Every Monday morning at 7:15 a.m. Pacific time, in my live streams, I am fully revealing my proprietary Safe Wheel Strategy for free. Using my 28 years experience, I’ve developed the Safe Wheel Strategy to cancel out the risks associated with the normal wheel strategy. I also designed the system to only need my attention once a week on Mondays, and on rare occasions Fridays. And this is what I call a Level 5 Strategy.
Now, what you see on the screen is The Trader Matrix. I developed this to make it easy to distinguish between trading levels. After taking over 30 online stock and options courses, I’ve found that I’m the only level five trader that is not using portfolio margin. Portfolio margin is used for large accounts over $100,000.
Now after 28 years, I’ve only found one edge in trading and that is selling option premium. Level 5 Trade Systems are the only way to sell option premium efficiently and safely. For a better explanation of the five trading levels, see the link in the description for the video called “The Five Stages of a Trader”.
Okay, good morning. Let’s do a sound check. I want to make sure everybody can hear me. Usually, there’s a delay so I’ll wait to hear you. See if you guys can hear me, so go ahead and type that in the comments if you do. Sounds good? Okay, good.
All right, make sure to post any questions that you might have. You want to start posting those questions right now because I don’t want to get to the end of the live stream and then I won’t be able to answer your question because it didn’t show up on time.
All right, let’s talk about The Earnings Edge Alerts. Last week we did Walmart and made $320. So we hit our profit target on Walmart so I think I have to update my stats. I think I’m 12 for 14 or 12 for 15 in my last 15 trades. That’s good, Guys that the account starting at $5,000. It’s up to $6,000. So The Earnings Edge Alert is up 20% year-to-date and the S&P 500 is down about 16.5% year-to-date.
All right, I’m going to also talk about my Premiere Level 5 just real quick. The Premiere Level 5 is more for accounts that are larger. Larger meaning $30,000 or greater. I think that’s the time to get more conservative and you want to kind of… It would be more like diversifying. I know it’s not… You don’t think about it as a diversified portfolio but I do. Because if you use options properly you can diversify. You can be protected against a crash and a grind down.
So we’ve been in a grind down since I opened this account, this Premier Level 5 account, and the S&P, which is what we trade, we trade the $SPX, is down 11% since we opened up this account. And this account is down about 0.5% so we’ve been just hanging in there during this grind down period. Which is really good. So I just want to give an update on that and I highly recommend The Premier Level 5.
That is my top system. This one took me 28 years. This is what I’m doing with my money. I got 70% of my net worth into this type of a system, this type of trading system. Okay, so there’s The Premiere Level 5 and I’ll put a link in the description of course for that. Let me make a note of that because I don’t think I put one in there yet.
Okay. so next we’re to get into The Safe Wheel. So let’s talk about that. I think it’s this account here, yeah. Let’s see. Let’s go to, yeah, all right. So in this particular account I own 100 shares. I’ve been assigned at $24.50. This was what happened in the past. I’ve got my long put hedge. And this particular thing is this put hedge is under 100 days so I would roll this thing out no matter what. I would exchange it because the Theta is starting to get too heavy on this. I don’t want the Theta to catch up to my short term Theta that I’m selling premium on.
So 100 days is kind of where I would cut that off, but the question is really if I look at my flow chart here, and this flowchart is available by the way. If the stock is down and I own the shares, can I sell $24.50. Can I sell anything at the $24.50? That’s over 25 cents or 24 cents so I’m going to take a look at that. So I’ll go to the trade tab and I’m talking about this first cycle here, the one that expires at the end of the week, and I look at the $24.50 call because I own 100 shares.
So I’m going to sell a cover call. This is the wheel strategy kind of, you know, with a hedge basically. And you can see that I can’t get 25 cents. In fact, I’d have to go all the way down to the $22.50. If I sold this $22.50 call and then I got called away, in essence I would have bought the stock for $24.50 and sold it for $22.50. That’s no good. That’s the problem with the wheel strategy, in essence, is when you get long and then the stock goes down. And that’s why we have the hedge.
So the hedge obviously covered our situation. So you can see, is the overall position up? Well yeah it’s up. Even if I don’t take into consideration all of the premium that I have sold in this particular cycle, the position is up money.
