Options Roadmap

Point A: How to make over 100% per year, but only spend 10 minutes a month doing it.

NaviTrader’s Option Roadmap is designed with two goals in mind.  The first goal is to precisely show you which options to buy and sell in the proper ratios to make you 100% a year minimum.  The second is to do it with a minimum of effort on your part.  In fact, following our Eagle Option Strategy, you can make this return trading only once a month, which will take about 10 minutes total.  Unlike most other option strategies, the Eagle puts the odds in your favor instead of in the market’s favor.  Just like most things that really work in the financial world, it comes down to just two things – putting the probabilities in your favor, and making time work for you instead of against you.

We will also tell you that if you are the kind of person that needs or wants to trade everyday, then you should look at our Navigator Stock Strategy.  It trades stocks long and short everyday, and will teach you to become a better trader by enforcing a strict discipline that includes automated money management, high probability stock trades, and controlling your emotions. 

However, if you are content to make over 100% a year while only making trades one day a month, then you should read all the Points on the Roadmap that will teach you about the QQQ Eagle Option Strategy.  In fact, with the QQQ Eagle Option Strategy you do not even monitor your positions in between trades, as it is unnecessary.

Click here to start earning over 100% a year trading once per month.

Point B: Why Warren Buffet is so successful

Warren Buffet became famous as the investor with the Midas Touch.  He had a knack for spotting undervalued businesses that produced good cash flow and buying them for his Berkshire Hathaway stockholders.  What many people don’t realize is that Warren Buffet started out buying and selling stock options. He took a small initial stake and used options to multiply his initial investment many times over.  Once he had enough money, he bought what he new was the best business in the world to own – an insurance company. 

Why buy an insurance company?  It’s really quite simple.  Insurance companies are the only businesses that GUARANTEE THEMSELVES A PROFIT.  They calculate the probabilities of all their claims occurring, add on their profit, divide by the number of policies and …presto…your premium notice arrives in the mail.  Warren realized that the insurance business produces what everyone wants – CASH!  Once he had his insurance company producing all this cash flow from premiums, he just needed to find other high cash flow businesses to buy with the money.  This is compounding on a whole different level.  Although most of us will never be able, or even wish to, buy an insurance company, NaviTrader’s Option Roadmap will teach you how to do the same thing Warren does using options.

Click here to start earning over 100% a year trading once per month. 

Point C: The Secret of the Eagle Strategy is using to your advantage what hurts most option buyers– the passage of time

Remember that song by the Rolling Stones, “Time is on your side”?  Well, as we all know with options nothing could be further from the truth. Options suffer from a phenomenon called time decay, which means the moment you buy an option it begins to decay in value even if the underlying stock stays at the same price.  Another characteristic of this phenomenon is that the decay is not linear, meaning the function is not a straight line.  In fact, what really happens is that options that have lots of time left on them decay very little, while those that are in their final 4 weeks before expiration decay almost exponentially.  Therefore, what the Eagle Strategy does is buy long-term options and sell shorter-term options against them.  In this way, we are “selling time” that expires, putting us on the other side of the trade from most option buyers…you know, the side the option market makers are on.  I would much rather be on the side that wins 90% of the time, wouldn’t you?

As in most things that really work, the devil is in the details.  There is another saying I like even more.  It’s by what some call the smartest man of the 20^th century, Albert Einstein.  Einstein said “Make it as simple as possible…but not simpler”.  Some would tell you that the Time Spread we have described above is very simple and anyone can implement that option strategy.  That’s true if that’s all there was to it.  It’s not quite that simple. 

There are some rules we follow that have to do with maintaining a net positive delta on our position.  We also ensure that our net delta at expiration provides a good return, compounding our returns at the proper strike for the next month and buying and selling the options in the proper ratios to control the other “Greeks”, etc. We made this strategy as simple as possible…but not simpler.  The advantage to you is that we do all the math, sending you an email once a month that tells you precisely what to buy and sell, how much to buy and sell, and what price you should pay and receive for those trades.  All trades are also posted on the web site.  We could not make it much simpler for you.  All you need is an option account, and permission from your broker to trade call and put spreads.  With this strategy, you can start with as little as $1500 in your account, but we recommend beginning with at least $5,000.

Click here to start earning over 100% a year trading once per month. 

Point D: The Eagle Option Strategy made 399% in 2003

Here’s a chart of how our Eagle Options Strategy performed in 2003.  We use the QQQ NASDAQ tracking stock as the vehicle for the Eagle strategy and we will explain why later.

 First, let’s talk about what this chart means.  As you can see, you don’t make money every month.  At the beginning of 2003 there were several months of chaos as the QQQ went up one month, down the next, back up, back down…no wonder we didn’t make hardly any money at this time!  However, if the QQQ had stayed the same, went up, or even went down less than 5% in any of those months we would have made money.  The rest of 2003 shows that we made gains EVERY MONTH, even when the QQQ was flat or even declined from one month to the next. 

