Kurt Frankenberg is a martial arts instructor from Colorado Springs in the USA and has been trading the American Stock Exchanges successfully since 1998.
Kurt has written a book called “The Blueprint” which teaches a unique variation of an options trading strategy called a “married put”. Kurt refers to it as “Radio active trading” and teaches traders how using this strategy can keep their risk to 5% or less. He also teaches 12 different ways to take money out of a married put position.
Kurt is currently the thought leader at RadioActiveTrading.com and when he’s not trading you’ll find him running his martial arts school or spending time with his family.
Trade Your Way to Financial Freedom by Van Tharp
Biggest Retail Trader Mistakes
- Failing to pull the trigger – mainly due to the paralysis of analysis, i.e. they want to make sure it’s the perfect entry so become very reluctant to enter positions
- Holding onto being right. Don’t hold onto being right, instead hold onto trading right.
Kurt Frankenberg: I have been doing trading since the late 90s and I’m a Martial Art instructor by trade I’ve been teaching Martial Art since 1986 when I opened my studio at the tender age of 18, and so 29th anniversary is coming up here. Along the way I got to place where I was making five figures a month teaching little kids how to punch and kick, and that was kind of fun. And I look at places to park the money and started out with real estates and found out really quickly that wasn’t what I wanted to do. It seem like a lot of work and there’s a lot of things to know and I was always nervous about how something was gonna turn out.
As far as trading over the house to a renter [Laughs] and what condition I might get that house back in and anyway I got out of that and began to follow a man that was that had been teaching about real estate investing and he had change over into teaching about trading the Stock Market, and that man’s name was Wade Cook. Now this is not gonna be a commercial for Wade Cook I believe Wade Cook is probably still in prison right now [Laughs], yeah [Laughs]. He taught a good class as far as how to deal the mechanics of what’s called the Covered Call Trade and what he didn’t teach me and teach others is how to stay out of trouble.
Cam Hawkins: Okay so for those listening for the first time, we’re about to enter a round I like to call “The Fundamentals”. This is where I’ll be asking Kurt to tell us stories that will help you understand what makes him a successful trader.
So, go back in time now Kurt and tell us what first attracted you to trading and talk us through that very first trade you took.
Kurt Frankenberg: Well, what attracted me to trading in the first place was the fact that a man that was already respected for teaching real estate fundamentals, real estate investing fundamentals was now teaching in how to trade the stock market and I had read his previous books about real estate and decided to go ahead and go to this weekend seminar, and what I did, at that seminar I actually followed him into a trade.
There’s a trade that he did lay and I followed him in that trade and came out of the trade a winner, and it wasn’t huge or anything we just bought stock and I don’t even remember the stock symbol at this time. Back at that time it was not trading in decimals we had quarters and eights and sixteenths of a point, and so I had bought a stock and also sold a call against my stock and got called out of that stock which means that the call holder exercised his right to buy the stock from me and I delivered it and delivered that a small profit so after that I was hooked, that was my first experience with trading.
Cam Hawkins: and I can see why you hooked to I mean winning trade first off is definitely gonna get somebody hooked. I was unfortunate and didn’t have a winning first trade and that for me I supposed emotionally was very hard to deal with and sent me in a path that I suppose wasn’t possibly the best path I could’ve gone for some quite some time.
Kurt Frankenberg: Cam they say that every trader is a genius in a bull market and that was me. It happened to be the timing it was the late 90s and that one turned out well for me but as you’ll hear later on some other things turned out not so well.
Cam Hawkins: Well let’s go back to that back to that dark time now, that point where you hit rock bottom of a trade that kept you awake for a like week, or were you blew an account in a matter of days or even minutes. We want to hear that story.
Kurt Frankenberg: Okay, well I don’t know if your callers. I mean your listeners are familiar with Covered Calls trading so I’m gonna have to give them a quick overview of what that is. You don’t do options in New Zealand and options are traded on the Australian markets and that’s commonly what’s going on.
Cam Hawkins: We don’t do options in New Zealand and yeah it’s commonly in Australian market that’s it. Some of the listeners will be from the US, the UK, and other countries around the world so, but please. Please give us a quick overview for those that don’t.
