Forgive me as I usually keep the posts on this site strictly to write ups of actual trades or something relevant to trading. I try to keep things pertinent as I get discouraged when I see people blog about nothing in particular or put up links to other sites just to act as if they are doing something. So on this post I wanted to self indulge a bit in order to share some stories that I hope resonate with somebody out there who either currently follows or finds this blog sometime down the road. I’ll warn you ahead of time it turned out to be a long post.
This past weekend I found myself looking through some old files on my computer. I was a bit taken back by what I came across. This ended up being an eye opening experience for me. The screen shot below shows the spreadsheet of my first ever foray in to trading with options that wasn't related to writing covered calls. From 2000-2007 I strictly wrote covered calls, which at the time was a third income stream for me so I just looked at everything as a bonus and wasn’t real concerned with what I was doing. I had absolutely no concept of what implied volatility was, thought technical analysis was for morons who would believe anything, and greeks were something out of a history book. For some reason the light finally went off in my head and I started viewing other ways of using options. Why it took so long I'm not quite sure, I think because prior to this time period I had a successful business that kept me busy seven days a week. There just wasn't enough time or interest in pursuing options any further then writing a call once a month and checking in later to see how things turned out.
Flash forward three years and my oh my how things have changed. I currently would never make a trade without consulting the technicals or implied volatility, and I now incorporate the greeks when viewing my portfolio for risk or constructing new trades. The next revelation of running across this old spreadsheet was how shocking it was to see that the first 39 trades over the course of one year were 100% premium buys, speculating. Looking at my trades for the last year, I haven't bought a damn thing, it's all premium selling. This is something that occurred kind of below the radar for me. There wasn't a day when I made a conscious decision to stop one in favor of the other. But backtracking the situation, I know where the turn came.
During the financial crisis I finally started becoming aware of what implied volatility was and how it worked. I was buying $10 ITM puts on the DOW using DIA and waiting for a $1 move and making 10%. I did this several times for $1000 each and was just in love with the concept. I was usually paying something between .80-.95 extrinsic value, so a $10 ITM put was costing me $10.80 or so. So as the crisis starts to hit the shitter I start noticing that a $10 ITM put cost $13.50 now, and I'm thinking, WTF? This was great as it spurred me to find out what was going on and it obviously opened up a whole new chapter for me with trading options. So my point or question to you is, do you ever analyze your past and compare it to your present? Have you abandoned profitable strategies or trade concepts in favor of something else and just never made your way back to something that makes sense for you to be doing? Have you ever come across something trading options that you don’t understand and haven’t bothered to find the answers?
Another thing I noticed about my evolution as a trader is that I no longer run and hide or stop trading for a while when I take a loss. Take a look at the second to last trade from the bottom that is highlighted in red, I had never lost anything more than $600 before, so losing $2000 in literally one trading day scared the crap out of me. I thought, what if this happens again!! So judging by the dates on the sheet it looks like it took me two months to venture back out and make another trade. This is something that currently would never happen. A loss is a loss, and usually I know ahead of time what my worst case scenario is because I like to structure my trades with at least an attempt at a known maximum loss. So when this occurs it isn't anything for me to be worried about. My point on this story is evolving and implementing a designed exit on all my trades has helped me tremendously. If you’re not using predesigned exit points then contact us and we’ll show you an example of how we structure trades. Or just take a look at any recent trade post as that should be a good example.
The last thing I want to point out is really just kind of a personal story. That first trade highlighted in red on the top left, when I closed that out for a win and kind of solidified that I understood the concept of buying ITM calls, that was another pivotal moment in life. It was like the day the light went off in my head when I understood the concept of writing a covered call. Since I had six or seven years experience with that and had brought in a lot of extra revenue, this started my train of thinking that with this new tool in my arsenal and the desire to learn more strategies, I could probably derive enough monthly income to pay the bulk of my bills for an indefinite period of time.
So the next three trades on the spreadsheet highlighted in blue, when I closed those out for gains it solidified for me that I was ready to leave my employer and head back to school full time to get an MBA and buy myself some time. I closed those out at the end of January, gave two weeks notice at work and have been on my own since mid February 2008. I figured I had 18-24 months to figure out the next phase of my post self-employed life, but I wouldn't have been able to do it without options, they have literally changed my life. Life is one long strange road and as it turns out, during those 24 months I got better at trading, fell in love with it actually. And after a brief attempt to find a formal job in the options/futures industry that wasn't a fruitful experience, I decided to just go it alone. I have enough capital and track record that the risk/reward of taking a shot at this makes sense for me.
I actually did my taxes yesterday and in 2010 I made $52,700 trading. Not bad for somebody who considered himself to be supplementing my expenses with trading until I could figure out what I'm going to do with my life. I think I just figured it out. I’m just over $100,000 since the first trade you see on this spreadsheet. That is not only good enough for me to justify continuing down this path and forgoing looking/begging/groveling for someone to hire me, but it’s also extremely self-empowering and rewarding. I was nervous about leaving a formal job with a pension and I knew I wasn’t going to be able to make enough trading to equal what I made there, but I was willing to take the risk. I think failing to find a job in the options industry was another pivotal moment, I said screw it and decided to hire myself. I recently set up my account to automatically withdraw a paycheck every month and I have all the confidence in the world now that over the long run I can take out the amount I need every month without dwindling down my capital.
So if anybody has read this far I apologize for such a long rant but I also thank you. If you know anybody who might benefit from this story or talking with us then please forward it along. The last few days have been amazing for me. I reached a psychological state that is very healthy for me. A blind leap of faith three years ago and strong desire to be happy and follow my dreams in life has paid off. If there is anybody reading who has a similar story, please drop us a line. If there is anybody who wants to follow a similar path, please get in touch with us.
Before I end this I want to say a public thank you to two people who play a large role in my evolution as a trader. The first is my friend and fellow blogger on this site Dominic. What seemed like a chance meeting with him a few years back turned out to be the quantum leap for me as a trader. Before that time I only knew one person who invested with options and he was and still is today just a covered call guy. So when I was venturing out and wanted to expand my universe of implied volatility, all the basic option strategies, the greeks, etc., I didn't have anybody to turn to. No mentor, no peer group, it was a really lonely and frustrating place. It turned out that Dominic and I were interested in similar styles of trading and at a similar place as far as current knowledge and goals for the future. Over the last few years we’ve been able to help each other immensely with furthering out trading knowledge and experiences.
The second person I need to acknowledge is Dan Passarelli of Market Taker Mentoring. Dan runs his own business as an Options Mentor and I personally studied with him for a few months that turned out to be another huge evolutionary step for me. It turns out that I was further along the path then I realized, Dan helped tie up some lose ends for me and aggregate a lot of fringe ideas I had but wasn't previously able to bring them all together on my own. I only wish I had hired a mentor sooner because I was ready for that step a good year before I did it. The end result for this step for me was leaving with much higher self confidence and the empowerment to trade with larger size. That's a game changer if you're trying to make the leap from $20,000 a year to something more resembling a true income. If anything about this story sounds familiar to you and you think you would benefit from a mentor, Dan can be reached at the link provided and please tell him I sent you. If you have any questions about my experience my email address is at the bottom of this post. Dan's Website is MarketTaker.com
This brings me to the last thing I want to share, if there is anybody who follows our blog who might find themselves in a similar situation where you're looking to advance your trading knowledge, find a friend, mentor, or just somebody to bounce trading ideas off of, then by all means please contact us. We're actually looking to expand the blog with new writers and find greater synergies amongst each other. Please see the "About our Blog" tab and let us know if you're interested in joining us.
E-mail: JasonAndrewHaas@aol.com
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