Manage episode 268841690 series 2134820
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Greetings Passive Ttraders. Welcome to another edition of The Option Genius podcast. In today's edition or episode, I wanted to talk to you about watch lists and the importance of having a watch list. Now, the importance, even though I do preach about having a watch list and sticking to your watch list and trading the items on your watch list. There are times when I invariably will not listen to my own advice and then go ahead and start trading companies and instruments that I have no idea about, never heard of before. And so I was reminded of this recently, when I was doing a bonus for the Passive Trader book. For those of you who don't know, the Passive Trading book is out and it is available, you can get on Amazon for, I think it's like $20 or $25, or you can go to our website, which is passivetrading.com/freebook. And you can get the printed version actually for free.
We've already paid for it. We have a limited supply of copies. All we ask is that you pay for the shipping and handling. If you do that, we'll send you out a book for free. But when we were coming out with the book and this whole little offer, we wanted to go a little bit further and created several products, or I guess they're called products. But they are things that can help you get faster results in your passive trading. So if you don't know anything about passive trading, if you've never traded before or if you want just more information, get the book. If you want to go faster, maybe you already know a little bit about it. Maybe you already know about how to trade, but you want better results. That's where these other extras come into play.
And so one of the things that we created is a crash course. And so once you buy the book, the next page that it takes you to is an offer. It's an offer page and it's a video of me and it tells you about the crash course. And basically the crash course is after I already written the book we went through and I took notes on the entire book and I turned it into a video format where I went deeper into the elements that I thought were the most important. So now everything in the book is important and we've already taken out... It was a lot longer before. It was maybe double or triple the size before. And we had to cut it down to make it manageable because I didn't want to have like a 500 page book. But there were some aspects that I wanted to go in deeper and I could do it better in a visual format.
So that's why we made a video course. It's a crash course. The average person to read a book of this size of passive trading would take about 10 hours. That's the average person to read it. And now this is a more detailed book. So there are numbers and there's things that you have to understand. You might have to read it back a couple of times to really get the gist of it. And so it probably take even longer than 10 hours. So what I wanted to do is a crash course just focused on the most important things. Boom, get it done with in like an hour or so, a couple of hours. I'm not sure how long the video is. I don't know. I think we broke it down into several. So I don't know exactly what the length of the video is, but it's really, really good. And I'm really happy. I'm really proud of it. So that is something you might want to pick up.
But in addition to the crash course, what we offer as part of that package is videos of actual trades. So now in the book, I do cover several trades that I've made in the past. So you can see how each trade goes, by strategy, by strategy and see how they actually work out. But that's on paper, right? Visually you can do a lot better. So what I did was I picked, two trades that I've done in the past for each of the three strategies. So six trades total. And I went into backtesting software and visually I did a screen capture of my screen. And I went through how I put the trade on, what it looks like on the screen. What does the graph look like, how it works. And day by day recorded what happened.
Now this was with the backtesting software, you can go back in time. So let's say there was a trade that I did three months ago. I can go back three months ago, show you the graph of the stock, the chart of the stock and say, look, this is what the stock was doing. This is what I saw the day that I put the trade on. And then this is what happened the next day. And this is what happened the next day. And then the next day this happened, so I did this. So day by day, you can actually go back and see and say, hey what is Allen looking at? How is he placing this trade? How is he managing this trade? And so I did it for all the three strategies that we talk about in the book.
There are six trades in total, and I thought that... If you've never traded before, if you don't understand or if you want to get some behind the scenes kind of information and knowledge, you got to watch those videos. Because you can see me day by day going through the trades. So if you don't understand how these trades work, you want a better idea, watch the trades. And it's a visual interpretation. It's visually, day by day. Even when you're doing live trading, you can't get that because nobody has the time to sit there and go day by day by day. Even for people of our option genius membership, right? They get the trades and that's about it. We don't show them day by day how it's going through. So this is really, really important in that sense. So if that's important to you pick that up, it's on the page right after the book. So you buy the book and then the next page, you get this offer.