Kurt Frankenberg: Okay, so Covered Call is this and by the way I don’t trade Covered Calls anymore. I do something very different, but what a Covered Call is, is when you own a stock and then you sell the right to someone else to buy your stock at a predetermined price. So say I’m trading XYZ stock, XYZ is trading at 50 dollars a share and I sell somebody the right to buy XYZ from me at 55 dollars a share. Why would they pay for that right? They pay for that right because they speculate, they believe that it may go to 60 or 65 or 70, and so they’ll pay me a dollar let’s say per share. So I’m sitting on my stock at 50 dollars and someone has given me a dollar to hold on to that stock for a month. If the stock goes up way way up then they will take off my hands at 55 and I have also already been paid one dollar so that’s 6 dollars profit you see. I bought the stock for 50, I delivered it 55 and I’ve been paid a dollar for the privilege of sitting on it for a while. [Laughs]
Cam Hawkins: Yep.
Kurt Frankenberg: Okay, so that’s a nice return, and that’s what’s called the Covered Call Trading and that’s what I got involved in. Well, after doing a few successful trades like that, I begin to believe that I was invincible. I believe that I was invulnerable because it seem like it couldn’t do anything wrong. I was making money, hand over fist as they say in the US. Buying stocks turning around and selling them, in the late 90s you know this is late 1999 the market was just gelatin, I mean it was really difficult to swing a dead cat without hitting the winning stock, and here’s what happened.
I got in to a stock called LIPO. L, I, P, O stock no longer exists. It was a pharmaceutical company that was developing a fat delivery system, a delivery system using human fat for a cancer fighting medicine.
Cam Hawkins: Yep.
Kurt Frankenberg: and there’s a lot of buzz about it. Go ahead you’re gonna ask question?
Cam Hawkins: No, no, no. I was just gonna say so it’s a bit like LIPO-suctioned?
Kurt Frankenberg: [Laughs] Yeah, it wasn’t really about LIPO suction, so much as delivering a medication by way of fat cells. Yeah, so it was like a revolutionary treatment for cancer and there’s a lot of buzz about it and I bought in to that stock at 17 dollars a share and I sold the right for someone to pick that stock off with me at the price of 20 dollars and I sold that right for three so do you follow me so far? Bought the stock for 17 if I’m right and the stock is a winner and it goes up to 20 or higher, then the fellow that bought the call for me, he’s going to now be the proud owner of LIPO at 20 dollars a share even if it’s in 25, right? Meanwhile I’ve picked to that at 17, I’ve picked up 3 dollars and boy I’m really excited to see how this turns out. Well I was so excited that I actually margin myself. I borrowed money to make that trading bigger and then the next morning the stock opened up at 9 dollars and I had a full service broker. Yeah [Laughs] that was a face palm movement, you know that was no fun.
Cam Hawkins: Yeah.
Kurt Frankenberg: [Laughs] The stock opened at 9 dollars and my broker called me and says “Hey Kurt, LIPO opened at 9 dollars it’s shoot now down at eight and a half. Oops eight and a quarter, hey what do you wanna do?’” And I said you know there’s dead air for few moments and I said sell it for whatever you can get for [Laughs] he said “Kurt I can’t place an order like that what do you wanna do?” I said Market order just sell it, and good thing I did at that moment because she kept going down but I ended up completely deleting all but about 400 dollars of my life savings, with that one play. So [Laughs]
Cam Hawkins: That’s a big move.
Kurt Frankenberg: I see you suck in your teeth that’s no fun huh.
Cam Hawkins: Yeah, that’s a big loss.
Kurt Frankenberg: [Laughs] now the add insulting injury four months later the thing that had cause LIPO to fall like that was said it missed it’s window for FDA approval. FDA said nah, no we need more testing and so suddenly all the institutions were bailing out of that stock but it was still a solid idea and a solid product and when the FDA came back in, renewed their interest in and approved the product. That stock was back at the full strength and beyond four months later. If I’d only stayed in the trade and if I didn’t made the margin call, I would’ve done very well with it.
Cam Hawkins: and that’s your 20-20 hind sight view of the trading landscape and I know that I’ve had that happen to me in the past as well, and it’s, I mean even at this turn point in time, I almost exited a trade last night. On the Euro – US Dollar and I thought hang on a sec, stick what you’re doing you’ve got to stop loss there. Let it either hit the stop loss or you know or, just you gonna lose all the money and you’re almost there so don’t exit it or it’s gonna come the other way. I woke up this morning and it’s gone the other way. So there are lessons there. I don’t know what the lesson is at the moment but I think it’s probably sticking to your trading plan is the key lesson out there for you listeners.
