8 Comments

1. Joshua McFall July 30, 2017

   I don’t know how to create redacted statements, but I would be happy to send them to you. I followed this trade recommendation service, optionspreadstrategies.com for just over 2 years. I started with $5,000 in April, 2015, and added $1,000 in June, 2016. In May, 2017, my account balance was $10,200 or so, using a 50% allocation each month for the 1 trade this service recommended. Considering I was in for $6,000, I thought getting up to $10,200 in 2 years was pretty darn good.

   The problem with this company is the huge risk. They are probably using Thinkorswim to pick some high probability trades, ~90% chance out of the money credit spreads. Each month, I was risking $2,500 – $3,000 to take a credit of $300 – $600. But if/when they’re wrong, they are wrong BIG. Between April and July of 2017 this company suffered 3 HUGE loss trades out of 4 recommendations (waiting for the website to be updated). They recommended selling a May17 NFLX $150/155 call spread literally 3 days before NFLX got China news that sent it up past the top strike. They then recommended selling a UAL 74/75 call spread and UAL proceeded to go up to $77+ at expiration (max loss). Then they recommended selling an at the money TEVA 30/27.50 put spread which barely worked out, but was at risk of being put to the trader because it dipped significantly below $30 before closing over $30 by expiration. Then they recommended selling the COST Jul17 160/155 call spread, and COST, after the AMZN purchase of Whole Foods news, broke right through 160 to settle around $150 by expiration.

   I can now say my account has $6,123 in it – $123 higher than the amount I started with 2 years and 2 months after subscribing (a total of ~$2600 in subscription fees since I was grandfathered at $99 a month). So I am not up at all. But I do have 26 trades that I followed religiously, and I can attest to the high percentage of winners. I think at one point we rattled off 9 monthly winners in a row. But a couple of big losses and you get in trouble real quick. This is a real life review from real life experience with this service!

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   • Cyn July 30, 2017

     What you have described is typical of strategies that sell credit spreads. If you want to be in that business, then you have to either learn to adjust your trades, or exit them as soon as the short strike is breached on the close.

     Do not hold the position, smoking hopium, and waiting for it to come back, as you did with the TEVA trade. It worked out that time, but as you can see, in the other cases, which is what more usually happens, the trade did not come back.

     Reply
   • Rob B July 31, 2017

     “I don’t know how to create redacted statements”.
     Just cross out your account number, but really need to show your brokerage statements live using a screen sharing program to really verify.

     But really the best thing is to have the actual vendor show proof of his claims, as no one knows if you actually traded the vendors recommendation or not. I noticed your performance is much lower than the vendors claimed performance. But then I reread your post and am a bit confused. In the beginning you said you made money and then at the end lost money. Where you up and then wam bam you lost it all.

     Credit spreads are highly risking. You heard of Karen the Supertrader from Tastytrade. I knew a guy that bragged about trading this way until the great recession hit. And that is the problem one black swan event and you are wiped out. And it not like you can just hold until there is a recovery as options come with an expiration date. Not exactly a great way to build wealth.

     I believe most people that successful make money using options have some inside knowledge, just my opinion. I personally only use options as a hedge or when I see something ridiculously overvalued or undervalued and I want to take a high risk play on it correcting. But I can give you the strategy a friend of mine used that worked 99% of the time by selling long out of the money puts, until black swan event and it did not work.

     I will also give you another con artist option selling strategy person; Wade Cook. This guy would just create a strategy on whatever was hot, be in real estate or options, and then sell it. In fact I would joke if Wade Cook comes out with a book on a new strategy you know you are at the top and the bubble is about to burst.

     Reply
     • Cyn July 31, 2017

       You say, “Credit spreads are highly risking.”

       That is not actually correct. Balanced spreads (no naked short option), are defined risk, and less costly than naked long options, with the corresponding smaller reward. The real issue with credit spreads that are so far out of the money is that the risk/reward is still badly skewed to the loss side, so, yes, the black swan event still makes a max loss much worse than all those small wins.

       You say, “You heard of Karen the Supertrader from Tastytrade.”

       Karen was doing the actual thing that is high risk, which is, selling naked options. Those teaching these naked strangle options strategies, just demonstrate that they lack knowledge of mathematical probability. They think that a low-probability event means it is safe. It is not. “Low probability” is not the same as “never”. Hence the wipe out from a “black swan event”. Just as happened to Karen.

