PERFORMANCE
Here is how to properly calculate your rate of return on a credit spread option trade and on an iron condor trade. First look at the size of your spread. If we sold the 1400 strike price and we bought the 1410 strike price, we have a $10 spread. Let's say we collect $1.00, just for easy math, in credit premium for putting on this trade. Take your credit amount of $1.00 and subtract this from your spread which is $10.00. This leaves you with $9.00. You really only have $9.00 at risk at this point because you took in the $1.00 in premium. Take your credit amount of 1.00 and divide by 9.00 and this will give you your rate of return which is 11.1%.
In the example above let's say that was your bear call spread part of this trade. If we add a bull put spread to the above position sold the 1300 strike and bought the 1290 strike, as long as it is on the same symbol with the same expiration month, our broker will still only hold that same $10 in margin for both positions. We go into this in greater detail on our Trading System and Getting Started pages. On our new bear call spread we were able to take in another $1.00 in premium. We have now taken in a total of $2.00 in premium, both spreads are $10, but are both on the same symbol and the same expiration month. Here's how we calculate the iron condor trade $2.00 for our premium collected, minus the $10.00 spread = $8.00. Take 2.00 and divide it by 8.00 and you now have a 25% rate of return for this example of an iron condor.
We aim for a very safe 10% return on our trades. We have found this to be the best risk/reward for our style of trading. In a bad month we will often still end up with a small profit. If we do incur a loss, we have rules in place to make sure it is a small loss. One reason for this is we never let our trade get close enough to our sold strike to cause us harm. However, if our strategy is too conservative for some of you, or not conservative enough, you can simply execute the same trade and adjust your strike prices accordingly to suit your own style.
An example of a recent trade alert sent to our subscribers:
Tue, Jun 12, 2012 3:23 pm
NEW ORDER TO SELL TO OPEN JULY SPX 1170/1160 BULL PUT SPREAD - SELL THE JULY SPX 1170 PUTS TO OPEN AND BUY THE JULY SPX 1160 PUTS TO OPEN - CREDIT LIMIT .70 GTC ORDER - THIS IS A NORMAL SINGLE SIZE ALLOCATION ONLY
Check out our Monthly Compounding Interest Calculator below:
Use the calculator to show the future size of your trading account. Enter the amount of capital you will use, the interest rate you expect to receive each month, and how many months you plan on leaving the money untouched so your profits can keep compounding. You will see that even with a very small amount of money, it doesn't take very long to grow your account into a very large one.
| YEAR |
JAN |
FEB |
MAR |
APR |
MAY |
JUN |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
| 2013 |
3.9% |
13.2% |
7.8% |
0.6% |
0% |
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| YEAR |
JAN |
FEB |
MAR |
APR |
MAY |
JUN |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
| 2012 |
11.0% |
10.1% |
1.8% |
1.5% |
SKIPPED |
16.3% |
11.4% |
13.8% |
16.7% |
12.6% |
3.8% |
10.3% |
| YEAR |
JAN |
FEB |
MAR |
APR |
MAY |
JUN |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
| 2011 |
12.7% |
9.9% |
11.2% |
10.5% |
8.7% |
5.6% |
13.6% |
8.7% |
4.0% |
5.4% |
7.8% |
3.8% |
| YEAR |
JAN |
FEB |
MAR |
APR |
MAY |
JUN |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
| 2010 |
16.8% |
6.9% |
4.9% |
2.9% |
-8.3% |
-8.9% |
8.4% |
6.5% |
6.8% |
9.2% |
6.6% |
4.1% |
| YEAR |
JAN |
FEB |
MAR |
APR |
MAY |
JUN |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
| 2009 |
13.7% |
7.9% |
4.8% |
13.7% |
15.0% |
18.0% |
19.4% |
15.6% |
17.5% |
10.7% |
20.2% |
9.1% |
| YEAR |
JAN |
FEB |
MAR |
APR |
MAY |
JUN |
JUL |
AUG |
SEP |
OCT |
NOV |
DEC |
| 2008 |
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10.0% |
2.6% |
13.8% |
11.4% |
More details are listed below but here are some highlights for the skim reader types. No the returns do not include commissions or the subscription fee. No your entire trading account will not necessarily have grown by this amount every month as our subscribers hold a minimum of 20% cash at all times, and we are not always fully allocated at all times. We are working to complete our new track record which will display more details and a break down of all the trades. If you need to know more exactly what our net returns are the best way is for you to join when you're ready and see for your own eyes. If that isn't sufficient and you need to know what type of net returns to expect before joining you can find this information posted by one of our subscribers at one of the newsletter review websites.
The % return shown above are real and are from actual trades completed for that particular options cycle. We have very strict asset allocation rules and we never put all of our money into one single trade. In some instances our capital may have been allocated for more than 30 days. The return for the trades is 100% accurate, but it does not mean the entire account grew by that % as we often keep some cash on hand.
The return on ones overall account will vary depending on how much you allocate per trade and when you enter the trade. Your individual results may be a little better or a little worse. Many of our subscribers receive our trade recommendation and they wait and try for more premium. Of course waiting can have one of two results. If the market moves in your favor you can squeeze more premium out of the trade, and if the market moves out of your favor you will receive less premium. People who claim they could not duplicate our results simply have not stayed the course. You must look at the big picture and take your focus off of next week or even next month. Over the course of several months it all evens out.
There may be gaps in which we were not fully allocated meaning we would have been in extra cash. The trades are grouped together by the expiration month this is how it was done on day one and we're merely keeping things consistent. Since we do not always trade front month options and a trade could be opened and closed in a different month this is the easiest way to group the trades together.
The % shown is using simple math only. That means all trades for the given expiration month were added up and we then divided by how many trades there were. The % does not take into consideration commissions or the subscription fee. It is mainly designed to show the consistency or lack of consistency in our trading model. You will see that we do not take big chances by trying to hit home runs, we try to hit singles and doubles on a consistent basis. Therefore we do our best to avoid large draw downs whenever possible.
We actively manage our trades which means we may close out or adjust a position ahead of time if we feel it may be threatened at some point. We may also actively adjust a trade going in our favor to bring in more premium which means moving to more aggressive strikes. If a trade is rolled it gets hit with a 0% rate of return and that 0% return gets factored in to the overall tally for the monthly %.
The roll then affects the cost basis of the new position depending on whether it was rolled for a debit, credit, or break even. If you take the entire rolling trade and look at the end result it will come out the same in the end whether you use our methodology or another methodology so please do not get hung up on this and we are not trying to hide anything! Our newsletter went live on the internet in July of 2008 and all trades from that time forward can be seen inside our Members area.
Future results are not necessarily indicative of past or present results. If we change our trading style in the future; it will most likely become even more conservative. The market volatility we have been seeing lately may be with us for a while. While we can take advantage of the big moves in the market, we feel it is a time to be even more conservative and remain humble. It was proven in 2008 that the risky and highly leveraged business models did not work. Evidence of this is that we now have half as many hedge funds and many traders are out of business as well.
As you look at our track record you will notice it only dates back to 2008. We have been trading credit spreads since 2000. Prior to 2008 we traded them in a different fashion. We were more aggressive and it involved sitting in front of the computer almost all day and everyday. It also resulted in larger gains, but also larger losses. It was more stressful, less predictable, and certainly not very duplicable. Since we no longer trade that way, you are seeing the track record of our new and current trading system.
It may take some time to learn our style of trading. It will also take patience and trust; not only that this works, but that you can do it too. Be willing to learn, be patient, stay committed, stay focused, and know that you can duplicate these results in a very short amount of time.
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