Alright Kurt thanks for the story and let’s flip this 180 degrees now. Can you talk us through a specific time when everything fell into place. So your big “ah-ha” moment. That point in time you started to become a successful trader. What did you do differently? Who did you learn from? That sort of story.
Kurt Frankenberg: Okay, well that’s a really good question and I related it before that I’m a Martial Art instructor, right? So when I send the fighter into the cage, okay. We do UFC style competitions over here but it’s a little toned down in Colorado Springs. Same rules and all but much lower profile but when I send the fighter into the ring and he comes away winner. We look at the fight tape and we say “Okay, that was good you know what we specifically did we do right and what can we keep doing?” and sometimes we have a fighter that comes back a little beat up. You know maybe loss their match and we do the same thing we get up the fight tape and we say “Okay now what happened? Oh here you lost you know your balance, here you’re not keeping your fundamentals and not keeping your hands up, you know.” And we take up apart the fundamental mistakes that caused the lost.
So with this play with LIPO were I had bought in. I went through the list. What did I do wrong? So what we did was or what I did rather was go through the fight tapes so to speak I said “Okay what are the mistakes that I made and in what order?” and the first, and the largest magnitude of order or the biggest mistake that I made was to borrow money to trade. That was the biggest mistake was to be in margin. You know it’s, I don’t know what your viewers views my b on the Bible but it says in there that the borrowers servant to the lender, slaved and it’s that’s hard to get away from. You know that’s a truth that’s hard to get away from. So the first thing I did was borrow money. The second thing I did was to limit my upside. I limited my upside by selling that call to someone else what I’m doing is I’m giving them the option to take up my stock when it’s attractively priced at their price, and at the same time I’m sitting on all the risk. I’m sitting on all the risk, right?
Cam Hawkins: Yep.
Kurt Frankenberg: o that was backwards I said “You know what? Why don’t I flip a 180. Why don’t I turn that upside down.” And I began to trade the way that I do today and that was by buying stock and also buying a put option as an insurance policy. Now are you familiar with put option?
Cam Hawkins: Yeah, I did study options. That was actually my first trade was an options trade so…
Kurt Frankenberg: Oh very good.
Cam Hawkins: I spent about 3 months studying options. So I am familiar although it was several years ago. So I have forgotten quite some parts of it but yes I mean maybe give us a quick overview for some of the listeners out there what a put option is.
Kurt Frankenberg: Okay, so just a moment ago I described the covered call trade and what I’m gonna describe now is similar but not the same because. It’s similar because there’s ownership of the stock. It’s not the same because while we’re mixing stocks and options, we’re mixing them in a structure that actually carries out the trader’s maxim cut your losers short, let’s your winners run.
So rather than buying the stock say that 50 dollars a share and selling someone else the right to buy it from you yet 55 if it goes up, and selling that right for a dollar. What I’m doing instead is buying the stock 50 dollars a share and then buying a put option for 6 dollars a share. It gives me the right not the obligation but the right to sell it 55.
Now let’s think about that I’m holding the stock the cost for me has been 50 dollars. I’m holding a put; the put has been 6 dollars. So my total expenditure here is 56 dollars, right? But I have the right not the obligation but the right to sell that stock at 55. So if the, you know what hits the fan, alright and the stock goes down. What’s the most I can lose? A dollar, the most that I can lose is the difference between what I’ve spent 56 and what the strike price of the put is 55 so all I can lose is a dollar in this play. On the other hand if the stock goes up to 60, 70, 80 you know if the stock goes up there’s no limit to how much I can gain and so that’s kind of the beginning point of Radioactive trading, we call this Radioactive Trading.
There are 12 different ways to manipulate this position afterwards. So that you can take income while you’re sitting on it or even do what we call the Bulletproofing and Bulletproofing is exciting. Let’s say I’m able to buy that put option for a waiting time, like an insurance policy on my stock and keep it in force for six months or a year but in the near term I’m able to use one of the income methods to collect the dollar. Well, Now [Laughs] my risk has been paid for, there’s nothing but upside left and a risk and so that’s what we call Bulletproofing, and that the moment that, that happened for me was just like an experience that I had with my young daughter. Will it be ok for me to tell you about that?
