Option Trader Series #2 The Retirement Manifesto

 

In today’s interview, we have Fritz from TheRetirmentManifesto. Our paths seem to run very parallel in terms of option trading and FIRE. Fritz is just a few years ahead of me.

Tell us a little about yourself.

I’m a financial blogger, ~2 years away from an early retirement at 54-55. I blog on my progress, and provide lessons I’ve learned in over 30 years of investing.  My major themes are focused on personal finance strategy,  retirement planning and helping folks Achieve A Great Retirement.  There’s more about me over at TheRetirementManifesto.com, I’d be most appreciative if you’d have a look.

How did you get an interest in option trading?

I’ve long been a strong personal finance “hobbyist”, and have read financial material for years.  I came across a very descriptive article when I was in my mid-40’s, which led me to a decision to learn about, and execute option trades.

What actions did you take to learn on option trading?

I have a “3 trade” option strategy which I wrote about in “An Option Trading Strategy”. It involves selling puts, selling calls, and rolling positions.  

What is your goal/ambition?

Early retirement by the Age of 55.  I’m using options primarily as a means to generate additional income (put/call premiums) in today’s low interest rate environment. They are a very small portion of my overall net worth, but any additional return we can find in these difficult markets is a good thing!

How do you describe your style? Did this evolve over time?

I’m a “conservative options trader” (sounds a bit oxymoronic, doesn’t it?).  I sell “safe” puts (40% or lower chance of getting struck) on stocks I want to own anyway.  If I get struck, I’m happy to own them at the put price.  I only sell calls on long positions which I’m willing to sell if the call gets struck.  

How much time do you spend on trading options?

30 minutes per week, some more, some less (more near expiry dates!).  Never more than 2 hours per month.

How do you deal with the risk that comes with option trading?

I have a “Fun Money” account which I’ve built up over the years, and it represents only 10% of my net worth.  The vast majority of my net worth is in large, index, low cost mutual funds and 401(k) accounts.  I only trade options with a small % of my “Fun Money” account.  I would never do this stuff with my “major” accounts, and focus on playing in this sandbox, and this sandbox only.
What tools/sites/blogs/podcasts do you read on option trading?

I use TD Ameritrade, and they have a quite useful magazine that comes out as a service.  I also subscribe to their emails, and they have free classes to teach you how to trade options.

What is the size of your option trading account?

I can trade up to $20k on option exposure, I have a margin account and a sizeable “long stock” holding as collateral.  

Where do you get inspiration for trades?

I read, a lot, and have followed certain sectors for quite some time.  I tend to focus on a handful of 12-18 companies/indexes/etf’s that I’ve developed trades in over the years.  As money becomes available, I refresh my view on the sectors I monitor, and decide where to invest it next.  Below are some open option trades from May, which give you a sense of some of the areas I follow: AA, BNS, CAT, GDX, GDXJ, DUK, EWZ, GLD, JO, PG, SLV,UVXY, WMT

How do you track your trades and P&L? Where can we follow your results?

I do everything in a spreadsheet.  I don’t publish results. May have to think about that in the future, but it would take some work.  I’ve always struggled with how you value a trade where you are put the stock, and still hold it.  To make it worse, now you start selling calls against the long stock position.  Do you mark all holdings to book price, then just net off put/call revenue against your book P&L?  I welcome a dialogue, I’ve not yet figured out how to do it.

What is the worst trade ever you did?

My very first.  Didn’t have a clue what I was doing, and lost my very first $1k investment in options.  I learned my lesson, and learned more about options before making my next trade!  Since then, I’ve been reasonably successful.

What is the best trade ever you did?

No doubt about it, sold puts on VIX  (an index that tracks the market volatility in the S&P 500.)back before the ‘08 implosion.  Got put the stocks, just in time to catch the HUGE explosion in the VIX.  Started selling calls, they eventually struck and I liquidated before the VIX came back to eartth.  Unfortunately, I got cocky, and have been killed on the VIX ever since.  There’s a lesson/warning in there for folks thinking about trading crazy positions like the VIX.

Where/how can we follow your progress?

Screen Shot 2016-05-25 at 21.43.55I don’t publish my progress (see my problem with reporting P&L above), but I do publish an active blog called “The Retirement Manifesto” where I discuss my overall progress en route to early retirement.

We’re 2 years from an early retirement, and I write about retirement planning and personal finance issues at The Retirement Manifesto.  Have a look, I’d love for you to join our journey to retirement!  By clicking the links, you can also follow me on Twitter,  Instagram, and Facebook!

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12 thoughts on “Option Trader Series #2 The Retirement Manifesto

  1. ATL –

    Thanks for publishing my interview!! You’re doing a nice job with this series, and I’m honored to be a part of it!

    Fritz

    Sent from my iPhone

    >

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  2. Ciao Everyone,
    Another very nice post! 🙂 I’d like to learn more about the first mistake, if possible, as I am entering the “depths” of option trading any little help that I can get is good… 🙂
    Ciao and thanks!
    Stal

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    1. Stal – thx for note. More details on first bad trade: My biggest mistakeswas that I didn’t understand options when I placed my first trade. I bought a put when I should have sold one, and didn’t realize I could have sold it back before expiry to stop the bleeding. Ended up spending $1,000 to buy the out, and lost 100% at expiry. The particular security doesn’t matter, it was poorly executed due to a lack of understanding before I entered the trade.

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  3. Nice interview. Good to have discovered your blog, Fritz. I had the same experience where I lost some of my cash when I first tried options trading. Like you, I didnt know what I was doing and since then Ive stuck to more conservative option writing strategy (which I barely do — maybe once or twice a year).

    R2R

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  4. Great read. I really like your keep it simple options strategy. I do the same as you and it works, with a few occasional mistakes on my end ;-). Best of luck to you.

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  5. Another interesting read about options – thanks Amber and Fritz for doing this interview 🙂 The VIX is definitely a hard one to call – just that it’s probably a good time to buy shares at that point 🙂

    Tristan

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  6. Great interview here ATL. Options is something I am trying to learn more about so it was nice to see your strategy and the best/worst trades you make. Pretty funny how the worst trade was your first trade but props for sticking with it. I think I want to implement a “Play Money” strategy like you did. Will allow me to explore more investing strategies and who knows maybe one will pay off big! Thanks for your insight and best of luck trading and in your retirement.

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  7. I like both of the strategies outlined so far – both seem to stick to what they know which saves a ton of time and should make options trading less risky

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  8. Thanks, all, for your comments and support! If you’re not trading options, study them, then start small. They’re a valuable tool in almost any portfolio. Feel free to reach out to me on Twitter, FB, or on my page with any direct questions! Thanks again for your support.

    Like

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