Our premium options trading service SK OptionTrader closed its first position on August 17th 2009 for a profit of 50%. Since then we have closed 160 trades, with more than 90% of them for a profit. These trades have now generated a total return of 1035.01% for our model portfolio. This means that a $10,000 portfolio invested in the same way could have made profits of more than $100,000 in less than six years.
The key to generating these returns has not been swinging for the fences or going all in on a particular trade, in fact, we have never allocated more than 15% to an open position. Instead the consistent gains of our model portfolio have been a result of our first and most important trading rule: prudent risk management.
Careful and constant reassessment of the market situation and risk reward dynamics of our open positions has ensured that we have avoided ever losing all of the capital we have allocated to a particular trade. Through this process we have also been able to lock in profits on 90.63% of all the positions we have ever closed.
Among these winners are multiple trades that have more than doubled in value, with four being closed for 100% gain or more on October 15th 2010 alone. At this point we had been bullish on gold for some time and held an aggressively bullish view on the metal. This was reflected by a total of eight long positions on GLD calls in our portfolio for a total allocation of 40%. This meant that after gold rallied sharply at the beginning of October we were able to bank gains of 100%, 101.34%, 101.49%, and 100% in one single day. It may be surprising, but these trades played only a small part in our returns of 167.98% in 2010.
The following year we stuck to our top target of risk management and were able to continue our success. The highlight of this was closing our most profitable trade ever, at the time, with gains of 197.14% on another GLD calls position. During this time it became prudent to use trading strategies with lower downside potential risk in conjunction with our more aggressive positions. This meant that we began making vertical options spread trades. These had a considerable effect on our portfolio, with our 2011 vertical spread positions returning an average of 22.92% each while significantly limiting our risks.
We entered 2012 still holding our bullish stance on gold and the precious metals sector. As history shows we simply called the market the wrong way here, and as a result our portfolio suffered losses. However, we recognised that this was the case before our open positions could have a lasting effect on the profits made over the previous three years. Consequently, we exited our losing trades and managed to finish the year with a small profit overall.
The change in market dynamics that we saw in late 2012 lead us to enter the next year with a bearish outlook on the precious metals. In addition to this, we also recognised that general equities and volatility now offered more trading opportunities with positive risk reward dynamics. Acting on these views lead to one of our best years on record, with a total return of 92.28% for the year and zero losing trades. The year held the trade that is now our most profitable trade to date, superseding our 197.14% winner in 2011.
Our bearish view on the precious metals sector led us to the view that gold and silver miners were likely to suffer, and more so than the metals themselves due to their poor performance in the latter part of the bull market. Helca Mining was one company that we believed to be heavily overpriced and chose to short via a puts trade. A mere 17 days later our investment had more than tripled to provide profits of 212.5%.
Gains from short precious metals positions continued into the next year, as did our winning streak. On December 13th 2014 we celebrated two years without losing money on a single trade and many other profitable trades banked over that time. Our trading record in 2014 is also evidence of an increase in the number of trading opportunities in markets outside the precious metals. The most profitable trade that we closed was on November 5th for a 75% gain made on SPY calls that were in line with our bullish outlook on equities.
The 48th and most recent trade added to our win streak was a long position on European Equities. This was opened ahead of the ECB’s QE announcement and as a result took advantage of the sharp rally in the EURO STOXX 50 index. Only two weeks later we were banking gains after European stocks moved almost exactly as we anticipated.
Prudent risk management has been the key to the consistently profitable trades that we have closed since our inception in 2009. We never trade for the sake of trading, or out of boredom, or to look busy. We trade only when and where we can open positions with positive risk reward dynamics. Our model portfolio is up 10 fold as a result. All you have to do now is subscribe below to find out what trades we make next.
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