       The only sensible use of selling naked puts is to buy, at a discount, stock that you actually intend to buy. In effect, you get paid to wait for the stock to reach the price at which you intend to buy, then still get to buy the stock at a discount to that price. I will not insult you by describing why, but if you really want me to, I shall.

       There is no safe way to sell naked calls.

       Reply
       • Rob B July 31, 2017

         Cyn,

         I am pretty familiar with options. Yes there are lots of ways to use option and I certainly can not cover them all in a post. Most seem to use it as a leverage play with a time factor ticking bomb. I am just not a big fan. That is me. Even if you use them to try and buy a stock at a lower price. To me that means if the stock goes up up up; you never get it, but when it drop you end up buying it. That is just not a strategy for me, but might be great for others.

         Another strategy that Wade Cook pushed and that was covered calls. I personally hate it. To me you have full downside risk which you are basically cutting off your winners, which goes against my core.

         I would suggest anyone interested in option trading to really research and read all the ways they can be use and make sure you look at both the pros and cons before making a decision as normally there are 2 parts to the story and not all pro.

         Just like day trading I am not aware of anyone getting rich trading options and the rich mostly use it as a hedge. I remember getting in the mail some flyer about this vendor and his option trading showing how he made so much on his options trades, but Hubert who tracks newsletter showed he lost a fortune as he conveniently forgot about all the loser that expired worthless. Again just my 2 cents worth this is not the path to building wealth, but can be an excellent path to hedge your wealth. Take it for the price paid.

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         • Cyn July 31, 2017

           “To me that means if the stock goes up up up; you never get it, but when it drop you end up buying it.”

           Yes, but that is the exact intent. If you sell the put and the stock goes up, you keep the money and never had the risk of holding the stock. In effect, you get paid to wait. If the stock dips, you get put the stock. In other words, you buy the dip. Agreed that it might not agree with your thinking, but it is a viable strategy, and word is that Warren Buffet buys a lot of stock that way, which is why some commentators called him a hypocrite for saying that options are a weapon of mass destruction, while he is using them himself. Of course, when he made the statement, if read in context, he was talking about using options for speculation in an attempt to make money. Prety much like, what you say too, it is a fool’s errand most of the time.

           “Another strategy that Wade Cook pushed and that was covered calls. I personally hate it. To me you have full downside risk which you are basically cutting off your winners, which goes against my core.”

           Covered calls are stupid unless you happen to be already holding the stock and for some reason cannot or do not want to sell. That is because a covered call has the exact same risk as selling a naked put. Which of course, as you say, means you have all the downside and none of the up.

           Does that sound like I contradicted myself? Not really. I am saying that it depends on your purpose. If you intend to buy the dip, it is very different from if you are entirely speculating, which is what selling covered calls really is, even though those who teach it try to position it as an income strategy.

           Reply
           • Rob B July 31, 2017

             I think many of these strategies can be used at appropriate times when they truly make sense. But many folks just jump on what is hot and that is about the time the bubble will burst. Perfect example as you mention trying to do an income generating strategy like Cook taught. I would imagine Buffet only uses put selling strategy at times it makes sense and not as an everyday tool to be done regularly.

             One of my biggest long term holding is BRK so I might be doing de facto put option selling.

             Reply
             • Cyn July 31, 2017

               Well, I was not trying to call you stupid. remember, this is what I said. I have emphasized some words, just in case I am still unclear. “Covered calls are stupid UNLESS you happen to be ALREADY HOLDING the stock and for some reason cannot, or DO NOT, WANT TO SELL.” So, I think you are in the “unless” group? If you are already holding the stock, and intend to keep holding it, using covered calls to reduce cost basis makes a lot of sense.

               I was referring to those who do the so-called buy-write, where they buy a stock for the SOLE reason of writing calls against it, in a so-called income strategy. Why tie up all that capital in the stock, when you are taking exactly the same risk as selling a naked put anyway? After all. it is much easier to get out of a short put that is going against you, than it is to try to sell a stock that is seriously tanking.

               Sorry that I was not as clear as I should have been. 🙁

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