Sheridan Mentoring $4k on 20K monthly

HowardS said:
Lets be honest for a moment who can possibly turn down that offer. (Although, I do wonder, is it scalable? can you use that plan to do $10K on $50K monthly? Or, lets say you really went all in on this plan, can you do $100K on $500K monthly?) I know I'm getting a little bit ahead of myself here, but at 20% per month how far away can freedom really be? Of course 20% a month is equal to 240% a year, and that is without compounding!
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As a subscriber to Sheridan, Aeromir and Locke [ so that's my full disclosure ], I have no need to defend/sell one side on the other but am happy to comment with some bit of inside knowledge ... although I have not seen this course or its intro video yet.

Does the course title say you can make 20K on 100K? Does the course title say you can make 100K on 500K? Very clearly it does not. Also, does it say this will happen every month? Although that is not clearly said, I would not assume this to happen every month. Does it say you can compound? No - it does not. Just like Aeromir has a long caveat before all their videos: we are not a broker dealer, we do not know your situation and how much risk you can take, all this is education, I am sure something similar will apply here in terms of monthly risk as well as scalability - each month is different and each level of scaling will give different results. Then from what I have seen of Sheridan: he usually goes for a campaign of trades: close winning trades at 10% (40 times a year), close losing trades at 15-20% (10 times a year) so overall you net 10% X 20 times a year ... still a massive amount but you need the spare change to stand the drawdowns if it happens 4 times in a row - that's your plan and nothing to do with the core trading model.

Now I have taken exactly 2 trades based on Sheridan's formulas - as I prefer other ways of trading - and I have seen maybe 20 videos, and based on all that, I am reasonably sure A) what he is saying is not a misrepresentation - you can probably make 20% on 20K monthly, and B) (very likely but not sure) you can do it 40 out of 50 months and then also may lose 40% (of the trade value=8K) in the other 10 months, and C) he does not advise you to put all your money in this bucket. So over 4 years you run this trade with constant trade size of 20K, you make a profit of 160K in winning months, loss of 80K in losing month, and winning and losing will be interspersed in indeterminate random order giving a cumulative profit of 80K.

Now just assume that your overall trading account is 200K (so that you can spend 10% = 20K in this highly speculative part of the account) and all you are talking about is a gain of 80K over 4 years = 40% = 10% of account size per year. You need to trade (or keep) the other 180K for other more conservative trades or in cash. With that bit of inside knowledge, it does not sound so absurd to me.
 
For obvious reasons, I need to "rise above the fray" on this issue. So, I will only give a general comment. Whatever system or strategy or combination of strategies are chosen, regardless of vendor or educator, it is critical that the trader plug some values into an expected return spreadsheet in order to determine if the model or system is sustainable. These values can come from back test results or simply hypothetical values after a few back tests are done. I recommend at least 30 data results. Or, if the vendor/educator supplies data results, then plug those into the spreadsheet. Also, for $49 per month, a trader can subscribe to tm.cmlviz.com to get up to 3 years of back test results for simple, basic strategies (not including calendars, diagonals, or butterflies). In any event, comparison of strategies or models is meaningless without expected return calculations IMHO.
 
Dan, what you say is right. Problem is that clientèle of such courses don't know about this (my own experience). They want earn money from markets.
When/if they learn about what you are saying they less likely put $ for '20%/month strategy'.
I don't intend to unload on DSMentoring. I owe Dan Sheridan what is due: getting me started. But...

Again: thanks Tom for Aeromir.
 
Agreed, Marcas. AS you may know, I was a mentor for Dan Sheridan for about 5 years. I always insisted that my students understand the concept of expected return. In fact, I gave a presentation on this topic at a seminar n addition to showing how to calculate and interpret the results. I always relate it to the "expected return" of casino games which can be easily calculated. The worst, of course, is roulette. Probably the second worst is craps. Of course, the casinos have this "expected return" calculated to the nickel. Eyes of many newer traders are opened when they see real expected return data from some strategies which they thought would have a high win rate and would almost always be profitable.
 
Dan, if you taught this you did good. For me being there (that is too much to say) such approach wasn't mention at all, just 'probabilities from Julius Cesar', so 20% return was the sure thing (with thinking 'if I get half of that I will be happy camper'). You said that you quit/modified trading Iron Condors after doing some tests on Options Risk Calculator. Many people there - my guess - still are still fed with trading solely on probabilities,
what in present markets might not be such a bad thing after all but future looks bleak.

When I try to think objectively, without sentiment, it looks like this site is hard to distinguish from what was taking about in links posted by Teddy or Tom. What is special about it is is that Dan was one of first ones out there.
Note I wasn't a member of Sheridan community, just watched what was free (couple times over) and bought some paid materials (and was disappointed).
Would you recommend it now to options newbe, especially with some life savings on bank account?
 
I understand the marketing aspect of it, i.e., most retail traders having 20k accounts, so it would sound appealing to many with smaller accounts. And it´s probably a decent way of learning about options But once you factor in capital gains, commissions, subscriptions to trading software & the service itself, I think it would only be marginally better than parking your cash in equities over the long-term. Unless you put all your cash in it and risk getting blown out in first week.