Cam Hawkins: Go for it.
Kurt Frankenberg: Okay. My daughter she’s now 23 I’m a grandfather twice now by her. Okay, but when she was 3 years old being a Martial Art instructor and being kind of stupid. I bought a 3-year old trampoline and so we’re out there jumping on the trampoline, my 3-year old and me and I do a front lip and she says “Wow daddy! Hey can you do a backflip?” and I said well why not, and I begin to do the backflip and sort of in the middle of the backflip, I thought what if this is isn’t as easy as the gymnast make it seen [Laughs] and I began to doubt myself. Kind of like you begin to doubt yourself with that trade and because of the doubt my timing was off and because my timing was off I landed wrong, because I landed wrong I ended up bouncing off of the trampoline and on to my back on the ground. Luckily
Cam Hawkins: I just had that vision of you landing on your daughter for a second there. [Laughs]
Kurt Frankenberg: Hell yeah, well thank goodness but see this was over 20 years ago. So my 26-27 year old body was little bit more durable but here’s the thing. Later on my daughter and I are at a fair and they have a trampoline but setup next to the trampoline are these columns and the columns have bungee cords attached and the jumper is wearing a harness and this is what I found out cam. I found out that when there’s no fear of falling, I could do a triple back flip. Now at the age of 47 I can probably just do a double back flip. Okay, but I could do a triple back flip, land to a double front flip and then kind of pause in the air just above that trampoline cause it was, there’s no more possibility of breaking my neck and so taking fear out of the equation release the hyper perform within and so it was kinda that, that I look back to. I look at that idea as how a trader can be when the fear of losses is removed.
Cam Hawkins: and that’s a good way to look at it. I just read a book from Tony Robins called Master Your Money and he’s talking about possibilities to be in or to basically invest not necessarily trade but invest at no risk so there are options out there I suppose. What you’re giving us is another way to do that through the options market, through the stock market.
Kurt Frankenberg: Right
Cam Hawkins: Yep.
Kurt Frankenberg: Yes, so there’s so many folks use options for leverage and they are a useful tool if leverage’s your gain but they were originally designed for purpose of hatch and that’s how I use them. I use options to fence in my stock so that I don’t get hurt if something bad happens to the market. On the other hand if something good happens I’m in position and set to go.
Cam Hawkins: So if we are to say what your big, if we are to sum up your big “ah-ha” moment it was the fact that you could, you work out on how to go on to trades with almost zero risk and exponential upside.
Kurt Frankenberg: Yeah it was. What the big “ah-ha” was, was I traded in the sexiness of Covered Calls. It was kind of sexy this idea of sitting on the stock and then being paid while you’re sitting on it. You know, while you’re taking the risk of ownership, being paid for your time and I thought that, that was wonderful but there’s two problems with Covered Calls trading. The first problem is that you limit your upside so you sort your winners out, right? The winning stocks go up, and then they’re called away from you but then you’re left with the losers and then the dark side of Covered Called trading is that, the trades that have the most potential for a good win also happen to be more volatile and more volatile means more risk.
Well the “Ah-ha” moment was taking that same structure and just flipping it upside down. Let’s go ahead and trade volatile stock. Let’s go ahead and use these high flying uncertain the stocks but let’s rein it in to where they can’t hurt us but they can help us. That was the “Ah-ha” moment.
Cam Hawkins: Cool. Right so this is the, let’s move on to the next question and this is the last question in this round. What’s been your proudest “moment” since you became a successful trader?
Kurt Frankenberg: The proudest moment has been sharing because The Blue Print, my book, The Blue Print has been sold in 38 countries and I get a lot of E-mails from people that have either left the Covered Calls trading method, or that have been new to options trading or to stock investments and have written them their successful stories. I had one fellow in a live audience that I was speaking what I’ll do is that I’ll show on a screen, I’ll show how the RPM setup, RPM stand for Radio Active Profit Machine it’s our proprietary way of putting together one of these trades. I’ll show the RPM up on the screen and we have a fellow raise his hand. I ask the audience “Okay how many of you can see that you moneyed on better last year with the trades that you have, the same decision making, the same stocks but if you just didn’t get hurt by more than 5 percent on any of your stock.” And almost everybody raises their hands but one fellow raises his hand and says “try 30,000 dollars” and I said 30,000 dollars last year? He says “Well not exactly, it was 30,000 dollars in one trade then I’d be better off if I didn’t use your method” [Laughs]. I told him well you can buy a hundred copies of my book, you know one for yourself and one for 99 of your closest friends
Cam Hawkins: Yeah.
