Is selling options before earning Good Strategy?

[Kim Klaiman]

Not true even in 10k account.

Let us analyze this model portfolio case.

Subscription fee assuming you subscribe to only one service = $1250

Average trades per month according to his website:
View attachment 179462

So about 172 (14.3*12) round trips or about 344 single transactions per year.

They use different spreads.

View attachment 179463
Straddles 2 leg, IC 4 leg, Calendar 2 and Bfly 3 legs. Average assume 2.5 legs per trade.
So it is about 860 (344*2.5) legs per year.

Website says they 4-5 open spreads. So average 5 open spreads.
View attachment 179464
In $10,000 account, 5 spreads mean around $2000 per spread. Conservative estimate looks like probably 2 contracts per trade.

So yearly contracts traded 860 * 2 = 1720 contracts traded per year.
Assuming $1 contract commission fee = $1,720 per year.

Just from subscription and commission, client is spending $2970 ($1,720 + $1,250) per year. That is 30% cost or hurdle rate one has to overcome.

I did not even include slippage.

You stated 10% slippage per trade. There are about 344 transactions per year. So slippage cost is 344*10% = 34.4%.

So total cost 34.4%+29.7% = 64.1% expenses.

That 82% CAGR is a mirage.

Your calculation is WAY off.

1) Most members pay less than $1/contract commissions.
2) Most members get way less than 10% slippage.
3) Many members take some of the unofficial trades, and also make higher returns on some of our trades (like QCOM example).
4) Most members have larger accounts than 10k.

But even with your completely unrealistic calculation, it is 17%/year after all expenses. Still beats 99% of fund managers.

 

[Kim Klaiman]

I won't post any more in this thread, but I leave you with one final thought: Where are the options signal services from 18 years ago? Or from 11 years ago? These services, claiming un-audited returns usually of around 5% per month, seem to proliferate in mature bull markets. Major bear markets clear them all out. We'll see if you survive the next NBER recession.

To see how our system would perform in a bear market, I can refer you to our August 2011 performance.

 

[TrustyJules]

@kim are you paying these guys to provoke you and enable you to spread the gospel about your service?

 

[srinir]

Your calculation is WAY off.

1) Most members pay less than $1/contract commissions.

That is pretty much the standard rate at TDA for less than 50k accounts. Even if it is less, it is not by much.

2) Most members get way less than 10% slippage.

How much? It can be more or it can be less. One of your member stated here as 10%. So I go with that number.

3) Many members take some of the unofficial trades, and also make higher returns on some of our trades (like QCOM example).

What is this unofficial trade? We have non-audited official trade listed in your website, now we have to consider non-audited unverified unofficial trade.

4) Most members have larger accounts than 10k.

I will go with your model portfolio of 10k, which is prospective clients looks at. No one can verify your non-audited unverified member account balances.

But even with your completely unrealistic calculation, it is 17%/year after all expenses. Still beats 99% of fund managers.

I know you don't have finance background. One needs to compare risk adjusted returns. If the market goes down by 10% tomorrow, it is 10% loss for the beta of 1 account but it might wipe out your member account balances

 

[Kim Klaiman]

How much? It can be more or it can be less. One of your member stated here as 10%. So I go with that number.


What is this unofficial trade? We have non-audited official trade listed in your website, now we have to consider non-audited unverified unofficial trade.

No he did not state 10% slippage. He said "if you faced 10% slippage in entry and exit, your results would still be good provided you pay low commissions." But of course you took the part that is convenient to you.

Unofficial trades are trades that members share that don't make it into the official track record.

Here is an example of an unofficial trade posted by one of our mentors:

Doing this trade alone with only 5% allocation would produce 16% gain in 2016. That's right, just one unofficial trade with just 5% allocation would still beat 99% of the fund managers.

 

[srinir]

tradermaji wrote:
I think you are right... I have was able to get into about 90% of the trades posted (those I followed based on the advisory email) but almost at worse prices for most of them. The slippage was bad for the thinly traded markets. However, my win rates are close to them but the net profit is lower because of slippage.

That means he is experiencing significant slippage.

tradermaji wrote:
However, if you were to follow those blindly, miss say 10-15% of the trades, and if you faced 10% slippage in entry and exit, your results would still be good provided you pay low commissions

tradermaji wrote:
I think the 10% slippage that I said was based on the official prices that SO posts.

First he was ambivalent, but later he says, there is difference between official prices that SO posts and his fill, that means he is getting 10% slippage. Probably we should let him clarify. In the mean time what do you think is the correct slippage experienced by your members?

