Clay Trader Podcast
STR 232: A Unique Twist on Option Trading
I love bringing back previous guests to get updated on their journey. In this episode, Carl (who is very active in the chatroom) comes back to talk trading and share all the new developments in his trading. One of the great things about Carl is his willingness to be an open book of transparency. He shares with us a trade that resulted in a $100,000 plus loss and how it helped to shape and mold his current strategy. Fast forwarding to present day, Carl is seeing some great success due to the time and effort of narrowing down a strategy that works for him. He discovered the unique strategy from other members of the community, but as it should be (and needs to be), he fine tuned it to fit into his personal risk tolerance. We talk about that and much more, so let’s go!
Clay: This is Stock Trading Reality Podcast, episode 232.
Announcer: This is the Stock Trading Reality Podcast, where you get to see the realistic side of a trader’s journey, get inspired, and stay motivated by everyday, normal people, who are currently on their journey to trading success. This is your host, who apparently forgot all about the benefits of a stick, Clay Trader.
Clay: Kids really are great, and in this situation, I guess I’m just getting old. I don’t know how else to describe it, or what other explanation I have, but just watching my kids, their imaginations. Who knew that a stick could be just so many different things, a sword, a gun, a hiking stick. “So Trippe, so Dot, so Joy, what is that?”
Clay: “Oh, this is,” fill in the blank, and it’s something super creative, but sticks. Sure, they’re eye hazards, and we definitely do our best. Sometimes the sticks get to the point where it’s like, literally, my son’s walking around with a lance, and this thing’s like, “Trippe, put that… What are you doing? Throw that in the woods. That’s way too dangerous.” At the same time, you’ve got to let the imagination run wild a little bit and let the kids just be kids, go out there, get scraped up, get some bloody knees, get some… I don’t want to say your eyes poked out, but it’s okay if you get a sliver here or there.
Clay: I’d rather have that than having them being trapped in the basement, playing video games all day long. I mean, they’re kids. They’ve got to get outside and enjoy just… Toughen them up, right? You’ve got to… Bruises never hurt anybody. A scrape never hurt a kid. I had plenty of… I mean, my kids are like, “Look at this. Is this going to be a scar? Is that going to be cool?” Because I always like to show them the scars on my hands, some of them from football, some of them from stupider things, such as moving a couch, but we won’t go to that story. Point being, sticks are great, to an extent, but I’m a big fan of sticks, and I forgot, due to my old age and becoming so crusty, that they do have a lot of uses when it comes to just imagination.
Clay: I mean, the next time you see your kid with a stick, like I said, if there’s a bunch of people around, or a bunch of old, sweet little ladies, and the kid’s waving… I mean, at that point, yeah, probably be a party pooper, be like, “Put the stick down.” I mean if they’re just out and there’s no other hazards, ask them, be like, “Hey, what’s this stick?” And you’ll get some of the best answers ever because the mind of a child is so creative and it’s kind of a good reminder to me that sometimes… I mean I’d like to think I’m a fun person, but sometimes I’ve got to lighten up a little bit, be like, “Clay, just let the kid play with a stick, it’ll be all right. They got like a Star Wars blaster thing on them… just let them go.” No harm no foul.
Clay: There’s my opinion on sticks. Not that you ever wanted it but, an opinion that hopefully you will want because it was a great opinion and it’s one that I always enjoying getting, is from long time member Carl. If you are a member that is even really somewhat active in the chatroom, I’m sure you’ve seen him there. He’s in there quite a bit. He’s somebody that will bend over backwards to help you out. Sometimes he’ll give you tough love, but I always argue tough love is the most compassionate love out there because that’s when somebody actually truly cares. They’re just not telling you something to make you feel better, but they’re just telling you how it is. Carl is one of those guys where, I mean, he’ll help you out but he’ll also just kind of tell you how it is. I’ve always respected that and I still do respect it. I also just respect the fact, from one business owner to another, he runs a business which we talk a little bit about here. He is, like I said, he’s been around for a long time.
Clay: We had a debate, I’m still not quite sure, he says that this is only his second ever Clay Trader podcast, but I feel like this might be his third. Either way, we talk about some great stuff. He tells us about a loss of $110,000, and he goes through there and a lot of the lessons learned. Like I said, he’s very candid, he doesn’t try to portray himself as something that he’s not. We have a lot of good discussions, we go down some good rabbit holes. You’ll notice, some of the stuff he talks about, you may be like, “What is he talking about?” But, whenever you come across those periods where you really aren’t quite sure what exactly he’s referring to, just remember that’s what trading is. Not necessarily it’s complicated, because anybody can figure this stuff out, but that there’s effort that’s required. You can’t just sign up for a hot stock pick text alert service and then think you’re going to make money hand over fist. I get it, that sounds good, but you’ve got to put in an effort. You’ve got to learn.
Clay: You’ve got to be able to figure out a trade plan that works for you, and that’s one of the other rabbit holes we go down. He explains his trading plan, why he does certain things. Once more, if you’re newer, you may not have any idea what he’s referring to, but that’s okay. Just realize, as a fact, because the underlying kind of lesson learned is that, yeah you do have to put in an effort. You do have to learn to think for yourself. You do have to learn to identify your kind of, pressure points from a risk tolerance perspective, because that’s what’s going to lead you down a pathway and cause you to build a trade plan that’s going to work for you. You get that and a whole lot more with Carl, so definitely stay around to the end.
Clay: I don’t want to say we got in a fight, because it wasn’t a fight. That’s not the right word, but we talk a little bit about different perspectives in terms of percentages and stuff like that. It was definitely a fun discussion, a great discussion, and I’m extremely confident you’re going to get something from it. Let’s get to it and hear from Carl.
Clay: So you have been doing, when did those whole… When did you get into the spreads? I guess is probably the best question because I know you’ve been…
Carl: I started farming options, or advanced options, back in January. January 4th of this year, and then kept doing that and started getting more serious about SPX spreads probably in June, I would say. The SPX training that we do, or that I do, is zero days to expiry so, they expire same day. So it’s like farming, just on steroids.
Clay: It’s almost, in a sense, it sounds like day trading, farming of options. Is that a fair-
Carl: Yeah, exactly.
Clay: You said we, actually let me take a step back, and we’ll come back to this. Do you have any idea, off the top of your head, what you were doing the last time you were on? I have no idea, I think this is your third time you’ve been on the podcast. Does that sound about right, or is it the fourth time?
Carl: It’s my second time for Clay Trader, I think, and I had one for Money with Clay.
Clay: Right. This is only your second Clay Trader one?
Carl: I think.
Clay: I don’t know Carl, that sounds a little… I’d be shocked if this is-
Carl: 135 or 136, I think, was the first ones.
Clay: Have you been on in a group one or something?
Carl: No, I was on, like I said, I was on the one for Money with Clay.
Clay: Right. I find that hard to believe that this is only your second one. All right, I guess it is what it is. Do you have any idea, do you remember at all what you were trading?
Carl: I think on the last podcast we did on here was, I got up to like October or so of 2017, I believe. I was just, in October of that year, I sold, I had a crane that I leased out, and I sold a gravel truck. I was focusing more on trading and less on, going into winter and quasi-retirement.
Clay: Okay. That was back in, even the Money with Clay one, that’s probably been almost about a year or so ago.
Carl: Doesn’t sound unreasonable.
Clay: Yeah, all right. Well I guess the moral of the story here is that time just absolutely flies. You mentioned earlier, you were like, “We, I mean I’ve been trading spreads.” It sounds like, don’t you have, kind of, almost a little group within? Yeah, walk me through that because I have a general idea, but my mind gets confused with everything that’s going on.
