Good evening,
In the small world of successful traders, the common denominator is math.
Buying options for profit is like playing slots.
Gamblers who play enough may hit a jackpot. Despite potential for huge payouts, most players average a loss in the long run. This is due to small losses the majority of the time.
Traders who buy options are betting on large, directional moves. Those assumptions may be correct and yield significant profits once and a while. But underlying prices stay within their expected ranges most of the time. This results in small, frequent losses and an average loss over time.
Selling options for profit is like owning the slot machines. Casino owners have a long-run statistical advantage for every game.
Owners may pay out large jackpots.
But as long as players stay long enough, owners are compensated for taking on this risk, with nearly guaranteed profit in the long term.
Similarly, because short options carry tail risk but provide small, consistent profits from implied volatility (IV) overstatement, then they should average a profit in the long run if risk is managed.
Long premium strategies have a high profit potential but cannot be consistently timed to ensure profit in the long term.
Similar to the slot machine owner, a short premium trader must reduce the impact of outlier losses to reach a large number of occurrences (trades) and realize the positive longer-term averages.
The $2,000 Small Account Journey focuses on short premium trades or selling options. I want to be the owner of the slot machines, not the player.
Take, for example, my current $2,000 balance.
I’ve placed 51 trades since November 13.
45 have been wins and 6 have been losses.
My outlier losses are where the player hits the jackpot.
But because I’ve reached a large number of occurrences (51 trades) I’ve grown the $2,000 to $12,432 or a gain of 522% in a few months.
Results not typical. Trading is hard. Nothing is guaranteed.
Take for example my new trade alert on NVDA this morning.
My risk is defined at $5,144.
I can make $2,856.
The way I win 100% or $2,856 is if NVDA trades below $640 on 2/9.
As a short premium trader I have 3-ways to win.
NVDA closed Tuesday night at $627.74
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NVDA can climb $12, but as long as it closes at $639.99 on 2/9 I win 100% or $2,856
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NVDA can trade sideways and I win 100% or $2,856
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And NVDA can trade lower and I win quickly
I can close this trade WHENEVER I want before 2/9.
Which I’ll probably do Wednesday morning for a nice win because NVDA is down almost $15 tonight.
Remember, I need NVDA under $640 at expiration or 2/9.
If it moves lower early on in the trade, I can lock up 30%, 50% and even 90% of the possible $2,856 profit.
This one should be in the boat Wednesday morning.
And I’ll alert them BEFORE I exit.
If all goes well the NVDA trade will bring the balance close to $14,000 Wednesday.
Results not typical. Trading is hard. Nothing is guaranteed.
If you want to learn how to trade an edge like a casino, my book recommendation is The Unlucky Investor’s Guide To Options Trading by Julia Spina.
Especially if you scoop the service up while it’s on sale.
And I do not think you’ll regret buying the book.
Let’s get to work!
Jason Bond
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