Hey stock and options traders, welcome back to the channel. If this is your first time here my name is Karl, Karl with a ‘K’, and I’ve been trading stocks and options online since the mid-1990s. If you’re here to learn about trading or to figure out if a stock or options course on Youtube is worth the money, then make sure to subscribe to the channel.
One of my goals is to change this industry. I want to change the buying criteria. When anyone wants to buy a stock or options course on Youtube. If promises are made by a Youtube instructor when selling a course then, I believe they should prove their credibility. I see only one way to prove credibility and that is to share P&L. Not only share P&L, but also share the account P&L volatility. Which means how much did the account value move up and down.
If your account made a 20% return but it was down 60% at one point, then the 20% return is not a good return on risk. Sharing the P&L volatility is important because risk adjusted returns are the real truth. And this is why I share my P&L and I also show my daily moves in my P&L. Unless I was doing a review, I would not buy a course from a Youtuber that makes promises without sharing their P&L. And I hope you won’t either. In this video I’m going to go over my real P&L for the month of April 2021.
I’m going to share my real P&L for the month of April 2021 for my two separate accounts.
And before I get into the P&L, I want to briefly go over what the market did in April. This will give an idea of what my trading systems had to contend with over the last month. My question is always: what type of market was April?
In my book, I go over the four types of markets for premium selling options traders. And that is what my two separate systems are set up to do. They’re set up to take advantage of the difference between implied volatility and actual volatility by selling option premium.
Now the four market types are number: #1, the rising bull; #2, the sideways market; #3, the grind-down market; and #4, the crash market.
So, next I’ll get into what the market did in April. Okay, looking at April 2021, what type of market was this, or is this here? Well, we started here, and we ended here. So we’re up 5.2%.
Interesting, definitely, you know, I would call this a bull market. You can see the market just basically went straight up and sideways, but up 5% in one month. Definitely a boom type market that we had to deal with here.
And now I’m going to check to see what volatility did; because remember, volatility is the key element when assessing an options portfolio because volatility has a direct impact on the price of options. And the way I like to take a look at volatility is to track the VIX. So let’s see what the VIX did. So the VIX basically was down, down 3% almost. You could almost call it sideways. You could also see that there was a little bump towards the end of the month and that kind of lowered my P&L for both of my trading systems just a tad. I was up a little bit but this month didn’t really show a lot of juice; didn’t have a lot of juice in it for my trading systems. And then with this little tiny bump in the volatility, just kind of took out that little bit of break-even situation and kind of gave me a little bit of a loss for both of my systems right there, but that’ll, you know, that’ll all come back. And I’m obviously very confident that I’ll end up ahead in the long run; which that’s what’s been happening ever since I started showing my P&L.
You know, I did start showing my P&L when i had an account balance of $110,000 in my Synthetic Dragon account. My account balance started at $110,000 back in mid to late 2019, and you’ll see what the balance is here later on in this video.
Next, I’m going to get into the P&L. First, in my smaller account where I trade the 5 Step
Options Trading Success Program, this is a system that is proprietary and took me over three years to develop as I kept racking my brain trying to replicate what I was doing in my larger portfolio margin account. I wanted to replicate this system in a regular margin account and I back-tested over 300 different trade plans until I finally came up with a successful system that I could trade in a smaller account that outperforms the S&P with lower P&L volatility.
I make these claims based on the last 10 years back-tested results along with about 12 months of trading it live. Even though it does not replicate the exact system I’m using in my Synthetic Dragon Portfolio, it is as about as close as you can get. And my small account portfolio using the 5 Step Options Trading Success Program is not dependent on picking a direction. So an unpredictable market does not have a negative effect on the trading system.
Now, an interesting topic came up in Ron Bertino’s Mastermind Group a couple days ago. One of the guys on there, that created his own software to do back-testing, mentioned that the Vol. surface made a fundamental shift in mid-2014. In other words, volatility kind of the personality of volatility changed. Coincidentally, this is the same time that the 5 Step returns began to lower. And one thing was determined. And that was that we don’t know if and when the Vol. surface will make another fundamental change. I believe it will and when it does we can have another couple years like 2012, 2013, and 2014 when the 5 Step did 43%, 30%, and 21% respectively.