Wow. My eyes hurts reading this unofficial, unverified, non-audited trade recommendations. Why are you not posting this garbage along with your non-audited, official trades in your website? Only alpha that exists from those trades is to the broker. Do you have any back-deals with the brokers also?

 

[Kim Klaiman]

tradermaji wrote:
I think you are right... I have was able to get into about 90% of the trades posted (those I followed based on the advisory email) but almost at worse prices for most of them. The slippage was bad for the thinly traded markets. However, my win rates are close to them but the net profit is lower because of slippage.

That means he is experiencing significant slippage.

tradermaji wrote:
However, if you were to follow those blindly, miss say 10-15% of the trades, and if you faced 10% slippage in entry and exit, your results would still be good provided you pay low commissions

tradermaji wrote:
I think the 10% slippage that I said was based on the official prices that SO posts.

First he was ambivalent, but later he says, there is difference between official prices that SO posts and his fill, that means he is getting 10% slippage. Probably we should let him clarify. In the mean time what do you think is the correct slippage experienced by your members?

Wow. My eyes hurts reading this unofficial, unverified, non-audited trade recommendations. Why are you not posting this garbage along with your non-audited, official trades in your website? Only alpha that exists from those trades is to the broker. Do you have any back-deals with the brokers also?

He also mentioned that "From my first month's experience, 5% return per month on capital, after all expenses seem reasonable."

And also "Many members, including myself, enter trades a day or more later, if the prices pull back and certain criteria are met."

But then again, you took the parts that are convenient to you.

The unofficial trades are significant part of our service. We consider them "bonus trades". They are shared by members, but are not part of the official track record.

SteadyOptions is all about our trading community. It's about sharing knowledge and resources. But you are so obsessed about "audited returns" that you continue ignoring this most important element of our service.

 

[sle]

My converting it to SDs you get a better idea of the move in relative terms

My question was if you felt that earnings moves are better expressed in SDs multiples of the ambient days or relative to historical earnings moves for that stock. E.g. you see a stock that moves 1% per day normally but is pricing in a 5% earnings move. However, historical earnings moves were 6%. I would say that this event is priced cheap, regardless of how many SDs of ambient vol is priced in.

 

[srinir]

He also mentioned that "From my first month's experience, 5% return per month on capital, after all expenses seem reasonable."

And also "Many members, including myself, enter trades a day or more later, if the prices pull back and certain criteria are met."

But then again, you took the parts that are convenient to you.

The unofficial trades are significant part of our service. We consider them "bonus trades". They are shared by members, but are not part of the official track record.

SteadyOptions is all about our trading community. It's about sharing knowledge and resources. But you are so obsessed about "audited returns" that you continue ignoring this most important element of our service.

I replied to that already.
tradermahi wrote:
From my first month's experience, 5% return per month on capital, after all expenses seem reasonable. I will take even 1/2 of that on a regular basis anytime. However, the problem is the inability to scale up the operation.
I wrote:
One month (even one year) outstanding return is one thing, but maintaining Sharpe Ratio of above 2 is different matter all together for 5+ years

It is not me taking convenient facts, it is you pretty much you in this entire thread

1) You keep on mentioning that expenses are around 3%, it is pretty much more than 20%+ based on model account you set up for prospective client. Spare the argument of higher balances of your existing customers, when no one can verify. If it is so, set up minimum $50k minimum balance for your service.

2) As a prospective client, I asked for audited trade records. You seem to ignore basic need to get verified from authority. Your answer is basically we provide other services. Clients are interested in your other services because you posted unverified CAGR of 80%. If you had posted loss of 80% per year, nobody wants to your service.

3) Why are you trying to compare your returns with the market?

4) Kevin schimdt question about whether you are posting profit by front running of your subscribers or Vol ramp, in which case you need 70% win rate to breakeven

5) Do you have any relationship with the broker?

6) What is typical slippage of your clients?

There may be few others, I will gather when i have time

 

[Kim Klaiman]

My question was if you felt that earnings moves are better expressed in SDs multiples of the ambient days or relative to historical earnings moves for that stock. E.g. you see a stock that moves 1% per day normally but is pricing in a 5% earnings move. However, historical earnings moves were 6%. I would say that this event is priced cheap, regardless of how many SDs of ambient vol is priced in.

I agree. I don't think that SD is a good indication when it comes to earnings move.

The problem with selling before earnings is lack of predictability. Over the long term, it probably have an edge since on average, earnings move is overpriced. But you can easily experience few consequent losers, as we could see this cycle with AMZN, GOOG, MSFT etc. All at the same week. If you played all of them, your account would be down significantly.