Carl: I think Chez is actually probably one of the ones that started it years back. Then Surly Mac was doing it and I started looking at it and got interested. Now there’s several people that watch it, and you know, they’ll partake as they see opportunities.
Clay: Who really got all this started? Did you spear head all this or was it-
Carl: No, I think it’s just been kind of a background noise in the inner circle for as far as I remember. When I first joined I was like, “Well who would want to sell options,” because you’re limiting your profit and it costs more, it takes more capital, et cetera. I was like, “Well who would want that? That just seems asinine.” You know, I’m here to make money and making $60 using $3,000 in capital over 40 days makes no sense.
Carl: That was the traditional farming, but then I’d been hearing about SPX, and SPX is cash settled, you don’t get assigned contracts with SPX. So as far as, if I was going to go back in memory, I would say that Chez started it. He’s out working and doing his thing now but, Surly Mac kept doing it and from watching him or whatever, I started taking a look at it also. Then, I mean as far as I know, I’m probably one of the bigger SPX traders in the inner circle right now, but there’s several people who do one or two contracts here and there, as they see fit. Even some members that I talk to outside of the chat room that are busy in med school, trade SPX.
Clay: Where do the, because I’m actually quite… I honestly had no idea that you guys were doing zero days until expiration. Where did that come-
Carl: That’s what I’m saying, I think Chez is the one that started that concept.
Clay: The zero day thing?
Carl: I think. I mean there’s a Facebook group that does it, that I’m a member of and I did their trial subscription. They have a signal service, which I didn’t really care about the signal, I was curious about their methodology. Anyway, I did their demo two week trial, or whatever it was, on their signal service and decided that their risk management wasn’t exactly what I was wanting in life.
Clay: Is that the Facebook group where sometimes you post images in the chatroom up, and it’s people just, you almost have to…[crosstalk 00:11:02]
Clay: Where do those ones come from? Because for listener’s sake for some context, Carl is known, every once in a while, to post images from Facebook or whatever, and you just read them and all you can really do is shake your head and say, “That’s kind of sad that that person has real money in the markets because they really have no idea what’s going on.” So that’s not the room that those are coming from?
Carl: Sometimes. I mean you’ll have a lot of new people there because, I mean it is a signal service, so the theory is you just trade whatever they tell you to trade. They do some education but, like I said, the risk management wasn’t there for me. They had three or four days where they gave up 40% of their gains this year, or this year’s worth of gains they gave up in, like I said, two or three, four trades.
Carl: Along those numbers.
Carl: Their mock account was up like 10%, no I’m sorry, 10 grand. Then a couple days later, it was down to below six. In terms of that, and that’s also excluding commissions.
Clay: Wow. So is that, like you said Carl, you didn’t sign up to get the signals, you were more interested in the framework of the methodology, like you said.
Carl: Yeah the methodology of zero DTE because it’s so much different than, typically when you sell options, you’re going to be on a very common number is a 45 day to expiry when you open it. Then you roll 21 days depending, or you manage it 21 days, is a fairly common free education guideline, I guess you’d call it. I was curious how they handled zero days until expiry because it’s very much different and there’s relatively a lot of premium available. So it’s just one of those things you have to manage.
Clay: Right. From their business perspective, it sounds like their whole thing is, “Hey lazy, blind sheep, just sign up and we’ll tell you exactly what to do.” So is it basically a puppet trading service?
Carl: Yeah, I mean it’s a signal service. He’ll put out a message on Telegram if you buy in you can be a member of the… you know it will say, “Sold ten SPX 2950, or 2850, 2845 spreads for X number of cents.” It will say when he closed them and et cetera. Of course, they say that past performance is no guarantee of future performance and take your own risk, et cetera.
Carl: One day, it was a melt up or down, some direction it moved pretty heavily, and I was in the chatroom on Telegram, which is a phone app, and people were losing their minds wondering where the owner of the site was and what they were supposed to do and how they were supposed to manage the trade and what’s going on. Then he post up it’s like, “Oh hey I closed the trade for this amount, took like a couple thousand dollar loss and everybody have a good weekend.” He was back gone. So that’s when I really realized that-
Clay: That’s a true story?
Carl: Yeah, I mean I have the screen shots somewhere. I actually posted the screen shots in the inner circle.
Clay: Did you? Oh my-
Carl: Now granted, he does, I’m not belittling this like a service in that, it makes sense I mean there’s people in the inner circle that I would love to pay for a signal to get a little memo of their trades. But, if you’re looking for that, you might as well just send your money to someone else to trade versus you trying to trade off of what someone else says because there’s going to be [inaudible 00:14:42] or lag time between what they say and what you say, or the market’s melting against your position and for 20 minutes the person who’s supposed to be getting signals isn’t saying anything. So you have no clue how you’re supposed to manage it yourself. You have no concept of risk management and you have people who lost half their account that day. Now granted they’re-
Clay: For listeners out there, I want you to scroll back and just re-listen to what Carl said because he says it beautifully. He sets it up perfectly. I agree with Carl. I would love to just, for some traders out there to be like, “Hey, just tell me what you’re doing and I’ll…” That does sound good, that’s why signal services on the surface, I mean, it’s a thing of beauty, and it sounds great. But what Carl just explained, you know, the lag time and even if, let’s just say the market’s going against your position, but you don’t know what exactly you’re supposed to do. Even just five minutes, let alone 20 minutes like Carl said. Five minutes while you’re waiting and waiting, “I don’t know what to do, I’m waiting for this signal person. Come on, tell me what I’m supposed to do it’s 5. Oh crap, the market keeps going against me. It’s only a minute three, and you’ve got to wait another two minutes and the market’s…”
Clay: I mean that little lag time, just as much as five minutes, let alone 20 minutes, things can get out of hand very, very quickly and-[crosstalk 00:16:00]
Carl: Then it sucks when the signal guy comes back and he’s like, he closed the day and then a couple minutes later he’s like, “All right well, these losses happen sometimes. Everybody have a good weekend. See y’all next week.” You know and you have people who are trying to figure out what they’re supposed to do. I mean, you need at a minimum, $500 to trade an SPX spread, and you assume these people have obviously more than that. I don’t think anybody was messing with six figures, that had the big losses. You just have people that are like, “You know, what are we supposed to do? How are we supposed to handle this?” There’s posts on Facebook like, “I lost 60% of my account today. I’m not sure where I go from here.”
Carl: Also, he charges 75 or 100 dollars a month for the signals.
Clay: Do you feel bad for those people?
Carl: No. It’s your own decision, right? It is what it is.
Clay: I’m glad… Well, I don’t know, maybe it would have been fun to just have a little debate, but I’m with you [crosstalk 00:16:55].
Carl: Just like on the, my last podcast here left off was I think, October of 2017. Then in February of 2018, I lost 110 grand in one trade. So, do people feel sorry for me? No, it was my own fault.
Clay: Yeah, you’ve definitely been on because I think you’ve talked about that already before, that big trade, but I don’t think that happened until after your first podcast. This has got to be number three. It’s got to be.
Carl: Seems like a good question for IT Nate.
Clay: That does sound like a… if one of us knew how to use a search… well I know you know how to use a search… but I don’t know. Anyways, we’ll go through that again because I’m sure, I know you’re willing to talk about it, you bring it up quite a bit in the chat room which I always applaud because, for you listeners out there Carl is active in the chat room and he’s not one of these guys that is trying to portray like he doesn’t take losses or he’s never done anything stupid. He, I don’t want to say proudly, but he willingly talks about a big loss that he took and actually, we might as well just talk to it.
