Retail Trader nets $50 million on $196 million in 2013 trading the SPX, NDX, & RUT.

[Music] good evening my friends tonight we have a special treat for you I'm Tony Bautista he's top size knife and our special guest Karen the super trader welcome thank you it's great to be here again there Dom hello Bette hi Karen how are you I'm great how do you like the fact that your official name has been changed to Karen the super trader it's there's another person out there that's not me I just don't know it that King I can't get my arms around that Tony and I were talking before the show started tonight and we we were we tried to figure out who named you Karen the super trader and I think it was Tony via our producer but I'm like that was the greatest choice you never would have picked it thank you so much would I thank you so much for coming back pleasure Dan it's been a year and three months since our last talk I think it was like at the end of 2012 or something what a year it's been and it was it was a challenging year it was 2013 not not results wise yet but just like were you challenged by the fact that volatility was so cheap all year it it was murder it was very challenging it challenged us from all perspectives of how we traded in 2011 how we traded in 2012 and then 2013 was just curveball were you challenged in 2013 because the market went up pretty much the whole year and the VIX stay down and the Vick stay down we live all we want volatility and we didn't get any in 2013 so it was a real it was a real challenge hey what's your volatility wheelhouse like like when you look at the VIX and you say if I if I could if I could set this thing at a certain number like my perfect number would be perfect number I would pick 20 20 18 to 20 when it popped to 19 I was in heaven I love it last year you know 29 we traded every day just like you traded every single day last year so I think word I think we feel pretty good back about how this conversation absolutely when he talking about volatility popping up to 20 you're talking about four or five days ago right yeah oh and I can't wait till it comes back if we could have a a whole year 15 to 20 it would be terrific so let's talk first before we get started and I promised everybody listening tonight thanks to the entire tasty nation for coming out tonight I promised everybody that last two interviews we did they were designed to be really inspirational tonight I wanted to be inspirational but also get into some specific some of the mechanics some of the processes use but I think we first need to at least have a little discussion about 2013 we haven't talked to you since 2012 now I didn't ask you and you didn't we didn't really get into specifics until today all right let's talk about 2013 you primary product in 2013 was what SPX and I would say that you based on what you said to me either SPX or the equivalent SPX you know futures options that was almost Alice's SPX almost a hundred percent of what you traded okay because that makes a that's really easy to relate the VIX to what Karen traded sure no earnings plays no special situations now just the SPX and the sp500 okay I looked through very carefully we discussed your results last year and you are currently managing about 196 million dollars yes ah yes and let's talk about 22 funds between two funds but they do basically the same thing 196 million dollars and one fund returned net after expenses twenty-seven and a half percent and the other fund returned net after expenses twenty four percent for 2013 you should be ashamed of yourself that's why I'm here tonight myself but it was a tough twenty seven and a half percent our benchmark CSP and I so on in the bench lose yes be like why is the benchmark your SP if you're actually trading you know you don't say obviously obviously you need I guess you need a benchmark for for discussion purposes but if the bench if the ESPYs down 30 percent one year you know that you don't be done really badly I do better on the I don't know no no but just in 2013 so you seen if he is so close I got so close so you seen if the S&P has a positive return you want to have a positive return that's much better than that yes the what we do we should at least be able to beat the SP that I've always I'm always going to have that attitude but never lose money I mean it's and that's my attitude can we lose my course we can better index out start down decks finds bullish index funds long stock funds were about the only thing that came close to you know matching the SP that kind of thing most of the stat our bonds the long short funds the index ARB funds most of anything that had bonds or mixed instruments in it nothing even came close to those numbers in fact most of the hedge funds were less than five or 6% that weren't just long funds how does the world how does the world deliver a five percent return on basically are an ARB fund and you can deliver a twenty seven percent return and this is a real number two hundred million dollars a real number that's a real yes it's a real number it's really true I don't really and and the crazy part about it too was you did have a losing month in two thousand nine thirteen know and we I was we were talking earlier I said we close out every month with a real hard close we don't we don't take the luxury of rolling out to next month so when we have a return like we had a each month in 2013 those are real closed positions no rolling out to the next month just to put some of these numbers in perspective okay a 24 the average return between the two funds one was 27 half percent of one was 24 percent this is after all fees okay after all these how'd you do in January this year we were up 2.2 percent for the month and SP was down 3.6% good January yes so you have a streak going from the beginning of last year 13 straight months its kind you're definitely buying dinner tonight this is this is ridiculously incredible I should be ashamed of myself you get a new nickname coming for you let's just say they'll be after this she should be saying that I should be back the toll or return after all expenses and everything was paid in I don't want to get into a lot of your specifics about expense things like that but let's just say you're it's incredibly fair fund you still netted out over over 50 million dollars yes yeah that's it coming from a professional background because you trade products that we traded it's I'm just it blows my mind and you know my background I mean we I just started by going to a class and thinking oh that sounds really interesting maybe I can do that okay you all this says no if you never too old for some school Karen what about um some of the how many traders to you how many people work for you we have seven in total and that cludes me seven in total and six of those seven are traders one is a controller okay with the rest are traders yes the rest are and how do you how obvious Lee you know you've got a lot of stuff going on so a lot of other people participate