How I Turned $10,437 into $111,669 in 13 months Trading Options
I always wanted to be a trader. When I turned 18, the first thing I did was open a brokerage account and deposited $200 I had saved up from my allowance money.
I was investing in stocks, doing fundamental analysis, reading income statements and balance sheets, but a few months went by, and I realized you actually need a lot of money to make decent money with stocks. Naturally, I was losing motivation.
But then, I found options. And it has been a wild ride…
I remember my first trade: XOM weeklies. I watched them go to 0.
After that, I figured out it was easier paying for a signals service. They were day traders and traded weeklies. I was naive and a (very) dumb teenager who wanted to get rich quick, I had no idea of what risk management meant and a total disregard for it. A recipe for disaster.
I ended up losing $9,000 in a day. It was all I had. I was shaking. I remember going to Wendy’s and buying a Nutella Frosty and crying in the parking lot.
After that, a few months went by, and I came back with $2,000. I was determined to master options, studying heavily, and I ended up learning about spreads.
With my newly found knowledge about spreads, I doubled my account 2 months in a row, I was so happy. I was sure I was going to be rich. Looking back, that was a really nice period in my life, I went to the jewelry store, bought myself some gold jewelry, and I was listening to “I love the Dough” by Biggie and Jay-Z all the time.
Although I had found short term success, I still had not learned risk management. So, what do you think happened next? I lost all the profits I had made in just a single trade. It was AAPL earnings, I was so nervous I couldn’t sleep.
So after that I quit trading for a few months.
My freelancing business took off, and I was making more money than ever, but I wasn’t happy. I needed the thrill of trading options, so I went back.
I tried a few things: day trading, spreads, swing trading, alert services, technical analysis, The Strat…
I made a lot of money and lost a lot of money, and I can assure you: Every strategy, every type of analysis, trading style, everything there is, I’ve tried it.
Nothing worked for me until I found my current system…
And I was able to turn $10,437 into $111,669 in 13 months.
The System
I’m going to start with risk management because it’s the single most important thing in any system.
Position sizing and stop loss:
My size is around 9% of my account per trade. And I use a 25% stop loss.
This way, I’m only risking around 2% of my account per trade.
See the example below:
Profit taking
I always take profits at 30%. Base hits add up.
Notes:
You will not be able to size exactly 9%, we’re talking about averages here. maybe you will lose or make more money than planned in some trades, but those % of your account are the averages you should be aiming for.
Additional risk management rules:
1. Don’t have 2 trades in the same sector. Sectors tend to move together. If you have calls on an airline stock, don’t buy calls on another airline stock, because they move together.
2. Try to have a balance between long and short positions, so if something happens overnight, you’re not overly exposed to just one side.
3. Zero emotions. Trade like a machine. Just execute the system. Money will come.
Trade Frequency
I try to make 3 trades per week, so 12 trades a month in total. (Sometimes there’s opportunity for more trades). But I try not to over-trade.
Let’s run the numbers:
My average win rate is 75%.
So on average, I win 9 out of 12 trades.
$877.50 on a $5,000 account is 17.5%.
I averaged a bit more over the last year, around 20%.
Your numbers will also probably look a bit different, but just to give you an idea:
If you start with $5,000 and average 17.50% every month for a year, you will end up with $34,627.76.
The key to compound the gains is to always think in percentages, and of course, sticking to the system rules.
Again, you can do better, or you can do worse. This is just to give you an idea. Now let’s talk about how I find trades.
Finding trades
What I do is I follow smart money. In order to understand how the market works, you need to understand who the key market players are, because they are the ones who can move markets.
Smart Money — Hedge funds, institutional banks, proprietary trading firms, billionaires.
- They accumulate and distribute large quantities of stock.
- They determine the market sentiment.
Institutions, High Frequency Trading Algorithms.
- They follow Smart Money’s large orders.
- They buy or sell aggressively, depending on what Smart Money does.
- They are the ones who cause exponential volume increase and big directional price moves.
- Their orders are automated, and their systems are capable of placing thousands of orders before you can place a single trade.
