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.
And 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. And I only see one way to prove credibility and that is to share their 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 20% 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 truth, and that is why I share my P&L and show my daily moves of my P&L. Now, I would not buy a course from a Youtube instructor 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 January 2022.
I’m going to share my real P&L for the month of January 2022, and I’m trading four separate systems in four separate accounts. Before I get into the P&L, I want to briefly go over what the market did in January. And this will give an idea of what my trading systems had to contend with over the last month.
Now my question is always: what type of market was January? In my book I go over the four market types for premium selling options traders. And that’s what three out of the four 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: #1, the bull market; #2, the sideways market; #3, the grind-down market; and #4, the crash market. So I’m going to get into what happened this month in the market?
Okay, what type of market was January 2022? Let’s take a look. First of all, we know we’re down. See at the end of the month, we were here and now we’re here. So we’re down 5.23%. We were down as low as 11.35%. Of course, I’m looking at the SPX which represents the S&P 500. Now, you can see that we went down and kind of popped back up. So, you know obviously, it’s not a bull market or a sideways market. But was there a crash? No, the answer is no.
It was not a crash market because hedges did not get activated so this is a grind down; one of those rare grind downs. Let’s take a look at the VIX; see what it did. So we can see the VIX got up 126% at one point, and did up 45%. So the VIX has gone higher. This hurt a lot of option sellers–premium sellers–and they’re probably still hurting pretty bad right now. But this is definitely a grind down type market, and one of those, you know, grind down markets are pretty rare. This is a grind down market this month.
Next, I’m going to get into my four separate trading systems. The trading systems are: #1, The Safe Wheel; #2, The Earnings Edge; #3, my 5 Step; and #4 The Synthetic Dragon.
Now first, The Safe Wheel Strategy. This is a strategy I give away for free every Monday morning at 7:15 a.m. Pacific time. I do it live stream and I trade the account live right in front of you. I also answer any and all questions about the system in order to help people learn it.
So here are the results for The Safe Wheel for January 2022. Okay, The Safe Wheel Strategy account for January 2022. You see we started with $5,000 and didn’t have any drawdowns; came close here but really no drawdowns. There’s no downside volatility and we did end with $5,193 so let’s do some math on that.
So we made $193, right? $193 / $5,000 = 3.86%. That’s pretty high, I mean, that’s–I’m not probably expecting to see that kind of return constantly with this account, but I am expecting to see pretty low volatility in this account like this; but that’s pretty, that’s a really good month; but I don’t expect to see that kind of those that higher return per month.
Second, I trade my Earnings Edge Alert System. This system is based on trading a stock coming into earnings and I started with a $5,000 account, and I look to make one trade a week when earnings trades are available. And my goal is to make about $300 per trade. And I’m looking to win three out of every four trades. If and when this is accomplished, it will be economical to follow my trades with $5,000 account, and the cost for this service is $259 per month.
So here are the results for January 2022 for my Earnings Alert System. Okay, you can see we started with $5,000 at the beginning of the year. And we did have some downside volatility. Let’s see. We’re down to–it was down to about $4,100, so that’s $900 it was down. And now it’s down. Well let’s do some math. So $900 / $5,000, so we saw 18% drawdown. And this is kind of expected with this account. There’s going to be some volatility in this account and I do expect to see this kind of volatility in this account. This is a pretty risky trade but I think if I could win three out of four trades this is going to be a nice, pretty nice, returns but there are going to there is going to be some volatility, so I’m not surprised at all. But we started with $5,000 and we have $4,559. So we’re down $441 / $5,000. So this accounts down 8.82%.
So I didn’t expect to kind of be down this much. I thought I was gonna win three out of four trades and I only won uh… Well actually, when you look at it there were four trades taken but together it was probably minus one, because I try to make $300 and it’s down what $400. So it’s down by a factor of, you know, one and a half trades; but still down 8.82 Not surprised about the volatility in this account. You could expect volatility in this account when I’m trading The Earnings Edge; looking for the edge there and trying to mine that edge.
Third, I’ll get into the P&L for my 5 Step Options Trading Program. Now, 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 the 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 outperformed the S&P with lower P&L volatility. Now, I make these claims based on the last 10 years of back-tested results along with 21 months of trading it live.
Now, I do have to make a disclaimer that since I have been trading it live, the system has not outperformed the S&P. And to see my results, refer back to my previous real P&L monthly videos.
Now, even though it does not replicate the exact system I’m using in my larger account, it’s about as close as you can get. Now, the worst case scenario when using this system is that you can learn the mechanics of how I trade options without being subjected to any major volatility in your account.
The 5 Step Options Trading Program is not dependent on picking a direction. So an unpredictable market does not have a negative effect on the trading system. Now, because this system uses regular margin, it is not as robust as a Synthetic Dragon. And it has one market type where it can, but not always, underperform and that is that rare grind down market.