in the process of facility executing trades how do you ramp those other traders up taking them up to speed it's the power of being in that room we've got great people in that room and the success goes to all of them we are in a big not quite a circle but we turn our chairs around and we all talk as a group and we plan and strategize as a group and there's a lot of power in that and if anyone that's out there trading by them say outside of watching you guys everyday fine find a partner find somebody you can trade with there's a lot of power in that so we get a lot of ideas going back and forth all day very energizing I love it you told me earlier you made almost 50 as a group all the fun's almost 50 thousand trades last year not even getting to how much that works and fees but um your average sized trade is is a 500 500 contracts about like average size in is px and and we know Tony that that's the equivalent of a 5,000 lot in the in the spiders that's correct yes just in sp that's the main reason I don't trade spiders is because of the cost of trading that many putting on that many contracts and the spiders yes have you looked at liquidity anywhere else outside of the SPX no we have we have never had a problem with liquidity in SPX or and we also trade the options on the futures the es minis we look at the Russell the are UT and the nd X and we can always go to that if we're looking for some other position to put on but the our our basic index is the SPX we there's also a tax advantage to that to I get a 12 56 contract tax advantage so our investors get a tax advantage on top of all that there's some I I mentioned this to Tony earlier and do with Tom's performance this year he doesn't have to worry about that so fun no no it's not going to be those loss carryforwards and I got enough of those well that's that's good that's good tax plan notes that um there is the retail side of the business I just want to be very clear because people get all you know they think oh you bring in a pro and you are a total pro but you use the same technology that everybody else not everybody else but that all any other do-it-yourself investor can use I started with covered calls that's what I was taught I my background is in accounting in accounting I'm a CPA been in management corporations fundamental analysis was my bread and butter and I learned how to do covered calls I do the fundamental analysis pick stocks and sell covered call them that was how I started the technology used today is the same technology that Tony and I use yes yeah does it feel straight I mentioned this to I think earlier I think you're probably the largest do-it-yourself investor in the world it's hard to fathom does it I mean as far as activity goes which is which is really interesting to a lot of professionals and stuff they're listening to the show because because to maintain we all know how hard I don't care how good I've been doing this for 33 years 20 almost 30 years there's never been we've never had a 12 month run run ya know like that yeah those cut it is crazy I want to get into a lot of kind of specifics with you but first but first before we start there was we just so many people have emailed me over the course of last year and they they they constantly asked me one question it is it's a it's an a how do you deal with you know how do you personally just deal with the in your brain how do you deal with the risk that you take how do you say hey that's it best but how you sleep at night night when I got involved in this it's partly because of my background as an accountant and and a reference to shows lubbers - oh that's yeah well actually the fur is on the edge I can control the emotion of fear and greed it you take the fear out of it and take the greed out of it is important - and it's just statistics my brain goes toward the statistics goes toward the math so I referenced that was like playing a big game in is to me but it's very structured it's not I'm not rolling the dice I'm playing in positions where I've said many times if I could walk up to a blackjack table and know I was going to win 95% of the time I'd be sitting at that table all night long and what we do is very similar to that if we're in a to standard deviation we're we're at a 5% probability of end the money ninety-five percent odds that our play is going to be successful those are great odds so I have no problem sleeping at night we're making intelligent decisions and managing those decisions very well did you introduce into you're one of the cool things about options is that they're they're like a gray area strategic instrument did you introduce new products into your mix strategic mix this year or did you introduce new strategies that you hadn't done before we we probably migrated over to the SPX and the ESS and stayed in those so we could focus 2013 again was a great challenge we had a super year it still was a challenge 2011 with a high VIX it's very easy to trade in 2011 so we concentrated in the SPX and the ESS we focused on that and we had to pull our pull little edges in a little stronger in 2011 and 2012 we were more out at the two standard deviations 2013 it was probably closer to one one and a half standard deviations easier on the put side to stay in that range and on the call side we really had to pull it in we went to a shorter timeframe on the call side look at about two weeks the puts we're still looking at month lease and and we we had to get to pull those edges in trade with more closer to the money that I would like to but the market demanded it okay so let's talk about this let's get into let's make this the official start here and get into some real specifics because people are like they're fast man I'm telling you Karen they're fascinated by you huh so so like that let's get into some specifics you just mention things like one standard deviation two standard deviation let's talk about just kind of a very broad picture and what we did is we actually are going to look at this on two different platforms so we're going to we've kind of set it up so we can see but first we'll explain it how just talk about your most basic strategy you just started to talk about a little bit just talk about the most basic strategy kind of your go-to go to strategy we I loved your show on theta we live on theta and the VIX under normal circumstances we would go out 50 we use 56 days and the reason we use 56 days is when we go out that far we're putting trades on and letting theta start decaying those trades and we take them off and pull that profit back into the current month so we're putting on trades pulling them up putting putting on pulling wolf when it gets down in the 40-day neighborhood we'll leave them all in the in the next month now first of all let me stop you for a second when you say you're putting on trades out 56 days based on what we know about your trading you're putting on the put side put side put side only and you look at both sides independent of each