So can I sell something at the $24.50 level or higher? No. So the next question is: is the overall position profitable? And the answer to that is yes. The overall position has been profitable since I put on this put hedge. So I’m going to sell everything out and start over and I’m going to continue to use Macy’s because it just makes it within that $20 level. It’s between $20 and $40 so I’m going to use Macy’s again.
So I’m going to go ahead and do all this and there’s probably going to be quite a few questions. Which will be good. That’s fine. So go ahead and start typing your questions in, but what I’m going to do is I’m going to right click here. I’m going to create a closing order, $21.07. I want to get as much as I can trying to sell the stock. I’m closing out my position so I’m selling 100 shares.
Okay, so that filled. Now, I’m going to sell this put hedge. Close this out. I want to get as much as I can, so mid price $3.05. Let’s go to the working order. Okay, so I sold that. I know I made a profit on this cycle and now I have a fresh clean account with no positions.
And that’s one of the things I want to talk about with the wheel strategy. A lot of people, I won’t name names, will show you the premium that they’ve sold but they won’t show you the current position that they’re in. So for example, they wouldn’t have shown that Macy’s, that I was down x amount on holding the position. They wouldn’t have shown that. They only show that they sold some premium. Well to me, that doesn’t mean anything. What means everything is the net liquidation. What can I sell everything out for right now and what would I get for it and what would my net liquidation be? That’s the key or that’s what you want to control. If your net liquidation, let’s say maybe my net liquidation, maybe I sold $1,00 worth of premium but my net liquidation is $3,000. What good is that? That’s not good so that’s the problem with the wheel, the traditional wheel strategy.
Okay, so let’s start over again. I’m going to choose Macy’s. I could choose a different stock at this point. And the first thing I’m going to do is I’m going to go out 150 to 200 days. 186, that’s where I’m going to go. 150 to 200, I’m going to go to 186.
Now, the first thing I need to do is do a little calculation. Macy’s is trading at $21.12. $21.12, what’s 80% of that? 0.8, times 0.8 about 17. So I’m going to be looking around. Let’s see what I can do here. That 17 put is available? Yeah, it is, right here. So I’m gonna pay–I don’t like to pay over $2 but, you know, I’m going to, you know, with the… I’ve had a lot of questions about this, you know. The $VIXvix is high. The volatility is high, and the put hedge is going to cost me a lot.
Well, that’s what it costs and that’s what I’m going to pay for it, so I’m going to buy three of these. I’m going to stick to the rules, mid price 2.14. Let’s see if we can get 2.10 and work our way up. Buy three. Okay, that filled right away so I should have went with even a lower price, so probably overpaid just a little bit there but that’s okay.
Okay, now that we have our hedge let’s go ahead and sell our short-term premium. Let’s do the normal wheel from this point and I’m going to start with selling a put. And I could go down all the way to $19.50 but it’s close as far as getting 1%. What are we at? 21. So we want to get at least $0.21, but sometimes I like to go a little bit higher and try to pick up a little more premium and that’s what I’m going to do right now. I’m going to sell this $20 and I’m just going to do one because that’s I have everything sized.
Wow, I’m getting good fills today. Okay, and then the next step is to, of course, hedge my hedge. So I’m going to buy something for about $5 or $6. I don’t think I can get the $24.50 for $5 so I’m going to go with the $25. I’m gonna buy this call just to cover my hedge, just in case Macy’s go shoots up to like $30 or something like that.
Okay, so there’s my position. I got my put hedge. I’ve got my short put and I may get assigned at… What does it put at 20? So I may get assigned at $20 and in that case, and I have my hedge to protect the hedge.
Okay, now one thing I want to go over real quick is how am I doing with The Safe Wheel? Well, The Safe Wheel is up about 18.5%, which is higher than normal. This does about 10% a year.
Okay, all right, let me get to some questions. Hopefully, I can get to all these. First question here.
[Walter Paul]: What’s the status of your email?
Yeah, I have a problem with hostgator, my web host. For some reason my email has been down so I sent out an email to everyone giving them an alternative email to email me if they need to.
All right, got some good mornings in here and some sound checks.
All right, [Andy]: How much do you expect to make annually using The Earnings Edge Alert Strategy?
