Jun 11, 2019
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In this episode we talk with a newer options trader who wants to make trading options his full time gig. So let's dive into his questions:
**For more information on the program discussed in this episode, The Iron Condor Mastery, Click HERE**
Craig Davis: So in terms of becoming options trader, being a specialist, what's the top three, top five things I should be looking to do, be, read, think about, think about, and words I'm supposed to have, things like that?
Allen: Okay. The top five or three things that you need to know to be a full-time trader. Obviously, you need to learn. There are many different ways to learn, right? There are many different coaches out there, there are different books out there. You can go, I know in the US we have the public libraries, and you can get any introduction to trading book, and they'll have lots of different strategies in there, they'll teach you everything. But I think it comes down to, so let's say...
Okay, so if I was going to be a trader, so I'm starting over, I'm working my job, I think in the beginning I would try to be more realistic and say, you know, "I need to set my goal, whatever my goal is." I need to, whatever my monthly expenses are, it's 5000 pound a month, or 10,000, whatever your expenses are. So, that's the central goal. And then I think you have to get into the psychology aspect of it first.
Craig Davis: Yeah, okay.
Allen: Where you have to figure out, okay, why? Why is this so important to me? What's going to happen if I don't achieve this goal?
Craig Davis: Okay, yeah.
Allen: Because I think you really need to dig down and make a list of all the negative things, and all of the horrible things that will happen. You know, I'm going to be working until I'm 70 years old, my kids are not going to be able to go to the right college and university, and all these different things, to make it like a mandatory thing in your life, that you have to achieve this goal no matter what happens.
The reason I say that is because a lot of people, they have, "Yeah, yeah, I want to make more money, I want to make more money." But then, while they're on the road, the road has bumps. And so sometimes they go over a bump and say, "Oh, that was too bumpy. I'm going to get off of this road. I don't want to do this anymore." Or they pause, or they stop. They pull over to the side, and they say, "Oh, I'll get back to that after my kid graduates from school, or I'll get back to that after this happens. Let me do this project at work first." They lose track, and then they never come back.
Craig Davis: Okay, okay.
Allen: So, that's a big problem. So, the mental aspect is there. And then the second thing, I think once we have that, then really, you know, you need to look over your entire lifestyle and say, "Okay, I obviously... You need money to trade." There's no other ways about that. So, we need to have, and build up our account as much as possible, so that we have some money to trade.
Craig Davis: Yeah.
Allen: That way you're reducing your expenses as much as possible, paying down your debt, so you're not paying extra fees, and interest, and all that stuff. And then, putting that money away and saving it. Once you have that done, let's say you have the mental aspect done, you have some money to trade, then I think you do some research and you say, "Okay, there are all these different strategies, which one do I think gives me the best chance for success?" And for every single person, it's different. There are people who tell me that, "I think what you're doing, where you're selling options, that's way too boring for me. I want to be a day trader, and I want to get rich in three days." Then, you try that path, right?
Craig Davis: Okay.
Allen: There are people that are very aggressive, there are people that are very conservative, and they say, "Oh, I don't want to take very much risk." Well, okay, then put your money in the index fund, or put your money in a bond fund, and just buy bonds, and make, whatever, two, three percent the bond is paying you, and you live off of that. There are some people that, I know one guy in Canada, he has a company where he teaches people how to do dividend investing.
Craig Davis: Oh, okay.
Allen: By the right shares, and they'll give you four or five percent a year in dividends.
Craig Davis: Okay, fair enough.
Allen: So if that's your thing, that's your thing, that's all you do, and that's all you do. You don't need to worry about it. I found that, for me, I found something that I don't want to only make four or five percent. I want to make, per year, at least 20 percent. And then, I want to do it in a way that made sense to me. For me, I'm a bit of a lazy person, honestly. I don't want to put a lot of time [crosstalk 00:04:31]-
Craig Davis: I think you're being over modest.
Allen: No, really. If you talk to my wife, she would definitely agree with me.
Craig Davis: Well, so you do some work somewhere, so there's some work there somewhere.
Allen: We do a little bit of work here and there in the office. But in terms of the trading, it's not that much. In the beginning, I wanted to find out what I wanted to do, so I did a lot of trades in the beginning. I did a lot of what's called the virtual trading, where you get a free account, and you just do all the different strategies, all the different trades, see which one works for you. I did a lot of back testing.
Craig Davis: Yeah.
Allen: There's software out there that lets you basically go back in time, and you put on a strategy, and then you just go through day by day by day how the strategy worked. If you need to adjust the trade, you can, if you need to change your strategy, you can. So, that was very, very beneficial, because that took a lot of time... If you do virtual trading, like paper trading, or you use real money and you do...
Let's say I want to do a butterfly spread. You come up with your own criteria and you say, "I want to try this new strategy that I've created. I'm going to do this, and this, and this, and this." To actually do it in real time would take you 30, 35 days, and you only get to do one of them.
Craig Davis: Right.
Allen: If you do the back testing, you go back to, let's say, 2000, January 1st, 2000, and you put on your trade. Within like three hours, you can do 10 hours, or 10 years worth of trades.
Craig Davis: Right [crosstalk 00:06:07].
Allen: So it's a big, big chance where you don't spend that much time on it. And you get the learning much faster.
Craig Davis: Right, I see. Yeah. Okay, yeah.
Allen: In the beginning I would find, I would say, "Okay, I'm going to find..." I wanted to find one strategy. Just one trade I could just do it, I don't have to do anything else, I don't have to worry about anything else. This is the only thing I wanted. I just wanted to find one thing that would work. I tried different things. I tried butterflies on McDonald's, butterflies on Walmart, I tried iron condors on certain stocks, iron condors on indexes, credit spreads, double diagonals, cover calls. I tried several different strategies. They all have their benefits, and they all have their negatives.
Craig Davis: Okay, yeah.
Allen: I do think that you can take any one strategy and just work with it, and learn it, and do really, really well with it. So if you find one strategy speaks to you, then focus on that one. Do your virtual trading, and if you can afford a back testing software, get the software, and just within a weekend, you'll have done dozens of trades. You'll have a leg up on everybody else that's doing this. I think that's a secret that people don't really use as much.
Craig Davis: Have you got like two or three back testing softwares that are for doing research?
Allen: So, the one I use most is called Option Net Explorer.
