Ok so today I thought we'd try something a little different.

There’s a sucker born every minute. PT Barnum’s famous line doesn’t just apply to circus barkers hustling the crowds. There’s a sucker born every minute in the markets too. In fact, most traders lose money.

If you've been following me for a while, then you already know about my trading strategy... I've explained the technical details and shown you how it works in practice, but now I want to tell about why it works…

You might have heard the oft-quoted statistic that 80% of traders don’t beat the S&P. And while the actual percentage might be slightly lower or higher, the fact still remains that a large portion of those watching the markets would be better off cruising over to their local Costco, buying 10 of the jumbo fireworks packages, and lighting them all off in their backyard. It’d be a lot less stressful and a heck of a lot more colorful too.

So wow… if you’re new to trading, that’s a pretty daunting fact to face. In a perfect statistical scenario, you’re more likely to be trading leaky buckets than to be besting the returns of the Oracle of Omaha.

But if you’re like me, you were drawn to the stock market because of the risks and the potential payoffs. I started off as an engineer and even before that I was coding away on a Sinclair Spectrum (bonus points if you know what I’m talking about). I’ve always loved working with numbers and despite all the madness in the markets, 1 + 1 always equals 2, even if the crowds try to tell you differently.

My first piece of serious tech: Sinclair Spectrum

I first started in the stock market by investing in big blue chip stocks because that’s what my family had told me you were supposed to do. Eventually I saw the energy sector start to heat up and I bought into oil, watching it rise from the teens to 20s to the 30s and beyond.

Along the way, one of my friends introduced me to options and I was eager to learn what a put was, how strike prices worked and oh wow…. you can sell these things too!

It was at this point that I started taking my trading more seriously. I was a pretty cautious trader but I realized that most traders were always trying to predict where the market was going. We digest all of the technicals, company guidance numbers and analyst models, but everything eventually comes down to predictions. Throw timing into the mix and you find that most predictions are iffy at best. For every major event that happens from Russia invading Ukraine to a plane crash in the Indian ocean, there are 100 other events that were “predicted” to happen but never did.

So take this idea back to the stock market. If everyone is making 10 different predictions about what’s going to happen and only 1 comes true… how do you bet against the other 9 predictions?

The answer is actually pretty simple. You sell options spreads.

Usually when I first start talking to other traders their first reaction is, “What? How can you claim you’re a conservative trader when you sell options?”

And they’re right because options trades can be the equivalent of going to Vegas and throwing your money on red. Or giving PT Barnum $5 to see the alien from outer space who, once you’ve paid and gone indoors, looks more like an oddly dressed chimpanzee. You’ve got 50/50 odds if you’re buying a $1 spread for 50 cents.

According to the CBOE, over 90% of options expire worthless. By this logic, buying an option is quite literally a 1 in 10 prediction. Why on Earth would you want to buy them? Buying a 50 cent option on a dollar spread that’s not an investment. That’s gambling.

Instead, I can sell an out-of-the-money option and collect 11% yield on a 1 dollar spread with a 90% chance of success. Key to my success is that I identify safe zones where I can sell my spreads where prices will not go.

It’s hard to argue against such a risk-averse strategy that beats the consistently beats the market and without breaking a sweat (trades with a low chance of loss). That’s why I love sharing this strategy with other traders. It’s not inherently simple but simple enough to be in reach for every level of trader. At the end of the day, it will lower risk while maximizing your payoff. My goal is to show traders how to take calculated risks and reduce the number of suckers in the circus tent we call the stock markets :)