Well, my goal is to make a crazy 10% a month. So far I haven’t been doing that. I just have a goal. I don’t know how much that’s going to make. You just don’t know. I would assume it’s going to make more than The Safe Wheel and so far it has but not by much.
Okay, [Victor]: Is there any reason for selling and buying calls to protective $5 instead of puts, instead of puts for tickers aggressively going up instead of down?
I’m not sure. Are you referring to doing a different underlying? Maybe rephrase that a little bit. I’m not too sure not to… I don’t understand what you mean. I know the $5 put a lot of… $5 call, a lot of people… I’ve heard people say that’s probably not worth it and all that, but trust me. When the time comes and Macy’s shoots up to $35, you’re going to be happy that you have that. And I will come in and check that on the last 15 minutes of the trading week before it expires to make sure it has any value. I will sell it.
[Armand Moisuc]: As $M is not in the 30 range, I want to start fresh on $BP, what do I think about $BP. $BP probably is good. Let me look at it. $BP is at $30, that’s good. It’s got really good liquidity. You can go out of the money and you can get over $0.30 ($30). That’s good. What about the put hedge? They’re going to be available?
Yeah the 186 [or] 158. You can even go for 158. See what you’re… What is 3 times 8. 24. Something like that. Yeah this is a really good one. This is a good one. I would definitely do this $BP is a good stock. Maybe if I found it, maybe if I looked at it before I did Macy’s today I might have done it.
Okay, [Eduardo C]: Hi Karl, if Macy’s keeps falling are you going to stop trading it?
Yes, I am. Do I have any other stock in mind? Yeah, $BP. That looks really good. I’d use that one. No reason to look for any others. There’s no reason to, oh $BP is good and let’s see if another one’s good. What does it matter if another one’s good? You’ve found one good one that’s all you need. This isn’t like your normal kind of situation where you’re always looking for a different stock, and a new stock, and which stock is going to be the greatest stock. No, you find one that meets your criteria and you work it.
Okay, next question. [Andy]: Have you been in a position where you could not close the option position due to very low open interest?
No, because one of my criteria into getting into a position is to make sure that I’m dealing with very very liquid options and Macy’s does that and $BP does that.
[Jms 54]: Question, the big edge is useful now because of the general downtrend. When the market goes up, will you change anything?
No, I did the back-tests in bull markets and it still made money.
[Iraqi Trader]: Let’s do a different stock.
Yeah, I probably would if I saw $BP before. I probably would have done it, but there was no reason for me to go to a different stock because Macy’s still met the criteria.
[David Isaac]: Is there any way to replicate the entire wheel strategy with the hedge using only options?
I think that’s what I’m doing right now. The wheel strategy only uses options and that’s what we’re doing and we’re doing it with a hedge. So maybe rephrase that if I didn’t answer that question.
[Eduardo C]: After a week like we had last week with the huge fall on the stocks, I’ll have a fresh account to start over but won’t the puts be too expensive to buy the hedge?
No, I mean I just bought it and we’re gonna see what happens, you know, you just keep going with the system. It’s a system, it’s black and white rules. You can’t just change the rules because the $VIX is at 30 or whatever. Remember, the near term options are also expensive, okay. So they’re gonna outpace the long-term hedge in terms of depreciation. And that has to do with weighted Vega and you can look up that term, weighted Vega. Waited Vega, and Ron Bertino did a nice video on that.
[Matt Hernandez]: I’ve taken a loss–have I taken a loss on any position cycle since you started live stream?
No, I don’t think I have. There might have been one, but I did some stats. Somebody asked me a question yesterday and what I found when I did my back test is that I had 32 winning cycles and 18 losing cycles, so was about a 2:1 something like that. So it should be winning two and losing one cycle based on the history of the back test. But this month or this year has been really good because Macy’s been going sideways. So like I said I’m up uh 18.5% but that’s really high. I’m normally doing 10% a year.
[Alex]: Theory, why not buy a long call one week further out?
I’ve been asked this question before and I’m trying to remember the answer. I can’t remember the answer on top of my head. I know that it’s better to buy it to stay in the same cycle same expiration cycle and it makes it easier. I think it has to do with, you know, management. I want to be–I want to come in Monday morning with a fresh start. Maybe the $5 call that I buy it’s not worth anything, right? I bought it two weeks out and now it’s like way out of the money and I got to buy another one, right. So that could be the problem.