Craig Davis: Okay, Option Net Explorer, yeah.
Allen: I think that one costs... I don't know how much it costs now. Let me see. They have a 30 day trial, so you can try it for 30 days. After that, I think it's... Actually, the 30 day trial is 10 pounds.
Craig Davis: Okay.
Allen: And then for a year, it's 500 pounds.
Craig Davis: Wow.
Allen: You're in the UK, right?
Craig Davis: Yeah.
Allen: So yeah, so it's 500 pounds. So it's a little pricey, you know, maybe you don't need it for a month, or you don't need it for the whole year, but [crosstalk 00:08:16]... Yeah, so it's 10 pounds for the month, so you try it out. And if you like and you want to keep doing it, you can do, they have a three month plan and then they have a 12 month plan.
Craig Davis: Yeah, I'll look at that three month. Okay, three-month and 12 months, okay.
Allen: I mean, you look at everything and you say, "Okay, these are the different things that I want to test. Before you open the account, or before you do the trial, come up with your rules. Like, "Okay, I'm going to do this strategy, and this is my rule, this is what I'm going to put the trade on, this is how I know I'm going to be in trouble." You know, so you have a basic whole trading plan. And then you go and you test that, and you try it. You say, "Okay, this didn't work. Okay, how can I fix it? What can I do differently?" Then you go back and you try it again, and try it again, and try it again until you come up with something that works for you. We have different trading plans that are [crosstalk 00:09:07].
Craig Davis: I'm looking to specialize in the Iron Condor one.
Allen: Okay.
Craig Davis: Because I've seen some things, and trades in the range, and all these adjustments and all that seems like it's a good plan. And then I seen on your program, you have the lazy day trading, or something like that. That incorporates some Iron Condor. So, maybe I am heading towards the iron Condor thing to focus on and try and specialize in.
Allen: Yeah. So we do, we have that course. It teaches everything of a tizzy about the Condor, how it works, how do you do it. It gives the different trading plans that you can use based on if you want to be aggressive or more conservative, whatnot. So, if that's something that you want to focus on, then just go 100 percent and do that, and see how it goes. Do the trial, and test all the different trading plans, see if you can find some other trading plans online.
Craig Davis: Okay.
Allen: I know the ones that we've put into the course, we've tested them, we've done them with real money, so we know that they work. So the question is really, "Okay, so here's the plan. Allen says it works. Now let me go back in time and let me try it, and let me see how I do."
Craig Davis: I like that bit, yeah.
Allen: And let's see. You know, let's see if Allen is full of it, or let's see if he's really telling the truth.
Craig Davis: Now, that's fair enough. I like it. Yeah.
Allen: Because it also, like I said, it's different for everybody. So, the trading plan, we've gotten testimonials from people and said, "Hey, I tried this and it worked great," and then we've had other people that said, "I tried it and it failed, and I didn't work." So, what's the difference? The plan is the same, the market is the same.
Craig Davis: People.
Allen: It's the people that are, they're doing something different or whatnot. We had one student, he was in one of our other courses. It was, you know, you put on the trade and you wait until the trade, if it goes against you, you have to let it go to a certain Delta.
Craig Davis: Yeah.
Allen: So we do that with condors as well. You put the trade on at a certain Delta, and when it gets to a certain Delta, that's when you know that, okay, it's time to change or adjust the trade.
Craig Davis: Yeah.
Allen: Well, this fellow didn't want to wait until that Delta. He was looking at the money and he said, "Oh, I was down 200 dollars, so I got out of the trade, and it didn't work."
Craig Davis: Yeah.
Allen: I said, "But, that's not how it works. That's not the plan."
Craig Davis: Yeah.
Allen: You can go down four 500 dollars, and then eventually it will come back up, and then you'll win. So, you have to be able to ride the waves. For him, that particular plan, or maybe trading in general was not, it didn't fit for him, because of his style. If you cannot see yourself and say, "Okay, I'm going to put the trade on..." When we're selling options, especially with iron condors too, in the beginning of the trade you might be down 100 dollars, 200 dollars or something, before it turns around and then it starts making money again.
Craig Davis: Yeah.
Allen: But if you don't have the patience, or you don't have the ability to just sit and wait, then this is not the trade for you.
Craig Davis: That's true, that's true. Yeah, from what I can see and from what you're saying, it seems like you have to have that confidence to stick to the plan, and just follow the rules according to the plan. So yeah, I think that's-
Allen: You have to have confidence in the plan. So, that's why you do the back testing. You just do it as many times as you can, you track all your results, and you look at it and you say, "Okay, you know what? Over the last 10 years I made money eight of the years or six of the years, I lost money for of the years. In my head, am I behind? Is that acceptable to me?
Craig Davis: Yeah, yeah.
Allen: You know? I had a friend of mine, he found this strategy for the iron Condor, somebody showed it to him, that says, "This is how you put the trade on, and then you never touch it."
Craig Davis: Oh, naughty. Yeah.
Allen: That's it, you don't do anything else. You put the trade on, and then you just let it do its thing, and the numbers should work out, and you should make money. So, it's either you're going to win on that trade, or you're going to lose the maximum.
Craig Davis: Yeah, that's not a good trade then. That's not a good plan.
Allen: Right. I mean, before we make a judgment, we have to test it. So my friend, he's very smart, so he said, "Okay," and he got it. He got the same software, this option software. Now this guy, he's wealthy, he's already wealthy. He went and he found somebody, and told them, "Hey, I need you to learn how to use this software, and I'm going to pay you to run this test."
Craig Davis: Nice one. A real life scientist, yeah.
Allen: Yeah. So, he hired this person, and the guy did all the testing for like the past 20 years or something. The results were that if you had traded this way every single year for 20 years, you would've just about broken even.
Craig Davis: Oh my gosh, that's not good.
Allen: Yeah. There were some years where it did very, very well, and then there were some years where he lost a bunch of money. But overall, over 20 years you would've broken even. So he's like, "Yeah, this doesn't work," and I'm like, "Well, I'm glad you know before you wasted the next 20 years to try to bring it out."
Craig Davis: [inaudible 00:14:35].
Allen: So for iron condors, I do believe you have to adjust it. That just gives you a better chance to win.
Craig Davis: Yeah.
Allen: But another thing you have to be aware of is, you don't always want to be in the market.