So here are the results for my 5 Step. Okay, now this account started with this month: $14,893 and it’s currently at $14,113. So as I’ve mentioned before, this particular trading system, this is a 5 Step. It can have problems in a grind down market. Sometimes it’ll do okay in a grind down market and sometimes it’ll get beat up. And this particular time it got beat up at the grind down market. And obviously, this is a higher draw down than I’ve ever seen. It’s the highest drawdown I’ve seen with this particular system, down about the same as the market actually. So what 5, 5.5%. Let’s take a look at the numbers.
Over on the numbers here, $14,893 – $14,113 = $780; [$780] / $14,893 = 5.24%. So this one drew down 5.24%. Obviously, my highest draw down that I’ve ever had with this account. Like I said, it’s about even with the S&P 500; as far as where the S&P 500 how much that one, that has drawn down.
As I have stated before, the edge in selling option premium is because implied volatility is higher than actual volatility, and that happens about 83% of the time. Three of my systems are designed to make money in any market environment while mitigating drawdowns. In the last 21 months while trading the 5 Step System, my highest drawdown was 5.24%, that was this month. And this system is a great way to learn how to trade options properly without creating a lot of risk. And again you can learn exactly how I trade this account by purchasing the course and I put a link in the description below for the 5 Step.
Now, I’m going to go over my main account, my larger account, where I trade my Synthetic Dragon System. I got the name from Chris Cole’s Dragon Portfolio. The Dragon Portfolio was put together in order to produce positive returns in any and all market environments. The Synthetic Dragon uses options in a synthetic manner and has been back-tested and forward-tested and has at least 10 times more occurrences versus Chris Cole’s Dragon Portfolio.
This system has created excellent results in live trading in all four market environments. If you’re interested in the back-test results for the Synthetic Dragon, I put a link in the description for the results starting in 2008.
Now, this account has portfolio margin allowing me to trade with more leverage in order to take advantage of a certain trade structure. So first let me get into my take on the month of January 2022. This past month was a grind down market. The grind down market is very rare and has only occurred in January 2016, Q4 of 2018, and now January of 2022. And this is only three times since 2013. So that’s only three times in the last nine years or so.
A lot of option premium sellers are down huge over this month because they sold premium on the high-flying growth stocks and those traders, that have done well since the 2020 COVID Crash, are now learning that the market does not just go up all the time and that they need a better plan in place to deal with down markets.
The key is having a trade structure and trade plan in place that takes advantage of the premium seller’s edge and is proactively hedged at the same time. If the same portfolio could be managed in less than 15 minutes a week, well then I believe it’s a pretty good system. I understand that people trade to make money but what good is the money without the time to go with it. And this is why I’m baffled when I see people spending their time learning how to day trade which puts them in front of the computer stressed out all day; not to mention day trading is unproven. Would it be more prudent to learn a system that creates both time and money?
This month with my Synthetic Dragon, I made three adjustments; took around 45 minutes to manage the whole portfolio. The system is proven and it creates both time and money. This is why I highly recommend learning about options and adding another dimension that can create a real edge. Now, here are the results from my Synthetic Dragon Portfolio for January 2022.
Okay, now let’s take a look at the Synthetic Dragon for the month of January 2022. And let’s see how we did here. We started the month out with $182,800, and we got down to $170,913; $170,913. So let’s take a look at the volatility in this account: $182,800 – $170,913 = $11,887; [$11,887] / $182,800 = 6.5% volatility. That’s pretty high. That’s really high compared to the norm, but again you did see the market come down by 11%. So this is about half the amount of volatility of the market; which is really good.
Now, what did we end up at $188,976. $188,976 – $182,800 = $6,176 this month. [$6,176] / $182,800 = 3.38% return. So that’s a really good return considering we made 3.38%; considering we had half the volatility as the market and the market’s still down 5.5% after being down 11% so definitely the Synthetic Dragon outperforms–it outperforms quite often almost every time.
This thing did 27% last year in 2021, which is pretty much matched the market, but that, you know, 27% that’s super high. But in this month, we outperformed nicely. I always like to show double proof of P&L so here is the P&L, here’s the time and date for The Safewheel account. Here’s the P&L for The Earnings Edge Account. Here’s the P&L , NetLiq., here for The Synthetic Dragon.
If you want insight on how I trade the Synthetic Dragon portfolio, you can purchase my book A Portfolio for all Markets. Or you can check out the course that I took that brought my options trading to another level from Ron Bertino, and it’s called Trading Dominion. And he has a few courses so look for the PMTT course. And if you decide to take the course and use my affiliate link when you complete the course, you’ll be given the opportunity to join the Mastermind Group.
If you join, just direct message me within the group and I’ll send you to an archive trade plan that’s almost identical to the Synthetic Dragon. I’ve left a link in the description for my book; for my review of Ron Bertino’s course; and an affiliate link for Ron Bertino’s course. Now if you have a smaller account, you can follow my Safe Wheel for free, or my earnings Alert System. And if you’re more interested in learning how I trade options and eventually want to graduate to the Synthetic Dragon, then I recommend my 5 Step Course. Now see the link in the description for the Earnings Edge and the 5 Step Course.
Link 5 Step Proprietary Course
Link to The Proprietary Safe Wheel Flow Chart
Link to The Proprietary Earnings Edge
Link to Ron Bertino’s Course REVIEW