002: Kirk Du Plessis – How to Gain an Edge When Trading Options

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chat for more information. Tasty Trade Inc. is a registered broker dealer and member of Finra, NFA and SIPC. The biggest secret of the best traders in the world is that they're just like everyone else. However, they've worked hard to learn the markets and discover what works and what doesn't. How can you hear about these? Here's your host, Aaron Pfeiffer.

Hey, what's up guys? It's awesome to have you here, and a huge thank you for tuning in to the second episode of Chat With Traders. We've got a really cool guest on the show today, and he's here not only to give us plenty of valuable trading insights, but also to share some pointers about what has made him a really successful options trader in today's market. With that being said, today's guest is none other than Kirk Duplessis.

Kirk originally comes from a background of investment banking and working on Wall Street, but a few years back decided to make the switch and begin trading for himself to grow an account of his own. And as many of you may already know, Kirk is the head trader over at OptionAlpha.com. which originally started out as a blog, but after venturing on his own, has now blown out into a platform where he teaches his method of trading options to thousands of people.

Kirk is undoubtedly an authority on the subject of options trading, and that's just one of the reasons why I'm stoked to share this interview with you today. Just before we get into it, I would like to say, if you do enjoy this interview, please take a minute to leave a five-star review on iTunes. That would be awesome and a massive help that will allow us to reach even more listeners. So I'm your host, Aaron Firefield, and here is our guest for today, Kirk Duplessis. Enjoy.

Hey Kirk, thanks a lot for coming on the show. It's uh awesome to have you here and uh really appreciate you you know, giving up the time to come on.

Yeah man, looking forward to it, Aaron. Awesome. So let's get started by um sharing with us how you got into trading, um, where did it all start for you and what was the initial appeal? Yeah, I mean phe i it goes back a couple of years, probably about eight or ten years now. And uh, you know, I think I really got You know, I've all I've always been in finance and an and interested in finance, right? Like my family's

been in the financial business for a long time. So so that's always been an interest of mine. But I think I got really got introduced to trading uh when I was actually working in New York. So I worked on Wall Street for Deutsche Bank, which is a German bank. Uh, but I was in the mergers and acquisitions department and and you know, so I was dealing with that and, you know, kind of corporate finance for my degree and everything.

But I had an opportunity with them to do a rotation on a derivatives trading desk. So like high yield debt and junk and stuff like that. And that's really where it kind of like piqued my interest in trading. And just kind of from there it's, you know, kind of taken off as far as

you know, just continuously learn. For me, I mean, probably like you, it's it's like a never ending, you know, thing. The markets are always changing, there's always new things to learn. So so for me, that's always the big appeal, right? Is like how can I get better and better and better at trading. Absolutely no, really good point. So I was listening to um one of your podcast episodes earlier on and um you talked about losing a couple of thousand dollars

in your first week, um after you left Wall Street. So I'm keen to hear what were some of the things you struggled with early on? Yeah, man, so so So when I got home from and so so in between Wall Street and and and doing, you know, working in M and A, I had a chance actually to work for a regional bank in the US.

doing research. So I was a REIT analyst. We covered like real estate investment trusts and We'll go meet with the CEOs and CFOs and publish reports and do the whole thing and then, you know, give price projections on stocks which are you know, now totally bogus. Like I look back on that now and I'm like, I can't believe anybody ever read our stuff and like took it seriously, these projections at the same rate, right?

So after all that, I, you know, I told my wife, I said, look, you know, I'm gonna come home. Uh I'm gonna come home and I'm gonna I'm gonna start trading, right? I'm gonna do, you know, what I what I you know have seen these guys do before in New York.

And so I got home the first week and, you know, like like a rodeo cowboy, like new guy trading, right? I think I know exactly how the market works. And so I get in there and I make a bunch of trades that I have, you know, no idea what's happening, but it just looks kind of cool to do it.

and I end up losing a couple of grand and my wife comes to me and she's like, Look You know, if this is what it's gonna be like when you're at home trade, you you better you know, you better rethink your priorities here. So but I think that that, you know, that really ha a actually was probably one of the best things to happen to me. I know I know a lot of people go through that same thing, right? Where they go home and, you know, they start trading and they lose.