Craig Davis: Okay. That's an interesting concept. Because you're always like, when you see on some of the things where they say, "Oh, yeah, you've always got to be [inaudible 00:14:59]." So it's interesting when you say be in the market and out the market. What do you mean by that? That's a good mindset, I suppose for someone that starting out?
Allen: In the stocks, when you're investing in stocks, they have gone back in time and they've looked at this, and they've said that most of the games that are made in the stock market are made in a few days every year.
Craig Davis: No way.
Allen: Maybe like 20 days every year. That's when the majority of the gains happen.
Craig Davis: No way, so what's happening for the rest of the time?
Allen: 70 percent of the time, stocks go sideways.
Craig Davis: Sideways, okay.
Allen: Yeah, that's why iron condors work. They go up, and they go down, and they go up, and they go down. That's why they tell you that you always have to be in the market if you're a stockholder, because you don't know when those days are going to happen.
Craig Davis: Yes, yes.
Allen: It could be in the beginning of the year, it could be in the middle, could be the end. You might miss out on a rally... Like for example, this year, 2019, if you were in from January to now, you would be up whatever it is, 16, 18 percent.
Craig Davis: Yeah.
Allen: If you missed these first few months, and you get in right now, well it looks like the market's going down, so you might lose money the rest of the year.
Craig Davis: Yeah, yeah.
Allen: That's why if you're a stock trader, most of the time you have to have your money in the market, because you can't time it. You don't know when it's going to go up and when it's going to go down.
Craig Davis: No, no.
Allen: Most of us. Most of us cannot.
Craig Davis: Most of us, yes. And unless you've got that magic crystal ball where you can say, "Oh, yeah..."
Allen: Yeah. But when you trade the iron Condor, or other option strategies, you want to look at what's the VIX. The VIX is the volatility of the overall market.
Craig Davis: Yeah.
Allen: Now, the more volatile it is, the more volatility there is, the more the option prices are worth. You get more money when you sell them. But, that also means that the stocks are moving up and down much faster.
Craig Davis: Right, okay.
Allen: So you have to be on your toes. You have to be watching every day when it's very volatile, and you have to be ready to adjust, you have to be ready to play with it, and you have to be... To trade when it's very volatile, you have to be the best of the best.
Craig Davis: Right, okay.
Allen: When volatility is very low, the stocks aren't really doing anything, you can put on the trade and just wait, and then it expires, and you're done, right? Anybody can do that. And so in the beginning when you're starting out, I tell people like, "Hey, if it's too volatile for you, if you are getting nervous because there was a two percent move, or a three percent move in a day, then that's a signal that this is above your skill level, and you need to just get out."
Craig Davis: Okay, yeah.
Allen: Because if we are trading iron condors, we can make 10, 12, 15 percent per month.
Craig Davis: Yeah.
Allen: Do we need to do it every single month? No.
Craig Davis: No, okay. Right.
Allen: If you have two or three good months, and you're up, let's say... Let's say it's the end of March and you're up 30 percent for the year, that's a pretty good year. You could take the rest of the year off, and say, "Hey, I made 30 percent." Most people don't do that, because they're so greedy. They're like, "Yeah, I want to get more. Let's go for 70 percent. Let's go for 100 percent."
Craig Davis: Okay.
Allen: Eventually one of those months you're going to lose. And the thing is, you really cannot tell, in the beginning, you cannot tell which months are going to be simple and which months are going to be very volatile. But the thing is, when you're done with a trade, you can re-examine and say, "What's going on in the market right now? Do I want to get in right now, or do I want to wait? Is there some news event on the horizon, or something that would cause the market a lot of uncertainty and a lot of concern? Then I'll just wait until that thing is over with, and I'll see how the market is reacting to it, and then I'll put my trade up." So, that's what I mean by you don't have to be in it all the time.
Craig Davis: Right.
Allen: You can pick and choose. [crosstalk 00:19:05]... Sorry, go ahead.
Craig Davis: Is there a way in your training, or is there some way to be able to help you make that decision? Because I might see the... The VIX might be something given this is in the market, but [inaudible 00:19:22] say with confidence to say that, oh, the market's a bit volatile at the moment, I might stay out of it?
Allen: So, it takes a little bit of experience to be able to really pinpoint it. But I'll give you the short version.
Craig Davis: Okay.
Allen: What I do whenever I'm putting on a trade, especially my iron condors, and I do them every month on SPX, and I do them on Rut, those are the two big ones that I like... You can do them, if you have less money you can do them on SPY, and IWM, or any of these ETFs.
Craig Davis: Okay.
Allen: I like to do them on the big ones, because it takes less contracts, and it has different advantages. But, I look at, when I'm putting on the trade, I have an analysis sheet and I say, "Okay, what is the VIX trading at right now? Do I see any kind of support and resistance on the chart? How did I do last month, how did I do the month before?" And then I'll also look at the standard deviations. So, standard deviation is basically a percentage movement. It's a statistical number, statistics, so it will tell you that the SPX moved in a bigger amount than it normally does.
Craig Davis: Okay.
Allen: So even if the volatility is still the same, today they had a really big move for some reason. So normally, you know, 70, 80 percent of the time, the SPX will be within one standard deviation.
Craig Davis: Okay.
Allen: If it moves more than one standard deviation, then that's a cause of like, "Hmm, let me pay attention to this."
Craig Davis: Okay.
Allen: If it's moving more, if it's moving two standard deviations, then that's a flag. And say, "Okay, there are big moves happening here, I need to pay attention to this, or maybe I need to get out of the market, or maybe I need to stay out."
Craig Davis: Right, yeah.
Allen: If there is a day when there is more than a one standard deviation move, I don't get in, I don't put a trade on that day.
Craig Davis: Right, okay.
Allen: I want to get in when it's a calm day. So that is the shortcut there, that you need to monitor the standard deviations on a daily basis, and see how they are doing for whatever instrument you are trading. If it's not SPX, if it's a stock, [crosstalk 00:21:35] you can find the standard deviation for everything. Look at it and see, "Okay, I was trading it last month, and it wasn't really moving very much. But now, it's moving one standard deviation every day for the last three days. Okay, something is going on."
Craig Davis: Okay.
Allen: So that's like a flag, it's a bell. "Ding, ding, ding." [inaudible 00:21:58].
