Date: 4/29/2021
Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
I’m in love with options.
The high returns, strategic flexibility, and cost-effectiveness make them a key component of my wealth-building plan.
With an average weekly return of 1-2% over the past several years, I even closed out 2020 at 2.66% per week despite the COVID sell-off.
Do you see why I’m so sappy?
But I’m also a stock trader and an investor, something I recommend all my clients to consider.
Use the profits from your options trading to reinvest in long-term holds on biotech, gold, silver, and established companies such as AMZN or MSFT.
This funnel that I call the ‘PYRAMID OF WEALTH’ is the key to my overall financial strategy.
I maintain multiple trading accounts, but the one for coaching starts with a yearly capital balance of 130K.
My goal is to average $3500.00 per week over the entire year using that capital as efficiently as possible.
For instance I closed last week making $6,612.01 using only $4221.00.
Each month, I slide the profits I make out of the trading account and accumulate additional shares of stock for my long-term portfolios and/or cash accounts.
When I’m up for the week or the month, I have additional capital in my account that I’ve gotten from the market.
These earnings are “house money,” and its loss doesn’t affect my starting capital.
When I’m trading with winnings, it’s risk-free.
Consider this approach when you approach your own trading.
Trading risk-free doesn’t mean never losing. Any trade can go wrong.
However, when you’re playing with profits before you’ve banked them into your account, it’s like trading with house money at a casino.
Your starting stake is never really on the line.
With options, the value of your trading account can fluctuate wildly and this discourages many beginners.
There’s no easy way to see the profits from all your hard work.
So move them from your trading account into cash each week or month.
You could also buy cash-alternative shares of an equity that doesn’t fluctuate very much. For those in the United States, I recommend SHY.
The psychological effect your cash grow helps you deal with the volatility in your trading account.
Each time you hit your profit target, move that money.
Cash or cash alternatives are safe havens for your capital.
If you decide if you want to increase the balance in your trading account then fund it with your profits. More trading capital lets you scale up your trades.
The more you have the more you can make.
Residual money above your goals remains in your account as your working capital. Trades you make with profits exceeding the initial balance are considered risk-free.
Combine this simple strategy with proper position sizing, and you’ll never have to deal with blowing up your account.
You can’t lose money you don’t put at risk.
Of course, all of this assumes you have a trading plan and a daily, weekly, or monthly profit goal.
Only a plan and a goal let you trade risk-free.
Operating without these dooms you to failure anyway. It’s just a matter of time.
Once you start looking at your money this way, you’ll find that you trade more conservatively on those weeks when you don’t make your goal or barely clear it.
However, when you’re up, you have the luxury of adding in some more speculative trades.
These may indeed be winners, but if you lose a bit, you’re only risking profits.
Next time we’ll discuss setting target prices on your trades for entry, scaling in, and exiting.