[Walter Paul]: Your Premium 5 program is the same as what we call The Synthetic Dragon Portfolio. Almost all the money is in self-directed IRAs both Roth and traditional.
It is very identical to The Synthetic Dragon Portfolio. Everything you saw me do with The Synthetic Dragon Portfolio it’s pretty much what The Premier Level 5 it’s what you’re gonna see happen with The Premier Level 5. It’s not the same trade structure though but it’s very similar. bBecause I am not going to take a trade structure that I learned in a mastermind and then share it with everyone else. I don’t think that’s ethical. So it took me four years to create my own.
[Walter Paul]: Can I get margin for limited liability situations like verticals?
Okay, limited liability that’s a company type and then verticals that’s like an options trade so I’m not sure how those two… Can you trade verticals with a limited liability? Can you get margin? I’ve heard of people being able to do that. There’s some type of way of doing it. I know in the mastermind group that I’m in with Ron Bertino, they talk about that in detail about how to do that. I don’t know how to do it. I never had to do it.
Will any of your programs work for me? Well, I think I’m pretty sure you can do this Safe Wheel. I know I’m pretty sure with Tastyworks, if you have an IRA they’ll let you trade options. And I think you can do The Safe Wheel with that and probably The Earnings Edge. But Tastyworks does not work with the Premier Level 5 because it’s a custom order and Tastyworks won’t take custom orders. They’re so traditional they have to use all the traditional non-working trade structures, you know, that they won’t even let you make a custom order.
All right, [Eric Wheeler]: What’s Premiere Level 5 system profit goal per month?
So with the Premier Level 5, my back tests so far show a 12% return. But the back tests, the way that I did the numbers… I’m redoing them because I think I messed something up and I think that the numbers are higher, but that’s yet to be seen. So that would be 1%, but the buying power margin use, like right now. Let me make sure I got this thing, yeah. Hold on just a second here.
I don’t want to show that either. I can’t really pause the live stream, can I? Okay, so if I go to let’s see. Okay, all right, so with this. The question is how much buying power are you using? Okay, well I’ve got a $30,000 account and I’m using about $3,500 right now. So that ought to tell you what that is. Let’s go to this here.
All right, next question. [David Isaac]: I meant replacing the long stock position with an option strategy, is there a way to do that?
That’s basically the wheel. When you really think about what the wheel does, it’s really replacing a long stock position with an option strategy. That’s really the basic wheel there. I would do The Safe Wheel because, you know, it’s better. You’re going to get a lot more safe returns with the traditional wheel. You’ll get caught in a position and you’ll be in that position. And unless you take a loss, you’re just going to hold on to it and hold on to it and eventually you’re going to do another strategy, another wheel and another wheel and another wheel. And eventually as you do more and more, you’ll get caught in positions and you won’t be able to sell premium against those and you’ll get to a point where you’re just…
Let’s say you’re going to do five positions. You’ll have five stocks where you can’t do anything with it and you’re just losing money. So that’s the problem with the traditional wheel strategy, but it is like being long.
[Andy]: Thank you Karl. Have purchased The Wheel Strategy Flowchart. Looking forward to testing it in a demo account.
Okay, that will work.
[Eric Wheeler]: Why not share Synthetic Dragon instead of a traditional Level 5 system?
Because like I said, I learned The Synthetic Dragon trade structure in the mastermind of Ron Bertino, so I am not going to share that with anyone else. You need to join the mastermind to get that. I don’t think that would be ethical.
Now, what profit difference did your back testing show between the two? Well, I need to redo my back test. I really don’t have a good answer for that right now. So far The Synthetic Dragon looks better, but I need to redo the way I calculated the back test. So I really don’t have a good answer for that right now. I’m in the process of doing that.
Okay, Joe [Stutzke]: On the flow chart after T2, T2 ,that would mean that you have 200 shares possibly. Are you just selling above either T1 or T2, if not exit?
When you say selling above… So typically T1 is not going to be… Let’s say you own 200 shares. At that point T1 is you’re going to be too far out of the money to get any premium for T1. So T2 is hopefully going to be close enough to the money to where you can sell and collect your 1%.