Craig Davis: Yes, okay.
Allen: You need to research this more and decide, "Hey, what is the cost, and do I want to get in or not?"
Craig Davis: Yeah.
Allen: There's different ways. Sometimes I look at it and I'll say... When I'm putting the trade on I look at it, "Okay, over the past two weeks, how many times has it moved more than one standard deviation?"
Craig Davis: Okay.
Allen: If you get two or three, that's normal. You have to understand what is normal for whatever instrument you're trading.
Craig Davis: Yeah.
Allen: But for SPX, two or three times is normal. If you get seven or eight, that's very high, because it's only for two weeks. Over the last 10 days, it moved a lot more than one standard deviation seven times, that's very high. So that means that, without even looking at the news, you know that there is something happening in the market.
Craig Davis: Right, okay. Yeah. No, I like the sound of that. That's a good... There's one thing to a trading plan, but this analysis sheets sounds like another good thing as well. And definitely looking at standard deviations, and the movements and the market's an instrument. That sounds like a good, what's it called, skill, or discipline to have. So thank you.
Allen: It's something that can help you, you know? Just keeping an eye on it. It's not a hard and fast rule that you don't do it, or you have to... I don't initiate a trade when there's more than one standard deviation. Do you have to do it that way? No, that's just my personal preference. But, this is something that you can, it's like another tool that you can use.
Craig Davis: Okay, yeah. Lots of tools in the toolbox sounds good to me, lots of skills, yeah. I like the sound of that. So that's something I need to have in my vocabulary more than the standard deviations, the percentage movements?
Allen: Well I mean, if you don't do the standard deviation, you can look at the percentage movements, but then you'll have to remember. It's harder to remember. If you... I don't know what broker you're using.
Craig Davis: I'll be using Interactive Brokers.
Allen: Okay. So, I'm not familiar with their set up, but if you call them, or you find online that there must be a way that you can actually, on your chart you can see the standard deviations.
Craig Davis: Yeah, let me write that down. [inaudible 00:24:26] brokers where on charts I find the standard deviation. Yeah, okay.
Allen: You might have to write it down, or they might have it visually on your screen, however. But whatever works for you, it's a good measure to keep track of.
Craig Davis: Yeah. Thank you. No, we'll do that. Standard deviations, [inaudible 00:24:55] analysis sheet. Is the first one on there now? [inaudible 00:25:02] I need to get a trading plan, makes me stick to the trading plan, my analysis sheet. So you've now got another sheet now that says analysis on it [inaudible 00:25:10], and check standard deviation.
Allen: You also want to make sure that you're not trading during earnings, if it's a [inaudible 00:25:20].
Craig Davis: Okay.
Allen: And, if you're doing iron condors, you want to know in advance, at least have an idea of what you are going to be doing as an adjustment if the trade goes against you.
Craig Davis: Okay. That sounds like an interesting technique. How would I... Because you've got a couple of programs, is that mindset and that skill set within there, like that adjustment thing that you were just saying, like is that [crosstalk 00:25:51]?
Allen: In the course, and the iron Condor course, that's covered in detail.
Craig Davis: Oh, okay. So then-
Allen: Yeah, so we actually have videos where I went through some, I think it was three really, really horrible iron condors, like the market just went crazy. I go through it on that software, that back testing software I told you about.
Craig Davis: Right, okay.
Allen: I go through it on there, and I go day by day and I'm saying, "Okay, market just dropped 50 points. Okay, this is what I'm thinking. Do I do this, or do I do this, or what happens if I do this? Okay, which one am I going to do? I'm going to do this, because of XYZ reason. Okay, now let's see if it worked. Let's go day number three, day number four, go forward, go forward." So basically I'm telling you what I'm thinking as I'm going through the trade.
Craig Davis: Okay. I like it. That's a good, that's the best way I think.
Allen: So now are you going to be, you're in the UK, are you going to be trading the US stuff, or English stuff?
Craig Davis: US. I'll be looking to do US, yeah.
Allen: Okay, so the market-
Craig Davis: But I think my main focus is going to be the US stuff I think. Like the SPX, like I just said, SPX, or SPY and all that. I want to try and do something may be on the SLV possibly, if I can do something.
Allen: Okay.
Craig Davis: As I say, I've I've got to look at your program, look at the resources that I've got, and then just [inaudible 00:27:16]. But yeah, the ETF SPY might be the one that I start with as well. But yeah, that's where I'll be starting, on the American stocks, and the American instruments.
Allen: Right now, gold is very steady, I think. I haven't checked it. I think it's been steady. I haven't checked SLV though. Let's see how that's doing. So yeah, these are ones that do not have earnings, so they are good to do that, they're good for iron condors.
Craig Davis: Okay. Sounds like a good one to do some back testing and research on that. Okay, yeah.
Allen: Definitely. Yes, definitely. Hold on a second. Hold on, I'm going to share my screen.
Craig Davis: Oh, okay. Do I have to press anything? Oh, no, it's fine.
Allen: I don't think so. You can see?
Craig Davis: Yeah, yeah, yeah, yeah, yeah.
Allen: All right, so here is SLV, and you know, it's pretty much up at 16, and died down at 13 something right now.
Craig Davis: Yeah.
Allen: So basically if we're doing an iron Condor... And you can use... In the course we normally go for about 45 days. But we can go 28 days. This one doesn't have a lot of volume, SLV though.
Craig Davis: Right.
Allen: So, might not be the best one.
Craig Davis: Okay.
Allen: Let's try it.
Craig Davis: Do you have a minimum volume in the instrument that you go for? What's your guide range?
Allen: I just want to see some action.
Craig Davis: Oh, okay.
Allen: If I'm doing five contracts, and like this one, this one has 200 contracts every day, 100 contracts. That's fine, because I'm a small part of that.
Craig Davis: Right, okay.
Allen: But the other one, SLV, this one was only showing, like right here, there's only 230. So, these are the only two options I have. So, I don't have a lot of choice in which to trade, so it was like, ", yeah, I don't want to do that one." You know, compared to SPY, you take a look at that one and you're going to say, "Oh, you have a lot of these to choose from."
Craig Davis: Yeah.
Allen: People are trading all of them. So, you have enough liquidity to get out if you need to as well.
Craig Davis: Yeah, yeah. Liquidity, that's definitely a good keyword.
