Trade like a casino owner

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Good morning,

Lesson 1: Thinking in probabilities like casino owners.

Exactly what does it mean to think in probabilities? And why is it so essential to one’s more consistent success as a trader? How can a trader produce consistent results from an event that has an uncertain outcome? The answer lies within the gambling industry. Corporations spend hundreds of millions on elaborate hotels and casinos.

Their primary function? Day after day, year after year, casinos make consistent profits on an event that has a random outcome. Casino owners produce consistent results because:

1. They keep the odds in their favor

2. Achieve a large enough sample size of events

To illustrate, let’s look at the game of blackjack. In blackjack, the casinos have a roughly 4.5% edge over the player. The casino will generate net profits of four and a half cents on every dollar wagered on the game. That 4.5% might not sound like a lot, but let’s put it into perspective.

Suppose $100 million dollars is bet at all of a casino’s blackjack tables over the course of a year. The casino will net $4.5 million. Each hand is a random event, independent of every other hand. But on a collective basis, the opposite is true. If a large enough number of hands gets played, the outcome is no longer random.

As a trader, the takeaways are:

1. One’s trading strategy should keep the odds in your favor

2. One must achieve a large enough sample size of trades

I used to be a boom-and-bust trader. I have to work hard not to return to that. I would make large sums of money over long periods of time, but then give it back. Sound familiar? I wasn’t focused on keeping the odds in my favor. 

So I challenged myself to fix this and started the $2,000 Small Account Journey. My assumption was to keep the odds in my favor and achieve a large sample size. I figured as long as I did that, it didn’t matter if I started with a small balance, in theory, it should get bigger.

How’s it going? Over 400 trades on the current challenge.

On a micro level I never worry about any one trade. Because on a macro level I know the strategy I’m deploying keeps the odds on my side. When a loss does come, I’m unemotional because I understand its place in the process.

What the casinos have taught me has changed the way I see trading forever. When you subscribe to the $2,000 Small Account Journey you are not only learning how to grow a small balance.  You are learning what it means to own the casino. 

» CHRISTMAS SALE «

Lesson 2: What hurricanes can teach you about trading.

Adrenaline junkies beware. If your goal is to make 200%, 300% and 500% trades, like you see in hyped-up advertising, stop reading. Go buy lottery tickets or head to Vegas. Over the long haul, your odds will be about the same. 

If you want to learn how I’ve grown one of my $2,000 balances to $54,741 in the last year keep reading.

One of the hardest parts of trading is trying to decide where the market is going to go next. Option buyers have it even tougher. They not only have to get the direction right, they have to predict when the move will occur.  But isn’t that the whole concept of trading?

Not if you’re the option seller. At any given time the market reflects the exact value of a stock option on that day and for that expiration. Predicting where prices will go is like trying to predict the direction of a hurricane. Even the experts can make only vague projections until the storm makes landfall.

Projecting where it won’t go, however, can be another matter. If strong wind currents are blowing north we can expect the hurricane will hit that direction. The hurricane could veer east or west. But it would be unlikely (though not impossible) for the hurricane to make a 180-degree turn and head south. 

Option sellers bet the storm will not make a 180-degree turnaround into the wind. That’s all! They don’t play the game of guessing when and where the storm will hit. That’s a low-odds game. Guessing where the storm will NOT hit is much easier. 

When you apply the $2,000 Small Account Journey strategy, this is how you will play the market. You no longer have to try to outguess the pros on where the market will go. All you have to determine is a price level to which you believe the market will NOT go.

By becoming more skilled at selling options you’ll identify trades at ridiculous strike prices. 

For example, artificial intelligence stocks like NVDA and SMCI were top heavy in March 2024. As those AI stocks showed signs of weakness traders were still buying far out of the money calls. I bet the storm would continue down, selling the $1260 calls on SMCI to a gambler.

Within a few hours NVDA and SMCI crashed.

And my small $1,983 trade was up 53% or $1,052.

You can still have a hunch on where the market might go; but you position yourself different.

In this way, if your price projection is right, you profit. If it is only a little right, you profit. If you are wrong, there is still a good chance that you will profit. 

The “hurricane” can move in the direction you projected. Move sideways with no clear directions. Or even move in the opposite direction to what you projected. 

As long as the “hurricane” doesn’t make a rapid move in the exact opposite direction, you will profit on the trade.

Lesson 3: Advantages to being the option seller.

Advantage 1: The odds are always in your favor.

Why, you ask? 

A three-year study came to three major conclusions:

1. On average, three of every four options held to expiry, expire worthless;

2. The puts and calls that expired worthless played off the primary trend of the underlying;

3. Option sellers still come out ahead even if they go against the trend.

In fact, of put options alone, 82.6% expired worthless. In some of the studies, up to 96% of puts or calls expire worthless if sold favoring the trend. This is one of the reasons the $2,000 Small Account Journey has a high win rate or 87% on over 400 trades.

This sounds like common sense, but a lot of traders bet against the trend. When it comes to selling options, the old adage most definitely holds true: The trend is your friend. Sell options with the trend and you boost your odds the options will expire worthless. 