And then they get discouraged. And and I'm here to tell you that, you know, probably losing some money to begin with is is just your form of education, right? It's like paying tuition. to the market. So I think what that taught that taught me so many different lessons in that just coup couple of weeks that I was at home starting off. Um but I think it really laid the foundation for

you know, allowed me to go out and say, Hey, you know, what do I really want to do? Like what you know, what does trading really look like? And then kind of from there started my trajectory of, you know, learning how how to really make this a successful income producing thing.

Yeah right. So you took a few decent losses in your first week. How did you push on through that and not get discouraged? Was it you could see the opportunities and potential if you were to continue?

Yeah, I mean look, I think that when you know, I've coached so so many people over the last like seven, eight years, you know, uh uh acr across the entire country. I mean, like, you know, across the entire country. I've coached people in Australia and the UK and Africa and India and and all over, right? And I find the same kind of

things that people get discouraged about is just trading. You know, they'll make a couple good trades and then they'll make one bad trade, right? And then that one bad trade it kind of like hangs over them, right? Like it's that one bad trade that went wrong and they're like, man, this this never works, right? So I think what what I found um and w where I'm at now with my trading is that it's all about numbers. I mean it and and it's gotta be about numbers. And you have to approach the market

like like a mathematician. And that's that's how it's gotta be, right? You can't approach the market with,

you know, emotional ups and downs, right? I think a stock is gonna go higher or I read this news article. All this stuff means crap. It and it doesn't really help you, you know, become more successful. So you gotta approach it by the numbers and by the probabilities. And I think What I learned kind of in those first months, like really trading by myself and doing this, was that if I'm doing the right activities, like if I know that I'm gonna, you know, make the right trade.

And that also leads me to believe that I know that over time that trade's gonna pay out. It it might not pay out the first two times. But if I make that same trade and it's a great trade, maybe it pays out eight out of ten times, right? And I just don't know when those eight times are gonna come in. I know that, you know, two times I'm gonna lose and it might be the first, you know, two times I make that trade. But if I'm doing things right, I'm doing the mechanics right.

over time, you know, the odds are gonna work out in my favor, the probabilities are gonna work out in my favor. And that's what I've really found in my trading is that you've got to do the little things right every day. I mean, you gotta be like a robot making the same types of mechanics with your trades because over time it's gonna work out. Of course, yeah. So Um just on a side note there, when you left your your job working on Wall Street and sort of with these other firms.

Were you just sort of diving straight into it without any other income? Um, you just sort of started trading and that was sort of your only form of income at the time? Yeah, man. So so that was it was an interesting time. So because uh my family has been in the mortgage business, I was I was kind of sort of in the mortgage business, you know, helping out with them uh during that time. So

But now trading is definitely, you know, a full time income for me. But, you know, I I was fortunate enough that I did it at a young enough age with my wife, you know, that we were able to take a little bit of risk because she did have a more steady job. She's a teacher. Still a teacher this day. So she was kind of my rock in that sense because she was able to, you know, I was able to lean on her a little bit.

Uh so I think that, you know, I would I would be hesitant to tell anyone to just, you know, quit their job and just jump right into it. And frankly, I don't even think you need to do that. It doesn't take that much time.

time commitment that you need to quit your job to do it. Uh only when the income is more than your job then, you know, maybe you think about quitting just so that you have extra time, right? But you don't you don't need to focus all your energy on on trading and watching every tick of the market. You can do this and do it very, very well while still working your regular job. Okay, great.

Do you feel that um having worked on Wall Street and been involved with the markets was an advantage or maybe a disadvantage for you um when you made the transition of trading for yourself?

Yeah, I mean I think I think the biggest advantage y I mean, I think there's there's drawbacks, y you know, and benefits to each, right? I mean, I think the biggest advantage was, you know, I got I got to see the other side of the Chinese wall, right? I mean that's like the it's not like the actual Chinese wall, right? Like it's the

you know, what they call like, you know, between private and public, right? So I was on the private side at MA, so I got to see behind the scenes, you know, really what companies are thinking as they start to go public and as they start to split themselves up and and become acquired and make themselves targets.