Clay: So walk listeners through the loss that, yeah you’re kind of well known for just because, like I said, you talk about it in the senses of, “Hey mister new trader that’s just in the chat room, learn from, here’s my background. You might want to reconsider it, because I used to have that same mindset,” so it’s not like you wear it as a badge of honor, but I know you’re willing to talk about it.
Clay: So for listeners out there walk us through, even if you’ve talked about it before, let’s just talk about it again because it’s always a good reminder for everybody. I’ll let you set the context, or whatever, to talk about this… It was a big loss, I’ll just leave it at that.
Carl: Well yeah it was, like I said, 110 or 12 grand, best I remember. 110, 112, 113, somewhere in there. Before I bought Clay Trader, which I bought Clay Trader in February 4 of 2017, I started trading in July of 2016. Then in October-ish time frame, October, November, somewhere in there, I figured out about shorting volatility and it’s just about sure bet trade, as long as you can stay liquid, which is kind of a struggle sometimes in and of itself.
Carl: Anyways, it’s a great trade sometimes. Almost all the time, but that 1% of the time really gets you going. So, learned about shorting volatility, the VIX index, was shorting VAUVXY decided to start shorting via SVXY, a long position, I can’t have the shares called away from me from the broker. You’re not paying shorting fees or locate fees or borrow rates, so I thought that was a better route to go.
Carl: So fast forward, through 2017, made considerable amount of money. Like I said, I bought Clay Trader in February of 2017. I started participating in the chat room in May or June of that year. I started doing the course work in August Like I said, in the first podcast, I bought Clay Trader to learn the options simplified course. Then I went out and didn’t do anything about that course, and went out and lost like 13 grand in UVXY options in February of ’17. Still had a positive month, but it was a… it went on.
Carl: So fast forward to August, I started going through the courses and starting actually trying to learn, trying to figure out, I had this one methodology or this one strategy that was very profitable, but sometimes you’ll have a very large draw down, you know 60 grand happened. I was trying to figure out, I have all these pre conceived notions on how it should work and the money I can make and how I should handle it, and then trying to learn how to actually define your risk and control your risk, because that’s the only thing you can control. You can’t control what the price does.
Carl: Then fast forward to January of 2018, I opened up, I started opening the position on SVXY shorting volatility, and it went against me and it wasn’t a big deal, it’s happened before. So I kept adding to the position and then February 5th, I think, we had the volpocalypse, the volatility apocalypse, where there was a liquidity squeeze or a short squeeze, liquidity squeeze on VIX futures, or VX futures, when the ETFs tried to re-balance that afternoon.
Carl: Basically, long story short, SVXY opened that morning around 106, 7 dollars a share, and it closed that evening around $10 a share. I punched out along the way, with my last shares in the 70s, which would have been, it was like I said, 110 whatever thousand dollar loss.
Clay: Do you remember what it would have been had you not just waved the white flag? How big could it have gotten?
Carl: It would have been like an MR situation where the account went negative.
Clay: So it would have been an entire account gone, plus still owing money. So listeners, I want you to realize that, yes the loss was big but it could have been a situation where-
Carl: Oh I easily saved over 100 grand. Well over 100 grand. Actually I can probably pull up the specs of that pretty easily.
Clay: What, was that on VIX? What was the ticker on that one?
Carl: SVXY, which you can go back and look.
Clay: S… That’s what I want to, because I know they’ve had split since then so it’s not quite-
Carl: Which actually SVXY had their first reverse split. Normally they have forward splits to reduce share price, but if you look back on February 5th, it shows it closed at 285, and then it opened the next morning at 49, which has been a 5 to 1 split, a 5 to 1 reverse split since then.
Clay: So just explain how this is all possible and Carl, he kind of started off saying I found this… and it’s a great trade. It’s true, it’s a very, very high probable trade, I mean. It was just… I mean it’s not a guaranteed trade, obviously, but from a probability and odds standpoint, I mean very, very high… Very in your favor.
Clay: But then on, let’s see when was that, February 5th of 2018, now remember this is, there’s been some reverse splits with, if you’re not familiar what that means, that just means the share structures change. So this wasn’t the price at the time, but because of those on that day, it opened at 428 and then closed on that same day at 287. So again, opened at 400, closed at 287, but then to Carl’s point, so it closed at 287, the next day it opened at $49.
Carl: Yeah the apocalypse happened, actually after the bell because volatility-
Clay: Yeah which was crazy.
Carl: Options trade from, I think at a 315 instead of just 3. So during that time span is when the ETFs are re-balancing their positions and that made, when they were changing out the contracts, that made the apparent volatility dramatically increase. Looking back, I had, it looks like 5,000 shares and, excluding commissions, it was $112,437 loss. I opened the position on January 16, 2018.
Clay: Yeah that’s, I so remember that. I’m reflecting back on-[crosstalk 00:24:48].
Clay: I don’t think I’ve ever seen anything move that fast before. I mean, to see the price of all these different ETFs that are structured and based around volatility, I feel like, I don’t know if was watching TVI… I can’t remember which ones I was, maybe UVXY, I don’t remember which one I was watching. I just remember sitting there thinking, this is insane. These prices are melting before my eyes. It was a very, very rapid melt. Not like a drip, drip type melt. But like somebody pulled out the flame thrower type melt.
Clay: I’m just glad you got out when you did because, like you said, you could have easily have had another six digits on top of that, that you would have still owed.
Carl: Sure. Sure. I want to say I calculated, it was going to be like a 70ish thousand, I’d owe the broker 70 grand, I think is what I remember. Like I said, I saved more than I lost.
Clay: Now you can decline this if you want, because I don’t know if I’m treading too far into personal territory, but I remember you posted your exchange with your wife at that point.
Clay: So if you’re willing, can you, because I think it’s a good example because we always say, “You need a supportive structure around you if you want to embark on this journey of trading, like you need a good support system.” I always kind of, your wife was probably like, “Yeah, Carl’s wife is definitely like, kind of the epitome of a good support structure.” How did that interaction go with your wife after that loss?
Carl: I can scroll back and look. Basically I told her, she knew that the position had moved against me and, like I said, 50 or 60 thousand dollars happened, not necessarily regularly, but it happened before. I sent her a text and was like, “I got out of the trade,” I can’t remember exactly how I worded it but along the lines of, I got out of the trade and it was 100 something thousand dollar loss. It was, again, it was what it was. Not something you would want to repeat but, she was okay with it. She understood that it did not make me a happy person, in terms of I was kicking myself because I knew that morning that, if I would have stopped out, or if I would have gotten out of the trade that morning at 106,000 instead of, I mean $106 per share instead of 70 or 60 or whatever it was I got out, that would have been another 30 or 40 dollars per share, that would have been another 15 grand. Sure it’d have still been 100,000 loss, but that’s another 15 grand you still had in your hand. So, yeah it was a-
Clay: But overall she was supportive, she wasn’t like-
Carl: Yeah, I mean she fixed dinner. She gave me a Valentine’s Day present early. It just was what it was. We had some other members in the inner circle that had, not the same size losses but good size losses, yeah good size losses on SVXY. One in particular had a fiance and I was like, “Dude you might as well just go ahead and tell her, there’s no point in hiding it. If you hide it you’re already going to feel bad for losing the trade, plus you’re going to feel bad for hiding it.” That’s just not a good way to start a marriage. Like I said, it was what it was. It got me back out of retirement so there was that.
Clay: That’s almost the perfect segue, because I wanted to just talk about kind of your work life balance. For contexts sake, again Carl is a business owner and for that reason I’ve had him on my Money with Clay podcast, just to talk more so about all that sort of angle of things. My question, and I think something that comes up all the time is, “Hey I have a full time job, how can I still make trading work for me?”