Source: The Complete Guide To Options Selling 3rd Edition by Cordier and Gross

Advantage 2: You don’t have to pick market direction anymore.

The hard part of buying options is you must get the direction right and predict when the move will occur. Predicting where prices will go is like trying to predict the direction of a hurricane. Smart option sellers bet that the storm will not make a 180-degree turnaround into the wind. That’s ALL! 

They don’t play the game of guessing where the storm will hit. That’s a low odds game. Guessing where it will not hit is much easier. 

1. Short-term trading (day trading)  is too difficult. 

2. Markets can be sporadic over short-term periods.

3. As a seller of options 1-2 weeks out, day to day market gyration does not concern me. 

Advantage 3: Accrued profits can be large.

Taking time to learn a strategy and allocating capital likely means you want a bigger payoff.  Most traders don’t know this strategy and that’s fine, but option selling has the horsepower to deliver. For two years I’ve been trying to perfect the process of growing a $2,000 balance. My goal in Journey is to grow $2,000 into $100,000 in 12-months.

Notable performances ($2,000 - peak)

$2,000 into $31,856 April 24, 2023 - August 4, 2024 (102 days)

$2,000 into $54,741 November 13, 2023 - December 14, 2024 (397 days)

Those are not typical. Some balances will go down. Cost of doing business. But important to highlight because it illustrates the potential. If I can get to $54,741 in a little over a year, it’s reasonable to think I can get to $100,000+ soon. No guarantees I will or that if I do, you will, but I want to be successful and I know you do to — so let’s get to work!

Advantage 4: Time is on your side.

As an option seller, the passage of time is your greatest ally. 

As a seller of an option, you are like a football team that plays defense for an entire game. How much time is on the clock when you start the game is up to you. You give yourself a predetermined point lead and your opponent so much time to beat you. For example, give yourself a 50-point lead and give your opponent two quarters to beat you. Point is. The option buyer works against the market and time. Same as the offense, trailing, has to work against the defense and time left on the clock. 

Advantage 5: Taking profits becomes simple.

Most books on trading tell you not to be emotional about your trading. How can you not be emotional about your trading? This is your money that we’re talking about! You’re going to be emotional about it no matter what you tell yourself. As the seller,  the decision of when to take profits generally becomes one that you no longer have to make. The market makes it for you. If the option is not in-the-money, the value will deteriorate to zero at expiry. I teach taking 30% early in the trade or 50% halfway through expiry. It’s that easy. 

Advantage 6: Perfect timing is no longer necessary.

In a bull trend, sell far beneath the market, allowing for wide price fluctuations. For this I teach the 10-day EMA. See how well NVDA trades above the blue line? That’s the 10-day EMA. I simply sell puts AT or BELOW the 10-day EMA, over and over.

Advantage 7: Many methods of risk control.

Stop loss strategy can be tight at the 10-day EMA or double my entry price. Very easy to understand. The key isn’t to win all the trades but to get to a large enough sample of trades, like 100 trades, managing the trades all the same way, and see if there’s a net profit. If yes, you’re moving in the right direction. If not, more refinement. For me I like to go for 30-50% winners in a week or less and cut loss at 100% of my entry so if I enter at $1.50, I look to exit at $3. If I enter at $3.50, I look to exit at $7. It might seem like that’s too big of a loss but remember, that’s the threshold, I try to keep them less than double the entry whenever possible. And with the high win rate, the P&L trends up that way. Defending against drawdowns is the most important part of the $2,000 Small Account Journey — arguably true for all strategies, but something we really talk about a lot in this service because it helps more than you can imagine.

If you’d like to get going with the $2,000 Small Account Journey strategy there’s two real-money components to learn from.

A lot of trade alerts from the $54,741 balance. The goal is to get this balance above $100,000.

A new $2,000 balance that starts at the beginning of each month to demonstrate to subscribers how I try to get one of these off the ground.

What you need to understand is ALL of my trade alerts are pretty much the same. They don’t change depending on the balance size. So something I do in the $54,741 balance is applicable to the new $2,000 balances.

But again, I manage two balances at a time so anyone new can see how I manage $2,000 compared to how I manage the bigger balances. For example, here’s some benchmarks I’ve found helpful.

Traditional benchmarks:

1. $2K-$5K 100% allocation to get the account up in value fast

2. $5K-$10K 50% allocation (2 $2.5K-$5K trades open at a time)

3. $10K-$20K 25% allocation (4 $2.5K-$5K trades open at a time)

4. $20K-$100K 15% allocation (7 $3K-$15K trades open at a time) 

5. $100K+ is 10% allocation (10 $10K trades open at a time)

JOIN NOW and SAVE HUGE with my Christmas Sale

December’s $2,000 balance is up to $2,300. I’m trying to double or triple it by January 1. Then, to start 2025, I’ll get a new balance going from scratch again. Making NOW the perfect time to subscribe.

Eat! Sleep! & Trade!

Jason Bond

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