So that was interesting. And then when I worked for uh the regional bank that I worked for, I was on the public side. So I was on the other side where I was, you know, now I was asking questions to the CFO and to the CEO, like, you know, what do you think projections are gonna be? How do you see this business growing? So as far as an understanding of how, you know, companies, most companies run their business and how that works, I get a pretty good understanding of it.

how any of that relates to trading is again probably useless to most people because I I don't use much of what I learned in that space. Now in trading. And I and I would even say that most analysts that are out there now have no idea what it takes to be successful trading.

because they are too focused on, you know, earnings and revenue growth and all this stuff, which of course, you know, it has its place in the market. But when it comes to trading options in my particular case, you know,'cause I'm an options trader, None of that stuff really means anything. It's it it couldn't be further from, you know, what you should be focusing on. Okay, sure. Now that's really interesting, Kirk. So

If that's not what you should be focusing on, would you mind sort of taking us through a little bit on um how you describe your trading style these days? Yeah, yeah, yeah. So so here's kind of the the maybe the ten thousand foot view on my trading. Um, I'm a big proponent of of making lots and lots of small trades. Um, and I didn't I didn't always start that way. You know, I was I was more of a proponent of, you know, be aggressive in the areas that you need to be aggressive, right? But

But now I know that, you know, over time the probabilities are going to work themselves out of my favor. So I need to act more like a casino, right? I need to limit my investment in every single trade. And I need to make lots and lots of bets all over the place. Now, some people would look at that and say, well, Kirk, you know, why do you do that, right? That's just, it's just a lot of little trades, you know, or I don't have the account size to do that.

But I always talk to people and I say, Well, think about a casino, right? You go into a casino and you say, I wanna drop a million dollars on one bet. No casino's ever gonna let you do that, right? Not not one casino in the world is gonna make Let you drop a million dollars on one bet. But if you go into that same casino and say, I want to take a million dollars.

And I want to spread it out over a million bets of one dollar. They'd say sure all day long, right? Because they know that over time they're going to get some of your money. But on a one-time roll of the dice, it's too risky, right? And so we need to act more like that. We need to make lots of little bets that are really high probability trades. So that over time they all work out in our favor. So that's kind of the basis of of how I trade as far as you know kind of the 10,000 foot view.

And then as we start digging down deeper, you know, I'm definitely an option seller of, you know, premium. I I think that our edge in the market is implied volatility. It's been proven time and time again that implied volatility always overstates a move. So if implied volatility is, you know, expecting a twenty percent move in a stock. Time and time again we'll see that maybe that move is 18% or sixteen percent.

So implied volatility always overstates that move. And so as traders, we need to take advantage of that little edge. So we need to be net sellers of options more often than we're buyers, right? Buyers of options are just getting crushed. And they're gonna continue to get crushed in the market. But that's where everyone starts, right? Because it's easy to buy options, it's simple to understand. Nobody starts with option selling, which is what they need to start with.

Okay. You mention in there some people might think their account size can be a little limiting to take lots of small trades. Is that really the case and would you suggest this is actually something new traders could do? Yeah, yeah, absolutely. So, so here's actually a cool thing. So, in one of the podcasts that we did, which is show number six uh for our show.

We looked at one of the case studies that actually the guys over at Tasty Trade did. And they're they're doing awesome stuff with a lot of studies and they've got so much more money than I could ever have to do all this, you know, because they're backed and funded and all that stuff. So they're doing a bunch of studies but

Here's a study that I think is is absolutely one of the best ones they've done. And they took two traders with a$10,000 account, right? And then so that's the average trader, right? They got about$10,000 to trade. That's statistically what the average trader has. the first trader, trader A, Only invested 5% of his account in every single trade. So he made a high probability trade. He sold an iron condor.

But he only invested 5% every month. Okay. So whatever his account balance was, he invested 5%. If his account balance grew, he invested 5%, etc. Right? Left 95% of the money in cash, didn't even touch it. Right. So he's investing, you know, 500 bucks, basically, right, of his$10,000 account. Trader B, so the other trader, he invested 50% of his money in every trade. So no matter what his account size grew to or dropped to, he invested 50, 50% of his money in every single trade.

