How do ya like my Married Put NOW? Heh-heh, Gunslinger…

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In this issue, I soapbox a bit about using proper money management and options strategies to reduce risk. But first, a quote from a fellow options educator:

“At a time when many options educators touted extraordinary returns while ignoring risk, Kurt worked hard to develop a risk averse approach to stock investing. That focus upon limiting risk serves him and his students well.”

– Christopher Smith, President of TheOptionClub.com

Well, there it was today in the market. My vindication. AGAIN… ūüėČ

Sigh.

Today while the market gave most folks a black eye… the Married Put strategy came up smelling like a rose. No surprises for the followers of THIS blog, hmm?

In case you haven’t been following¬†the RadioActive Trading blog¬†for long,¬†recently I was¬†hounded by yet another “gunslinger”… a fella that identified himself only as “MarketMaker”. “MM”, as I’ll refer to him from here on out, wanted to tell everyone how much better he would do by using leverage to trade the markets. As a rule, I post positive AND negative comments…. giving¬†detractors as much rope as they need to hang themselves in the end ūüėČ

My method (called RadioActive Trading) is predicated on buying a Married Put and NOT using margin or any form of leverage, at least until after you have locked in a profitable status.

(BTW, a¬†Married Put is when you buy a put option along with your stock. It’s also called a Protective Put because it protects the overall value of¬†your position in case of catastrophe).

The RadioActive Trading method, while overall bullish, uses a great deal of caution: if something goes¬†TOTALLY¬†BATTY (hm… like TODAY…), you can get out of the position for a net 5% or 6% loss.

MM challenged me by saying, “Show me any¬†winning trade of yours…. and I’ll show you how I would have done better with less money…¬†by buying an ITM (in the money) call option instead.”

I’ll give ya that one, MM. Buying an ITM (in the money) call option, or buying stock on margin, or completely loading up on bullish spread trades would probably outperform¬†ANY winning¬†trade of mine… especially AFTER the fact… because they all make use of leverage.

Trouble is, leverage is a two-edged sword, and it cuts you down to size right quick in markets like today’s.

I countered MM by saying that any winning trade of mine could easily be outdone AFTER the fact. But that’s not how trading works. Naw, shucks… it’s almost like you¬†have to make your trade BEFORE you know what’s going to happen.

To quote my favorite Jim Carrey character…

“Man!¬†I am¬†TIRED of bein’ RIGHT..!”

-Ace Ventura ūüėé

Actually, I’m not tired at all. I like being right and today I’ve been shown to be right yet again. Today I closed FIVE losing trades. Not ashamed of it… actually a bit proud. Let me clue you in why I have a bit of swagger in my walk today, losses notwithstanding: the reason that I use the Married Put (or Protective Put) in the FIRST place is because days like today do happen.

Here are the trades I closed near the end of today’s bloodbath:

Stock: % Loss: MY % Loss:
ABX               8.0% 3.6%
INFA             15.3% 6.0%
VMW            15.6% 6.6%
ALTR            21.8% 5.6%
CTRP            18.7% 6.8%

I have a number of winning positions left right now, but it’s not the winners that we need to discuss on a day like today, is it? The average loss on an unprotected stock above was 15.88%. MY average loss using the Married Put strategy was only 5.72%.

Here’s an example of one of the above setups:

ALTR shares trading at      $48.47
Buy Jan 2012 $55 put at   +$ 9.80
Total Invested                    $58.27
Guaranteed by Put:          -$55.00
Total Amount AT RISK:     $  3.27 or about 5.6%

Now, the last time I played ALTR I made 12% return in seven weeks. But it’s not how much you can make, it’s how well you control your losses. In the case of ALTR I might have been right only once and wrong twice in a row and still not be hurting for it. THAT’s the power of proper money management.

Y’know? Just this morning I did a free educational webinar in which I asked the audience of over 60 participants, “If your losing trades last year were cut from whatever they were to 6% or less, would it have been a better year?” Guess how many said yes? Heh… 100%.

When I further went into details- “In what way? Could you give a dollar amount?” 36% said they would have been VERY happy with last year’s trading as opposed to only 3% baseline…

31% of attendees said¬†the free info, if received twelve months earlier¬†would have meant the difference between a losing and winning year… 18% said they would still have lost overall but lost much less… a startling 35% (!!!) said that the information about Married Puts that I gave in my free webinar would have made them over $10,000.00¬†in profits…¬†if they had only practiced it.

Wow.

How ’bout you, buckaroo? You up for a shootout with yers truly? Who else¬†wants to tell me that their highly leveraged bullish play really is the way to go… and who might like to face facts?

Not trying to be a pain in the you-know-what…¬†just saying what¬†I say EVERY¬†time on this blog, only a little louder today.¬†Because¬†some of you were listening and some were not.¬†If you¬†were trading a married put¬†and forcing yourself not to risk too much, bully for you. Because you actually have some capital left over — with which perhaps¬†you may now¬†buy at the bottom.

If you WEREN’T hedged today, I told you this day would come. Sorry.

Okay, time to come down off the soapbox. I know some of you are not appreciating me crowing. Question is, will we now decide that there may be something to this RadioActive Trading idea called FIST: Force Ideal Sized Trades. I hope you do. “Like” me, love me, or hate me… post it below.

Happy Trading!

 

Kurt

About Kurt Frankenberg

Kurt Frankenberg is an author and speaker about entrepreneurship, martial arts, and trading the stock and options markets. One of several "Biznesses" he founded as a teen, The Freedom School of Martial Arts, has been in continuous operation since 1986. Kurt lives in Colorado Springs with his wife Sabrina, German Shepherd Jovi, and his ninja cat Tabi.