Clay: You are somebody that not only has really a full time job, but you’re also running a company. How do you manage, how do you fit trading into your work life balance, if you will? How do you make all of that… Do you have a certain set of times that you do certain things? How do you really go about it? If you were standing in front of a crowd of people that had full time jobs, walk them through how you make dual streams of income all happen for yourself.
Carl: I don’t have, my jobs aren’t full time. My companies are small, and they’re small on purpose. One second.
Carl: All right. They’re small on purpose so that I can do what I want to do when I want to do it. I’m not beholden to, generally speaking, I do have some customers that I have to work around. I own two companies. One’s primarily a tree service, we do some other stuff but it’s a tree service, so most of our work is done as we schedule it. There’s not, I don’t tell my customers I’m going to be there next Tuesday at 3 AM, not 3AM, probably 8AM. We schedule, we tell them before we get there, we’ll give them a call the day before.
Carl: In general, I have my customers set up where they don’t expect to have a doctor’s appointment where I have to lock in the time for this, the time for that. Just like today, nice day in the market and I talked to the engineer on the job, the engineer that’s managing the job that we’re doing right now, and moved the work we were going to do today to tomorrow, to make life easier. For two reasons, one so I could do the podcast, and two, so I’d be around for the market.
Clay: Thank you, by the way, for doing that. That was pretty-
Carl: It also worked great for me because my helper, like you have IT Nate, as far as I know full time. I don’t have any full time employees with either company and I hire subs to help as required. It’s a benefit in that, my schedule’s very flexible. It’s a downside that, you don’t always, you can’t always just say, “Okay customers I’ll be there right now, because I’ll just call my guys and we’ll show up,” because you have to get everybody on the same page. But, it works very well for my business model, which is, my whole business model is to provide flexibility for my time.
Carl: Let’s say that you did have a full time job or, like there’s one IC member that had a full time job and was trading, and then he’s now in med school, and he’s going to med school. He’s still trad-
Clay: Who is that?
Carl: MJ Hammer.
Clay: He’s in med school now?
Carl: He is.
Clay: MJ from New Orleans?
Carl: No, that’s M.J. MJ Hammer is in Baltimore area.
Clay: Okay, I guess I-
Carl: MJ Hammer is like, 23. M.J. is old and salty.
Clay: And he still hasn’t been on the podcast yet. I hope he listens to this one, yeah. You are old and salty, M.J. down in…. All right, well MJ Hammer, I’m trying to think. I guess I, it’s not sparking, anyways-
Carl: He hasn’t been on in a few months because he’s been working full time. Anyways, the nice thing about charts or technical analysis is that within reason, charts are a fractal pattern. Meaning you can zoom in or zoom out via timeframes. You can go to the one minute or the one day, and a chart is a chart, it’s just a pattern. A fractal pattern is like a coastline. If you zoom out the coastline is still wavy and uneven. If you zoom in the coastline is still wavy and uneven, so the pattern is fractal. With that, if I’m trading zero days to expiry, you could also trade seven days to expiry, 40 days to expiry, whatever. You could have long options or short options, equities, there’s all kinds of things you can do to trade around your time, versus your time dictating how you trade, if that makes sense.
Carl: I guess your time would dictate how you trade, your available time, but then you have enough quivers in your arrow, enough arrows in your quiver, that makes more sense, to be able to decide, okay I know… We have a tornado coming up, let’s say we had a tornado, we don’t have one now, but if we had a tornado I know I’m going to be busy for the next month. I might either move all to cash or sell longer term options to still farm… make profit with my money, without actually having to have day to day interaction with it. There’s plenty of traders that swing trade. There’s plenty of traders who day trade. There’s plenty of traders who scalp, it’s just once you have the knowledge it’s basically just finding what fits your time frame and what fits your mindset.
Carl: Like right now, one of my absolute favorite trades is, what I actually call now, instead of DTE it’s MTE. So like last week, I had minutes to expiry instead of days to expiry, so last week I had a crane job where we knocked out a tree, a large tree with a crane. Got it down, got the crane packed up and I turned on the computer, I had the computer in the truck, pulled it out at like 2:50, market closes at 3:00, so that’s central time. Opened the trade at I think 2:52, eight minutes to expiry, and made $141 with using 1350, $1,350 of cash. Made $141 in eight minutes.
Clay: You’re not recommending this to like, “Hey, I just-
Clay: Well you’re not recommending to somebody [crosstalk 00:34:25].
Carl: If you’re educated and you have, if you have your own risk management, then sure. If you’re, the big thing about trading is, risk management and then accepting the risk. For me, the biggest part of it is accepting the risk. After that big loss, I went a year or better, trying to figure out how to find my way with assigned risk, not assigned risk, defined risk. Going in, not necessarily just options but, understanding, “Okay I’m willing to risk this much on this trade, controlling the position size, things like that,” was a huge leap, and still is a huge leap.
Carl: To go from, used to, I actually had a spread sheet where I could calculate, okay here’s my position size and my average price, and here’s how much money I have in the account. So here is my break even number on my account. Or here’s my, I have 200% protection to the downside because I was leveraged, so I’m okay going from 100 to 70, but at 55 I’m at break even and I don’t want to do that. So, going from that to, like last week my biggest position was five grand, and my minute to expiry trades, I had in total I was in a minute to expiry trade for 55 minutes last week and made $871 in those 55 minutes. 55 minute spread over three days. My longest trade was 30 somethings minutes on Friday. My shortest trade Friday, I opened up a put spread with 30 something minutes to expiry. Then I opened up a call spread two and a half minutes to expiry.
Carl: Anyways, it’s about finding your time, and I was able to do that because I’ve been working on this trade and I was literally just sitting on the job site with my laptop in my lap and saw the opportunity and took it.
Clay: What is your downside look like? You said you made $800 roughly on that one, so from the risk side of things-
Carl: That one, I’m calling the MTE trade, is a trade that I do three days a week. So last week I had four. There was three days, Friday I had a trade on both sides. Last week, that one particular trade made $871, in total it was four trades that made…. that one trade plan, I guess you would call it, or that one strategy, strategy there we go. The minute to expiry strategy had four trades that made $871. The most capital I used was five grand, so absolute worst case I could have lost would have been five grand, minus premium received. Friday that was, I received 80 cents in credit, so my max loss would have been $420 per contract, $2,100 with some commissions. So, my max loss would have been $2,100, however, to get to max loss it would have had to go into my short strike plus five or at that point plus ten points. Nevermind, that was a five grand trade so it was….
Carl: Anyways. My max loss is defined by the defined risk trade, or the defined risk of the spread. It was a five or ten point wide spread. However, my stop is going to happen far before I ever get to my long, the protective side of the spread, however you want to word that.
Clay: Right. So you threw out the number $2,100- [crosstalk 00:37:50].
Carl: I think it was. It was $4,600, but let’s say I would have stopped out on that last trade, there was two minutes to expiry, I got 40 cents. With two minutes to go, my put side was down to 20 cents. If the market would have tanked, I might could have got out for break even, if it would have ripped to the upside, I might have lost $500, I’m just guessing. It also depends on how fast and how hard it rips. But on that, my exit strategy is you exit, basically, as soon as it touches your short strike, you’re out. It would be whatever the extrinsic value was of your short strike with 60 seconds to go on the market.