other independent completely independent we're never putting on any spreads never it's they're independent what do we need to do on the put side what do we need to do on the call side that was very important 2013 2013 with this market just roaring up we had we had to say lighter on the call side had to but we were maxing out what we could put what we could play on the put side okay so so far my understanding is that you'd go out 56 days on the put side and you would put on trades that were the equivalent of a two standard deviation move about 5% on the 5% probability of end the money what's that on the outside and you would have the equivalent to puts to one call that's a debts that's a good way to look at how's about how about the call side the call side we would go we're looking more about two week period out and using 10% probability in the money or because the call side is more difficult and when the volatility is low is just it's more difficult you can't make any money if you were going out at a 5% you'd be getting 10 10 cents with your trades so we had to pull that back in and play it a little tighter but shorter time period so we're at risk for a shorter period of time so in 2013 just everybody gets this you'd sell to puts at two standard deviations out of the money and one call at 1 standard deviation approximately one standard deviation but maybe a little less out of the money and the calls would have 14 days to go to expiration and the puts would have 56 days to go to expiration now do we do that 100% of time no what we see because I also look at the trend number one thing we learned in trading is the trend is your friend look at the trend first in 2013 we were doing projections on the call side so if we got some good premium 50 days out and we could project a trend out and we could get well above that position we would do that but you're not a technician so correct no I'm not do you use technical analysis at all use Bollinger Bands two standard deviations the price and that's about it look at the fibs do you do use fundamental analysis at all not at all do you use one of the beauty about beauties about being in the indexes I don't have to doing fundamental analysis something that you told me once that I found fascinating you don't look at Delta no no I'd like the strategy of delta-neutral trading and I've gone to some classes about that and it's got a lot of merit to it but it's not I don't use it for what we do don't need to before we get into any adjusting or anything like that I just want to I want to again focus you're out 56 days on these puts and one week two weeks or three weeks later you're already closing those trades and re-establishing the next 56 day cycle and on the call side you're out 14 days and within a few days or a week whatever it is you're covering those calls then re-establishing it which is what is which is what kept you in the game during this crazy bull market in 2013 you're looking for generalization that's a generalization but we're also I'm always looking what's the market telling me right now today and sometimes we vary from that but if you want like a basic strategy that's our basic strategy and you would not do those as a single order like you would not be doing ratio strangles you'd be doing the put side and then the call side both independent of each other almost like it to separate traders but on the puts when the markets going down the calls when the markets going up even in a market like 25 you just said something pretty important to your selling it's a strength and your selling into weakness is that when markets going both times in science right right you're selling selling right right well if it ends up we may end up with a thousand positions on the put side and and 500 on the call side I see them completely independently of each other I never look at I've got this much on the good side so I need to balance it out put this much on the call side that thought never crosses my mind the text away so you've got to be active all day long I mean all day long so it's not like I'm going to set the expectation everybody's listening out there that you just put this on two weeks out on the call side one time and and 60 days out on the puts two times and you're just setting it for getting it going on vacation and coming back oh I wish the takeaway for most of our viewers is that you're aggressively managing your winners which is something we learnt in 2013 how valuable that was and the other takeaway is that you're selling into strengths meaning you're selling calls into rallies and you're selling puts into sell us which is what we call selling into strength and if you are creating a ridiculous number of occurrences but given the size of your portfolio that makes sense yeah we're where we work under portfolio margining which helps us we have a large amount of money you know and that's that's funny to make us when I started this I never had an endeavor in a million years just started managing a small amount of money and it just you're the super trader it 2020 but the name and he doesn't we tony is his hair he just wants to hear me say naked put naked let me brought up a couple of different pictures of your based on what you told us first we're going to bring up the toss platform for a second and this is the analysis page and a lot of people have asked how do you set this page up in fact it's an email that we've got next we got extraordinaire of emails over the last year on how you set that up so what we did is we took one call that was just about one standard deviation out of the money and two puts and we set the screen up I know it's gonna be hard for you to read it from all over here plug does that vary 1850 call which is one standard deviation away and you're doing that one time and this is all in the SPX and then you're going to the April options which is approximately sixty similar days out and you go into the 1630 puts which would be two standard deviations out and you collect the approximately six dollars and twenty five cents so you get resident of you add those two together toniest six dollars and twenty five cents twice and then and then two dollars once that is that will explain to a lot of people if why you made money in 2013 because that is a very long Delta law it's a bullish position now what did you do into those price slices and how did you set that up we I don't know that there is any magic to it we just use seven slices we have the on the toss platform we are graded by 10% up and 12% down so that those numbers can never never exceed our net lick what we do in 2013 because of what the market was doing in the low VIX we take the current price we subtract 100 and take 88% of that and then we plug that number into that pie slice down at the bottom and we pretend it's the best way I can describe it as if the market is already dropped because markets don't crash up except in 2013 it crashed down so our risk level is truly to the downside so we we manage it as if it