Time is Money: Don’t Waste It – Sell It
Secrets of a Retail Option Income Trade that works
By
Denny D’inero J
Memoirs of a retail trader
Having had many years under my belt ( decades in fact) learning how to trade successfully as a retail trader, I now find myself in a personal place where many have asked me how is it that I am now able to trade the options and generate consistent monthly income without mounting up the losses that many who have tried have. Loses that most who venture to try have encountered. I’m no exception.
Don’t be fooled by the many voices out there that would have you believe that one can jump in with both feet, take a few lessons and in short order quit their jobs and live happily ever after.
In reality, like anything worth doing, you must make a commitment to spend the necessary time to educate yourself and then the many long tedious hours practicing your new found skills to eventually hone your approach to finally making more than you lose … and yes you must loose money to make money. There is no easy way around this reality. The simple secret is that you must learn to make more money then you lose to claim that your are ‘finally’ successful ! To be sure, being successful can be elusive however. The markets have able proof that they are rightfully called the ‘great equalizer’. To remain successful one must be ever vigilant that success can be taken away in a flash!
To be honest, most will not t be able to withstand the emotional ( and yes financial ) highs and lows one must undertake to reach that proverbial ‘pot of gold’ at the end of the rainbow. Most will simply throw in the towel somewhere along the journey … before they are actually effective. Why? because it takes stamina, both emotional and financial to stay the course. With any luck you may find a mentor or two willing to ‘show you the ropes’ and help prevent you from a complete crash and burn in the process. Some will be caring friends, others, ruthless hustlers … for sure you can learn from them all … and yes … you have the power to pick your own poisons in the process.
Well, all that said, I can only encourage you to enter cautiously, don’t be dazzled by the many “shiny objects” and verbal “ hype” you will find all around you .. the endless eMails sounding to good to be true, the unrelenting snail mail brochures, and the determined TV and Radio commercials, all claiming the same “free” secrets leading to nirvana … promising the world. “Follow my lead” they say: if you are just willing to part with ( some of your funds ) they will share their “ secrets “ willingly. To be sure, they all speak of the same astounding possibilities if you partake. To be sure, they DO NOT LIE, they just don’t want to scare you off before you try! … and just so you know, you may find that they only share a few of their tantalizing secrets at first … the rest of those secrets … well, they come at a price … but not to worry, you will make up the investment “in spades”.
Just so you know, there are no secrets per say, that’s ust the calling card. There are however lots of tools, methods, systems, wisdom, and sound advice form those who have crossed over…in may cases readily available for free … unfortunately, sorting it all out for you into useful ways, means and actions is the true value you must seek.
it takes a good bit of emotional and financial stamina, and yes some losses to reach your goals. Along the way, plan on many hours of hard work developing your skills. If you are willing to make that commitment to learn and maybe listen to the words of wisdom that “those in the know” can offer as seasoned traders can divulge, you may one day find yourself at a place that is no less than electrifying . … I’ll make a bold statement here … sometimes it feels like you own a personal “Money Tree”. … as corny as that may sound.
It is however, time to decide, do you have what it takes? Reach deep inside, you can be a “WANA-BE” or you can be a “Winner” …. It really is just up to you. I can only tell you from personal experience that there is no magic bullet out there…. no rocket science involved… no easy way through the challenges … but there is light at the end of the tunnel when and if you reach it find your way !!!!
Enter the journey only if you dare!
My apologies for being somewhat cute and poetic …. just having a little fun to kick things off. Fact is you need a sense of humor to take this journey .. there will many times when you will need to shake off the pain of not being right, losing money, eating your own ego and wondering why did you ever buy into that the effort is worth the cost. When those inevitable emotions strike, be prepared to get back in the saddle … dust off, kick your spurs and get back to the your stride…. Once again.
Chapter One:
It’s about the Money Grass Hopper
Let me begin by defining what this book is about and not about. This book is about taking a specific option strategy that will enable you, with certain specific knowledge, and certain specific mental control to generate a specific repeatable income stream in each and every specify week. I try to keep it as detailed and as simple as necessary to develop a foundation to actually realize supplemental income. If this sounds overly simplistic it is because it is!
