Event Based Option Trades

 

Average profit of closed out trades: 10%

Actual average holding time of closed positions: 31 days

Current gain on open positions: 3%

If you started with $20,000 282 days ago, you’d now have: $33,962

That’s an annualized profit of 80%

Last updated: 15th April 2012

 

These are my actual profits and open gains from my recommendations.  You see, unlike other options newsletters out there, I invest in every single options trade I recommend.  If I’m not willing to risk my own moneyI don’t recommend it to my subscribers.

The first thing you should know is that substantially all of my trades are spread trades — calendar, diagonal, and vertical.  I don’t recommend iron condors.

Event Based Options Trades is a subscription based newsletter for trading options and making around 10% a month profits.

I don’t promise huge gains overnight.  I just promise three things:

1. Each recommendation is a trade that I want to do and will do, following my own trading instructions to the letter AFTER I send it to subscribers
2. I ALWAYS look at the downside risk.  I’ll rarely make a recommendation that has more than a 20% chance of losing money.  My hurdle rate is a RISK-WEIGHTED 10% a month.  Obviously my closed recommendations have done better than that, because this is just the hurdle rate.  A higher risk-weighted return is of course preferable.
3. I don’t “make up” trades to fulfill an obligation of a trade a week or four trades a month.  Typically, you can expect around 3 trades a month, but if I find three trades to double your money in six months, I’m happy to sit on those and not make new pointless recommendations.

 

The trades I recommend

 

There are four basic types of trades that I do:

1. Takeover arbitrage

When companies are getting taken over, you can often make a 3-4% profit by buying the shares.  But options sometimes offer a chance to make 10-50% profit in a month from the same move.  These are low risk trades with limited upside, but you’ll rarely lose money on these trades.

 

2. Exchange Traded Notes

Exchange Traded Notes (ETNs) are different from Exchange Traded Funds (ETFs) because they don’t usually hold shares or commodities.  Instead, they are often based on futures.  By understanding how these work, it’s possible to predict what direction the ETN will go irrespective of what the market does.  These are one of my favorite trading instruments because I don’t even attempt to pick which way the market is going.

 

3. Gold and Silver

Two markets I follow very closely (and have been doing so on a daily basis for three years) are gold and silver.  In contrast to the stock market, I do have a very good feel for the gold and silver markets.  So it’s possible to make a low-risk profit when it’s clear which way gold and silver are going to move, particularly at options expiry and in the seasonal bull market from July to January.

 

4. Event based trades

An event is something that happens just once or twice a year, and can be hugely profitable.  A good example is the earthquake and tsunami in Japan.  After I saw this on TV, I researched what happened to the Japanese yen after the Kobe earthquake, and bought calls on the currency.  I tripled my money over night.  Because these trades are out there occasionally, I always recommend having some dry powder in your account to move in an instant.

 

The alerts

I’ll send out a newsletter at least once a week with updates.  But I don’t promise a trade once a week or once a month.  You’ll get trading alerts once a week on average, when there are good short term plays.  But when we have four or five open positions the frequency will fall, because there’s no point recommending trades when we’re fully invested (remember, I am doing the same trades).

Each trading alert will tell you why I think this trade is going to be profitable, the realistic profit potential, the time line, and the downside risk.  I always look at the downside risk first, because my first rule of investing is, Don’t Lose Money.

The advantage of this approach is that it takes the guessing out of options.  Most options newsletters will tell you something like, “Make 288% in 6 months” when in reality they have no idea of how long they’ll hold the position and how much money they’ll make.  And the downside risk is always 100%.

I have posted some past alerts on the portfolio section of the website to give you an idea of what to expect.