Allen: So if you are doing this one today, depending on how much money you want to put into each trade, you can go to the 292 maybe. Let's say we do 200 each, so two points. This is what our trade would look like.
Craig Davis: Yeah.
Allen: This trade gives us a 66 percent probability of winning, it's right in here in the middle, and then I can put these on the chart. So basically, this redline and this redline are the top and the bottom of our trade.
Craig Davis: Yeah.
Allen: So it seems like it'll do all right.
Craig Davis: Yeah.
Allen: This is a yearly chart. In this trade, what can you make? You can make 55 cents, and it's 200, so let me see if I... You can make 100, you can lose 300. So you know, whatever that is. You have a 66 percent chance of doing that. So what is that, like 33 percent gain? One divided by three?
Craig Davis: Yeah.
Allen: You could make... I mean, so you can be more conservative than this if you wanted to.
Craig Davis: Yeah, okay.
Allen: You can bring these all the way out to here, and go maybe 75 or 80 percent probability. That way, your tent will be larger.
Craig Davis: Right, okay.
Allen: So, less of a percentage return, but more chance of being safe.
Craig Davis: Okay.
Allen: Now the thing is, like right now, I don't know if you've been following the news or not, but the US and China, they're having their little trade war.
Craig Davis: Trade wars, yeah.
Allen: So that has been sending the market up and down almost every day for the last week or so.
Craig Davis: Right, I see.
Allen: If there's a tweet from Trump, then it goes up, otherwise it goes down. So in this environment I would say, no "Well you know, VIX is up a little bit, let's look at standard deviation, and these are the standard deviations. So in the past two weeks, we have one, two, three, four, five, six, seven, eight, nine, 10, one, two, three, four days where it moved more than one standard deviation." So that's a little bit on the high side.
Craig Davis: High side, okay. Yeah.
Allen: I would love it if it's like this, where it's all just gray, and no, they may be have one, but that's about it.
Craig Davis: Yeah.
Allen: This is telling me things are getting heated up.
Craig Davis: Right, okay.
Allen: Just looking at it visually. You see this, you see a lot of gray, a couple bars, a couple bars, couple bars, then all of a sudden you start seeing more reds and yellow. Yellow for here is a danger, because it's more than two standard deviation.
Craig Davis: Right.
Allen: And then, you're see more color, it's getting a little heated, so you have to be careful. That's all that tells you.
Craig Davis: Yeah, that's cool. Okay. So you say something about news, what kind of news are you following, or if there is one I should start looking at, one or two?
Allen: I try not to.
Craig Davis: Oh, okay.
Allen: I try not to watch the news. [crosstalk 00:32:48].
Craig Davis: Okay, good.
Allen: Yeah. I've done... When I do my back testing, you don't hear any news. You're just looking at the chart, you're looking at the trade and you're going day by day. You don't know what's going on in the world.
Craig Davis: No.
Allen: You will do better in your back testing than in real life, for sure.
Craig Davis: Yeah, that's true.
Allen: Just because the news has an effect on us.
Craig Davis: Yeah, true.
Allen: When you're in the trade for 30 days sometimes you get scared, sometimes you hear something. So, if you're only watching the trade, you're not watching the news, you'll actually do better.
Craig Davis: Right, okay. No worries.
Allen: But sometimes there's stuff like this, when it starts dropping all of a sudden, then you have to pay attention. "What's going on? Why is it always that it's going steady for so long, and then all of a sudden it starts dropping?" And then you have all, look at this, you see this? Red, red, no red, red, red, red, red, yellow. This is like, "Hello, wake up, we have something going on here."
Craig Davis: Yeah.
Allen: So that's when you watch the news and you see what's going on.
Craig Davis: What's going on, right. When the red flags are there, then watch the news, okay.
Allen: Yeah. So I mean, I watch some shows that tell you like technical analysis, what other people are thinking. They'll say, "Oh, this is the line of resistance, and this is the support level, and this is this," okay, I'll take a look at that. But on a day to day basis, the nude is total baloney. They have no clue why the market is moving. Really, on a day to day basis, they don't have any clue. They have to make up something.
Craig Davis: Yeah. Yeah, just to keep the viewers happy, I suppose, yeah.
Allen: Yeah, I mean, they have to have airtime, right? They're on 24 hours a day, they have to talk about something.
Craig Davis: Okay. Yeah, yeah, no worries. No, that's really insightful there, thank you. Yeah, so red flags, warning, check the news, standard deviations. [inaudible 00:34:51] if it's yellow, yeah, stuff is happening.
Allen: I mean, Interactive Brokers might not show it like this.
Craig Davis: No, that's fine. If they've got it somewhere, I'll just have to just get my eyes used to the way that they present the data, but yeah, I'm happy to do that.
Allen: So essentially you have about 2000 to trade with, is that what you wrote?
Craig Davis: Yes.
Allen: Okay. And your expenses, your goal is about 3500 a month, and you want to get there in about three years.
Craig Davis: Yes. Or sooner, or sooner.
Allen: Or sooner.
Craig Davis: I put that down there because, like as I say, I just put the figures down there, in terms of like what's achievable and what's possible.
Allen: So let's say, here, let's do some quick math. So, 3500 times 12, 42,000 pounds a year, and you have 2000 to work with.
Craig Davis: Yeah.
Allen: That's 42,000 divided by, let's say, 25 percent a year. If you're making a 25 percent yearly return, you would need an account of 168,000.
Craig Davis: Nice one.
Allen: And you're at two.
Craig Davis: Yeah, so that's no chance. [crosstalk 00:36:04].
Allen: How long will it take you to go from 2 to 168? There's a small chance, but you'll have... I don't want you to take excess risk is what I'm saying.
Craig Davis: No, no, no, no, I'm in it for the long term. I'm going to start small, grow small, learn.
Allen: And right now you have two, but that's what we talked about earlier, you're saving whatever you can. [crosstalk 00:36:24]...
Craig Davis: Yeah, you'll add into it, yeah.
Allen: Yeah. One of the things I tell some people is that, when you're doing your back testing at your paper trading, even if you're not real money trading, keep a result of all the records.
Craig Davis: Yes.