Clay: What I’m pretty much going about, in a roundabout way is, let’s just say something crazy happens, it’s not… Correct me if I’m wrong-
Carl: Absolutely crazy would have been a $4,600 loss. That would have been like my internet failed, I had a heart attack, whatever. If I didn’t touch it and it shot against me as hard as it could, it would have been a $4,600 loss on the trade that made $390.
Clay: Okay, that’s perfect. But like you said, that’s… and that is also the beautiful thing about options, for listeners out there, is when you do certain strategies, you can know exactly what your max loss is. Whereas a stock, you just don’t quite know what the loss could be because, there could always be a gap or something like that. But with options, you have that kind of built in, “convenience,” but also to Carl’s point, like he said, he would have had to have internet outage, heart stoppage to even take that loss. At the end of the day, how, it’s a pretty… What’s the win rate look on it? I take away that you’re winning a whole lot more than you lose, is that accurate?
Carl: So far, day trading and paper trading, MTE, I haven’t had a losing trade. Last week in all of my trades I had one loss. I had one loss out of four intraday trades and then I had four winning MTE trades.
Clay: Okay. So what… That’s good, we have a data point of a loss, so how much did you lose on the losing trade?
Carl: 260 with commissions.
Clay: Okay 260, and then you’re winning trades yielded how much?
Carl: More than that. The four MTE trades was 800 and something dollars. And then-
Clay: Okay that’s that 800 dollar, okay.
Carl: That was four of the trades, I had four, four day trades, four expiry trades or expiration trades or whatever you want to call those. The four made $871. One of the other four lost 260. That day that I lost the 260, that was Monday, and I made 350 that afternoon on MTE. So I ended up I was still red, or green on Monday by, whatever it was, 80 bucks, 90 bucks.
Clay: So it sounds like right now that you have a system in place that, if you’re wrong then, everything’s okay. You’re not going to have any repeats of the previous incidents, beside… I’m just trying to drive home to listeners is, it sounds like he’s doing what with the options? That sounds, but you’ve got to… he’s factoring in things going against him and he’s already had one that’s… which is good, I’m glad to hear that you’ve taken a loss so that you kind of know, all right yeah-
Carl: I mean the week before I had a thousand dollar loss on one trade. It was ten spreads that went into it and went against me and it was what it was. But-
Clay: Did you have a lot more winners though than that?
Carl: Yeah. It’s one of those things where… Another thing that I started doing is actually selling closer to the money because it’s easier to, if you only collect 30 or 40 cents a premium but you have a five dollar loss, then that’s very hard to come back from, versus, if you have a…
Carl: Like right now I have five, excuse me I had five, spreads but they had $1.10 each. So if it would have went against me, my max loss if I’d have stopped out on the chart, would have probably been a dollar per spread versus, who knows. If you collect 40 cents on something… Okay like this morning I sold a 28, I’m sorry 2830 spread on SPX for, I think 15 cents. It’s currently, it just hit 60 cents. That’d be like a 4X loser if I stopped out here. It would take four max wins to actually replace that one loss, so that’s a very, for me that’s harder to fathom because, if you use a chart to define your stops then your stop point might be ten points away, and if you’re far away from the money then you’re kind of going against you.
Carl: Just like, Hooch and other like to buy cheap options because they have more leverage against them, or they have more leverage if they’re right, they can be really right. Same thing on selling, it’s the exact opposite. I’d rather take in more premiums so that if it goes against me and I stop out, my loss will actually be less. Relative as a percentage.
Clay: You like the built in cushion that you get automatically, which I think, I find more-
Carl: That and closer to the money gives you more premium and… Like this morning I sold, right off the bat, I sold 2850 put spread. 2850 plus 5 put spread, for $1.05 it looks like. It did go against me, you know the market just kept selling off and kept selling off. I sold it at 8:30, sorry just kidding, sold the first ones for 65 cents at 8:33. At 9:38, I sold five more for $1.05, but the market, it sold off like another 20 points. So there was enough cushion in there that I was already… basically if you’re at the money, a five widespread is going to be worth, maybe 2.50. So, if you’re already collecting a dollar, the most that can go against you to get to the short strike is going to be $1.50, give or take.
Carl: As opposed to, it’s a lower probability if you sell far out of the money, you have a higher probability of winning, according to the statistics. But, your stops are going to be proportionately a lot larger than your premium received because you’re far out of the money.
Clay: Right. So basically what Carl is saying, for you listeners out there that maybe aren’t familiar with options, when you’re selling options and depending where you’re selling but we won’t go down that rabbit hole, you automatically essentially get money in your pocket because you are selling the option. Which means you get money right off the bat. So Carl is just saying, he likes to try to get as much money in his pocket right up front because that in and of itself now creates a buffer from him, from the loss. Just to keep the math easy, if you get $100 into your pocket, well that technically means the position could move against you in the amount of $100 and then that happens. Then the loss actually just starts, which means you could build in even more of a stop loss from that perspective and make your risk management situation a little bit different. That’s just kind of the wonderful world of options trading and how anybody that says they have the Holy grail system, there is so much you can do with options, it’s ridiculous.
Clay: To Carl’s point, he mentioned Hooch and a few others, they kind of view things a different way. It’s not that Hooch is wrong, or that Carl is wrong or that somebody is right, it’s just a matter of personal risk tolerance which we talk about all the time here. This is kind of a real world application of how that plays out and… I think, Carl’s method, to me, I feel comfortable with because I’m with Carl, let me shove as much cash in my pocket right up front and create a buffer for a stop loss.
Clay: Did that take a lot of experimentation to figure out, Carl? I guess, because I get the question a lot, “How do I know what I’m supposed to do or how do I know how I should approach something?” How did you know that, you know what, that’s the way you wanted to go? Is that just, did that-
Carl: So the closer to the money thing, being closer to the money, the idea there was, if you’re further out of the money you’re basically just on the profitabilities and it’s a flip of a coin, it’s a loaded coin. So you have somethings in your favor, but the market is very efficient so, there you go.
Carl: Getting closer to the money, I figured it gives me more benefit to chart reading than actually saying, “Okay this is what I think is going to happen or…” It lets you use your technical analysis to influence your trade and where you decide to buy, or where you decide to sell rather. Which is exactly the same as what Hooch does, he prefers to get further out of the money, which is lower probability for buying, but since he has fantastic skill, it typically goes wildly in his favor. I’m not on Hooch level of chart vision but that’s my goal, my ambition. So being able to use what I’ve learned about chart reading to decide where I’m going to sell my strikes based on the chart, not based on, oh that’s a six delta spread and so I’m going to sell that one.
Carl: Which is what a lot of people do, and there’s not necessarily anything wrong with that, it’s just I want more. You can never make more than the credits you received so if you use ten grand to collect $600 in credit, that’s all you can make. If you can use five grand and collect the same credit, then that’s obviously twice as better, twice as good, and when it goes in your favor it goes in your favor very well. It gives you more room to be right and it gives you cushion on being wrong.
Clay: I love it. As a listener who’s sitting there thinking, “What the crap is this guy even talking about?” You know what, welcome to actually the world of trading, in the sense of, it takes a little bit more than signing up for someone that’s going to send you a text alert. It takes a little bit more than some sort of free e-mail list out there. It takes effort, and all this stuff can be figured out, but you got to realize right off the get go, you know, “Hey Clay, how do I get started trading? What broker do I need?” No, not what broker. You better have the right mindset up front that this is not a cake walk. I firmly believe that anybody can do this stuff but, a lot of people just show up and they think that, I mean to Carl’s point, back full circle, that whole alert service he signed up for.