has already dropped that much and we're watching that lower number all against our net with your basically where I put the circle there at 15 12 and change you're basically saying that hey what if the market goes to that point that PL that 24 million dollars if you're using the type of numbers that you are throwing around that's what you're looking at is your risk right that the real number is 212 million correct at the 12 percent down it would toss we manage it also the 24 million that that that's right that's your cushion your cushion you're saying this risk management is that the risk management is there in 2011 we we were working 200 points off the current price because of the volatility I love volatility so right now with the low when the volatility was running 1112 in 2013 we had to pull that up to 100 points down so just to just just explain it one more time you take the current price you subtract 180 to 88% of that that's the number about percent drop off of that number which Tony if I can read correctly up it's 1512 72 is the number that you're looking for the current price is 1819 that's right and then you measure that again sure you measure that risk at that level against your net lick I guess the network very and we're the politician comes back up we'll go back to the 200 down in the and 88% of that we also have another platform that we just built called Doe and if you can see it it's very visual in there we don't have it set up but you can see they're the same position the short weekly the the short call and then the out of the money put and you can see the bell curve that's actually a lognormal but whatever and then you can see the looking at the two standard deviation is is right here and I'm just looking at the April options and then your one standard deviation away on the 1850 call which 1850 calls would be around one standard deviation on the options what about eleven nine to eleven looks like the toll credit on here is about 1450 to be the same obviously smaller period of time to manage the call longer period of time to manage the it's it's remarkably simple and obviously it's been working unbelievable do you get and do you ever like get nervous about we trade very similar except that I don't have I don't I mean I like everything you do except I can't do it without being net short Delta's and I figured out the whole reason why you make so much money as you didn't carry all those nets your deltas in 2013 yes that's true do you worry though about because a lot of professionals will if they're going to be short premium they're going to be short Delta you don't have that on that not- dragged in ting didn't hurt you last year yeah no I don't I don't worry about this the question comes up to me a lot and sometimes I think maybe I'm not worrying about something I should worry about but this is a tried and true for me I've been doing this since 2008 I truly live under the Fed any broke don't fix it and we we manage this well in 2013 obviously because of our returns I'm always interested in tweaking it learning something new we have one person in our group that particularly likes to come up with new ideas and we always talk it through and work at it if I can find something that makes us a little bit better I'm going to embrace it 2013 was a year where there was no sell-offs in the market yet you maintained this to puts to one call all year long and you even maintained it I assume into January of this year and didn't get hurt on that little sell oh no we were we were Shaku you couldn't hear a shouting oh boy I went when that VIX went up we loved it that was me that was me do you do you run away when the VIX is 12 or 13 I mean do you Steve stop trading I mean a lot of times we get questions when people say you know I can understand if you're selling volatility when VIX is high and you're ramping up a little bit you love it do you stop when it's 12 or 13 or 11 no we were very busy in in 2013 and with the the point about the theta when we go out like that we're looking for opportunities where that or it moves we can get a 20 30 40 we love it when it's 50 percent we close those positions down so we're not just going out for five percent level the two standard deviation and just sitting there and doing nothing we're actively pulling that profit back pulling that profit back taking that off the table taking that risk off the table so there's just a constant flow going on with the positions and at some point in time we just say okay everything we've got on like in March we're just going to leave in there and we will go into March with a healthy profit already built up in March and we'll stop that pull back we'll go into April and start putting positions on in April and pulling those back and taking the profits off of them it's very few traders very few managers think that way because it seems like an extra step who cares we're making money I don't you right you're right I just you know good just um at what the next the next big subject is okay so you have this position on your short to puts your short one call you have your perfect position on and now all of a sudden obviously we could see how how how well it works the upside because there's almost you know the markets don't crash up they can go up they don't crash up 2013 I think it crashed up okay but it works because you had so it's on loading contracted yeah Volta contracts it that really works for you sure you're a short-term option I mean to interrupt your short-term options that have let's say a week to go on the markets been rallying up for the last five or seven days and you can certainly see the market going up five or seven days in a row you then take those options offten and move them to the following we can leave your puts in March it we move them if we have to I always want as many positions to close out in the current week as I can we make more money by not over trading when we're in the current period I want to see those things expire I want them to go away and then that frees up on our analyze tab frees up plenty of room for us to go out the next 14 days and and be putting positions on and it is we just make more money doing it doing it that way so the market starts to reverse a little bit it starts to go down and all of a sudden you're 5 Delta puts both of them to them go to 10 deltas do you make an adjustment no your 5 Delta puts go to 15 deltas do you make an adjustment no keep going you're 5 Delta puts go to 20 deltas do you make an adjustment so where do you make an adjustable hole at 30 so you're 510 can ask anyone out as Danny do it yes guys Cameron do it you're 5 Delta puts have now gone from your 5 Delta puts have now gone to 30 Delta's now they've got a little they got teeth I mean at that I think so what's the neck what's the Karen move when that when that happens and that's just that's I say that's an arbitrary number but I do not want a position going in the money you get a position in the money and you've got a lot of other