****This is always a rough time of year for the market — and so far, this year has been no exception.
So I’m especially impressed by the milestone that was just reached here at InvestorPlace:
Two of my colleagues, John Jagerson and Wade Hansen, recorded their 100th straight profit with put-writes. They’re 100-for-100 with those trades at Strategic Trader, with an average annualized return of close to 50%.
That’s the kind of growth I can get behind. And it’s quite an interesting strategy — especially if you’re a trader whose goal is a consistent stream of extra income.
So, below, I’m sharing a conversation between John Jagerson and InvestorPlace Digest Editor Jeff Remsburg on this amazing feat. If you haven’t considered put-writes as a strategy for your portfolio, I think your interest will be piqued after reading their conversation.
***It’s official …
John Jagerson and Wade Hansen have now closed 100 straight, profitable, put-write trades. And the average annualized return of these trades comes in at roughly 49%.
Last Friday, the guys reached the 100-for-100 mark. So, before writing anything else, a huge congratulations to John, Wade, and all the Strategic Trader subscribers. This is quite a milestone.
As we wrote in July 24th Digest:
(100-for-100) is one of the most impressive runs we’ve seen come out of the investment industry … The investment equivalent of The Pats, Lakers, or UCLA …
To celebrate this fantastic achievement, I reached out to John last Friday. I wanted to get his thoughts on hitting 100, how long the streak can last, and how the service might respond to potential upcoming market conditions.
Let’s jump in.
***There’s no reason 100-for-100 can’t become 200-for-200
Jeff: John, 100-for-100 seems like a huge deal to me. How do you view it?
John: It’s a big deal and I am very proud of that record. That means we didn’t need to buy back any of our put sales at a loss because we misjudged the quality of the underlying stock so severely that we had to take drastic action.
However, I also wouldn’t say I am surprised. These were the results the system we use was designed to produce, so despite a few sketchy market disruptions, it performed like we had planned.
Jeff: What’s behind 100 straight profitable closed trades? Does this reflect favorable market conditions, a superior strategy from you and Wade, or something else?
John: Most options expire worthless — and in a bull market this is especially true for put options. So, although the last year hasn’t been the best market we have seen over the last 10 years, it was enough to put the odds very much in our favor.
Additionally, as investors have developed concerns about economic growth, we have focused on stocks that are “in demand” by the big fund managers. Essentially, as they have been crowding into a shrinking selection of really good large-cap stocks and pushing prices higher, we have been following that capital flow with our long stock positions and short puts.
Jeff: Do streaks like yours die of old age, or can it continue indefinitely? Put another way, for someone who might be new to Strategic Trader, does your hitting 100-for-100 mean he’s late to the game or could another 100-straight winners be coming just as easily?
John: The great thing about trading is that your next trade has nothing to do with whether you had a good trade or a bad one the last time. In other words, there is no reason that future winners will be more difficult to get or more unlikely. We plan to continue executing on our strategy for the next 100 winners.
Jeff: With the Fed cutting rates, what does that mean for market conditions going forward relative to your strategy? Is it business as usual, or do you expect you’ll need to alter your strategy at all?
John: For the most part, this is business as usual. The Fed’s move was widely expected and therefore had already had its impact on the market before they actually cut the short-term rate.
There were a few surprises in the statement from the Fed Chairman, but nothing that would require us to modify our outlook or strategy at all. The rate cut — and a temporary halt to the Fed’s asset sales — are “accommodative” and should provide some additional support for prices. Overall, we expect this to be a positive for the market over the next six months.
Jeff: Playing Devil’s Advocate, what happens if you’re wrong and the market goes extreme in either direction over the coming months — either soaring or falling off a cliff? Will that impact your strategy?
John: Our strategy is to sell puts on bullish stocks, so a soaring market allows us to compound our returns by buying back our short puts once we are profitable and “rolling them out” over and over again with additional sales to compound our returns.
If the market starts to look weak, we may wind up with some long positions in the stocks we are selling puts against. This is OK because one of our primary considerations before selling a put is that we only execute this strategy on stocks we would want to own.
If a couple of positions are exercised, it’s an opportunity for us to use alternative strategies, like selling covered calls, to repair the position and make some more profits. We had to deploy strategies like that during the bear market of the 4th quarter last year.
