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. Now, I would not buy a course from a Youtuber that makes promises without sharing their P&L, and I hope you would not either. In this video, I’m going to go over my real P&L for the month of May 2021.
I’m going to share my real P&L for the month of May 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 May and this will give an idea of what my trading systems had to contend with over the last month. And my question always is: what type of market was May?
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.
The four market types are number: #1, the rising bull; #2, the sideways market; #3, the grind-down market; and #4, the crash market.
Okay, so here’s what happened to the market in May? The market, of course, represented by $SPX which is the S&P 500. We started end of April, here, we ended Friday, which was yesterday, which is the 28th of May. And the market was up about 0.5%, but you can see that it actually dropped, you know, 3% and it was up 1.5%. So it was a little choppy but I would still, because of where it ended, I’m going to call this a sideways market. You don’t see a lot of sideways markets. We haven’t seen one for a while, but that is the type of market that we’ve seen.
Let’s see what volatility has done. I always like to look at the VIX to determine that. And we started right here. You can see we had a pretty good spike, you know, almost up 55%, but we ended up down 10%. So this is important to know because volatility has a direct impact on the price of options. So when the price of options go down, like they did here and you sell premium, that’s typically a very good thing for premium sellers. But a lot of premium sellers probably got hurt pretty bad when we saw this spike up here to 30. And they might have had to cut their losses and actually take losses this month. And not being they didn’t have the ability to hold on for this volatility crush here; just depends on the type of system you’re trading. But that is what happened for the month of May 2021.
Next, I’ll get into my P&L. First, in my smaller account where I trade the 5 Step Option 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 would outperform the S&P 500 with lower volatility.
Now, I make these claims based on the last 10 years back-tested results along with about 13 months of trading it live. Even though it does not replicate my Synthetic Dragon Portfolio exactly, it’s about as close as you can get with a margin account.
Now, 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.
Okay, here’s how my 5 Step account performed over the month of May. We started here, about $14,636. I have $14,643 on my last video. This kind of fluctuates a little bit as you can see; probably the lowest drawdown here, you know, $14,636 down to $14,277 is probably more of a bad tick, but it’s a couple hundred dollars on a, you know, $15,000 account. So not really much in the way of drawdowns, which is normal. The account doesn’t really draw down much using the system.
We got it up here. This is kind of a bad tick because you can see that we ended at $15,077 and I’ll show that to you also in my other view inside TOS. That is the ending balance for the month: $15,077.
So let’s do a little math. So it’s ended with $15,077 and we started with $14,643. I made $434 on the month. Divide that by $14,643 and did about a 2.96%, almost a 3% month. Which is really nice. It’s a good month and so you can see… So you can see that there was virtually no volatility in the account; unless it was up, you know, going up and you can see that the account was very nicely profitable; almost 3% for the month.
And just real quick. To make my point that the account balance is $15,077. You could see today’s May 29th. Today’s Saturday but the market won’t open until June 2nd, so this is the end of the month balance right here. And then we’re in ThinkorSwim.
As I have stated before, the edge to 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 13 months while trading the system live, my highest drawdown was only 2.27%; and this is almost like a high yielding savings account.
Now, this system is scalable. If you want to take more risks you can. This means you can double these numbers. If I had a higher risk tolerance over the last 10 years, I could have had an average return of 25.7% with a maximum drawdown of around 4.5%. And this would be allocating $4,000 per tranche. And I would not increase the risk using the system allocating less $4,000 per tranche.
Now, I currently just upped my risk by 50% to $6,000 per tranche. This means based on back- tests, I could see a 6%-7% drawdown for around a 19% return. Again, you can learn exactly how I trade in 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. Now, I’m still in the process of moving this account from Interactive Brokers to ThinkorSwim. And the reason is that Interactive Brokers recently increased their margin requirements, which means I would have to lower my sizing in order to stay with them. aAnd 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.
And if you’re interested in the back-test results for the Synthetic Dragon, I’ll put a link in the description below for the results starting from 2008. And this account has portfolio margin allowing me to trade with more leverage in order to take advantage of certain trade structures or a specific trade structure.
Now, first I will briefly go over my market view. The market went sideways this month in May. On May 12th, when the market dropped over 4% in just two days, I remember all the talking heads talking about how we could enter a bear market; and: is this it? Have we seen the highs for the year? And just extreme stuff like that.
Now a couple weeks later, we’re sitting at less than 1% below all-time highs. And this goes to show that the market direction is unpredictable and it is tough to find an edge with a two-dimensional trading system, like stocks, which is either long or short. And this is why I highly recommend learning about options and adding another dimension that can create a real edge.
Now, here are the results for my Synthetic Dragon Portfolio for May of 2021. Okay, here is my Synthetic Dragon Portfolio. Let me fix this date. I like to get a little interactive here so you can know that this is a real account not just a screenshot or anything like that.
Okay, so you can see that we started with about $156,300. Biggest drawdown here: $155,300, so maybe about down $1,000 on a $160,000 account. It’s the biggest drawdown. We talked about the 12th; that was a very volatile day. It didn’t have any effect on this portfolio and you can see that we ended here: $158,900, approximately up about $2,650 and just no volatility; just there just isn’t any volatility in the account. It just goes up, goes up slowly, but it goes up slowly meaning, you know, last year did 21%.
So all right, so let’s do a little number. A little math here. So we have $2,649 / $156,290 = 1.69%. Okay, we did about a 1.7% return. Okay, that’s pretty good: 1.7%. I’ll take that. So there you can see that there’s very little volatility; practically zero volatility. And I’m getting almost, you know, close to 2% return in the month of May 2021.
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. And it’s from Ron Bertino called Trading Dominion. And I’ve left a link in the description for my book, for a review of Ron Bertino’s course, and a link to purchase Ron Bertino’s course. Just check below the video for the links.