Now, if you can’t get any premium for T2, which obviously you won’t be able to get it for T1 either, then you sell the whole position out. Take a loss or take a gain at that point and start over. You don’t want to be sitting there with 200 shares and not selling any premium against it. You don’t. That’s just a waste of time and you’re just hoping the stock goes back up and that’s why the hedge is there to help you. So that’s the time you exit. You could take a loss.
[Philip Leckband]: How much money are your programs and how much for a beginner?
So The Earnings Edge is $259 a month and The Premium Level 5 is only $200 a month. And for a beginner, it’s the same price for an expert.
[Wolf]: Why not keep the stock and sell a call with the strikes below your purchase price as you have already lost on the stock?
There’s no reason to take a loss like that in that situation by selling a call that will get you called away and then you will take a loss. For example, the $24.50, I want to get at least a premium on the $24.50. So if it gets called away, I don’t lose on the stock itself. And the way that this system actually makes pretty good gains is when you make money on the stock itself. That’s kind of where you get your good gains. You don’t want to make it to where you get your big losses in that scenario. So the problem with the wheel strategy in general is when you have a stock and it goes down, you can’t sell any premium against it; because if you do, you’ll get called away. And if you get called away, you lose money on the stock and you lose money on the position. So I hope that that answers your question there.
Okay, [Philip Leckband]: Haha I’m stuck in five positions and was thinking that I was good at running the wheel.
Exactly, that is the problem with the wheel. You get stuck in positions and you can’t do anything. You can’t sell any premium; and you have no hedge to protect yourself; and you’re losing money; and if you were to go to your netliq. you would be down money.
[iamtheone who knocks]: Question, how much experience do I need in trading options before I can sign up for the master class?
I don’t have, necessarily, what you would call a master class. I think you’re referring to Ron Bertino’s Mastermind. And what about my courses, I have a course for beginners that don’t know anything about options, and I was asked this question earlier today in an email. I haven’t responded yet. If you don’t know anything about options, what I recommend is that you take my free course. And then if you still don’t have a good understanding, my free course will link the Tastytrade. And take their free course and get an understanding of what’s going on. Then I would trade this wheel strategy. I would trade the wheel strategy before I do The Earnings Edge. You don’t want to get into the Earnings Edge if you don’t know anything about options/ If you trade the wheel strategy for a little bit, get a good feel for it, get a good understanding, you’re at a level where you can go into The Earnings Edge or The Premium Level 5.
[Joe Sutzke]: Okay sounds good. I want to make sure you do that report right.
Yeah, okay, Joe.
[JMS 54]: Question, do you think using this strategy on $SPX cause cycles to be shorter, like three to five days, will it work?
Well, first of all $SPX has a really high price so you’d have to size everything perfectly. And the reason why I do a stock around $30 is so I can size it based on a $5,000 account. Now $SPY might be better; but then again, $SPY being around $400, the sizing is just all off. You’re gonna have to really know what you’re doing in order to kind of size up. And I would just, I would just follow what I’m doing. You can use $BP but you still want to follow the way that I’m doing this. Use a $30 stock with $5,000. If you have $10,000, you want to run this thing. Use a $30 stock and run two options instead of one.
You see how I’m doing one at a time, one call and one put. Well, if I had ten thousand dollars, I’d be doing two calls and two puts, and I would be doing six put hedges. If I had $50,000, I would be doing ten puts, ten calls, and I would be doing thirty put hedges. So that’s the way I would size up. I would not use a different stock outside of the range. It gets too difficult; I guess is the word I would use. Keep it simple.
Okay, so I think that is going to wrap up the…
One more. [Christopher Moorhouse]: How does volatility affect your strategy? If it’s positive or negative or relatively neutral?
I do not trade this strategy based on volatility. So if volatility is high or low, I do not make any changes to the system. How does it affect it? I mean, you know, maybe that put hedge is too expensive and I, you know, have problems with it. But again, I’m selling something in the near term. That also has the high Vega. So I would say Vega is a neutral situation as far as how it affects the system. In other words, it doesn’t affect it and as far as high or low or medium but I don’t change anything. This is a black and white rule system.
Okay, so I think I’m gonna wrap it up now. I don’t see any further questions? Are there any other questions? All right, one thing I have to say. If the P&L is not real, what else are they trying to conceal?