Now at the end of the year, or I think it was actually a five year study. Yeah, I think it was actually a five year study. So they did five years of trading, the same high probability trade, Iron Condor. Now at the end of the five years, both traders had won seventy five percent of the time. They had made winning trades.

75% of the time. So naturally people would say, well, hey, if they made winning trades 75% of the time, trader B has to be light years ahead of trader A because he was trading more money, right? He won. Three out of four times he was making profitable trades. And what they actually found out is that trader B with the bigger allocation, even though he won the same amount of time, lost half of his money, trader A made 10%.

So it's just phenomenal research that just proves the point that you don't need to either A, invest a lot of your money, or B, you don't even need to start with a lot of your money. You can start with 500 bucks. and start trading that way. Right. And that's as long as you're diligent about, you know, staying small and not risking too much. You can take five hundred bucks and grow that. And I think that's

the key takeaway for small traders that are out there is don't be scared to start with five hundred dollars. You can start there. You're not gonna quit your job with five hundred dollars, right? And you're not gonna you're not gonna buy a Porsche or a Ferrari with five hundred bucks trading. But you can do it and that's that's the that's the takeaway.

Okay, cool. So when you talk about taking a lot of smaller trades, are you suggesting these are spread out across a range of markets or within a niche? Yeah, so so that's a good point. So I think that You know, uh there's a couple different ways you can look at it, right? Um some people would say that you have to be diversified in market.

And I and I think more or less that's true, right? You don't want to trade all oil stocks or all, you know, metals. You don't want to trade all gold and silver. So there's gotta be some diversification across market. And that's just, you know, common sense. You you can do that kind of looking at things.

But I'm more of a proponent of diversification across two different time across two different things. One, time. So I want trades that are spread out across, you know, different times. So that means that I might have Some trades that are front month options, some trades that are back month options, maybe some trades that are two months out or three months out. So I've got trades that are working in different times.

And then also I want to be diversified across strategy. So I don't want to be a one-trick pony. I want to be able to sell strangles and sell straddles. and also do calendars and butterflies, right? So so I'm a big proponent. If you could look at my my portfolio right now, I've got a pretty even mix of of where my trades are strategy wise.

And then also time. So I'm also, you know, diversified over time. I think that's more important than actually market because market will end up kind of, you know, neutralizing itself if you trade high probability trades. Okay, sure. Um so just again, referring back to um your own podcast, you've got an interesting episode about

how charts are becoming less of an importance to you. So would you mind shining some light on how you use, you know, a mix of technicals, fundamentals and news to influence your trading decisions? Yeah, yeah, yeah. So so technicals used to be uh a lot more important to me and and I still reference them. So I think there's a place in technicals.

Uh, just because they're a way for people to get engaged, right? I mean, w we're visual to learners as humans, right? So we visually see something and we see an indicator cross and now we know, hey, that might be, you know, that's a buy signal, right? We we can justify that in our head with the visualness.

So technicals are okay, but What I'm getting to with that podcast, I think it was show number three or show number four in our podcast that we just launched, was that you don't need to know anything about the stock, like price history, technicals, technology. to know if a trade is a high probability trader or a low probabil Excuse me, low probability trade.

And I think in that example I was using Yahoo and uh another stock. I believe it was uh maybe Pandora or something. But basically the stocks were virtually the same and one trade You had a 80% chance of success and you were making, let's say,$50. In the other trade, you had an 80% chance of success.

But you are making twenty dollars, right? And you don't need, I mean, you you know, we talk about that right now. You don't need to see the charts to know if I've got an 80% chance and I can make fifty dollars versus eighty percent chance and I can make twenty dollars. Well I'm gonna take that first trade every day. And so I think The more that people actually get again back into the beginning, get back into the numbers and make this mechanical and really learn the probabilities and statistics.

the better off you're gonna be. And believe me, it's tough. It's hard, right? I mean, no everyone wants this to be easy, right? And it's just not easy. That's why no that's why, you know, everybody can't do it. But if you learn some of the basics, I think you'll be light years ahead of where most traders are when they get started.

Okay, that's really that's really good, Kirk. Um before taking a trade, what are you looking for besides the the probabilities? Um what gives you the confidence needed to execute on a trade? Right. So so I think the biggest thing is is liquidity. So um I'm at the point now where even though I trade small, I want to trade liquid.

