Before getting into this week's article, I want to tell you about a free event I’m holding. It’s a LIVE options webinar on Thursday, April 4th at 12 pm EST, “Double Your Income Without Investing in Stocks” and I'd like to give you a chance to sign up today. We have a limited number of openings available for this webinar, and as a valued reader, I want you to be able to take part. Even if you’re unable to attend that day, register and I’ll make sure to send you the video to view at your leisure.
Yesterday was truly an amazing day.
I sat down at my favorite coffee shop, ordered the usual and proceeded to open up my trading platform … a typical morning in my life as an options trader. But today was different … much different.
As I was about to log on, I watched a gentleman in front of me go through the same exact process. He even opened up the same trading platform.
I watched intently to try to see what he was trading, but I was too far away. I was very curious to see if he traded options or was just a stock-only guy. Most fall into the latter category. I knew right then and there that I would eventually ask, but I waited and watched for any subtle clues to help with my eventual line of questioning.
As the opening bell rang, I quickly became lost in my own trading. But I’d occasionally glance over to see if he was still on the platform. He was.
But now he looked disgruntled. I could hear him talk about his current losses to his wife while he pointed to several articles in the Wall Street Journal. The sighs grew as one, two, three hours passed. Then he got up and moved closer to where I was sitting.
Just from his demeanor I knew he was a novice. But I didn’t care. I was just happy to talk with what I hoped was a fellow options trader.
Now was my chance … I had to ask, “How long have you been trading options?”
He seemed taken aback. I explained that I happened to see him using the same trading platform and that I was an options trader and assumed he was as well. I was glad to hear that he indeed was an options trader.
He went on to tell me his story – a story that is very familiar to me, and one that I’ve heard many times over the years.
He had been trading options for roughly a year. During that time he had spent more than $30,000 on trading classes to prepare himself for his journey. He went on to say that he had learned everything that he could about options and the various indicators and strategies that most professional options traders use on a daily basis.
At least that was what he was told.
In his mind he was ready for a career in trading.
But at the moment he was discouraged. All of this accumulated knowledge was for naught … or at least he thought so. After being up $20,000 earlier in the year, he was now $10,000 in the hole. He didn’t know where to turn. You could see the frustration building as he spoke about his endeavor in the world of options trading.
I felt bad for him. The industry had reeled him in … hook, line and sinker. They had his money and he thought in return he had a ticket to riches. He rambled on about all the indicators he used and the strategies he employed. The list was a mile long and each one was better than the next. I couldn’t believe how much he knew.
Unfortunately, it was all useless. Indeed, the industry sold him the dream … and he bought it. It was truly unfortunate.
So I asked him if he had a few minutes. I wanted to try and teach him how I trade options in very concise and simple terms. He was already schooled on the terms and every useless indicator out there, so I thought it would be easy.
And it was.
My new friend had a Ph.D. Conceptually he understood the foundation needed to trade options effectively. But to be quite honest, he knew too much. In his journey to become the best trader out there, he managed to fill his head with noise. And it was obvious he had no idea how to sort through all of the clutter.
I explained to him exactly what I teach my Options Advantage subscribers.
It’s very simple.
1. Use only highly liquid ETFs
2. Wait for an overbought/oversold extreme reading in one of the ETFs
3. Fade the overbought/oversold ETF using a vertical spread (bear call or bull put) with a high probability of success
It doesn’t get much easier than that, right?
Of course there is more to learn. But if you keep it simple and follow the three steps above, you’ll be well ahead of most options traders. Moreover, you’ll have saved yourself roughly $30,000.
I went on to explain my approach to him in great detail, and gave him my email just in case he had any questions going forward.
It’s my goal to try and teach everyone how to effectively trade options using high-probability strategies. It is truly my belief that in 10 years, stock trading will be a thing of the past. There will be a point in time when the light goes on and self-directed investors will begin to use strategies that are based on statistics and not a list of indicators that produce noise rather than profits.
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Editor and Chief Options Strategist