trouble fix yeah that's what keeps me up at night is something going in the money so in and a normal course of the day if it gets up to 30 Delta there's a there are a couple of questions these are not hard and fast rules if it's Friday and the and they're going to expire in two hours I'll leave them alone don't forget about that but let's talk about some 30 Delta with a month ago I move the position it wouldn't be a month and a half it'd be in the current month okay I'm going to move the position we keep enough capital available that's why we don't on the analyze tab as I move the position we're going to if it's a put yeah we take the put off then we will either place another put further away from the money get back down to maybe a 20 probability Delta yeah and maybe we lose one or two dollars on that trade get it putting it in a safer position we will usually like that other month or so now we never go out in another month we might go out another week okay Mike we either are going to try to fix it in the current week because again I want those things to to expire I want to get the contracts off or we push it out another week and that's when the that's where the weeklies have come in so handy for us we push it out another week put it in a safer position and we will make up that money somehow either increase the number of contracts cautiously or put some contracts on more plaits sell more goods or let's say it's 500 contracts we may drop it 10 points into the next week sell some more puts down another 15 points and make up the difference on the call side it's a if the mat as a mathematical game we play assuming that you play the markets are symmetric game that we play would you also roll the call side would you push the call side down we call the untested side do you take the untested side and push it down no no no no so what do you can do with the calls then because now the calls are cheap they're one Delta now what do you do they're either going to expire or we'll put new call plays out another two weeks so you look at the wall we manage them we manage the sides independent independently so you don't look at that call as an adjustment to that put no no no that's something maybe I should go back and start please please don't change I don't want to be responsible Tom told me to do this okay so it's all very fascinating because we would definitely you will never run into a situation that we which we get into which is actually having our position sometimes inverted like oh that's a no-no why don't know oh we just we talked about one of our traders is always saying we want to be this we don't want to be this so we don't want it and we get that way it's not intentional now we we just don't let that happen to get get inverted because oh my goodness just think of what it would happen if how do you stay disciplined enough not to want higher implied volatility like in other words when there are different situations special situations with lots of liquidity Apple may be an example Google may be an example other stocks with lots of liquidy that affords you extremely high Ivy percentile IV rank just high implied volatility as a way to escape from the sp500 low volatility some points just because it's exciting how you stay away from that I often say in the hare and tortoise race I'm the tortoise we're the tortoise it's I don't want it I don't want to be guessing I don't want to pick Apple and watch it I owned Apple the day Steve Jobs announced he had cancer I learned a lot about trading that day and I've gradually wanted to move away from that I don't want to be out trying to pick the next big winner or hit Google just at the time that it Peaks out and turns over it's just not to me that's risky you mentioned in your last interview with us that trading was a game and you you know you're you and I know you've kind of gamified it in your own way but what are the components because this is a great question what are the components of that game like like who you playing against Oh myself it is two components its money management and risk management and I think part of our success is just simplifying it taking not getting read a lot of the graphs oh my gosh when I first started I'd have a screen with 12 graphs up and I was following this this and that and momentum and and it was just I made it as complex as I could make it the simpler we made it the more profitable we became we've listened you talk about managing trades we've listened to you talk about kind of now number of occurrences and we've listened to you talk about implied volatility these are things that are kind of the core of the foundation of what we we talk about every day and we've also listened to talk about some of the things that that aren't important to you are there other considerations like what the markets doing like do you sit here tonight and go like I sit here tonight go to Tony I can't believe the markets at eighteen hundred eighteen nineteen the ESPYs and you guys be down Ben you to be like ideal I claim anybody else at a six-member team you ever blame them give or blame me or Tony what we do have one one person on the team that's responsible for either making the market go up or making mortgage oh that's it now Leo I'm you always have lead into what you're responsible uh I wish the market would come down but I have to play what's in front of me I just have to play what's in front of me and and it's such a contrarian I feel almost an American when I say gee I hope the market drops today because I know everybody else wants it to go up but I I want the volatility to go up I want to it's more fun to have volatility you've got we can work our strategy so much better it doesn't matter what direction the market doesn't matter it falls volatilities up business is going up volatility is going to be down do you find yourself dee dee tell your team that there is a direct correlation between the number of trades you make your level of activity and your funds results we don't talk about that per se but the level act of activity ties into analyze tab we we just literally make our decisions based on that analyze tab so as we're pulling positions off is easing up on the analyze tab we're putting more positions on and yes that level of activity makes a difference in our results do you do you recognize the level of your success because this is something that your your your from a school a background that's very similar to most of the do-it-yourself investors yet you've achieved a level of if we're going to measure by just dollars made numbers that 99% of most professionals never get to and any level does that all right what does that do I don't I don't think about it and in my mind we won't go into the depth of this but it's not the what I do is the why I do it and that's my motivation just what a privilege it is to be a part of this to just have this as a part of my life I just I'm grateful every every morning when I wake up that I get to do this you know I'm not to