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SteadyOptions: 2012 - Year In Review

Happy New Year everyone! Wishing you and your families a lot of health and happiness in 2013.

It's hard to believe that it has been a full year since SteadyOptions (NYSE:SO) started as a public service. Overall, we had an excellent year. We did 271 trades which produced a $9,149 gain, based on fixed $1,000 allocation per trade (non-compounded). Assuming maximum of 6 trades open (the average number is much lower), that translates to 152.5% ROI. We had only two losing months and the maximum drawdown was around 10%. Check out the Performance page to see the full results. Please note that those results are based on real fills, not hypothetical performance.

It is important to mention that those numbers are pre-commissions, so actual results will be lower. As with every trading system which uses multi leg trades, commissions will have a significant impact on performance, so it is very important to use a cheap broker. We have extensive discussions about brokers and commissions on the Forum and help members to select the best broker.

SteadyOptions uses a mix of non-directional strategies: earnings plays, Iron Condors, Calendar spreads etc. The focus is on pre-earnings plays. The strategy is based on my Seeking Alpha articles 'Exploiting Earnings Associated Rising Volatility' and 'How To Rent Your Options For Free'. This strategy aims for consistent and steady gains with holding period of 2-7 days. We also trade other non-directional strategies.

SO model portfolio is not designed for speculative trades although we might do some in the speculative forum. SO is not a get-rich-quick-without-efforts kind of newsletter. I'm a big fan of the "slow and steady" approach. I aim for many singles instead of few homeruns. My first goal is capital preservation instead of doubling your account. Think about the risk first. If you take care of the risk, the profits will come. Looking at SO performance, you will see very few double digit losers. In fact, only 24 out of 271 trades have lost more than 10% and only 8 more than 20%.

We continue expanding the scope of our trades beyond the earnings trades, Iron Condors and calendars. We started trading GLD and VIX and added the double calendar as an additional earnings strategy. We will continue refining those strategies to get even better results. This gives members a lot of choice and flexibility.

What makes SO different?

First, unlike many other non-directional services that offer you just few Iron Condors per month, we use a portfolio approach, that may include a variety of non-directional strategies. We are trying to balance the portfolio in terms of options Greeks. The earnings trades are vega/gamma positive and theta negative. To balance them we might open a calendar and an Iron Condor or a butterfly which are theta positive. We might use a mix of different expirations to balance the gamma.

Second, our performance is based on real fills. Each trade alert comes with screenshot of my broker fills. Many services base their performance on the "maximum profit potential" which is very misleading. Nobody can sell at the top and do it consistently.

Our performance reporting is completely transparent. All trades are listed on the performance page, with the exact entry/exit dates and P/L percentage.

We place a lot of emphasis on options education. There is a dedicated forum where every trade is discussed before the trade is placed. We discuss different strategies and potential trades. Unlike most other services that just send the trade alerts, our members understand the rationale behind the trades and not just blindly follow the alerts. SO actually helps members to become better traders.

I assume most of you are familiar with the Pareto principle, also known as the 80/20 rule. As a reminder, the rule states that, for many events, roughly 80% of the effects come from 20% of the causes. How does it apply to trading?

If you go to your trading log, you probably will find out that 80% of your profits came from 20% of your trades. Look at SteadyOptions performance page - a big chunk of our gains in 2012 came from May, July and August performance. What many novice traders don't realize is that the best trading strategies are usually boring. You can wait months for that one nice winning streak, and then in couple of weeks or even days you make a year worth of profits. The trick is to survive during those "boring" periods which are 80% of the time.

Going back to SO performance, I think our biggest achievement was avoiding big losses. Sure we made some mistakes (mainly holding few trades through earnings), but overall, our drawdowns have been minimal so far. Patiently waiting for the next winning streak proved to be very rewarding.

Let me finish with my favorite quote from Michael Covel:
"Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between."

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Happy Trading from SO!