Co-founder Adam Beaty talks money-making strategies involving options
SmallCapPower | July 27, 2016: SmallCapPower spoke recently with Option Prophet Co-founder Adam Beaty, who provides some pointers on trading options and even claims one of his strategies has a 95% probability of success.
SmallCapPower (SCP): Welcome, Adam, thanks for taking the time for today’s interview. Can you tell us a little about yourself, as well as your background?
Adam: Thank you, Mark, for having us. That’d be not a problem. So I actually come from a financial background. I started in trading stocks pretty much the way everybody starts trading stocks, you know, with a paper money account. I had some pretty good success and so I went ahead and put $500 real money into my portfolio. I was 25 when I did that. It was all I had at the time, and I traded a couple of stocks, things like Netflix when it was down at 40 bucks, and I rode that to about 100. I trade Boeing and made money on that, and so I said, “Well, I’m pretty good at this. I’m making some money.” It was 2009, so everything was coming up at the time.
But I didn’t know any better, so I went, “Okay. Maybe I can actually get into this a little bit.” And then I started trading and that didn’t go so well. I had some losses like everybody does and so I thought, “Well, I need to learn a little bit.” So I moved into doing some self-study.
Options, I got into options. I really love options because I love the flexibility that it gives you in your strategies.
It’s no longer just, “Man, I wanna buy this stock because it’s going up, or I wanna short this stock because it’s going down.” No, now it’s, “I wanted to run this vertical spread to eliminate time decay, or I just wanna play volatility in this, or I just wanna be along gamma.”
These different ways to trade were not available with just trading stocks, but with options, you could trade if somethings going up, trade if somethings going down, trade if somethings going either direction or neither direction. And that’s what really made me fall in love with that.
SmallCapPower: Great. So at what point did you decide to spread the good word, and start your newsletter about options trading strategies?
Adam: It was 2011, January 2011, we actually started our service. Before then, I got into selling options. I actually found someone on a forum that really brought to light all the possibilities of shorting options, and so I did that. And I did that on weekly options, and we got a lot of notoriety from it. We got a lot of press from it, because we were really hitting weekly options back when they were first getting popular. I mean, weekly options have been around for tens of years. But they really got popular about five years ago, and so people started reaching out to us and were interested in what we were doing and so we’ve been running, like I said, my new service since 2009, the year 2009, so we’re little over five years now and it’s been a good run since.
SmallCapPower: Can you describe some options trading strategies that even, say, a conservative investor could try?
Adam: Yeah. So we always push our service, The Option Prophet service, as a conservative strategy. Yes, it’s selling options and a lot of people see that as maybe not being conservative because it is a limited reward, could be an unlimited risk or just a higher risk. But when we sell an option that’s out of money, we have a 95% return or a 95% probability of success, and so we can see that as being conservative.
SmallCapPower: That’s pretty crazy. So speaking of which, can you talk about some of your recent successes?
Adam: Yeah. So we do a lot of the same thing over and over again. We don’t reach out too far with our strategy, which basically means that we like to trade index options and ETF options. So we’re really hitting the S&P 500, Russell 2000, the Spiders, IWM, DIA, stuff like that. And the reason we focus on index options and ETFs is because, one, they’re very liquid.
So a person with a $5,000 portfolio can trade the same as a person with a million dollar portfolio.
You’re gonna be able to get your positions. They’re also very diverse. We don’t have to wait for that overnight news. You know, if Steve Jobs dies, it doesn’t send the stock crashing down, and we’re stuck in a position.
So we keep all our positions really focused on the S&P or the indexes and ETFs for that reason, and so when Brexit happened here recently, it sent the market down 5%, we were going in and selling options on the S&P and the Russell 2000 and they paid off in dividends because the market has run up ever since.
SmallCapPower: Okay. So what are some of the risks associated with options trading that investors should be aware of?
Adam: So the biggest risk with options trading is simply the lack of knowledge with options. So a lot of people see the leverage that options offer, they see all the great things you can do with options, but they don’t really understand them.
So they’re going out there and they’re buying things, which is fine when it comes to options because you have a limited risk. But then they’re also selling options because they see people like me who can create these strategies where you sell options and you have a high probability of success.
Problem is that works until it doesn’t when you don’t have that knowledge. So if you’re selling options, let’s say, on the S&P 500 and you’re doing great, and you’re doing great because the market is generally running neither flat or up.
But then you get something like Brexit and the market starts coming down and you start to panic. You don’t know what to do. You just don’t have that knowledge. You know, “How do I adjust? What’s the next step to take? Do I simply close it out? Do I do this? Do I do that?” That’s the biggest risk with options is that you just don’t have the knowledge that you should when you go in and start trading, and you put yourself in really bad positions because you’re really not prepared for the bad stuff. You just don’t have a plan of attack, just because you don’t know what to do next, and then your emotions start to take over and things start to go really bad.
SmallCapPower: So can you give us an example of a trade that you’re recommending to your subscribers right now?
Adam: Like I said, we do have a couple of index options on, but those are long and gone right now thanks to the market running up, and we really wish the market would actually come down a little bit, maybe give us time to get into a new position.
But we’re also running a new service, our Option Prophet Platinum service, which is geared around weekly options.
We took our same monthly options service that we’re running on indexes and we moved it to weekly options on equities, and this is helping our investors get a little bit more aggressive with their income. They’re making a little bit more money each week, a little bit higher return each week. And one of the recent trades that we did was selling the credit spread or put credit spread on Tesla. And Tesla has been very strong technical wise.
So we really like the idea of selling a put spread. It broke through its 200-day moving average, it came back and tested that 200-day moving average of support, and it started to bounce higher. We were quick to sell options at the 200 and the 195 strike for a week out and we were able to generate a 3% return or nine days of holding. So those are the types of positions we like.
SmallCapPower: So where can investors go to learn more about your service?
Adam: The best way to go is our website and that’s theoptionprophet.com. We have a great blog there with lots of educational articles, and then we also have our services listed out and you can see the different types of packages we offer.
SmallCapPower: Great. Well, thanks for taking the time for today’s interview, Adam.
Adam: Oh, thanks for having me, Mark. Glad to be here.
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