I have shown what I do to a number of friends and other acquaintances, and as they look in amazement at my “actual”, provable results “ directly from my YTD brokerage statement .. I’m always asked, “Can you show me how?”. Since I have been asked that so many times, I finally made a commitment to write about how so others can enjoy the fruits of my efforts. To be truthful, I can explain the mechanics, but in the end there are host of elements beyond the mechanics that are highly specific to each and every individual that either supports or hinders their efforts. You will not understand these personalized dynamics until you dive into the process. I can only tell you from personal experience that you must identify and then eventually overcome your own personal demons in you that will cut you short from reaching your financial objectives. TOption strategy itself is somewhat simplistic once understood. The nuances to fine tune your skills will come with practice and time. Have patieince and stay with it and you will be surprised at what you can accomplish. As with any “craft”, there are the mechanics, rules and methods, but to become truly successful there is an element of passion and art and gut feel that can only be honed through the direct experiences of DOING!
I can’t tell you how many I have met or even mentored who paper traded until they felt successful at the trade process and as soon as the element of “real” money entered the fray, well, everything they thought they knew or learned came apart at the seams. Why? There is something very unique about having “real” money in the mix. Somehow our emotions take us in all manner of directions many times in destructive ways that shake us to the core brought on by dealing with the realities of the market in such a personal way. I suspect it has something to do with how we view, treat and engage with money from the time we first encountered its value from an early age. Fear and Greed drive our behaviors when we least expect their grip. I’m here to tell right from the start, you will not know what this means to you until you experience the thrill of being right and the devastation of being wrong. When you are in the middle of that big “trade” you’ll see! I know, I have had the experience of being right as well as wrong on squeaky little trades of a few hundred bucks and trades totaling in the six figures. I have amassed over seven figures in several years and lost as much over several days. Those experiences can’t be read about in a book but do give one a keen awareness of personal demons that must be reined in and neutralized to where you begin trade like an emotionless’ machine’. This will be necessary to eventually achieve lasting results. You will find yourself going through stages of development, with any number of opportunities to throw in the towel along the way. Only you can develop the “fortitude” to keep pressing forward. Plan for it .. I guarantee you will hit those walls several times in the journey.
So let me be clear. This is not a book that will teach you all about options trading, top down, inside out with any number of well know approaches. There are hundreds of books out there and as many experts who will have written on the subject of option trading, ad nausium. There are also as many books written that will attempt to teach every angle of attack on the market with dozens of successful approaches that the writters have themselves implemented under many market conditions. If your goal is to learn everything there is to know about the subject, stop here … and move onto one of those works. This book is only useful if you want to do something simple, that is repeatable and maybe even eventually boring that will bring in income each and every week….. and that’s about it.
Chapter II
So let’s begin.
There are many ways to generate income using options, hundreds, certainly , or even more. The reality is that you only need to focus on a couple that fit your personality and style of trading to realize the income you decide you want to generate. Most are led to believe that you need to know all the different approaches possible and as a result find that they dilute their efforts and find themselves overwhelmed at the same time. Truth be told, there are a few common approaches that are used over and over by those in the know with literally fantastic results once you understand when and how to apply them. Keep in mind that fortunes are made teaching all the available strategies. Why would these option educational companies want to clue you in on this fact. Better to keep you coming back.
With that in mind, let me assure your that there is no loss in spending all the time, effort and money understanding every possible approach available. The more you know, the more flexibility you will have in using whatever strategy fits your desires and the market situations presented to you. However, if your goal is to make enough money to satisfy your monthly income needs, and the amount desired is within the parameters I outlined in this educational material, I can help accomplish this goal.
Firt steps:
Before you learn to trade the options you need to decide on a financial plan, call it a business plan if you want or if that seems too comprehensive for you , just call it a trading plan. Why is this important? Because without it you will not be grounded in a clear, meaningful foundation to develop a strategy or two that will lead you the results you want to achieve. I know more people that fail at achieving option trading results due to the fact that they think they can reach their goals without this key element! If you don’t believe you need this , I would encourage you to stop here. The absence of a plan may lead you to short term results , but in the end you will likely loose everything you put at risk. I don’t want to be the one responsible for that, so please, please head this advice or venture at your own risk.
I will lay out he elements of a good plan in the next section.