work everybody loved it I saw the first thing you do in the morning first thing I do in the morning I check what you've said on your email and I look at CNBC and see where the market is and see what the overnight market what the Europe and Asia markets did um do you guys dis your firm do you research do you do a lot of is your stuff real is basically is your business real time or is there a lot of research that goes into kind of studying the way you generate your results in other words do you commit a lot of resources and capital to researching kind of your program or as are you doing it all kind of real time on the fly we did at first I spent hours and hours and evenings and Saturdays and Sundays and we've just where we brought it to now we're doing it on the fly it's the energy in that room we have exceptional traders they know what to do we disagree with each other from time to time and to me that's that's when it's at the best because you get new ideas it can get a little stale every once in a while and I love it when somebody just challenged one of the guys will challenge us and and we make we have to think about some things different way and we we test we may pick up something that you say we may get some idea and we'll test it with just a small number of contracts and that's been fun we've done some risk reversal positions and and one we run one really big on and one we made a little long but it you know but again that's just a little tiny tweaking do you ever do ever tweak with direction take a little rest or rarely rarely rarely well I I did I just don't want to go down that that road because my crystal ball cracked and it's in the shop and they haven't fixed it yet not just I don't want to be doing that now 2013 just methodology that we're using the the two-to-one ratio and all that that came from the direction if I am a struggling young trader like a Tony Bautista if I'm a if I have somebody this country like the third wheel - a new position for me probably more comfortable with this position I'm um I've been let's say I've been trading for a couple years haha and let's say I've done I've really I've done the time and I've read books I've watched the videos I've traded I paper traded I've traded lots and lots of won lots and five lots in ten months and I've really committed maybe not the quote ten thousand hours but I've committed you know three thousand four thousand whatever it took I understand how hard this is and I'm just not I'm not getting over the hump what do you tell that bird oh gee I I really that question really doesn't come up to me at first of all how much money you have to trade it's a whole different world if you're trading five thousand dollars than if you're trading three hundred thousand right most people understand the linear part of that right a whole different world portfolio margining helps me I would keep looking for what you do best because this works for me doesn't mean it's going to be your cup of tea it doesn't mean it'll work for you you have to find what is right for you I don't trade bonds and I know people who make money off trading bonds I don't trade Forex there are people who make money off Forex and people who make money off calendars at certain times of the year I found what works for me and I would just encourage people to find what works for you don't try to duplicate what I'm doing find what works for you what is your risk level what's your money management but assuming your wrist assuming that everybody's you know we define you define undefined risk as two standard deviations that's really that's what makes you say goodnight to standard deviations so assume that okay hi I love that thought process because I have the same thing I assume undefined risk is to say deviations but how do you tell somebody that's again trying to get that they understand they're very limited sometimes by capital but like how did you get from you are limited by capital - right you get from being limited by capital to that next step when we started when I started when I got past the covered call stage yeah I was trading out iron condors okay just went down that and I'd leg into them and I was using a 15 Delta so when the market would go down I'd put on the put side and market go up and put on the call side I was looking at the profit I was making and back then I was still selecting stocks as I kept studying that I thought hmm I can take off the long side and again stepping back and look into the big picture there are times that I would just roll the long side of that forward and let the short side expire I stopped seeing things as as all tied together each play every if you put on a strangle a straddle on our car you can look at each piece of that as an individual piece and I started looking at hmm I could make the same money off of that buy sell trade go to the 5% out of the money on the put side and make that same you rare that I was making so that's when we went naked I get all that but you would never do anything in the markets where you didn't have what you thought was a a probability type of edge like you're not going to do something you're not going to go out and buy a 20 Delta call are you no bro never no no never no never what I like about this the short of the selling premium if you are buying calls buying puts you can only win if the market goes one way and it has to go that direction significantly to overcome the theta decay I can sell premium and make money if the market goes up goes down go sideways why would not choose to trade that way one way I got only in the long premium and only make money one way the selling premium I can make money three ways it made sense to me why wouldn't I just go to selling premium and forget about buying calls buying puts one of the questions that comes to Tony and myself all the time about you and I agree with our pilot because that's the same example we treat there's exactly symmetry but one of the questions that comes to us all the time is it has to do with how you manage risk now we talked a little bit about ok what happens and when the 5 Delta option goes to 10 Delta but now the next question comes to us all time is what happens when your position starts to just lose money so one day your net lick is $100 and the next day your net lick is $80 so the options didn't explode but you just lost you know $20 what do you do it's very frequent that in those unrealized positions were losing money that if the market is moving in any direction but the positions themselves in my mind are perfectly safe so we're managing off the analyse tap worst case I'd buy some low valued puts I would buy some calls just offset that push that we're getting from the market move we don't have to do that very often I was going to say if the positions resume I don't care as long as the position itself is still safe so you don't you really don't over manage your positions at all try not to only when they need need our attention you stick to the discipline if you don't