So I think liquidity is an overlook thing uh that that people just kind of glance over, they they type in a ticker symbol and they see the options are traded, but they don't really look at liquidity because More often than not, uh, liquidity is kind of where you can lose that edge that you gain in volatility. So if there's not a tight market,

So the bid ask spread in the options is, you know, 30 or 40, or sometimes I've seen them almost$100 wide, you're losing a huge edge. And it doesn't matter how high probability trade you make or what or what strike you select. If you're in a market that's illiquid, you're going to have a tough time getting in. You're going to lose just on the bidass spread in and out.

And you're gonna have a tough time getting out. So even if you have a profitable trade and it's working, you might not even be able to exit that trade for three or four days. And by that time the market's turned around. So I think liquidity is a big thing when it comes to that. And then the other question I always ask myself is, do I need this type of a trade in my portfolio? And I was just talking last night to a guy that I do coaching with.

And he was saying, Well, hey, you know, I I want to make this trade in uh in uh Wells Fargo. And we're looking at his portfolio and I'm like, okay, well, you're bearish in Wells Fargo. You got 15 bearish trades here, right? You don't need another bearish trade. And he's like, yeah, but it's setting up really good. And I'm like, I don't care how great it's setting up.

You don't need another bearish trade. You need to maybe take off a couple bearish trades or maybe get some bullish trades, neutralize, you know, kind of your portfolio and your deltas. And I think that's a a question that people don't ask, right? They look at a trade and they're like, Man, this is a great setup, great setup.

But does it fit in the overall picture, right? Do I need this trade or do I don't need this trade? It's just gonna, you know, cause me to be more lopsided. So those are the two things I look for, you know, more than the probabilities.

Okay, that's really good. So once you're into a trade, um can you give us a bit of an idea on how you might go about managing it? Yeah. So so I think there's there's obviously well two trades you can manage, right? Um there's trades that are, you know, kind of self-managed, meaning, you know, the credit spreads, the butterflies, things like that, the debit spreads.

They're self-managed because you you already have protection for them. So the way as soon as you enter the trade, you've you've bought in a put or bought in a call as protection. To me, I firmly believe that you do best. by managing those when you place the order. So when you actually get into the trade. you make sure that you're not trading it too large.

And make sure that's a liquid product, that it fits in the overall portfolio. That's the best management you can do. At that point, you need to let the probabilities work themselves out. And that's why I tell people. It this is not a business that you need to be, you know, in a trade and out of a trade in two days, right? You can place trades.

And let them go all the way to expiration. If you do everything right in the beginning, so what? If it becomes a loser, you know that if you make that trade 10 times, eight times it's gonna be a winner. Right. So that's the whole game is is being able to be patient and let it ride.

Now the other types of trades that you have are the undefined risk trades, right? Like your strangles and straddles. When it comes to those trades, you have to be a little bit more aggressive or not maybe aggressive, but you just have to babysit them a little bit more, right? They're they're undefined. They carry a lot of margin risk.

So with those types of trades, you either need to be a little bit quicker to take profit. So you need to, you know, buy back the spread when it's, you know, has a nice decent profit already. Don't wait for that full max profit because you might get yourself in trouble. But if a trade goes wrong, then there's a bunch of things you can do. But generally I'm a big proponent of doing two things with trades that go wrong. One is extending my trading timeline. So if I can roll that trade.

to the next month and keep the same strikes and not pay to roll, well then that's a winning trade to me because now I've taken a trade that let's say is in thirty days and now I've given it sixty days because I've rolled it to the next contract month. Now I've got the exact same trade with the exact same risk parameter, right? I didn't pay any money to roll it or I didn't, you know, I got a credit to roll it. I've got the exact same risk, but now I've got 60 days to be right instead of 30 days.

So I think rolling is is is actually underutilized right now in the market. People don't roll their contracts enough. And then they probably roll them wrong, but they need to roll them right.

And then the other thing is if I can take in a credit, that obviously will help, right? Taking in a credit on some of these trades will help widen out my break-even points, uh especially with your strangles and straddles. The more you can take in in a credit, the better off you're going to become because you just bank this huge, huge credit and that widens out your break-even points on your chart.