This is putting the odds in your favor.  Usually with options you have to pick both the direction of the stock and when the move will happen in order make money.  We don’t like those odds.  Instead, when you trade the Eagle Strategy, time works in YOUR favor through the power of non-linear time decay (sorry if that sounds too complicated, but you don’t need to worry about the details).

Click here to start earning over 100% a year trading once per month.

Point E: Make money even if the QQQ goes up, stays the same, or goes down less than 5% in a month

I know what you’re thinking.  The market went up for the last 9 months of 2003, so many strategies made money.  What’s so special about this one?  Well, it’s like we said before.  You want to think of this strategy like you are an insurance company.  You want to calculate the odds of any particular outcome occurring, and make sure you make money in all those situations.  What if the QQQ had stayed right where it was on January 1, 2003 until December 31, 2003, at $25.40?  Using the Eagle Option Strategy, you still would have made over 240% return! 

Now, we know it’s not realistic to think that the QQQ will stay at the same price. In fact, we don’t want it to because when it goes up we make even more, like this past year when we made 399%.  Yes, 2003 was an exceptional year, but that’s not the point.  The point is, if QQQ goes up, stays the same, or even goes down less than 5% a month we still make a good profit.  That’s putting the odds in your favor!

Ok, so what happens when the QQQ keeps going down?  We thought of that too.  NaviTrader has perfected a very good market timer for the QQQ.  We don’t look for every minor swing, just the major direction.  Our timer can be in three modes – Upward, Downward, or Level.  If we are in Upward Mode we put on Call Time Spreads; in Downward Mode we put on Put Time Spreads; in Level Mode we do both.  This keeps us always on the side of the prevailing trend.  You don’t have to worry about all this if you decide to use the Roadmap, as it’s all part of the Option Roadmap service. You will still be provided exactly which contracts to buy and sell each month.

Click here to start earning over 100% a year trading once per month. 

Point F: Here are a few months of Eagle Option trades in 2003

We started during expiration week of January 2003 with $5,000 in our account.  Trades were placed each expiration Friday of each month (always the third Friday of the month), and that’s the only time we placed trades.  We have found that the more you “fiddle in the middle” of the month, the more it hurts your returns.  Below you will see the trades we placed for October and November 2003.  Note that when we made trades in the month before in September the QQQ was at $34.78 on 9/18/03, and it went down slightly in both October and November while we still made significant gains.  This is the power of having “time on your side”, compounding, and using all the other details of this strategy to produce stellar returns.

BTO = Buy to Open, BTC = Buy to Close, STO = Sell to Open, STC = Sell to Close

Hold = Held from Previous month

As you can see from this two months of details, the returns can be extraordinary even with the QQQ going down slightly for 3 months.  From September to October we gained 31%, and from October to November we gained 27%.  This is how you take a $5,000 account to almost $20,000 in a year. 

These returns are completely scalable to larger account sizes due to the exceptional liquidity of the QQQ.  In fact, it has been our experience that large QQQ option orders get better price treatment.  Assuming no improvement in fills in a larger account, a $50,000 account would have earned almost $200,000.  Just think that if you had a $250,000 IRA account it would now be worth almost $1 million dollars!

Click here to start earning over 100% a year trading once per month.

Point G: The QQQ is partly why the Eagle is so profitable

There are many reasons why the QQQ is the perfect trading vehicle for this strategy.  Here are just a few:

1.      No Surprises - The QQQ is an index tracking stock, composed of 100 large non-financial companies trading on the NASDAQ exchange. Since 100 companies make up the index, if one has a bad earnings report, it won’t have much negative effect.  If you traded options on an individual stock, you might be surprised one day to find your investment near worthless.  We don’t like those odds.

2.      Low Slippage – Most trading strategies suffer from slippage, the difference in paying the “ask” price and receiving the “bid” price, which is known as the spread.  This is particularly true in options, where the spread between bid and ask can sometimes be a whopping 25%! Why trade options where you start 25% in the hole?  Since the QQQ options trade thousands of contracts every day, the spread is usually only $0.05 or $0.10 on a $2.90 option, or less than 2%.  That’s a huge advantage, and one of the main reasons we use the QQQ. 

3.      Granularity – What does that mean?  Simply put, the more data points you have in a strategy, the more even the performance will be.  Most stocks have option strike prices at $2.50 increments until they get to $30.00, and then have strikes every $5.  The QQQ has strikes every $1, giving the Eagle Strategy more options for profit (pun intended).

4.      Upward Bias – Yes, the QQQ has an upward bias and this is more than just the fact that the stock market has an upward bias of about 11% a year based on history.  The QQQ is composed of the highest flying technology stocks of the NASDAQ.  When a few of these stars burn out you would think they would drag the index with them. What happens is the companies that under perform are replaced in the index with “rising stars”, which constantly replenishes the index and gives it its sustained upward bias.  This is a major advantage.

