The Power of Being Right Once.
Sell options, or simply sit on your hands with time and asymmetry on your sideāwhile enjoying steaks and wine.
IĀ strongly believe that learning basic options selling is crucial for any investor, no matter their experience level.
Imagine you hold a stock that youāve built solid conviction around, and it has an active options market. To earn some additional income, you decide to write (sell) a basic option on it. If the stock finishes in-the-money (ITM) at expiry, you can take advantage of the capital gains from the option + premium. If it doesnāt finish ITM, you still keep the premium you earned from writing the option, giving you income regardless of the stockās movement.
When I left my job in Australia, packed everything up, and started travelling, options selling made a lot of sense. It kept me busyāI monitored the market and sold premium on days when my stocks were either in the red or green. While it wasnāt always consistent, it provided some income, giving me peace of mind that I was doing something productive after leaving a demanding job back home.
Looking back over the last two years since I started trading, was it totally worth it?
Recently, I made close to my old jobās salary (on paper) within a few weeks on an asymmetric tradeāNam Cheong, a micro-cap Singapore-listed offshore services companyābecause I had the conviction to scale it into a large cash position, sacrificing my options-selling trading account.
After well over two years of options selling, here is how I would focus my energy to maximise my time and market opportunities if I were to quit my job and do it all over again.
What is an Asymmetrical Trade?
An asymmetric opportunity is one where the upside is much greater than the downside. While most people feel this way when they buy any stock, certain factors can truly set apart a real opportunity.
Take Nam Cheong, for example: bankrupt, favourably restructured debt, re-listed in Singapore, dumped by former creditors (sellers exhausted), business improving, and a CEO holding +37% of the stock. Itās a unicorn setup in hindsight, but my goal is to recognise and scale the next opportunity that comes along.
This is exactly what Trader Ferg and Brad McFadden talk about each month on Trader Ferg. Over the years, theyāve inspired me with their emotionally detached approach to downside volatilityāsomething I used to struggle with. Slowly, Iāve gotten better at handling the stomach-churning drawdowns.
āOur biggest asset as an individual investor is that we have to be more patient than everyone else.ā - Brad and Trader Ferg's latest podcast.
Right now, Iām a bit carried away after the last few weeks. Itās been brutal for most of the positions in my portfolio, except Nam Cheong. But that old saying, āyou only need to be right once,ā rings true.
After Nam Cheongās recent moves, I now believe itās time to rethink my approach to holding stocks solely for their liquid options markets. Typically, holding stocks with active options markets means focusing on large-cap stocks (>$1B market cap), where you can capitalise on volatility and earn premiums. However, this strategy limits your upside potential, and you might miss out on the greater opportunities that micro-cap stocks with favourable asymmetrical setups can offer.
While this strategy can work well for generating income, as Iāve demonstrated, you donāt want to miss out on an asymmetrical trade setup. With these types of trades, you only need to be right once to unlock massive potential. Frankly, unless youāre trading with a significant-sized account ($500kā$1M USD), the standard 2% return expectation from options selling will be easily eclipsed by the gains from just one successful asymmetrical tradeāeven if it takes years for that stock to perform.
Where am I focusing my time going forward?
Yes, the next asymmetrical trade setup.
You might have noticed that I sold RIG and UEC, both of which have great options markets. While I believe theyāll perform very well as equities in the future, my portfolio isnāt structured like a fund. I think itās more worthwhile for me to focus on calculated risk for the next asymmetrical opportunity, rather than prioritizing capital preservationāat least for now.
Bear in mind, when I talk about the next asymmetrical opportunity, Iām suggesting a timeframe of 1-3 years. Iām not trying to time the market in the short term, and anyone who claims to be an expert in doing so is kidding you. Of course, there can be exceptionsālike Nam Cheong.
I see a lot of newsletters recycling the same small- to mid-cap stocks that are already on everyoneās radar. What Iām looking for is a place to rotate my concentrated uranium position into the next asymmetrical setupsāideally with torque, a micro-cap, and a safety net through tangible, ideally written-off assets. These opportunities are, of course, rare, but when you find them, you need to be ready to act.
Rolling my uranium gains into positions like this over time excites me. When I first bought uranium stocks, I was starting my career in Australia with low cash levels. Being early helped me reach a point where I felt comfortable enough to quit my job and leave Australia. Now, Iām looking forward to rotating out of those positions into the next big setup.
This time, Iāll have a bigger cost base, and the potential returnsāif things play outāwill be far better than what I saw with uranium.
If youāre sitting on a trading portfolio like I was, you might be better off sacrificing it for asymmetrical opportunities when it comes along. As Iāve learned with Paladin, Boss Energy (uranium stocks) and now Nam Cheong recently, those payoffs can be life-changing, and frankly much better than focusing on selling options.
The beauty of not working as a busy geologist anymore is that I have the free time to assess these opportunities, many of which come from my network, and build solid conviction.
I think itās a damn exciting time ahead for commodities and energy, and Iām keen to see what the next opportunity brings.
Cheers,
Jordan - GeĆ³logo Trader š¦šŗ
If youād like to subscribe and follow along this is what you get:
ā¢ Monthly Mentor Chats with Trader Ferg: Iām extremely fortunate to have Fergās time each month. Together, we discuss hidden asymmetry in global marketsājust like we did with Nam Cheong. Ferg and his network often uncover overlooked stocks that no one is paying attention to. Feel free to ask us any questions!
ā¢ My Process of Internationalisation: As I move away from the Australian tax system, I believe this strategy will provide me with a significant financial advantage in the coming years. The Australian tax system, like those in most Western countries, presents too many headwinds for individuals looking to build substantial wealth.
ā¢ All Things Buenos Aires & Argentina: From recommendations and meetups to advice for anyone considering a visit or move, Iāll be sharing insights on living and travelling through the city and country. I recently signed a new 2-year lease here.
I cover Argentinaās mining and exploration sector, where I have some investments, and I enjoy leveraging my background as an exploration geologist. These days, Iām fortunate enough to be invited to site visits around Argentina.
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I'd say you need to do both - buy stocks for their asymmetry and more liquid stocks for options trading (if that's your thing). I think it's important to admit that Nam Cheong inflicting that quickly was PURE luck. It could have easily taken several months to do the same. Asymmetry would still be there, but not immediate results to substitute your income.
Great stuff. This is also the way Iām leaning. Keep posting, your articles are hitting home and a good inspiration!