Now, why am I telling you all this? Is it because I just want to sell it to? Well I want you to get it because I think it's going to help you. But while I was doing those trades, while I was looking for several of these trades, I came across one and I didn't want to find like the easiest trades. I wanted to find where there were some issues sometimes, like okay the trade went against me, how did I fix it? What did I do? And so I wanted to give a real sense of what these trades are actually like. And so I found one trade that I started about a year ago. It was in August of 2019. And I just exited this trade about a week ago or two weeks ago, whenever expiration was.
This trade was on a stock that was not on my watch list. The company was Royal Gold, R G L D. Never heard of this company before, don't even know what they do. I still don't know what they do. I was in the trade. I own the stock for this company for close to a year. And I still don't know what they do. They might be a miner. They might be a jewelry wholesaler or they might be a retailer. I have no clue. I don't know what they do, but it has something to do with gold. Now how did I get into this stock? And why am I being so clueless about it? Well, like I said, it's not on my watch list. And so that is part of the problem. About a year ago, a friend of mine told me that there's a pattern in gold. And depending on when you're listening to this, the pattern just might help you to make some money.
The pattern is that gold rallies into the end of the year. And so the idea was that it's about August, 2019. This is when he told me and he's like, "hey you know, I'm doing this trade. It's a covered call in the mining on this company, Royal Gold." And he told me what it was. I looked at it, I analyzed it. And I said, "Hey, this is good. I like this." The chart looks good. The stock is going up. And if gold rallies to the end of the year, then there's a very good chance that this trade is going to make some money. But I don't know this company. And I don't think they pay a dividend. So I want to put on the trade, but I don't want to be in the trade for a long time. I don't want to own the stock for a long time.
So that's why it was set up as a in the money covered call. And in the money covered call is where the stock is trading at a certain price. Like I was saying, it's a hundred, you buy the shares at a hundred, and then you sell lower than the price. So you sell your call option lower than the price, which was I think it was selling at like a 4 or 5% below where the stock was. So that is the trade that I did. And I don't have in front of me. But the trade was going to make somewhere around 11%. Or I believe that's what it was. It had the ability to make 11% in about a month's time, just the way it was set up. And it had a very, very high probability of profit.
Not only that, but I looked at the chart, the stock was going up. Gold is supposed to continue to go up. So that means the chart... This company Royal Gold should also continue to go up. And so if that happens, that's great. That's what I want because I want the stock that I bought to be called away. And I want that money to just be left. And I didn't want to do it, I didn't want to mess with it. It's a simple, easy trade. You don't have to manage it. You don't have to [inaudible 00:09:41] it. You don't have to do anything. You put the trade on, you wait till expiration day and you see, hey what happened with this trade? Most likely the stock is going to keep going up and I'm going to be assigned in my exercise. And my call option is going to force me to sell my stock, which I wanted to do anyway. And I was going to keep the gain. That was the plan.
Now, as I already told you, I was in the trade for about a year. So it didn't exactly go according to plan. Instead of the stock continuing go up. The stock went down and then it kept going down. And so my option expired, which was good because I made some money. But now I'm sitting on a loss on the stock, which I don't even want. So now the idea is, okay what do I do now? Do I keep it? Or do I get out and take a loss? Well, I don't like taking a loss, who likes taking a loss. I don't like taking a loss. And who knows gold might also appreciate again. It might keep going up. Maybe this is a short time drop or something, who knows.
And so I sold more calls, hoping that the stock would go up and I would be called away, that didn't happen. Sold more calls, expired, sold more calls, expired, sold more calls. And I go through month by month, day by day in the trade in the video. So if you want to pick that up, you can go through and see exactly how it happened and which calls I sold and why I picked those calls, all that. But in the end, it took me about a year to get out of this trade. And after a year I made about 8%. I think it was an 8% gain on this trade. So what should have been a one month trade where I could make 11% turned into a whole year problem, where I had to keep selling calls in order to make 8% for the year.
Now 8% in a year is nothing to laugh at. That's a really good return. And that's what the stock market averages, 8% percent a year. So I did that and I took a trade where the stock went down. The stock was down and I still made 8%. So that's one thing to take away. Like, oh wow, how do you make money on a stock that's going down? Well, this is the way to do it. The other thing I want to point out, which is probably more important is that I never should have been in the trade in the first place. Now yes, we're going to place trades and we're going to miss and we're going to mess up, we're going to lose money on trades. That's normal. And then you have to know how to fix it. Fine. I get that.