- They are in and out quickly.
Investment Groups and Small Funds
- The average investment company that is somewhat informed of the overall market.
- They listen to suggestions made by the large institutions and follow market trends.
Small Investors and Retail Traders
- The average retail trader/investor or very small funds.
Uninformed Investors, aka “Dumb Money”
- This group is made up of everyone else with some extra cash to invest.
- They have very little understanding of what is going on in the market.
- They base decisions on emotion and are impulsive buyers.
Market Share between Market Players.
Investment Groups, Small Funds, Retail and Uninformed Investors control roughly 15% of the market share.
Smart Money, Corporations, Billionaires, Institutions and HFT’s control the other 85%.
Having this in mind; Your trades and mine don’t really affect the markets. So logically, we should look up to the guys who actually have the resources to move markets.
These guys are called whales.
In the ocean, whales are big, and they cause big waves. Same thing happens in the markets.
Your job, as a trader, is to find these whales, and ride their waves. I hope this makes sense in theory, now let’s discuss how to apply this in practice. You’ll need an options flow service to do this, there are a few:
My favorite is Tradytics. But you can also try:
When you have a flow service, you will be able to see sweeps.
An option sweep is a market order that is split into various sizes to take advantage of all available contracts at the best prices currently offered across all exchanges. By doing so, the trader is “sweeping” the order book of multiple exchanges until the order is filled completely. These orders print to the tape as multiple smaller orders that are executed just milliseconds apart — When summed, they can oftentimes add up to some serious size. These types of sweep orders are especially useful for institution traders (smart money) who prefer speed and stealth.
Sweep orders indicate that the trader wants to take a position in a hurry, while staying under the radar — Suggesting that they are anticipating a large move in the underlying stock in the near future.
Sweeps are aggressive, but we want to filter to find more aggressiveness.
More Aggressive = Better
How to determine aggressiveness? Think about the risk the trader is taking.
On your options flow platform, filter by
1. Out of the money
2. Short expiry
3. Over a million dollars or multiple repeat sweep orders
4. The bigger the difference between the stock and the sweep strike price, the better.
If you see a sweep over $1,000,000 on some short term out of the money options. It is likely that the person that placed the order knows something is about to happen.
When not to follow sweeps:
Sweeps on ETFs (they’re used regularly by smart money to hedge positions).
Sweeps at Bid Price. This indicates the person behind the trade sold the sweep, not bought the sweep.
Spreads. Some platforms can filter out spreads. Don’t follow sweeps that are part of a multi leg strategy. Why? If it’s a directional spread, the anticipated move is probably not very aggressive. Or it could be a non directional spread.
Picking options contract:
I don’t buy the same contract as the whales. I like to play options pretty safe, that’s why I always buy contracts 8 weeks out. This way I’m not stressing about expiry dates and the volatility is way less.
For the strike place, the whale can but the options way out of the money, but I always buy at the money, or one strike out of the money. Again, I like to play it safe.
Conclusion:
So that’s it. I like to keep things stupid simple. This has worked for me. Remember:
- Position sizing is key
- Manage the risk
- Be as systematic as possible
- Look for very aggressive activity to increase probabilities
And before you trade real money, paper trade. Don’t take my word, be a little skeptical and prove this strategy works before risking any real or significant amounts of money.
An invitation
I understand that maybe you’re too busy during market hours to find trades, or maybe you don’t feel confident enough to take your own trades. Whatever it is, I understand. I’ve spoken with dozens of people who have similar obstacles on their trading journeys.
So I started a trade alerts service. We’ve actually developed our own A.I. which helps a lot when we’re picking trades. Our historical win rate is 75% and on average our trades make between 30% and 50%. Our alerts include a full trade plan, with an entry price, a stop loss, and 3 take profit prices, so we take the guesswork out of trading for you.
The first 30 days are free. There’s absolutely 0 commitment, and you can cancel anytime. You can get on the free trial and paper trade, with 0 risk.
I would like to invite you to try it out, here’s the link: Foolproofoptions.com
If you have any questions, send an email: info@foolproofoptions.com
