I’ve been told by the marketing guys that I need to tell folks more of what they want to hear. My competitors in the options education field do, after all…
No kidding, I have a press release from a “covered call guru”, probably the best-known in his field. It’s dated October 4, 2011. In it he says that his method is ‘guaranteed effective’, that ‘done correctly’ it will ‘generate 3-6% PER MONTH returns’, and do it ‘regardless of market condition’. He further goes on to claim that people may choose to “live on the reliable monthly income”, or use these monthly returns to “dramatically compound one’s portfolio.”
Hogwash.
I’ve interviewed scores of graduates of this snake oil salesman’s classes, and many of them have lost money. Many more say they have done okay but that the 3-6% monthly returns are a gross exaggeration, and completely fall apart when you take into account the fallen value of some of the stocks they are holding, wishing and waiting for a comeback.
The internet is rife with self-proclaimed prophets that preach a gospel of reliable monthly income… all you gotta do is come to this $3,000 weekend seminar. Oh, but if you can’t make it work, you must be doing something wrong, and this $5,000 seminar will help you fix that.
Yeah, right. In contrast, RadioActive Education, Inc. has always been about educating the unfortunate consumer of these pie-in-the-sky promises what it really takes to succeed in the markets.
Hence, the “unwelcome prophet” moniker I’ve claimed for myself.
IN Biblical times, the prophet Jeremiah was committed to speaking the truth… and that truth was not popular with the parties in power or the people. Jeremiah’s immediate reward? He was lowered waist deep into a sewage container and left for three days.
YUCK! Well, while I don’t deal with problems like his, I still have some things in common with the weeping prophet. For example, it seems that few want to hearken unto the real truth… but I can’t help myself and feel compelled to keep speaking it.
Recently a great looking trade with POT came up, and some pupils of mine and I both got in.
We entered on September 14. A chart of POT is
Lookit THIS Crash. Entry date: Sept 14.
attached. The entry was excellent, I would do it again every time. POT had been in an uptrend that paused and then retraced right back to the 200 day moving average, which was also at the same point that the prior downtrend ended a week earlier before reversing… Technically, you can’t ask for much more.
At the time of entry, POT was on top of several fundamental screens that I use, including some top numbers from Zacks. We entered at a price of $56.59, and purchased a married ‘put’ for protection.
…to get to the bottom line, I finally sold the position for a loss of less than 3%. I sold on the day of the absolute low price for 2011, but I was through dickering around with it, and would likely have lost more money had I held on…
By way of contrast, an outright purchase of stock would have resulted in a 28% loss. That is the main lesson. Things could not have gone worse for this pick. It had the right fundamentals, a good story, in a good sector (Ag), and it had a good technical entry point. But by proper management, we gave it plenty of time to come our way, and when it failed, we got out with a small loss. That’s the benefit of using Radioactive Options trades, and the major lesson for your prospective students to glean.
Hope this helps some. Best Wishes,
Dom
I wanted to point out something from the above post. Dom stated correctly that if if he had simply entered the stock on the technical’s and fundamentals alone, he would be looking at a 28% loss. Instead, he only had a two-point-eight-something loss… one-TENTH of what it would have been without the protective power of a properly purchased put option.
What if we had entered this position with an October 2011 covered call trade? There would certainly be a little bit of premium collected… but at the end of a month… the 6% return we were promised looks really a lot like a 20%+ loss.
It may be unpopular to acknowledge that losses happen… oh, after all, we all make 3-6% every month, compounded, don’t we? 😉 To talk about controlling losses as THE most important part of the trading process is to bring them to the forefront of our thought. And we don’t like to do that.
But more and more enlightened individuals are embracing the fact that this or that 6% gain is nothing to brag about whilst you are sitting on a 28% loss in one of your stocks.
Think about it, those if you that are ‘compounding your stock earnings’… 6% per month compounded is a 100% year over year gain. That means that if you started with $100,000, you may now liquidate your account for $200,000.
Oh, and 6% compounded monthly happens regardless of market direction, right? So I wanna see the bank statements of those guys that made $100,000, starting with $100,000… trading covered calls in 2008.
What? Not even a nibble? NO ONE can step forward and show you that? Then quit giving up ten times what The Blueprint costs for a weekend seminar that will make you feel good for two days, then leave you empty when it comes to real answers.
Dom and I, we’ll be trading our accounts with protection so that when a gain comes along… we KEEP it. ‘Nuff said.
Happy Trading,
Kurt
P.S. Come on folks… let’s put the gurus to the test.
I'm Kurt Frankenberg, and I have discovered how to truly put the odds on the side on the individual investor.
In the above case of POT married put what actually you did. You close the married put position(sold stock and the put) or excercised the put.