Allen: Keep a track record of how you're doing. Because you never know when you're going to run into somebody who has money, or an uncle, or someone who's... Because you know, when you go to a party or you meet someone, you say, "Oh, hey, what are you doing now? What are you up to?" And you, "Oh, I'm trading options." "Oh really?" "Yes." "How are you doing?" "Oh, I'm doing fantastic." "Really? Oh, okay, I have some money that I need to invest. Can you do it for me?"
You will be surprised at how many people there are that have money, that they don't know what to do with. So these people, they might come and tell you, "Okay, I have 20,000 pounds, please do something." And you do it for them if you want to, and then you keep, "Okay, I'll take half the profit." "Okay."
Craig Davis: Yeah.
Allen: But keep in mind though that that also brings another level of stress.
Craig Davis: Yes. I could imagine, yeah.
Allen: Losing your money is one thing, losing somebody else's money is a whole different thing.
Craig Davis: That's true. Yeah, man, you have to be careful. Yeah, that's fine. Yeah, man. Just go and lose their money that easy. There's a UK term, they call it like a... I don't know how you'd say it in American slang, but in the UK it's like, "Don't pee it down the toilet," or something like that.
Allen: Yeah.
Craig Davis: Yeah, so I understand [inaudible 00:38:05].
Allen: Yeah, we call that, what do we say? We say we pissed it away.
Craig Davis: Yeah, that same thing, yeah. So yeah, we say the same thing.
Allen: Cool.
Craig Davis: So yeah, definitely. That sounds like a way forward. That's excellent.
Allen: So what else, what other questions?
Craig Davis: So, with respect to... I'm just trying to think, I think I've gone through the sort of, like you definitely have the mindset [inaudible 00:38:36]. With respect to adjusting, so you've calculated how much to put on a trade for an iron Condor. I'm just going by the term, like the rollover adjusting, is there a way to calculate, or you can't tell how far it could go against you, is there a way to make it like a rough ballpark figure on how much to put aside if you needed to do an adjustment? Or is that all on your course on how to make the decision should you adjust, or should you do this, or take money off the table?
Allen: In reality, you can adjust forever. You can adjust month after month. You can keep it rolling forward, "Okay, so I didn't do good this month, I'm just going to roll it into next month," and then roll it into next month, and you can just keep going. I don't think that's a good idea, because it never ends.
Craig Davis: Yeah.
Allen: If I lose money on a month, then I just want to end it, and then start over fresh.
Craig Davis: Yes.
Allen: I don't want that baggage of coming, "Okay, I'm down 300 dollars from last month, I got to make it up." No, I want to start fresh, and whatever I can make, and then get it back eventually. If I was to put... I usually keep about half of what I put in originally.
Craig Davis: Oh, okay.
Allen: So, if I put in 1000 on a trade, I might keep another 500 on the side.
Craig Davis: Okay.
Allen: Or maybe another thousand, and worst-case scenario, to adjust.
Craig Davis: Okay. Why not, why not? Okay, I like that. Yeah. I like that. It makes sense. So 100 to 50 percent, why not? Why not? I like that. I like that. So trade, and that's what you [inaudible 00:40:22]. Okay, why not? Yeah, I like the sound that that's okay. Let's see, what other questions could I ask you? I sure have put some on my email, but-
Allen: It says here that you took some courses already?
Craig Davis: Yeah, so I took some courses. I know this might seem like a strange one. There's a guy called Robert Kiasaki. I went to one of his training things and I thought, "Right, I'm going to fly in..." So pretty much, he's the one that put me on the path to try and look into do these things. I've been trying to do real estate things, and business things, and the stocks and shares thing. So I've done a couple of things, but that was just like the theory. I never got into a paper trading account.
So last year I went, because in my full-time job I work in healthcare, I work in a pharmacy. So I got this contract, I was at the hospital pharmacy, where you've got more some more and things. I worked with this guy, I worked with him before, and he says, "Oh, come and work with me on this iron, and it's paying me [inaudible 00:41:21] a bit more money." So I thought, "Oh, based on the hours that I've got, this is okay."
But what I didn't factor in, and maybe it's a life lesson, is like the downside. If you can imagine, I experienced the most downsides where, this is my assumption, I never asked, so I suppose I wasn't wrong. So for example, the person contracted [inaudible 00:41:46] for his business, he was saying, "There's too many staff, we're not going to employ staff." So I go, "What do you mean by that?" I had to find out the hard way that if all the jobs don't get done, I have to stay behind.
Allen: [crosstalk 00:41:57] Yeah.
Craig Davis: So before I was supposed to do 45 hours a week [inaudible 00:42:02], I think I must've pushed about 75, 80 hours a week. I was there late nights on weekends, I was there on my days off.
Allen: Right.
Craig Davis: I was there trying to... So, my plan was to go there, get my paper trading account up and running, start doing some stuff, so that's where I had the idea to get onto the [inaudible 00:42:22]. But then it stopped. So let's say, so April, May, say June 2018, I stopped doing stuff. So in the process now, I have to send an email back to Interactive Brokers, because my account cleared [inaudible 00:42:37] on SLV. I was selling some put options, because I thought, "Oh, I've learned about put options, let me sell some put options, and if it goes up, I keep the premium, if it's slow I keep the premium, if it goes down, then I don't get the stock anyway, but I got it for discount."
So I started doing all that and then, boom, the reality of that kicked in. Then, I says, "Oh, I need some annual leave." He goes, "Oh, I can't find cover for your annual leave." I go, "What are you talking about?" So before I just assumed, I never discussed it. Well, it's not that I didn't discuss it, but I thought like, well... So for now, I'm just working with teams now where if I can get an agreement where possible, I'll go for that. Because before, I just overlooked it.
Allen: Mm-hmm (affirmative).
Craig Davis: I overlooked, like with my other team, like they were saying, "Oh, you got to do this [inaudible 00:43:30]." "You guys are killjoys." He was telling me, "Sorry, we can't give you cover for your leave," so I says, "What are you talking about?" So, I didn't have the words and the vocabulary, because I never thought I'd have to present an argument to ask for... Or, [inaudible 00:43:47] present an argument to request for annual leave.
Allen: Yeah.
Craig Davis: Never. I thought, "Okay..." So with respect to the courses, I started off with Robert Kiasaki, did some real estate ones, and there's a guy called Andy [Tamura 00:44:04], he had some ones. Then recently, I went on to Udemy, and that's where my... Because on Andy Tamura, he did one of these things and then I stopped. [inaudible 00:44:16] the profile, and when I seen the profile, "Oh, someone on Udemy," and I seen this thing it says like, "How to make money on weekly options," and it was talking about iron condors.