You will need to answer a couple questions to get started. Please write down your answers and leep tem in a safe place that you can refer to later.
1) How much income do you want to generate on a weekly, monthly, quaretly or yearly basis?
- The answer to this question is critical. As you go on you will determine for yourself if if this number is “realistic” or simply a “pipe dream”
2) What is the total amount of capital that you have available for this activity.
- This amount should under no circumstance be your entire portfolio of assets !!!!
- Generally speaking it should not be more than you can tolerate to invest at risk!
- Keep in mind that option trading is highly leveraged and if you make a mistake while trading you can loose it ALL ! We will try to prevent that by having you learn how to use proper money technique, as you will see later. For now just come up with a number.
Note: Risk Capital: Actually there are two risk numbers for your plan for . The first is the maximum you can lose under the worse of all possible scenarios. This number requires you to think thoughtfully, with deep reflection. It is the number that you can truly say is dispensable if the worse of all situations were to present itself. It is the number you can say with absolute certainty, that you can put your head on the pillow every night without undue “worry”. A number if you lost in total, you could recover from both financially and emotionally, without undue stress to you and/or your family ( if that is one of you concerns ). A number you can honestly say would be unpleasant to tolerate but not devastating, I know from experience in this matter since I personally subjected myself to a 7 figure lose that took me a year to recover from. Trust me, it was a horrible experience that I would not wish on anyone. I got the T-shirt that I hang on the wall to remind of that “tuition”.
3) So what is the amount that you can lose under the wose possible of scenario’s and still function normally the next morning?
4) Next I want the next risk number. This is the amunt of risk you want to take in total with the caveat that you will be “managing” to this lose number within the framework of the number specified in item #3.
- This number is you ongoing risk tolerance while you are trading your portfolio of trades.
- If managed with discipline, this will be a number that you consider as part of your normal trading activities. The goal is to always generate more income than you lose as a result of this lose target. Remember, you have to lose money to make money in trading, however you always want to gain more than you ( always). You will learn how to do this!
Note: With the above numbers in hand, you are now ready to develop the detail needed to develop a plan for active money management. What I share here is from experience. You can modify it to your own needs, however I would suggest it a good starting point if you need one.
5) Suggestion: It is very difficult to do one trade at a time and develop a level of confidence in what you are doing.
- I would suggest ten if possible. This allows a division by ten for simplicity and diversification.
- Divide you portfolio into 10 equal trade structure buckets.
- Calculation: divide your number in question #3 above by 10. This is the “maximum” risk you will take on any individual trade structure
- You now need to divide the number in Question #4 above and “manage” to that number in any individual trade structure. Manage using stop losses or whatever means you chose to do so. But do it!. This is a critical point of discipline.
6) Next: Think about your risk to reward ratio on each trade structure placed. This is the amount you intend to risk with the potential for an income stream multiple of that number.
- For example if you risk ($1) you might target to generate at least ($3). This ratio becomes important for exits. You will find yourself developing a number that suits your own personal needs and desires. Just make sure it is something that you can live with given the risk and overall trade strategy consequences at hand. More about this later.
Note: Last and maybe the most difficult part of your planning activity. This part of the plan will develop through experience. It will outline the “type” option trade structures that fit your personal trading style. The elements at play are determined by finding the type trade structures that fit you personal income needs, trade timing, risk and income tolerances, mathematical skills, option structure skills, time commitments, personal life style needs and a host of other personal dynamics which you will discover though experiences as you develop your skills trading.
7) Suggestion: This will be a highly refined personal part of your plan. If you need a starting point I would suggest having two (2) or three (3) spread income type trade structures to set that fit you needs and one (1) that is a purely speculative high return “unlimited” upside directional type trade.
- Make sure you have enough trade structure diversification so you don’t have all your eggs in one basket. Don’t forget to consider the overall direction of the market in this context. UP, SIDEWAYs or DOWN. Lean into the market posture to get edge.
You now have the basic elements in hand to develop a plan that will be the foundation for your trading success. Put the plan to writing it down, follow it, modify it, journal your activities as you venture into this journey, Your journaling will help you fine tune this plan to insure lasting success as you gain experience.
Cliché: “Fail to Plan, Plan to Fail” it may be trite, but in trading .. it is really true !
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