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So I'd like to just take a bit of a step back. I mean, you're an options guy, you trade options. What would you say attracts you to options over other types of products? Yeah, so uh yeah, and I know you've had other guys on like Tim Sykes and all those guys with, you know, penny stocks and stuff like that. I think For me, it's about leverage, right? I think that options provide a great opportunity for today's retail trader. And I think more people are gonna use them in the future.

as long as they continue to understand them, right? And the the market for education and teaching people how to use options is, you know, growing leaps and bounds, as is the option market. But I think what really attracts me to options is is the leverage, right? The ability to control a lot of shares with a little bit of upfront capital.

And then also the ability to make uh positions that are creative, right? Like I can take a stock, uh, for example, we made a a trade in Qualcomm today because Qualcomm dropped after earnings. But now I can take that scenario and instead of making a just up or down trade saying, okay, I think it's gonna go higher or I think it's gonna go lower. I can now be a little bit creative with options and say,

I don't know if it's going to go up or down, but I think it might stay in this range, right? So like with Qualcomm today, we said, you know what, I don't know if it's going to go up or down, but it might stay in a$6 range over the next month. So that ability to do that in options is I think really, really unique. And that's why I love them so much.

Okay, that's cool. So to someone who has little to no knowledge about options but might be interested in trading them, where do you recommend they start like What are some of the things they should begin learning before anything else? Yeah, so so I think people can get overwhelmed, right? They it's there's a lot of information to learn with options. And I tell everybody that I coach, you've got to take it in chunks, right? You've got to learn by focusing on specific areas.

So I believe when it comes to options that you should just break down, you know, all the different parameters, you know, or topic areas that you want to learn. So for example, if you want to learn about, you know, bullish strategies, great. Learn about bullish strategies for an entire week.

Right. Read everything there is to know or you can find online about bullish option strategies. And if you see something in there and you don't know it, right, don't don't go look it up later. Just, you know, keep kinda going through and just Keep reading and learning about bullish strategies. And then next week, maybe you learn about the deltas. or or or the gammas or the thetas or the vegas or the Greeks in general, right? So you kind of break it down and you you eat it chunk by chunk.

And I think that's where people have to start is they they get overwhelmed. They think they gotta learn, I gotta learn this and that and that strategy and that strategy. No, you've got plenty of time, believe me. It's it's taking me a long time to learn it. I'm still learning it too, right? Like I'm never done learning. So you're going to learn forever. So take your time with it and learn in chunks.

So that's I think the best way to hack through it is is learn in chunks. Yeah, so just breaking it down into small bite sized pieces and taking it one step at a time. No, that's that's great. Right.

Um so you teach um trading to hundreds of students. Um, where is the one area you see beginner traders getting it wrong? I mean this might be specific to option traders um or just traders in general, but I mean what stands out to you? Yeah, I can tell you right now, the number one thing that people get wrong is that they're not persistent and consistent with their trading.

And I say both of those things because you don't, you not, you not only have to be consistent, right? You've got to do this. If you're going to commit to doing this, Don't laissez-faire commit to do it, right? Don't like kind of whi-dilly-dally into this market. If you want to do this, you know, make a commitment to do it and realize that you're going to be doing it for at least the next year to see if it works.

Right. It's not not a 30-day thing. It's not a 60-day thing. It's a year commitment. Okay. So you've got to be consistent in doing it every single day. The second thing is you've got to be persistent in how you do it. So the types of trades that you make. So like what I hopefully I get across to people and what I'm trying to teach people is if you're gonna make, you know, if you want to trade, you know, let's say iron condors.

then great, trade iron condors, but be persistent in trading iron condors the exact same way. Every week for an entire year. And and that's really hard to do. I mean, look, it's hard to do for me, it's it's hard to do for you and for everybody else to be that consistent. But that's the type of of of trading mindset you've got to have starting out in this business to know that it's gonna work out. And I'll give you a classic example of of why this is so important.