But I had no clue what was going on with this company. Didn't do any research into it. Don't know the company. I still have not looked into it. I still don't know what they do. And so that's not very smart. And that's exactly why I keep telling you to have a watch list. When you have a watch list... A watch list for those you don't know is a list of companies that you monitor, that you watch. And those are the ones that you trade. Now if you don't know how to make a watch list, we cover it in detail in passive trading, in the book. And then even in the passive trading formula, the course, we spent a lot of time on that in the course. And there are over a dozen different criteria to use, to pick the best stocks, underlying ETFs, indexes, all that to put on your watch list.
And everybody's watch list is going to be different, unique, because you like trading some things. I like trading different things. We'll make different watch lists. No problem. That's not a big deal. The thing is when you don't stick to the watch list, you make mistakes like this one. And even though at the end of the year, I came out ahead, it was a lot of extra effort that I didn't really need to make. If I had stuck to my watch list, I wouldn't have had that problem. If I had wanted to play gold. And that was the plan. Gold was going up. I should have just played gold and gold is on my watch list. So I watch gold. I watch the chart of gold. I see how it's doing. I know how it behaves. This company didn't behave the same as gold. Gold kept going up, but this company went down and I couldn't figure out why.
So the point again, I'm trying to make here is create your watch list. Stick to the watch list. There was another time and I tell this story many times where I traded a stock that wasn't on my watch list. And at that time it was Las Vegas Sands. And I did some cover calls on that one too. And the stock dropped all the way down to $2. And I had no clue why the stock was dropping because I didn't do my research because it wasn't on my watch list. I didn't know that the company was about to go out of business. They were going to declare bankruptcy. That was why the stock went all the way down to $2. Now, luckily for me the stock did not declare bankruptcy and then they recovered and I made all my money back and a lot more. But that's just another way that I lucky. There's no other way to say it. I should have lost all my money on that trade because I didn't do my homework and I didn't stick to my watch list.
So even as a professional trader, I keep having to learn the same lessons over and over and over again. And that's normal. That's not a big deal. It happens, but I want you to learn from my mistakes. And so I don't want you to feel bad if you make mistakes. I don't want you to feel bad if you make the same mistake over and over again. But we need to get better at it. We need to keep improving. And that's the only way to do it by just getting reminded of it and saying, hey this for me was a great reminder. Like, Oh my God, geez I can't believe I did this again. But I did. And I learned how to fix it. And I did. Luckily I was able to do it. So now I have another reminder of, hey I need to focus on the watch list. Focus on the watch list. Focus on the watch list.
I had a couple other trades that came up recently that somebody shared in our group, our Facebook group for members of the Passive Trading Formula. And I wanted to take them, but they were on stocks that I didn't really watch. And so I was like, oh no I can't. Okay, no I'm not going to do it. And then I went and found similar trades, similar strategy to stocks that I already own or stuff that are on my watch list. So I was happy. So I still made money. It's not like you can't make money by only sticking to your watch list, but you're going to make more money because you're sticking to things that you know. So that is in a sense, the gist of this episode. Basically I could have broken down and said, "Hey yeah, just got to, you got to stick to your watch list.
But it makes a bigger impact when you hear the story behind it I think. As people, we love stories. We love hearing stories. And when you tell a story, it not only does it stick in your brain and you remember it more, but it shows the importance. Now, luckily I didn't lose any money on this. But if I did, it would have been a very expensive story. And then I would have been like, hey I lost X dollars doing this. I don't want you to lose X dollars. Don't do the same thing. So with that said, thank you for joining me for another edition. Again, the book is Passive Trading. It's out now, limited quantities are available for free. Go check it out. passivetrading.com/freebook.
And if you have any questions, you can always email me firstname.lastname@example.org. If you need anything, we're always here for you. Join us in our free Facebook group, which is called the Alliance, Option Traders Alliance. You can get that at optiongenius.com/alliance. I believe that is the URL. If not just email us and we will get you the name and the URL to that. So you can join us in there, get the book, learn passive trading, start making money. And even on a stock that goes down, I still made 8%. So learn how to do that. Make all your troubles go away. Take care and trade with the odds in your favor.
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