Most important is factoring in the time committment. If you have to babysit trades you need to work out how much time your using. Over the course of a year unless you´re really outperforming buy and hold you´ll be getting paid far less than the minimal wage per hour.

Posted by DavidF
 
tom said:
Most important is factoring in the time committment. If you have to babysit trades you need to work out how much time your using. Over the course of a year unless you´re really outperforming buy and hold you´ll be getting paid far less than the minimal wage per hour.
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Buy and hold varies from year to year. Similarly option trading can be said to yield 10% or 100% or even 1000%. I do not want to know what is the max possible (as the higher the goal, the higher the risk), I am curious as to what minimum annual return would you consider = respectable and worth the time? Of course you can potentially earn minimum wage from a single trade in a million dollar account and you can trade a 1000 dollar account and never make that, so my question is mostly a comparison with buy and hold.
 
Harry, if we take your earlier example of allocating 20k from a 200k account (keeping rest in cash) and earning 80k after 4 years. After annual capital gains + other costs you´ll earn about 13k per annum, so $52k over 4 years (depending on tax, I pay 29% so would be less than that). That´s around 6% CAGR on the whole $200k after 4 years. So for me that´s not worth the effort of market watching/adjusting every day, which if I used on average 2hrs a week on, would be about 400hrs after 4 years.

What is worth it using a trade (e.g. RT, 20-40-60, M3) where I´m comfortable using a much higher percentage of my capital as the chance of being blown out are much less. If I can earn 20% per annum on high-expectancy low-maintenance trade the risk-reward-time ratio is much more appealing.

Posted by DavidF
 
tom said:
Harry, if we take your earlier example of allocating 20k from a 200k account (keeping rest in cash) and earning 80k after 4 years. After annual capital gains + other costs you´ll earn about 13k per annum, so $52k over 4 years (depending on tax, I pay 29% so would be less than that). That´s around 6% CAGR on the whole $200k after 4 years. So for me that´s not worth the effort of market watching/adjusting every day, which if I used on average 2hrs a week on, would be about 400hrs after 4 years.

What is worth it using a trade (e.g. RT, 20-40-60, M3) where I´m comfortable using a much higher percentage of my capital as the chance of being blown out are much less. If I can earn 20% per annum on high-expectancy low-maintenance trade the risk-reward-time ratio is much more appealing.

Posted by DavidF
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Para 1: Well mine was just an example. If I were trading it, I would find use for that other 180K in other ways.

Para 2: got my answer although sometimes during this 8 year bull run of ours it is hard to consider even that worthwhile : after tax returns then sure.
 
Teddy said:
Shouldn't we be more focused on risk than profit?
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Well the question was value of time in terms of a) hours spent and minimum wage and b) alternate options such as buy and hold as if we can't beat the alternatives then why do this. I have been talking to my "investment" buddies and all of them (at least 3 good solid long term investors) believe 6-8 percent on a long term is a good buy and hold number and this discussion seemed like a good time to validate.
 
My thoughts exactly, everyone has a plan until they get punched in the face.
The volatility situation, especially since the election, is a devil's brew that is going to cause a lot of heartache when the bill comes due, and if an educator is promoting leveraging into weeklies for some crazy % returns right now in this environment, it is frankly irresponsible.
Any educator or trade leader should be talking about risk risk risk, reward is simply a by-product of a properly calculated risk, so if you like taking big risks you will be appropriately compensated (if you survive...).

Teddy said:
Shouldn't we be more focused on risk than profit?
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If we're talking about catastrophic tail risk then every short vega butterfly trade will lose unless it is skewed such that there is no downside risk.

Let's say you had 100K to trade with. If you traded a 20K portfolio of short term 14-15 DTE trades (and kept the rest in cash) versus a 80-100K portfolio of 45+ DTE trades, it would be interesting to compare the two performance wise over a year that included a massive BS gap down (let's say 10+%) with no rally back to bail any of the trades out (whether 15 or 45+ DTE). I'm not sure as I have never traded through such a large gap down, but in both cases you would experience portfolio wipeout scenarios (75%+ losses). But the 20K portfolio loss would be much easier to swallow than a 100K one. Given the amount of theta decay would be about the same, I wouldn't say it is completely reckless to trade a very small amount of capital with short term trades assuming you are very good at those trades and can manage delta/gamma risk under more normal market conditions. It just depends on what kind of scenario we're talking about. A 3% gap down would be quite devastating to a portfolio of weekly trades while it would be very painful but more manageable for the longer DTE trades. The second most important element would be the likelihood of a recovery rally.

But if we're talking about wipeout risk (i.e. a game over massive gap down BS event), the portfolio with the most capital at risk would be the biggest loser. In this scenario the small weekly trade portfolio could conceivably come out ahead. I wouldn't dismiss the entire concept as reckless as it depends very much on the context and the individual. Dan was a CBOE pit trader/market maker whose entire livelihood depended on risk management so to dismiss his suggestions outright as irresponsible I think is a bit unfair.