If you look at trades that are high probability trades, right? That trades that will win 80 out of 100 times. If you know that that distribution is going to be at some point over 100 trades that you make, you're going to win 80, then that should give you some confidence. But what often happens is that traders get started and they lose the first 20 times. And they're like, hey, this stinks, right? Like I'm I'm I'm never winning.

But that that's where you got to kick in the persistent and consistent because you know you know and you have that belief that you're making that right trade. that the next 80 trades or so, whatever, you know, over time, should be the ones where you make money. But people quit at the 20 trades. So they quit when things go wrong and they don't really believe.

in what we're trying to teach them, right? Like if if I if they said, Kirk, I believe you that you're gonna win 80% of the time. Yeah, well it might take 200 trades before you see that work out. Right. It's not going to take 10 trades. It's going to take a lot. So I think that's the number one thing that traders

fall into and and and really trip up on is just kind of dilly dallying and getting into this for like ten days and then they're out. And then they're back in for ten days and then they're gone for a month, right? You gotta be in it or you're not.

Yeah, so consistent and persistent, I think that's awesome. To be able to write out potentially twenty losing trades in a row, you're gonna need some really good risk management in place. So would you like to share with us any rules you might have around this topic?

Yeah, yeah, yeah, yeah. So here's and then I'm glad you brought that up actually. Cause here's the thing, right? So if I said and pre probably people right now on the podcast are like, Kirk, what the heck are you talking about? 20 losing trades? I could never do that. Right. But this is where I go back to saying that you've got to trade small, right? You gotta you gotta trade smaller positions because if you can't afford to lose

on 20 little positions and still have money left over, you need to save more money or make your trade size even smaller. Here's an interesting t statistic that I think a lot of people will appreciate and hopefully it'll bring some comfort. If you trade just 5% of your account balance in every trade that you make, right? Like we talked about earlier. The probability that you go bankrupt with just five percent in every single trade is one in three point four nine billion.

Right. And you know that I don't have this in front of me right now. Like I know that stat. It's one in 3.49 billion. So that means if you're trading with five percent or less per trade. You virtually have a, I mean, like the slimmest chance possible of going bankrupt. You got a better chance of getting hit by lightning twice in one day than going bankrupt. Okay, so that means that if you do that, you can trade

through 20 losing trades and be persistent and consistent to keep going after that. So my rule of thumb is, and this is just what I use, I know other guys use different things, is my sliding scale is 1% to 5%. So your risk should be on a sliding scale, because sometimes you need to, you know, slide it up, slide it down, should be anywhere between one and five percent of your of your account balance per trade. That means if you got a$10,000 account.

five percent would be five hundred bucks for that trade. That's great. I mean I think statistics really sort of help to put it in perspective. Yeah. Um especially in that case anyway. Trading can be a game that does play with your emotions a lot. So how do you deal with this side of things, especially after a few losing trades?

I mean we probably touched on this a little bit when we discussed probabilities and proving to yourself that you're going to make money in the long run, but that's easier said than done. So do you have any tips on how traders might be able to handle their emotions better? Yeah. Yeah, I think it comes down to having some rules in place. So when you get started and you start learning a little bit more and then you start making trades.

You know, start writing down some rules for yourself and and and rules are gonna be different for you than for me. So so I don't ever publish rules, you know, like so a lot of people will say like Kirk, well what are what are the rules of trading? Like What do I need to know before I make a trade? Well that's different for you than for me. But to have some set of rules that you go off of, like

Uh for example, I you know, I won't trade a stock that doesn't have a million shares traded every day. Right. Like that's just a little rule of mind. So it's gotta be a liquid stock to begin with, right? I want the stock to be liquid so I know that the options are liquid. So if you have some of those rules in place. I think that keeps you sane. Because it hopefully will keep you out of bad trades.

When things go wrong. So when things are going really bad, right, people tend to have, you know, make worse decisions, right? You know, like in life, when things are going really bad in life, you just keep making bad decisions'cause you're like, Oh well, you know, things are going bad. But you can't do that in trading, right? So you gotta be, you know, consistent. And I think rules are really good to have in place

Um and I think they need to be a little bit firm. So you need to have some firm rules. Again, treat this thing like a like a like a robot, right? You need to make sure that you're entering things. mechanically, as soon as they meet your criteria. Don't look at the market. Don't read the news. Don't worry about what, you know, XYZ CEO said they are going to do with new product launch. It doesn't mean anything. It's a bunch of crap.

