Let’s get into kind of how much money can you make and I think it’s important to understand really how you allocate the trades.
I think a lot of people, what they do is when they watch things like on YouTube or they’re just getting started, they get funneled and bombarded with a lot of speculative trading speculation.
The game of speculation.
There’s a lot less and a lot fewer things, like long portfolio or long investment things. There might be some videos you’re seeing, long investment like buy stock hold it for 10 years.
But then you just make one video and then you’re kind of done. So a lot of those YouTube videos are not out there because you just bought your stock you’re done and that’s it. They’re not around anymore.
Everything is kind of focused around the speculation area.
The speculation area is kind of where you’re doing active trading. This could be kind of like day trading or swing trading. That’s fine and dandy.
But remember, this is part of your total asset allocation. So if you’ve had maybe ten thousand dollars, this is maybe only five or ten percent of that.
It’s not a large chunk.
Long portfolio is a little bit of a larger chunk but it has a lot less risk. This is like holding an investment.
Now in the options world this just means we’re making money from stock appreciation.
This medium portfolio could be like a 30 to 60 day trade. This means we’re making money from theta or time value. This is maybe we’re making money from a direction on our opinion or idea.
What’s the difference between long portfolio and speculative?
Well long portfolio, you’re kind of doing the same long directional trade for maybe a year or a couple.
Whereas a speculative trade, it might be just a one-off trade. Think of it like, this week Netflix looks like it’s going to break out and then you just go in and you do it.
It’s a one-time trade and you don’t do it again for maybe three months until you see support resistance or the technical lines up.
When you look at all of those things, this kind of creates some of these risk levels.
By the way some of these slides are actually from my mentoring program that I do. If you’re interested in the mentoring program, that’s where I work with you one-on-one for like six months plus.
You can check that out on our website.
There’s a lot of great stuff there.
Anyway, so when you look at this, you have the highest risk in speculative but you might be making way more.
Why? Because the direction has to go in your favor.
You might get time decay.
So you might make maybe 50 to 500 return on a single trade. So that’s a speculative kind of trade.
It could also be much shorter duration and with shorter duration, you get much more bang for your theta.
You get much more time value than going in your favor. Whereas a long portfolio, think of it like buying stock.
You don’t know if that stock’s just going to hang out or move sideways for a while and you’re not really making a lot of money.
If it’s moving sideways, you’re just kind of long invested.
Here’s SPX and we were doing a diagonal
Now, yes, you make a little bit from time decay.
It’s a bullish diagonal You’re really trying to make money from an appreciation. So that’s really kind of the difference on the long portfolio.
You’re allocating a different amount of cash in long portfolio, medium portfolio and speculative.
Combining all those things, what is it that’s possible?
Well, it really just depends on your risk levels, right?
So if you do shorter term duration trades until expiration, like a butterfly or an iron condor, you might make much more from the time decay and time value than a 30 or 60 day trade.
All of a sudden your profit potential goes extremely elevated. Whereas, if you do something more directional rather than non-directional.
So if we put on something like 3550, non-directional, where I’m mostly making money from right here.
We’ll take a look theta, where I’m not looking for this stock to move.
If I’m looking for something non-directional here, I might not make as much money as something a little more directional. So think about it.
If I had something directional and short duration, all of a sudden you can make a lot more. So let’s analyze another trade.
Let’s say I go ahead and change that to a calendar.
We move it to 3700. All of a sudden, I’m using way less capital right here
I’m only using 159 on this trade. Whereas this trade over here, I’m using 295 dollars for a calendar.
So 160 here is way cheaper but I got to have it move. Then the time decay will start you know kicking in as well
So that’s the point, if you have something that’s directional and short duration you can make a lot of money. But now all of a sudden, you got to get all of those things to work in your favor at the appropriate time.
Let’s spread this out a little bit let’s go to December 18th here. Just show you the difference.
So here this trade here would cost me 548 dollars. Whereas the one that’s kind of at the money would cost me one thousand dollars.
So think about it.
If you could use less capital but kind of make more then, obviously, your percentage of return is going to go way up. So just to show you a couple of quick examples.
Here’s a calendar that if invest about a thousand dollars into this on the SPX, you can make about 120 dollars..
It just kind of hangs around in this area for a couple days. So that’s about 10 return in just a handful of days, right? So it seems good and attractive.
But again, keep in mind, these are kind of non-directional trades.
If I go longer duration at this one, a couple of days I might make 115 dollars but I’m gonna be using four thousand dollars of capital
So I’m tying up a lot more capital. My percentage of return is a lot less because I’m doing a longer duration trade.
So it’s important to recognize what is it that’s possible and what risks you want to take on.
I will say on average, people that are trading and just getting started and kind of know what they’re doing, you could look to make anywhere between three and seven percent.
Somewhere around there per month. Some trades you might make way more. Other trades might make and lose on some.
But it really just kind of depends on what type of trading are you kind of doing. So if you’re doing more safer stuff, longer portfolio, then you’ll make a little bit less return because it’s the lower risk.
Whereas if you’re doing something more speculative, you can really ramp up your earnings potential.
But again, it’s more difficult to manage. You got to be on top of things.
Sometimes it’s a little bit more of a guess because you need the direction to go in your favor.
Here’s an Apple trade that’s close to expiring.
This trade uses 2 500 of capital and you’re looking to make about 438 dollars or at expiration, about 500 dollars. So that’s pretty good return.
Here’s an Amazon example.
This one’s a little bit unbalanced, also an iron condor. This one uses more capital but the return now is a lot higher than the Apple one.
So it’s about 1,465 at the moment or a max of 1,700.
Here’s a Diamonds one.
This one is a little bit at a loss, right? But you can see that it moved away at the money point. It’s losing about 300 on a capital of about 9000 dollars
Here’s another one, dkng also at a little bit of a loss So here actually probably by weekend time or after the weekend, it’ll be more profitable. But you know it’s about breaking even, about 63 dollars on 3 000 dollars of capital.
It hasn’t evolved far enough yet in time or movement.
Here’s a Facebook example just to show you different types of trades.
Also an iron condor for now. 2 612 dollars of capital used and as it expires, it should be around 388 dollars. But right now it’s 341 dollars. Here’s a gold example this is not an iron condor.
This is a butterfly and a diagonal.
So I have a couple different things on here, hedge and protect. This diagonal is making about 300 dollars on about 2 900 dollars of capital. So about 10 percent there and then I have a butterfly position here which is basically breaking even.
It’s not making anything right now because it’s at zero.
So it’s not doing anything there. Those are some of the kind of earnings that you could kind of expect as you put on some trades.
But it depends of course on your risk levels and tolerances.
- some of those trades are a little bit shorter duration
- some are longer duration
- some are a little bit more directional
If you have a directional trade, now all of a sudden, you have to use less capital because you need price to go in your favor. So that means you can make more if the price has to go in your favor.
But the downside of course is, price has to go in your favor. So I hope that gives you a little bit of insight on what’s possible.
In general, like I said, three to seven percent kind of what you’re looking on a month basis. But it really just depends on the risk you want to take on.
I have some people that are really into speculative trading and they just want to do that with options. I have other people that focus on theta and money every month.
They’re collecting their premium from time decay. Other people that are doing kind of a long portfolio thing, they’re just a long investor.
Combining all three of these will help reduce your risk. Where you got a mix of trades having a mix of investments. When it comes to option trading, that’s kind of what you want to do.
So you want to have a little bit of a mix and allocate a little in everything.
That should help you kind of spreading out the risk amongst different areas and sectors.