Clay: Again, to reiterate, Carl did not sign up for it so that he could be a puppet and just blindly follow. He was trying to do a little reverse engineering of what was going on. But if you think that you can sign up, I mean Carl’s story, it’s sad but in a, I don’t feel bad for you kind of way, where people are panicking and getting slaughtered and, where’s the leader, where’s the guru, where’s the guy that’s supposed to be telling me what to do? Then he shows up and says, “Ah, yep. I sold it 20 minutes ago, $2,000 loss, losses happen but it is what it is. Everybody have a good weekend.” I mean, okay well that’s what you get for just thinking that you can blindly follow other people.
Carl: You can, but that’s not trading.
Clay: I mean, you can, and that’s not trading, but it’ll also eventually get you slaughtered.
Carl: I mean that’s not for me to say. I’m sure there are signal services out there that are very profitable to their customers, but all of their customers are beholden to every word that comes out of their mouth like, man are from God. They’re not trading, they’re literally just clicking the mouse. They have no, that’s not trading is what I’m getting at. That’s just like buying, in a long term perspective, that’d be like buying a mutual fund. You’re not an investor if you buy a mutual fund, you’re just saving your money in a mutual fund that you hope somebody else makes money with. So-
Clay: My thought process is, if that service is, if that process… I agree that’s not trading, but if that signal service actually existed, they would be world famous, everybody would therefore want to sign up for them. I’ve never heard of a world famous signal service that, again, I’m not even…
Clay: We’re putting aside, I agree it’s not trading, but I’m pretty sure if that actually existed, that they would be pretty world famous. But they’re not world famous because of your story that you just gave is, there’s always going to be that lag time where people are going to get slaughtered and lose money. So, sure for them they can post, “Look at my resume, I have all these great alerts,” but what people always forget is how many sheep got slaughtered during the process, but I mean that’s their business model of just bringing in new blood. I don’t, to me, by definition, a signal service can’t work because if it actually worked, everybody would sign up for it and therefore whatever they were teaching would not work because everybody would be trying to do it.
Carl: That would be called a hedge fund.
Clay: I think I’d argue hedge funds don’t work.
Carl: There are mutual funds, there are managed funds that make money. I said that earlier in the podcast is that, if you want to puppet someone else’s trade, let them trade your money. Then you’re [crosstalk 00:51:16] that lag time.
Clay: I agree.
Carl: It’s not something that I would recommend.
Clay: I would say on that note, a hedge fund is not a signal service because you literally give-
Carl: Exactly, you give them your money.
Clay: Exactly. So that’s the big difference is, signal services do not work for the very reason that Carl beautifully described at the beginning, because of that lag time. Even if there’s a five or ten minute wish washy period where you don’t know what’s going on, because think about it, the signal alert giver is always going to act in his best interest. It’s not like they’re going to explain everything, what’s going on, send it out to members and then they’re going to do it. No, they’re going to do it first, and then they’ll take the time to explain everything. So they’re going to lock down their position whether that’s taking profits or just cutting the loss, and then they’ll tell everybody else, but the “and then,” if that takes five, ten, fifteen, twenty minutes, well sorry members but…
Clay: So yeah, we are in agreement then because I have… If you give your, if you want to do a signal service “like a hedge fund,” then that’s like give your money to them and they’ll, there’s no lag time at that point. But-
Carl: Right, then you can have an option sellers situation where you end up owing the broker money too.
Clay: Yeah, it’s-
Carl: You remember the options broker, the-
Clay: Yeah, who was option seller dot-
Carl: Option seller, that’s what it was. Sold-
Clay: Yeah, Chez and I, we did an exclusive podcast on that whole situation, which was, yeah what a train wreck.
Clay: At the end of the day, like I said, I think if you want a signal service, if you just want to be told what to do, first off, that’s fine. Second, go run a search for a local financial advisor that you can give your money to and let them go and they’ll spread your money in some mutual funds and, that’s fine. That’s like what, probably 97% of the population does. That’s what my parents do-
Carl: 97% of the population that has savings.
Clay: That has savings, yes, correct. That’s definitely a good asterisk, but we won’t go down that rabbit hole. There’s nothing wrong with that so I don’t say that in like a, I’m better than you way, I just say it in a, if that’s what your motto is, I’m getting in the market to just blindly follow somebody else’s alerts and signals, why don’t you just do something local where you can really do due diligence on the person. Talk to other people that have actually used the person and just get a feel for it and use somebody that’s local and just be done with it. That is what the majority of the population does and there’s nothing wrong with that.
Carl: Another fun point about that is that some of the local people I talk to that want to day trade, or that say they want to day trade, I’ve told them before that financial planners, which I have nothing against, my mother used to work for one, I’m friends with several. But financial planners are not traders. Their job is literally to sell financial services.
Clay: They are sales people, that is-
Carl: They sell financial products, just like my wife’s an insurance agent and through her training, she sometimes thinks that whole life insurance, which is another rabbit hole. But it’s her job to sell insurance so that’s her training leans towards that mindset. Just like if a company sells American funds, they’re going to push American funds. Not saying it’s a bad product, but it’s not like they’re in their back room every day paining over their computer trying to decide, should we go buy a million dollars worth of Apple today or should we sell it. They’re not even looking at it day to day. They don’t care, they’re just selling a service that someone else is trading. The financial planner is just a middle man, usually. There can be, you can tell them, “Hey I want to buy X number of shares of this,” and they do that for you. They have that license. If they’re selling you a mutual fund, they’re just making a percentage and the mutual fund’s the one that’s making the decisions. The one that’s paining over your money.
Clay: Yeah, they’re essentially just a… Yeah they’re like the-
Carl: They’re selling a car extended warranty.
Clay: Yeah, exactly. So I mean like, the actual factory floor, where all the things are being made and assembled, that’s like in the factory. They’re just the salesman out there saying, “Hey, we have this fund and we’ll put your money here, there and there,” but, yeah all they’re doing is… Yeah exactly-
Carl: I’ve used this example before, it’s like asking a car salesman how to build a car. That’s not their mindset.
Clay: Right, you are not… They’re just there to sell the finished product. Same with financial advisors, they’re just, you tell them, “Well, I got five years before retirement.” Then they’re going to go and they’ll put you in the right car, they’ll figure out what car you need for that but as-
Carl: What investment vehicle.
Clay: Oh, look at that. We are rolling with the analogies, now that was impressive. Again, Carl and I, we have nothing against financial advisors or anything like that, that’s not our point. Our point is just, you kind have got to realize where you stand within the context of things. And yeah, you’re absolutely right, they are not traders. They are just, they’re salesman that are trying to sell you a vehicle for whatever they think is best for your situation. At least you hope it’s what they think is best and not because they get more commissions recommending one thing over another. That’s another rabbit hole that we’re not going to go down.
Clay: Looking up at the time, we’re almost at an hour, not quite. I’ve been trying to keep these around an hour. Do you have any-
Carl: Oh come on, this will be my first one hour podcast then.
Clay: I know. We’re going to set a record here. Do you have any kind of, I know you do, but what are they. So, you always have goals, and I mean I know Carl, Carl is a very ambitious person, so what are some of your, I don’t know what you want to call them, maybe mid term, big term, medium term type goals? Where do you want to continue to progress and see yourself in and I’ll let you define those time periods.
Carl: With regards to trading, so my theory, in the last month or so, I’ve actually reduced my trading account size. Not because of a draw down but just because I wasn’t needing the money, didn’t need the money. So I actually pulled my trading account down because I wasn’t using the money. It was kind of like a feel good crutch that didn’t really need to be there. So kind of like removing the training wheels a little bit.