Jeff: Can you walk us through a situation in which a trade turned against you and you had to “repair” it? I think a lot of readers would benefit from a better understanding of how trades can “come back from the dead” so to speak.
John: Sure. On December 21st our puts on Microsoft (MSFT) expired in the money which led to us purchasing the stock at the strike price. Of course, at the time that meant we were buying the stock at a higher than market price.
Although that is frustrating, we were OK with that because it was still at a cheaper share price than what was available the day we sold the put. Also, we were able to keep the entire premium from the put we sold that was exercised, and support for the stock’s price was very near.
We didn’t immediately sell more premium because the stock started bouncing higher after hitting long-term support. However, in February we started selling calls again against the stock as price momentum started to fade a little. That allowed us to bring our long stock position well above breakeven despite the exercise in December.
Since that time, we sold over $10 per share in additional income in the stock which has brought our overall profitability in MSFT to 78.75% since last May.
Jeff: Congrats on turning what appeared to be a losing trade into a 78% winner. Do you ever get nervous when trades appear to be going against you like that?
John: I don’t get nervous. Some trades are not as smooth as others and we shouldn’t expect it to be otherwise. I think investors have to remember that our business is taking risks and we should be compensated for what we do, but returns will ebb and flow.
That doesn’t mean that when a trade doesn’t work out like we hoped it isn’t frustrating, but being “nervous” seems too close to being “fearful” and that is the worst thing a trader can do. Fear leads to bad decisions so we plan for the fact that not everything will work out perfectly and keep strategies in place to help us “repair” a suboptimal position, or to protect us against an uncooperative market.
Jeff: What would you say to someone reading this and considering signing up, but is worried it’s too complicated or too hard to learn?
John: I would say they overestimate the intelligence of Wall Street professionals who use strategies like this regularly, or they are underestimating their own intelligence.
Yes, this takes a little explanation and a practice trade or two in order to understand how it works, but it is not rocket science.
We provide all the education you need to understand the strategy and answer investor questions every week during our live webinar update. The bottom line is that the strategy is worth the effort to learn. It’s an interesting approach to the market and is profitable.
Jeff: What’s been your favorite trade? And the most challenging trade?
John: We have been trading Starbucks (SBUX) since we launched the service and it has been one of my favorites. It’s reliable and any downturns in the stock have been opportunities to profit from a rebound off support. We believe SBUX is still undervalued as the strength of the U.S. consumer continues to improve.
The most challenging has been iRobot (IRBT). I confess that I love that stock. The fundamentals are great, management is talented, and they have a massive lead on competitors. However, we have to be very selective for when we include that stock in the portfolio. The “Trade Wars” has stressed investors in stocks that depend on outsourced manufacturing, which means we have to avoid IRBT around news announcements.
Jeff: Are there any “fun facts” I can share about the service? For instance, your highest-returning trade, or perhaps your shortest trade?
John: We have traded short puts on SBUX 17 times over the last year and 12 short puts on MSFT.
Our most profitable trade was actually a short put on IRBT at 11.85% that we were able to open and close in about 20 days for an annualized return of 600%.
We opened and were able to close two short put trades in 2 days this year. One was on Target (TGT) and the other was SBUX. In both cases, the stocks broke out just after we recommended the trade and we were able to close the original puts and write another round of short puts to double-dip and compound our returns.
Jeff: I know you’re a humble guy, but if I forced you to tell me what you’re most proud of about this streak, how would you answer?
John: We are very excited about how the strategy has been performing this year. The bull market has been nice — but I think it is important to note that we were still effective despite a 20% drop in the S&P 500 at the end of 2018 and some very choppy trading in the second quarter of 2018. We feel that it highlights how maximizing the income from selling put options can be utilized in less-than-perfect market conditions.
Jeff: Thanks, John, and another big congratulations to you, Wade, and your subscribers.
***If you’re interested in learning more about John’s and Wade’s strategy with put options, our July 24th Digest offered a broad overview
As to why you might want to take to time to learn it, well, it’s a system engineered to create cashflow. And that’s all the more important given how the Fed just lowered rates.
For example, here are some of the payouts a subscriber could have received, all without buying a single share of stock upfront:
Here’s to the next 100!
Have a good evening,
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