(istic)
There are a lot of bad actors in the financial advice space that promise phenomenal gains with little proof. Some are outright frauds, some merely exaggerate, and some honestly think they are presenting a “better mousetrap,” which inevitably fails to live up to the promise.
I try to keep it real(istic). While I’m absolutely a proselytizer for using options The RIGHT Way, I also know that options are not for everyone and I won’t hesitate to let someone know if options trading is inappropriate for them.
Too many services promote unrealistic expectations. It ranges from cherry-picking big winners of 500%, 1,000%, even 3,000% gains (while ignoring their losers) to bragging about a 90% win rate that has amassed some suspiciously specific gain of $1,750,109.23 over the past year. No account size is given, no risk/reward, drawdowns or sharpe ratios are provided.
I hate people using the beautiful opportunities this business provides – self determination, financial freedom and flexibility to design an approach that matches your risk profile, schedule and ultimate goals.
By contrast, Options360 has very straightforward and realistic goals:
- Winners outpace losers by 60:40. Yes, we have losers – every trader does.
- Winners return 45%-80% per trade
- Losses are limited to 25%-50% per trade
Achieve those numbers and you can easily stumble into a 50%-80% return per year!
We’ll take a deep dive into my trading philosophy, the strategies I employed, and examples of specific trades that lead to this incredible track record.
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.
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