Carl: Last week the most capital I used at one time was five grand. I’d like to emotionally get to the point where, emotionally I guess, which would also be based on my skill and performance, be confident enough that I can start scaling back up positions. Like Friday, I used five grand and made just shy of $700. So back when I was doing SVXY I might have a quarter million dollar position, and it wouldn’t necessarily scale directly, but instead of being a $700 day, if I used a quarter million dollars on SPX spreads that would have been a $35,000 day. I don’t necessarily, I’m not saying a $35,000 day is my goal, I’m just saying where I can actually start, where I stop being the limiting factor to my trading. My skill stops being the limiting factor and I can actually get to, “Oh well hey if I grew my account I could make more money.” As opposed to making sure that I don’t fall back into old bad habits where I blow myself up for no reason, or for no good reason we’ll say.
Carl: That’s the main goal is get to where I can actually take losses and move on. Being a consistent trader and show a positive expectancy, so I can start scaling back up and basically keep treating it just like my third business where money in yields money out.
Clay: How is that, I mean you mentioned, we talked about some trades, but since, and you mentioned you started all of this in January roughly, but over that period of time are you in the green?
Clay: Okay you are in the, so, so far so good then.
Carl: Yeah, so with the farming that I was doing, I started modifying that a little bit and started selling puts on Apple. I had a couple puts on Apple that I rolled to sharers, and it kept going down. Anyways, I covered the day before, or two days before ,it actually started to climb back up. So that was a loss and I don’t know if you count that. Originally I was selling directionless spreads because I was fed up with myself trying to pick a direction. I was too myopic, I wasn’t seeing enough of the picture, I wasn’t accepting enough of the picture to be able to make a trade plan so I just decided to stop being directional and I would sell strangles, which were a directionless trade, and made, my monthly goal on that was 2% a month, which would have been 26 or 7 percent per year compounding. That did fine, I had a Qualcomm, I had a something size loser, I don’t remember what it was, $1,600 maybe. That was a red month but I had enough percentage points added up from the months before where it all washed out anyways.
Clay: So you still came out ahead? I remember the Qualcomm one, I remember you posting that on the chat room now. [crosstalk 01:00:01], on the news or whatever.
Carl: It was like two days to expiry and we went from 50 something to 80 something.
Clay: I do remember that. But you were still, because you had enough green though to cover that though?
Carl: Yeah, I had still had enough. The first month my goal was 2%, I made 3.9 or whatever it was, and so I had enough percentage points added up where if you still average it out it was still better than 2% per month, including losses. Which, I mean losses happen on any-
Clay: Yeah, that’s going to happen. Exactly.
Carl: Then I got to selling puts because I wanted to be more directional, I mean why did I spend all this time learning how to read charts if I wasn’t going to be directional? I mean that’s kind of the whole point.
Clay: Well let me ask you this question real quick though, because you were saying you wanted to go directionless, right?
Carl: When I started I wanted to be directionless because I was fed up with myself.
Clay: Okay, and that was working though, right?
Clay: Minus Qualcomm? Well, I mean-
Carl: It was working in general. [crosstalk 01:00:54].
Clay: So it’s working in general. So my question to you, just from the outside listening in is, if it’s working in general, that’s like something that somebody that’s really, really struggling is saying, “Wait, you found something that works at all?” So, why change if it was working in general?
Carl: Because 2% a month’s not very ambitious.
Clay: You don’t think 24% a year is ambitious?
Carl: No. Not for day trading. Would Clay Trader be happy at 24% per year if you’re-
Clay: I would. I would.
Carl: If your day trading account made that?
Clay: I would.
Carl: You average-
Clay: 24% a year and then you start compounding that?
Carl: But you average-
Clay: I mean I average, would I? Yes. I would be more than happy with 24% per year.
Carl: You would be content with your allocation of time and capital, to make 2% per month?
Clay: Yes. 24% per year for 90 minutes a day, roughly speaking. Yes. Absolutely. 24% per year?
Carl: That’s surprising.
Clay: 24%, listen to what you’re saying Carl. Don’t blow up your account because you get greedy.
Carl: I’m not but-
Clay: I’m not saying, I’m not saying that what, I’m just saying, would I be, I mean who wouldn’t be?
Carl: I’ve never seen… but you wouldn’t be pushing yourself trying to figure out what you were doing wrong or how to adapt to the market changes? I’ve never seen you have less than 8 or 9% month.
Clay: And that is true, but still, even if it broke down… let’s just say it was 2%, I mean 24% per year that’s still-
Carl: Not 2% for one year, I’m talking about like-
Clay: I’m sorry, I’m sorry, yeah. That’s still 24% per month, now. Now if you rearrange it to the sense of you’re doing absolutely full time trading. Then okay, if I’m using $100,000, 24% per year, that’s only “$24,000 per year,” which that’s not going to get anything done.
Clay: I’m talking about from the view point of, I have multiple streams of income. So if one of my streams of income was $100,000 that still yielded me $24,000 in combination with other streams of income, yes I am still plenty happy with that. So I guess maybe it’s more of a context perspective but-
Carl: I’m just going off of the videos you’ve done on the looking back at your months, and you normally do somewhere between 8 and 10% from the three that I’ve seen. So my assumption was that you wouldn’t be happy taking a 5X pay cut. You might be, not necessarily that you have one bad month, you’re not going to change your entire life because of that. But you’ve, I’m assuming, have grown your skill base to make more than 2% per month.
Clay: Like you said, yes it is more than 2% per month but, even if it dropped to… I guess I’m coming from the…
Clay: First of all, you are right, but I’m also coming from the angle of, I deal with people all the time, you’re kind of dealing with your buddy right now that you’re sending screen shots with, of people that are just like, they have no idea what’s going on or they’re just struggling to even make any money at all. So when I deal with a lot of those people on a daily basis, a lot of those would just be like, “I just want to not lose money.” So from that angle, I’m always-
Carl: But how many of those people have spent as much time as you have learning how to trade?
Clay: That’s true too. But at the end of that day-
Carl: So on the same token, I went back and I just reset my goals to, I want to make 2% per month selling directionless trades and basically the lowest, not necessarily the lowest skill level, but a very low skill, very mechanical, very not very artsy way of trading, to get back on my legs and stop losing money, get some foundation going again. So that-
Clay: But 2% though with SPX spreads, that’s such a liquid instrument that you could, just big numbers, you could easily throw a million dollars into a position, right? Or am I way off? My assumption is those are very, very liquid positions or that’s a very liquid market. Could you do a million dollars in one pop?
Carl: It also depends on how wide your spreads are. You can sell naked options and very quickly, that’d be 20 naked calls or puts is going to be a million bucks, give or take. You wouldn’t have any protection wing. It also depends on the context. You wouldn’t want to sell 2,000 spreads with two minutes to go to the bell until they expire. [crosstalk 01:05:08].
Carl: It’s very scalable, and you can do it in a Roth IRA. It’s a very adaptable vehicle to trade.
Clay: Right, and from my point of view looking at my trading, there’s no way I could ever be like, “Yep, I’m just going to insert, let’s just call it-
Carl: A million dollars.
Clay: Yeah, there’s no way I can insert a million dollars into this trade right now and go and buy 50,000 shares. The [inaudible 01:05:32] would literally be like, “Okay we’re going to take,” it just doesn’t quite work like that. From my angle looking at what you’re doing is, if you can just get that 2%, 2%, 2%, but that capital that you’re using keeps getting bigger and bigger and bigger. I mean yeah, it’s only 2% from a spread sheet math perspective, but if all of the sudden that 2% is actually like $20,000, I mean do you really care that it’s only 2% or do you care that you all the sudden just have $20,000? I guess that’s kind of the way I’m looking at it.