Allen: Mm-hmm (affirmative).
Craig Davis: So I researched and said, "Oh my gosh, he was talking about that." And then they say, "Oh, you've got to get educated," so I went on some podcasts and then I came across yours. I was listening to the way that you were speaking for your people and I thought, "Yeah, yeah." Because they say sometimes if a person, you can listen to what they're saying, but you have to make the decision on what they're presenting and what they're saying.
Allen: Right.
Craig Davis: What gave me the confidence to say, "Oh, yeah, this guy seems okay..." Because when you where then talking to the student guy, you... Because there's some people, like I said, that can sugarcoat it. But you actually said to him, "No, you need to get someone that's going to make you accountable, like a trading partner, that's got a list of rules." [inaudible 00:45:09], "Okay, you didn't get the trade, what are you going to do about it?"
Allen: Right.
Craig Davis: And that kind of thing. I thought, "Yeah, I like that." Because that's what you need, is everyone, "Oh, yeah, it will be fine [crosstalk 00:45:19]." You want someone to know, really to... Yeah. So I thought, "Okay, yeah, you seem like a serious guy. You want people to benefit."
Allen: I learned from experience. That was my wife. That was my wife standing there telling me, "What are you going to do to fix this?"
Craig Davis: The best trading partner, yeah. Yeah, but that's a good incentive as well.
Allen: Yeah, every day she would come up the stairs when I was at home. Every day she would come up the stairs and stand there until I talked to her.
Craig Davis: Yeah, "What have you done? What are you doing?" So yeah, so there you go. Behind every strong man there's a strong woman, I could imagine.
Allen: Oh, yes.
Craig Davis: Like I said, so for me, that's what got me onto the parcels. And there's programs. I seen yours, I listened to that podcast, and I looked into some of your things and I thought, "Okay, I want to be an expert, so I'm going to have to put the money in. Because why not pay, say, 297 dollars if it's going to say..." I'm telling you before I was not an ambassador. I don't know why I wasn't listening before. It's like I just have the theoretical, I had to practically...
[inaudible 00:46:41] like the insurance, if it can save you money, I don't mind spending 297 dollars going in the forum, and it's going to save me 3000 dollars or something like that down the road. I haven't got a problem with that anymore. Before I might've been, "Oh, I'm going to risk it." No sense. Because it could be worse. Because as I said, there is no...
Allen: You mentioned a couple things. You said the weekly iron condors. I would not do that.
Craig Davis: Well, so don't do the weekly ones, [inaudible 00:47:18].
Allen: Those are for experts, and those are for people who like to gamble. If you don't have the money to risk, I would not do that at all. I would stay with the monthly.
Craig Davis: Yes.
Allen: The weeklys, you cannot adjust them. I'm sorry. I don't care what other people say. They just move so fast, that you cannot adjust.
Craig Davis: Right.
Allen: And the money that you make is so little, that you're only trying to make five, six percent. But that thing could, you know, you sell it for 20 cents today, tomorrow it could be a dollar, what now?
Craig Davis: Yeah.
Allen: You can't do anything. I learned the hard way that those are very dangerous, and they...
Craig Davis: Yeah.
Allen: And the [crosstalk 00:48:01] Kiasaki, he gets paid a lot of money from that Andy Tamura guy, to just be the head. You know?
Craig Davis: Yeah.
Allen: He will just use your name, and your picture, and your video, and... I mean, I love his books, I love his books, and they make a lot of sense, but yeah, so be careful of those. [crosstalk 00:48:30].
Craig Davis: He doesn't recommend the weekly options [crosstalk 00:48:34] for him. He didn't recommend that. I did see it on the Udemy, where it says, "How to make money selling options doing this weekly..."
Allen: Oh, I see, I see.
Craig Davis: So for me, I was looking at it as a learning exercise, where what is the difference between doing this weekly iron Condor to the monthly? Because they do say do it for 45 days, and do this.
Allen: Right.
Craig Davis: So, I was just looking into the process, but yours seems like you've got the accelerated version, where you've got the whole package there, you're going from start to finish, and this and that.
Allen: Yeah, I mean, and if you have any questions or anything, you just email me, I'll help you out.
Craig Davis: Yeah, definitely, definitely.
Allen: If you need anything, just let us know.
Craig Davis: Yes, yes.
Allen: But really, take the plan, do the back testing, if you can afford it.
Craig Davis: I will.
Allen: I haven't checked, there might be something out there that's cheaper.
Craig Davis: I can have a look. So if I literally Google, is it called like back testing software? Is it like that, or is it-
Allen: Yeah, so just option back testing software.
Craig Davis: Okay.
Allen: You might find something. I know this company that I use, on the screen, the Think or Swim, they have something for back testing.
Craig Davis: Okay.
Allen: It's included, it's free. It's not very good... I think it's right here, Think Back. So, it's not the best, but it's free.
Craig Davis: Okay.
Allen: You can go back in time, so let's say you want to go back a few years, go back to this day. So it'll tell you, "Okay, SPY on that day was 131." And I think this is a chart for it.
Craig Davis: Yeah.
Allen: It gives you all the prices. So, you can put on a trade and then just go through it and see. Just go day by day. Like, "Okay, this is the 7th, today's the 8th, today's the 9th, how's my trade doing?" It's not as good as the other one, but then again, it's free.
Craig Davis: Okay. I can have a look at it. I have seen the Think and Swim. I don't think they're taking account for the UK anymore.
Allen: Oh, I didn't know that.
Craig Davis: [crosstalk 00:50:42] Interactive Brokers.
Allen: I see, okay. That's horrible. Tasty Trade... Or, no, Tasty Works is another one.
Craig Davis: Okay, let me try that, Tasty Works, yeah.
Allen: They're a newer broker, and I know they opened for Australian accounts, so they might be probably open to you guys too.
Craig Davis: UK, okay.
Allen: And they are, you know, they focus on options.
Craig Davis: Oh, excellent.
Allen: They have a lot of educational stuff as well. Some of their stuff I agree with, some not.
Craig Davis: No worries.