get through that level you're not going to make an adjustment no and you're never going to move down the other side to adjust that position either no because what if the market turned on me and now I've taken a perfectly safe position and put more risk to it I'd rather I would rather a position expire and free up that space so I can go out and sell some more it's like it as a percentage of gain on the just take the hundred dollars at times just threw out there do you say like you know if I get to a 50% gain or a 25% gain or a 90% gain we do when it's in the next month so you're talking about March got it got so the front month you're pretty much actively creating and that back month you look at it as that's my minuite that's gonna be coming into the next sixty months that's a good work yeah yes see why I'm here yeah do you think okay so since we've traded for so long and we understand kind of some of the we understand how hard it is to make a lot of money to make a little bit of money when you stay small I think it's reasonable to assume you can pull it off to make a lot of money and it's hard 50 million 70 million 90 million whatever you've made over just the last year those are again I'm gonna get back this because it's fascinates me those are crazy like numbers without the I know you've maintained a little bit of long Delta is the can you do this into perpetuity meaning that like are you confident you wake up next month obviously you are but I mean what drives you you know is it the game part of it is it just is it the game itself is it the love of the game is it just that you think that there's this this mathematic you can see that mathematical equation what it would call to the day wouldn't you big fat pitches big fellow Jake's head pitches so everything looks like a does everything look at watermelon to you come across the plate oh well I have to think about that it's the confidence it's I have a high level of confidence in what we do because it's proven we've done it over and over and over and over and over it's like yeah go to the start batting practice and hit the ball you're going to be better if you had it 500 times if you hit it 10 times and and I just got the high level of confidence and you know the why so what motivates me to do this everyday it's an amine it's a means to the end it's it's the Y it's the it's the it's the children what we do with the charity right and where he gets that and we're to get into your whole charitable thing in just about two minutes I - because I can't wait to talk about that - is I think I mean the complexity of maybe it's the simplicity maybe I'm thinking it's all demonic and maybe it's just the simplicity of it maybe we make more out of it what I love is its keep it simple enough yeah what I love about what's always over kinda let me talk to cap okay I like that I tried to cover um how you how you adjust your risk I tried to cover how you manage your winter so when I say adjust your risk you're really all just about managing your winners that's pretty much your own business and put on lot of trouble yeah yeah by managing your winners you put entrees with 56 days to go and you're taking them off by the time they have 40 days to go and then you're just constantly you're in that part of the of the decay curve that is steepest yeah I love that curve how the hell did you figure this out nobody else did I don't know I just I just studied it and studied it and studied it and just made logical sense to me I'm an accountant goodness gracious it made sense to me the numbers made sense to me so so let's just let's take it a step further you keep talking about this mission huh watch me light up I am watching you light up you talk about this mission and you love coming to work because you give away most of the money that you make tell me about it well the the the public fund that we've been talking to twenty seven and a half percent it's outside of paying expenses it's it's all gifted my ownership of that company to our our foundation which right now we're working in Africa so last time you were on the show you talked about building you know water purification systems and now I heard you're you're really getting into your built a plantation pineapple plantation pineapple Ventus what do you know about pineapples I know nothing isn't that fun well that's the exciting part know nothing about pineapples so I'm over in Africa November with on the ground digging with my hands planning pineapple suckers I was thrilled we one of your business partners with us because we want to talk just a little bit about we didn't want to put you on the spot telling how how great you are Tony talked about radius yes it's great I am but we don't want you to talk about how great you are usually stop says something really came back tell them how great I am then I have to go on today that's a contractual but you've got notes it was correct about getting into the back I said I just want people to understand what what what this what you do it's just it's it's off the charts I think I I think we called this kind of impact investing Jamie there yes hey Jay how are you doing great great oh good you can see on the screen right here so your business partner of Karen's and you um managing director and you work with her and you've been to Africa with her what's going on what you guys doing it's incredible it's you know we all talk about Karen as a super trader and I've been taking copious notes over the last hours listening to you guys but she really is she's a she's a super person and I think that's something that frankly your listeners should should learn more about Karen is I would characterize her is really an ambassador for conscious capitalism she's gone out and taking the practices of the best practices of trading and capitalism and sure she does a super job with returning getting a good return for her investors but a portion of that she's allocating to essentially spreading the best practices of capitalism around the world so she realizes that it's better to go out and give a portion of the population a hand up instead of a handout and it truly is it's remarkable how it's how it's working and it's remarkable to see that her commitment is paying off around the world you mentioned earlier you called it performance with a purpose right right I love that term oh it's great not just capitalism Toni conscious capitalism by the way is not you driving a gypsy cab in Brooklyn give me you probably know that Jake but you went over to Africa you guys built it with the with the proceeds from the funds which is just you know I mean this is not this is where you differ from most traders okay the proceeds from the funds go into a Lamborghini request these from the funds went to a pineapple Foundation and I mean Panem plantation and everything else talk about it j-just what was it like I think incredible Sochi yeah that you went through the math we flee but if the firm returns say ten million dollars eight million gets