Another interesting fact about this trade is that I have had multiple students recently mention that they are making profits with the trade even as my results have been pretty flat lately. So let me go over those results.
Okay, looking at the 5 Step real P&L for the month of April 2021. You can see that it’s extremely flat here over the first 14-15 days, which is probably not really accurate. I mean there was some movement and then this kind of came way down here. Which again, you know just bad ticks, I believe because really the account didn’t really move by that much. And then right here at the end that’s obviously a bad tick because you can see the account value right here. And I can show you that account value in my other account too. I’ll do that just to prove that’s really what it is. It’s not down here. But if you take the number I was at–let’s get my calculator out here.
So we started with $14,870. $14,870 and we ended with $14,643. So it’s $227 divided by $14,870. So down about 1.5% on the month and without really any volatility in the account. This is probably the lowest the account’s been all month in terms of percentages. Let me… next I’m going to show you my account in the other format; that way you can see that it really is this, this amount of money.
Okay, I just want to verify that $14,643 NetLiq.. You can see today is May 1st. It’s a Saturday, so there’s no trading going on. The month ended yesterday, so there’s your balance and there’s your date.
Now as I stated before, the edge and selling option premium is because implied volatility is higher than actual volatility about 83% of the time. The system is designed to make money in any market environment while mitigating drawdowns. In the last 12 months while trading the system live, my highest drawdown was very insignificant; and this is almost like a super high yielding savings account.
The system is scalable. If you want to take more risk you can. This means you can double these numbers. If I had more risk tolerance over the last 10 years, I could have had an average return of around 25.72% with a maximum drawdown of only about 8% to 9%. Now, this would be allocating $4,000 per tranche. And I would not increase the risk using this system allocating less than $4,000 per tranche.
And I currently just updated my risk by 50%. So I started using $6,000 per tranche. This means based on back-tests, I could see maybe a 6% to 7% max drawdown for around a 19% return on average. Again, you can learn exactly how I trade this account by purchasing the course and I put a link in the description below.
Now, I’ll go over my larger Synthetic Dragon Portfolio results. I’m in the process of moving this
account from Interactive Brokers to ThinkorSwim. The reason is that Interactive Brokers
recently increased their margin requirements which means that I would have to lower my sizing to stay with them. And lowering my size would also lower my returns. So next month I plan on showing my results for the Synthetic Dragon portfolio in a ThinkorSwim account. If you’re interested in the back-test results for the Synthetic Dragon, I’ll put a link in the description for the results. And they started in 2008 to present. Now, this account has portfolio margin allowing me to trade with more leverage in order to take advantage of a certain trade structure.
First, let me go over my market view. The market has made new highs 21 times this year. I would definitely call that bullish and I believe this has more to do with the government stimulus and inflation than any other fundamental reason; however, my market view does not matter and neither does anyone else’s because this portfolio is designed to make money in any market environment. And so far this year, January was my first down month in about around a year. And February and march were excellent return months.
This month, the portfolio took a breather due to downward concavity. And even with this negative move on concavity, the trade plan did quite well. And here are the results for April 2021.
Okay, here’s my account for April 2021. It includes my daily balance as you can see here. You can see that the lowest part was probably here, kind of ended right there too, zoomed down about $1,600 and starting with $157,989. This is kind of a new platform here. It doesn’t do the calculations so let me pull up my calculator. $1683 / $157988 = 1.07% is about a 1.0, maybe 1, 1.1%. So I’m down about 1% for the month of April.
And you can see that my lowest drawdown was 1% during the whole month. And also take note that I will be moving this account to TD Ameritrade so I’ll have a different look next month when we look at the P&L for this account.
If you want insight on how I trade my Synthetic Dragon Portfolio, you can purchase my book A Portfolio for all Markets or you can check out the course I took that brought my options trading to another level from Ron Bertino and it’s called Trading Dominion. I’ve left a link in the description below for my book, for my review of Ron Bertino’s course, a link for purchasing Ron Bertino’s course, and a link to purchase the 5 Step course.
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