Follow your rules and over time you'll make decent money doing it.

Yeah, so having a solid set of rules helps to sort of uh remove some of the emotion from trading. Um, yeah, well Kirk, this has been awesome uh having you on here. It's been really great. So I appreciate you coming on. Um so we'll just take it to the closing bell, which is just a short, sharp round of um questions. So the first one would be what's the best piece of advice you've ever received?

The best piece of advice I've ever received. I don't know. That's a that's I don't know. These are like short and quick. This is like the best piece of advice in my life. Um when it comes to trading, I think the best piece of advice uh that I've ever received is is just somebody telling me earlier in my years, you know, like you have no idea where where something is gonna go. Um and I think that sticks with me, right? Like

No matter who you are, no matter how much money you have, you have no idea where the market's gonna go. So own that, right? Know that you don't know where the market's gonna go and don't assume you do. So I maybe that's the best piece of advice. Yeah, that's really good. What is the number one trading resource you couldn't live without today?

Uh I think Thinkorswim, the the broker platform, they have been I've been with Thinkorswim since before uh they've been bought out and and all that stuff and and went private, public, all that. So They've been a huge part of my success because I think their platform is so powerful. Um, and I've learned so much just being able to navigate and use their platform that it it truly is the one trading resource I couldn't live without.

Okay, that's great. We'll um we'll put a link to that in the show notes. Um what's one book you believe is a must read for any trader just starting out? Oh man. I think uh Reminiscence of a Stock Operator is is an interesting book. I it doesn't have any relation to really options. Um but it it's all about uh Jesse Livermore and how he cornered the markets back in the day and just

Just understand that book again, I think, you know, kind of just shows you the mindset that that most people are in and how he was totally different. And I think that's how that's how most people have to act now, right? Like everybody Everybody and their mother thinks that you should trade one way or thinks you should do w you know, stock trading one way. And they all never make money, right? So we have to be the complete, you know

uh black sheep and think completely different. And so I think that book, Reminiscence of a Stock Operator, uh, is a great, great uh story about that. Okay, awesome. I I've been meaning to read that one actually, so I must must get on to that. That's a quick read, yeah, quick read. Great. Um knowing everything you do now, what would you have done differently come day one?

Man, I'd I I wouldn't have lost money the first week. You know, that would if that was easy, I wouldn't have done that. Um, because uh maybe I would have had more money now. You know, I think I would have uh I would have taken myself out of the game emotionally with trades a lot earlier than I did.

Um,'cause I think even and people, you know, we all get into this, right? It's like you make a bad trade and like long time ago I made a bad trade in Chipotle and I'm like, I'm never eating another burrito again. Right. Like yeah, like I hate the company, I hate the stock, I don't even want to look at it.

And you and you got to take yourself out. So if I if I had to go back, I'd say, you know what, I'm going to take myself out of the game. I'm going to follow my rules. I'm just going to be consistent and persistent about this and do what I know is going to work.

All right, awesome. Man, Kirk, so many good answers there. Um I think I think listeners will take a lot away from that. So before we leave, um do you want to maybe let us know where listeners can connect with you and find out more about you and your services? Yeah, so so they can obviously find me on optionalpha.com and what I was gonna say is what I'll do today is there's a series of four videos that I published

that are not anywhere else on the website. And so what I'd like to do is that if anybody's listening to your show, they can go to optionalpha.com slash chat with traders. and they can get those four videos that I don't publish anywhere else. They're about 30 minutes each and they go through kind of the whole process in my framework for trading options.

So it'll be just for your listeners. So again, they can just go to optionalpha.com slash chat with traders. Man, that's awesome. Thank you very much. I'm sure the listeners will um definitely appreciate that one. Yeah man. Alright, Kirk. Well, um we hope to have you on again and um until then, take care.

Alright buddy, thanks man. You've come to the end of this episode of Chat with Traders, but don't worry, more great episodes are on the way. To stay updated with each great new episode, be sure to subscribe. And we'd love it. Leave us a rating and review. On chat with Trace.