Allen: Okay, so the guys who, they're the same guys who made Think or Swim.
Craig Davis: Oh, okay. Oh, that's good.
Allen: In the past, they were floor traders on the exchanges. Then they made Think or Swim, and you know, they started doing videos, and teaching people. They were the ones that told everybody to do the iron Condor without adjusting.
Craig Davis: Really?
Allen: That's how they got popular, yeah. And then they sold this company to Ameritrade for millions and millions of dollars.
Craig Davis: Okay.
Allen: And then after they have the buyout period, where they cannot do anything for a lockup, they cannot do anything for a certain amount of time. Then once that period expired, then they went and they opened another brokerage.
Craig Davis: Oh, okay.
Allen: They're still out there, making videos and whatnot. So, they have a lot of content that people like. But they might, let me see if they open accounts in the UK. I think they do.
Craig Davis: Okay, I'll have a look. But like as I say, with this Andy Tamura guy, you mention weekly, but he says safety, so that's where I got the safety element. But yeah, he definitely was saying, "Grow small, take your time. [inaudible 00:52:43] paper trades."
Allen: Right.
Craig Davis: But no, I don't think he wouldn't have said anything about [inaudible 00:52:49] saying about, "How do you have a losing strategy?" And rather than taking the maximum offer, he was the one that [inaudible 00:52:58]. So that gave me the idea. That's what I was leaning to. Because he said, "How do you turn a losing trade, so you don't get the max loss, and you're sort of not [inaudible 00:53:07] after having the max loss?"
Allen: Yeah, so that's basically talking about adjusting.
Craig Davis: Yeah, yeah. So yeah, man, Think or Swim [inaudible 00:53:25] said to do that, wow, they would've believed it.
Allen: Yeah.
Craig Davis: Well, like as I say, if it were, it depends on what context. Yeah, if they break even after 10 years and that.
Allen: I was shocked, I didn't know that. I hadn't done it, my friend did it, and I was like, "Wow, really?"
Craig Davis: Wow. If something sounds too good to be true, it most probably is or something, they might say. But no, I'll look for that. I'll look for the Tasty Works. If I can start an account, then I can look at that.
Allen: Yeah. The only reason I tell you that is because their software might be better than Interactive Brokers.
Craig Davis: Ah, okay.
Allen: It doesn't matter which one you use, but their software, because they are focusing on option traders, so their software might be better. And they're newer, so they'll respond to you. I know Interactive Brokers, they don't really respond very well. Their customer service is not the best.
Craig Davis: Right, that's all I need to know. You've got a problem, you can't get a hold of anybody.
Allen: Yeah, I opened an account with them, and I couldn't even figure out how to use it, seriously. And so I emailed them, and I didn't get any response. Then I canceled the account, and then they contacted me. They were like, "Why'd you cancel?" I was like, "Well now you contact me."
Craig Davis: No, that's not the best way.
Allen: I think they are the cheapest, but you know, you really have to know what you're doing.
Craig Davis: Yeah. [inaudible 00:55:08].
Allen: Yeah. So you have your game plan?
Craig Davis: Yes, I have definitely... Oh, man, Allen, you're a top man, you're a superstar. I've definitely got a game plan. You gave me so much food for thought, hints and tips. I've been writing down some things. I know you're said you're recording, but let me just write it down while the inspiration's there. Yeah, I'm definitely more [inaudible 00:55:30] focus on these and back testing of the plan, which I never thought about, which makes sense, just to get confidence. Not confidence, but at least I can, what's it called, develop the skill of putting on the trade, and making sure I'm doing it properly. So yeah, yeah, I like the sound of it.
And plus, yeah, I can view like how many trades over how many years in like a few minutes, so I like that. That's good. Then I could just say, I just have to get used to the [inaudible 00:56:00] where I'm coming forward, the volatility in that. So yeah, man, definitely got a game plan to go forward with. Looking forward to be working with you, and being part of this [inaudible 00:56:14] team. It's going to take me a few days until I digest everything, and get into it. But, I'll definitely be staying in contact, and if there's anything else that [crosstalk 00:56:27].
Allen: It's interesting, it's fun, but when you're doing it, it's very boring.
Craig Davis: I'm glad you're telling me that, that's okay. They say the good plans are the [inaudible 00:56:40] ones. So it sounds like I've got a bit of a...
Allen: Yeah. Like, yesterday the market was down, so it was exciting. It was like, "Oh my God, what do I do? I got to do this, I got to do this." Today, market is flat, and I've got nothing to do today. Most days you don't do anything. You just sit there and wait.
Craig Davis: Waiting for something.
Allen: Yeah.
Craig Davis: Man, I didn't do an adjustment or something, or I didn't do this, didn't do that.
Allen: Yeah.
Craig Davis: I like it, I like it. So, that's where the boring part comes.
Allen: Yeah. That is also something that you're going to have to learn with experience. You might adjust sometimes too soon, sometimes too late. It's a fine line. Like, we'll give you rules that say, "Okay, if this happens, you adjust."
Craig Davis: Yeah.
Allen: But there's always the thing that, you know, "Oh, if I didn't adjust, it would've worked out great. If I had waited another day or two, it would've worked out great." So, that always is there. When you have a firm set rule, it doesn't always work out in the best way. That rule will work most of the time, not every time. And so as you get experience, you'll realize that, "Okay, I know my rule says to adjust, but I am going to wait one more day, because I see something something on the chart, or I think this is going to happen," or something.
Craig Davis: Yeah.
Allen: That's why we don't give Vista computers. This is why we do it ourselves. Otherwise, we could just make a computer program, and let it run, and hopefully it works.
Craig Davis: Yeah. No, that's fine. No, I like it. Yeah, man. Allen, definitely [inaudible 00:58:28], it sounds like you've done a great journey. You're a great teacher, and you want to encourage people. I'm glad you've got your course, and the website, the podcasts. Yeah, man, I'm glad that you've even got this thing, where if you want to speak with you, to donate some money. So even that for me, that's a learning for me as well. But yeah, man, this is definitely much appreciated. Definitely. Plan everything for everything.
Allen: Great. I hope I was helpful, and like I said, going forward, you need anything, just email us. We're here.
Craig Davis: Yes, definitely, man. I'll email you guys. Yeah, man, definitely much appreciated for the help and support. Definitely much appreciated. Thank you.
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