Weeklies have a place in options trading, perhaps not for everyone but I'm sure there are many who have utilize such strategies successfully throughout this bull market. A bear market is another story, but we're not there just yet.
 
KevinK said:
If we're talking about catastrophic tail risk then every short vega butterfly trade will lose unless it is skewed such that there is no downside risk.

Let's say you had 100K to trade with. If you traded a 20K portfolio of short term 14-15 DTE trades (and kept the rest in cash) versus a 80-100K portfolio of 45+ DTE trades, it would be interesting to compare the two performance wise over a year that included a massive BS gap down (let's say 10+%) with no rally back to bail any of the trades out (whether 15 or 45+ DTE). I'm not sure as I have never traded through such a large gap down, but in both cases you would experience portfolio wipeout scenarios (75%+ losses). But the 20K portfolio loss would be much easier to swallow than a 100K one. Given the amount of theta decay would be about the same, I wouldn't say it is completely reckless to trade a very small amount of capital with short term trades assuming you are very good at those trades and can manage delta/gamma risk under more normal market conditions. It just depends on what kind of scenario we're talking about. A 3% gap down would be quite devastating to a portfolio of weekly trades while it would be very painful but more manageable for the longer DTE trades. The second most important element would be the likelihood of a recovery rally.

But if we're talking about wipeout risk (i.e. a game over massive gap down BS event), the portfolio with the most capital at risk would be the biggest loser. In this scenario the small weekly trade portfolio could conceivably come out ahead. I wouldn't dismiss the entire concept as reckless as it depends very much on the context and the individual. Dan was a CBOE pit trader/market maker whose entire livelihood depended on risk management so to dismiss his suggestions outright as irresponsible I think is a bit unfair.

Weeklies have a place in options trading, perhaps not for everyone but I'm sure there are many who have utilize such strategies successfully throughout this bull market. A bear market is another story, but we're not there just yet.
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A 3% gap down is painful for longer DTE trades? If you said a 7 - 15%+ gap down, I would agree with you.

Sorry, I, too think it's irresponsible to have such tight trade structures marketed. Who cares if he was a market maker? Tom S was too and he has had some reckless recommendations in his day...

Once you go through several market meltdowns and black swans you will think tight around the axle trades to be reckless...
 
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Paul Demers said:
Jack has a good point with doing shorter time frame butterflies. Using my automated back tester I found the following results doing an unbalanced butterfly ATM with 40/50 wings put on at 14DTE and taken off at 7DTE. There are 261 trades from the beginning of 2011 to June 23, 2017 using every 14DTE available.

View attachment 2507

There are no adjustments. The results are pretty good but there are several times with multiple losers in a row.
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This isn't extremely helpful, sorry. The range you picked was during the largest bull market in history. The 40 pt upside spacing saves you more pain than the 50 pt down side spacing.

Try 1999 to present, or even 2007 to present. Heck, do the same timeframe from '98 to '04. You get my point...
 
johnyoga said:
Sorry, I, too think it's irresponsible to have such tight trade structures marketed. Who cares if he was a market maker? Tom S was too and he has had some reckless recommendations in his day...

Once you go through several market meltdowns and black swans you will think tight around the axle trades to be reckless...
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I think that's excessively harsh. Dan recommended trading no more than 30% of your account with weeklys. I suspect you will have lots of small winners and a few big losers. Will you be profitable overall? I don't know. I certainly don't have reason to think it is a "reckless" losing proposition and I doubt you do either.

But if I'm wrong then please tell me why.
 
A skilled trader can make nearly any strategy or system work, but therein lies the rub. High gamma strategies require considerable skill in money management...knowing when to fold and when to hold for big gains. Straddle players can actually have positive expectancy with only a 30% win rate, but they must allow winning trades to run for big profits. It's a caveat emptor thing...high gamma strategies are not for newbies.
 
I thought I would post a follow up to my previous post for those folks that did find the information useful.

While having a larger dataset is presumed useful it really depends on the strategy. In this case the wing widths are fixed lengths. Therefore when discussing a market move in percentages it is a bit misleading. With the trade setup being static using 40 point upper wings and 50 point lower wings the manageability and probabilities of success can dramatically change over the test period. Taking a -2% weekly move as an example and starting at the beginning of 1995 with the SPX. The first occurrence happened on 1/12/1996 when the SPX close at the end of the week was 601.81 and the 2.42% down move was 14.90. The last occurrence happened on 11/4/2016 when SPX close at the end of the week was 2085.17 and the 2.06% down move was 44.50. My theory is that with a trade with fixed wing widths a 14.90 point move has a much different result in the outcome than of the trade with a 44.50 move and would in fact lead to results that would actually have a much larger win rate and skew the probabilities of success. So is it really useful to use a bigger dataset or can it actually be misleading? I feel that it depends on what type of strategy is being developed.
 
If a system is traded (or backtested) over a longer time period, you are better off using Deltas as a measure for the strike offsets rather than fixed numbers.

BTW: For a system that trades weeklys frequently you should consider commission and slippage. Such a System generates many trades and therefore these numbers add up.

Posted by Frank_M
 
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