returned to the investors and we're all very happy about that but about a million of it goes to cover some of our overhead and about a million goes into a Foundation which Karen manages and she finds places like Sierra Leone that are on the very bottom of the Human Development Index and she goes over and she gets on the ground she's boots on the ground gets engaged with the people there founds out what they need and figures out the best way to essentially provide opportunities so it's a protracted effort it's not something where we go in and just either try to give people a solution for a day or meal or for a day or for a week but really give people opportunity to pull themselves up and be successful over time did you actually plant um plant a pineapple I did I rinsed it yeah hands don't need heated to thank you we were all on our knees playing pineapples we've got a hundred thousand pineapples playing behind repels a few cultures okay should be ashamed you say I'm ashamed I'm ashamed for you Jayde's it must be amazing at this point I mean I know you trade as well and and um because I met you in the past you know and it's uh it just must be kind of a fascinating transition for you just a witness this whole thing amazing must be cool is it could be it's incredible it really is it's such a rewarding experience to be able to go to work and sure maximize shareholder value but also have a larger purpose you know the performance a purpose with with the performance is a wonderful thing that gets you out of the bed in the morning by the way Karen likes to have died character you know the bed and one to get my friend away likes a croissant okay J thank you so much thank you thanks very great that was really good and I'm glad that he came up here and and just to talk about cuz I know you won't talk about yourself but that the whole idea of not as the conscious capitalism I get but the impact investing we have a impact engine incubator here in Chicago and we mention that to you it's just it's just kind of incredible we are focusing right now on a new demographic ages the kind of the Millennials and everything else ages 21 to 35 we're building technology for them we're building a network for that for that demographic we're building software for that demographic how much different is the world of in finance financial literacy investing going to be if we're able to imagine if you were you know 21 and all of a sudden had all these crazy tools would you would you have had that you know gone for the same degree I don't know I'm just curious what are you thinking oh that's that's I try not to even think about if I knew then what I know now especially for women getting more women on the board of directors of an organization that's their focus is to get girls in school interested in finance as careers so I'm seeing that that organization is doing a phenomenal job you know more than you you have a daughter involved in this you know more about what the next generations learning and the tools that are accessible to them and I'm watching you watching that got started so light life yeah but I'm watching it kind of that that whole that whole generation explode what if we could say something as we leave our viewers or as we turn go way to the next session if you could give just a couple of kind of bullet points just maybe just a couple of heads up hey here's something to look for in 2014 here's something I'm doing a like just couple focus points something some pretty kid I love takeaways Wow when 2014 for me I just want the volatility to go up I would encourage people to I'd say look at the big picture I love what you're doing you you're if you've got a trade by yourself then they should be involved with your program and do it as a group yet get some other input into what you're doing if volatility does expand which is likely in 2014 after 2013 was so low what would be like what would you challenge people to test strategically like if you're just kind of on the fence you know and you're just getting involved for the first time well how would you challenge them strategically like what would you say to somebody like hey you know what do this one LA try this out or like what would you say I I am a proponent of the non directional trading I would just say stop trying to think you know which way the market is going to go I've been bruised by doing that too many times go to a non-directional and try you got paper trading find out what works for you oh if I had a small amount of money I'm still a proponent of the iron Condor and and trading on both sides and legging into it you are the super trader because you figured out on your own how to define undefined risk when the companies they were teaching you and everybody else couldn't explain undefined risk you figured out how to define undefined risk I figured out what to do work that I'm comfortable with it and the analyze tab to me is a very powerful tool and and I I you we use all of our traders in our room are just living by that analyze tab so we know exactly that the idea of also pretending like the markets already dropped and then we're managing that 12 percent down from that drop I kept that when people say oh it's just too risky I don't see that as risk I see that as managing our job is to manage our trading and that's the way we manage it and to me that's managing our risk not being not having an unhealthy risk level where we're intelligently managing it so I'm comfortable with it so I think it's been a great interview and I think on behalf of everybody who's out there listen you've been inspirational and I'm in awe of you so thank you so much I do have one bone to pick with you you and then please don't make that face but you said one thing that's going to probably stick with me for the rest of my life and I'll have to play penance for it forever you said that the first thing you do when you wake up in the morning is you read Tom's cherry bomb' email day now he is gonna say to me for the rest of my life bat did you hear what she said she reads my my email Bert when she wakes up first thing I read I've had to work at understanding what a quacking duck meant that I'm getting there I'm getting there I've got it barking ducks down Wow well I have a half of it there thanks so much Karen that was thank you thank pleasure be here thank you so much Karen Peetz I'm really appreciate everybody out there listen to us thank you so much on behalf of tastytrade have a great night [Music]

Channel: tastytrade

Views: 324,998

Rating: 4.7033863 out of 5

Keywords: tastytrade, tastytrade.com, tastytrade network, tom sosnoff, tony battista, options trading, how to trade options, Karen the Supertrader, option trading strategies, millionaire trader, stock market tips

Id: 8yt51STpZ5I

Length: 64min 15sec (3855 seconds)

Published: Wed Jul 23 2014

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[u/nzbike]

The talk is about options trading, but trading principles shared will apply to forex trading.