5.      Liquidity – The QQQ is very liquid, trading around 100 million shares a day.  Its options are highly liquid also, with many of them trading thousands of contracts every day.  People always worry that a strategy will stop working when lots of people do it.  This is not a concern with the QQQ options, because there are so many strikes (every $1), so much liquidity (1000’s of contracts daily), and so little slippage that it is easy to get in and out at any time.  Since the Eagle Strategy only requires one set of trades each month, we don’t need but the tiniest fraction of that liquidity.

6.       Lower Taxes – Remarkably, the IRS has ruled that options on index stocks such as QQQ have preferential tax treatment. These are referred to as Section 1256 Assets. Generally, this means that all gains and losses are 40% short-term capital gain (or loss) and 60% long-term capital gain (or loss), irrespective of the holding period, and that such securities are marked to market as of the last day of the taxable year.   Wow, all of these advantages and lower taxes to boot!

Click here to start earning over 100% a year trading once per month.

Point H: IRA’s and 401K Plans work too!

Many people ask us if they can trade the Eagle Option strategy in their IRA or 401K accounts.  Other typical questions include what percentage of their total retirement savings they should trade with the Eagle.  First, we are not financial advisors.  You should go see one if you have serious concerns.  Secondly, as we have said before, options are risky. A professional advisor will probably tell you that the only option strategy you should ever consider using in a retirement account is the covered call strategy.

This covered call option strategy has been around for a long time, and is a favorite of the investment professionals. You buy 100 shares of your favorite stock, and you sell a Call option on the shares to generate income. You pay either full price for the stock or 50% if you buy it on margin, and you receive the option premium for the short call.  If the stock goes down, you get to keep the option premium, but you lose more money on the stock since it has a delta of 1. If the stock goes up, you either have to buy back your short call for a loss, or your stock gets called away by the person who bought your option at the option’s strike price, limiting your upside.

Actually, the Eagle Option Strategy is similar to a covered call strategy, only much better.  Since the long-term (6 month to several years) option you buy is much cheaper than buying 100 shares of stock; you will generate a higher return.  You will still have to buy back your short-term call if it is in the money at expiration for more than you received for it.  However, the long-term call you purchased has appreciated in value, and since you own more of them than you sold short-term calls (that ration thing, remember?), you will make more from the long-term calls than you lose on the short term ones.  Also, even though you lost some money by buying back the short-term call at a higher price, you will only have to pay the intrinsic value of the option at expiration (the amount it is in the money) and you still get to keep the time premium that has evaporated.  As you can see, there are several advantages to this strategy over a straight covered call strategy.

You will need to check with your broker, to see if they allow spread trades within an IRA account. We recommend Interactive Brokers for all types of trades, since their commissions are some of the lowest and their Trader Workstation platform is superior to most trading software.  We think the Eagle Option Strategy is an excellent way to build up your retirement account.  Just think, if you had taken your $100,000 IRA and used the Eagle Option Strategy in 2003, your account would now be worth about $400,000.  This would make a big difference in your retirement lifestyle.

Click here to start earning over 100% a year trading once per month. 

Point I: Have Your Cake and Eat It Too – Lower Taxes

Believe it or not, your taxes due on the Eagle Option Strategy will be lower than would be due on buying and selling straight calls and puts on other stocks.  The QQQ is an index stock, and therefore qualifies as a Section 1256 Asset to receive special treatment.  We strongly encourage you to check with a licensed tax attorney to get a final opinion.  However, the evidence of recent IRS rulings supports this special tax treatment.

Under Section 1256 Assets, all gains and losses are taxed at 40% short-term capital gains rate and 60% long-term capital gains rate, regardless of the actual holding period.  If you hold these options over the end of the year to a new year, they are “marked to market” based on how they closed on the last trading day for tax purposes. They are considered reopened at the same price the first day of the new year. 

This is a great advantage of the Eagle Strategy, paying lower taxes on the gains. It’s just another reason we think this is the best option strategy you could employ to build wealth, and it only takes 10 minutes a month!

Click here to start earning over 100% a year trading once per month.

Point J: Sign up now and start making over 100% a year the easy way

You’re probably thinking there must be a catch to this, right?  Well, there is a small catch.  Usually, in any six-month period you will have a losing month because the QQQ will move more than 5% from where you established your position.  If you are making gains of 10-20% per month, you can expect that you could lose that much or even much more in any one month.  Options are risky.  You should keep that in mind at all times.  With great reward comes risk.  However, if you follow our recommendations and the market doesn’t go schizophrenic on us from one month to the next, then most months you should show a good profit. 

One of the hardest things will be for you to learn how to “sit on your hands” each month, as you wait for the options you sold to evaporate close to zero so you can buy them back for a fraction of what you paid.  Remember, with the Eagle Option Strategy, Time is on Your Side.  You need to commit to doing this strategy for a year, so you don’t let one down month frighten you away just when you are about to make phenomenal returns.  Get your map and climb on board now!

Click here to start earning over 100% a year trading once per month.