Carl: Exactly. So today I’m at .99% gain on my margin account. A $30,000 account I’ve made $304.02 plus the 700 or whatever dollars I made Friday. So I made 1% today, and I’m perfectly okay with that. If it was $100,000 that’d be $1,000, that’s doable.
Clay: Right. Yep.
Carl: It’s one of those things where I don’t really want to, 2% is great for passive income, like I’d be just fine having an option farm that I swing trade, and a day trading account that I day trade. You can have multiple, your trading can have multiple strings of income, in and of itself.
Clay: That’s very true, you can have plenty of strategies.
Carl: Just like your money tree has long term investments. You have day trading. You can have-
Clay: Oh yeah, an account, I mean you could have… Go way back to when Carl was talking about the coastline and it being a chart, you can literally have, with the tool of charts, you can use that tool of charts to create an options income stream, a long term retirement income stream, I don’t know you could have a Bitcoin income stream because you understand charts from Bitcoin. Who knows maybe you’re swing trading Bitcoin, I don’t know I’m just making this stuff up. The point is-
Carl: Or even just day trading, swing trading and investment trading.
Clay: Correct. Exactly. Yeah. I mean, the coastline is vast when it comes to all the choices you have in the world of markets. The kind of linchpin of it all is, [inaudible 01:07:38] chart is a chart. As long as something has a value and that value fluctuates over time, then a chart is going to be useful for it, which is how it can open up all those things. But, yeah I totally understand you want to do more than 2% but, I just keep thinking-
Carl: But also on that, I wanted to use the skills that I had learned and actually put some use to them. You can option farm with no technical analysis skills at all. [crosstalk 01:08:05].
Carl: The technical analysis can help you develop your plans, but there are plenty of people who make money option farming with no chart knowledge. But I’ve put a lot of effort into learning charts so I wanted to be able to use that to my advantage.
Clay: Right. I know that, you just look at strike prices and you look at… I don’t know I still feel like those people eyeball a chart at least somewhat. Maybe it’s somewhere along the line, but I don’t know, maybe they don’t at all. But to those people, they ain’t going out there and trading anything else then. If you throw something else they’re like, “Well I need to look at this, that and the other.” But that’s another rabbit hole that we won’t pursue right now but we’ll have to at another time.
Clay: Anyways, Carl, I enjoy watching all you, I don’t even know, what do you guys call yourself? The MTEs? I don’t know you’ve got to come up with a group name within the group itself because you guys are always talking about, “Hey Carl did this,” and Remi. Isn’t it Remi’s turn to do some of it too?
Carl: He is, he tagged me a minute ago or 30 minutes ago, 35.
Clay: In the chat room, did he?
Carl: Yeah he’s starting to look at it and there’s several numbers that are trading it more quietly.
Clay: Is Elk doing it or is he just so straight up with the futures?
Carl: Yeah, futures and buying options.
Clay: But he’s not doing what you’re doing?
Carl: No. Although, he’s had a pretty solid day so far.
Clay: Yeah, I saw that, he’s really doing well.
Carl: Almost $800.
Clay: I enjoy just sitting back kind of watching what’s going on and I have a general idea of how it all works but, because the markets are so vast, I don’t… So this was fun because it’s neat to learn exactly what’s trying to go on, but I still like your methodology of just I want cash in pocket right now to create the buffer for myself. So that makes sense why you kind of approach it the way you do.
Carl: Well, that and leveraging the skills that I’ve learned on technical analysis.
Clay: Right, yeah exactly. That allows you to, like you said, use the chart a little bit more confidently.
Carl: Just like my Roth trade. There’s an excellent chance that it stops out. I sold it based on delta this morning, the 2840 spread. So that was-
Clay: Sounds like a rule break.
Carl: No it’s just, I’ve done, I have three strategies. The MTE, just the traditional day trading, and then right out of the gate selling based on expected move, or based on expected move based on what’s built in the option chain. They’ve all made money, but this particular trade right here is going to be just a normal example of why I prefer to trade closer to the money and leverage my chart reading ability.
Carl: You know, I got a 45 cent credit for it and it’s still six points out of the money, but there’s a very good chance it could be $1.50 loser, meaning that you’d have lost three times what you could have made. It is what it is, but it also just goes back to that’s why I’ve moved towards selling closer to the money. It’s very easy to tell when you’re wrong, you can stop out and your losses are [inaudible 01:11:16] smaller. If I would have sold this for $1 earlier on, and it was worth $1.50 now, that’s only a 50 cent loss versus a dollar loss. My ability to make profit would have been greater, which it’s also entirely, anything can happen in the next hour and 56 minutes. This is just a probability trade versus a chart trade.
Clay: Yeah well I don’t like it, I like chart trades better because the probability trade is costing you money, man. It’s costing you cash. Another data point, don’t ever do this one again. Stick with the charts, Carl. That’s the moral of the story that I’m coming away from this is, forget all this delta nonsense. I’m just kidding to all you traders that trade deltas, I’m just kidding.
Carl: That is exactly right though, is that the delta trades work out better because my, this particular account’s under pattern day trading, and so it’s nice to hold them to expiry because then you don’t burn any day trades. But that’s not, you have situations like today where, if I get stopped out it’s going to be a large loss relative to a small winner, and it is what it is. That also goes back to, like you said, use charts and you can increase your probabilities even further.
Clay: Yeah, but it’s another data point and I know you… With Carl what I’ve learned since he’s ever joined, years ago, is data points do not go to waste with Carl. He is more of a spread sheet junkie than I am and I’m a… I know my way around a spread sheet, but Carl makes me look like a, I don’t know. He makes me look like something not very appealing when it comes to spread sheet stuff because… But you’re right, you got another data point and I have full confidence you’re going to put that data point to good use.
Clay: We’re over an hour, Carl. I was hoping we could-
Carl: Good deal.
Clay: But it didn’t happen. Well Carl, first off, thank you very much. To listeners, a little bit of context, this is how great our community actually is. I hadn’t, there was no podcast planned at all today, and then I saw Carl in the chat room. “Hey Carl, how’s your weekend looking like?” Then literally like, well IT Nate almost us screwed both over, I mean he’s a real scum bag, but pretty much, eventually, an hour later, Nate’s like, “All right you and Carl are on at one,” I thought, awesome. Like Carl was explaining, he moved his day around so thank you very much, Carl. It makes my life much easier, and I’ve got RD tomorrow, Carl. So me and RD Trader, we’re going to, yeah.
Clay: That’s going to be a nice little lineup here, Carl and then back to back with RD, so yeah. For you listeners, you’ve got good stuff coming next week too, when the RD podcast goes live. Carl, man, thank you a lot. Keep me posted, which I know you will, and yeah man, just don’t cut your fingers off or arms off or anything while you’re sawing down those trees. Safety first, right Carl?
Clay: All right, well thank you again. For you listeners out there, before we go, first off if you’re listening on iTunes or any of the other podcast players, make sure to subscribe that way you can keep up to date on all the content that’s released. Especially on iTunes, if you could leave us a rating or even better yet, will you type up some actual feedback type rating. That helps us out and goes a long way and we really appreciate it. If you’re listening at Claytrader.com on the show notes page, there’s a live chat box right there so feel free to reach out to us, comments, questions, any sort of feedback that you have. We always love to hear from people and, like I said, that is live. You might have to request to talk to a human at first because it’s a little bot at the beginning but, just click one button, it’ll be sent to a human and we would love to hear from you. Thank you again to listeners out there, really, really appreciate our support. Thank you Carl. Thank you community, and we will see you all back next week.
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