Kurt Frankenberg: and he laughed and he actually ended up buying 3 books, he did buy more than 1. [Laughs]
Cam Hawkins: So let’s run into the next part of the show which I call the “The Technical’s”. And this is 12 quick fire questions to help the listeners understand what it takes to become a successful trader. So are you ready Kurt?
Kurt Frankenberg: I’m ready.
Cam Hawkins: Okay, right so the first question is how long did it take you to go from trading you’ve been too consistent profitable trader?
Kurt Frankenberg: 16 months, yeah.
Cam Hawkins: Yeah, 16 months, which is pretty quick. Right, so next question is what’s your mental approach to trading and what special techniques you use to keep your motion in check.
Kurt Frankenberg: Well, my mental approach is you know expect the best, prepare for the worst and cross your fingers, you know. I am not a really good stock picker and I’m not a real good technical trader. I just simply like I said prepare for the worst and expect the best.
Cam Hawkins: Cool, and do you have a success quote you can share one that resonates with you personally.
Kurt Frankenberg: Oh yes, there are no million dollar ideas, there’s only million dollar execution.
Cam Hawkins: Right, that’s a great quote and I’ve heard that before. What’s your recommended must read trading book and I suppose other than your own.
Kurt Frankenberg: Oh, yeah. No I’m looking at it right now it’s a Trade Your Way to Financial Freedom by Van Tharp. I’ve got a lot of inspiration from his book. I actually, I begin blogging Cam after I began trading the way that I do today. I begin blogging and found that Van Tharp had an idea, he coined the phrase Position Sizing, and I was using Position Sizing without calling it that. So anyway when I picked up his book, I thought well you know here’s a guy that thinks like me [Laughs].
Cam Hawkins: Very Good.
Kurt Frankenberg: Yeah, he’s my go to man.
Cam Hawkins: Cool, and what are your views on Automated Trading Systems in other words trading robots or we call them in the Forex “MetaTrader World expert advisers”.
Kurt Frankenberg: I. I’m not comfortable enough yet with my own money to do that but I don’t see why it couldn’t be a way to go. You know if you’re going to do well it, you’re going to have follow rules because the market is rampant chaos, and the only order that it has is the order that you bring to it, right?
Cam Hawkins: Yep.
Kurt Frankenberg: Absence of your emotions. So if you’re able to program a machine and then let it do your job and do it even under pressure, I’m all for that.
Cam Hawkins: Cool.
Kurt Frankenberg: Personally, I haven’t let go of the reins. [Laughs]
Cam Hawkins: Okay, brilliant. So what trading related internet resource do you always use.
Kurt Frankenberg: Oh yeah, I go to Power Options, Poweropt.com to do all of my screens, you know if I’m searching for a particular play. They support 23 different plays. You know covered calls and Iron Condors, Butterflies, Double Diagonals, you know. All kinds of options trade they support. The boys in the office, trade my way. [Laughs] They do Radioactive Trades cause they see how it’s performed, you know for the last 7 years since they started tweaking their own search parameters to fit mine, but yeah that’s my go to resources, Power Options it’s Poweropt.com. If you do Poweropt.com forward slash R80 you’ll get 2 free weeks on me.
Cam Hawkins: Brilliant. Brilliant
Kurt Frankenberg: Yeah, cause I’m friends with them.
Cam Hawkins: Cool, that’s great for you listeners out there. So have a look at that Poweropt.com was it forward slash
Kurt Frankenberg: Forward slash “rat”.
Cam Hawkins: “Rat”, right we’ll put a link on the show tonight.
Kurt Frankenberg: Very Good!
Cam Hawkins: So, next question what’s your preferred trading strategy?
Kurt Frankenberg: My preferred trading strategy is the Married Puts, where you buy stock and also buy a put option but you probably don’t have time [Laughs] for me to go into the twelve variations that can happen after the Married Puts.
Cam Hawkins: That may be another show then I think Kurt. [Laughs]
Kurt Frankenberg: That might be another show, yeah.
Cam Hawkins: Indeed, so if you could leave our listeners with one piece of advice what would it be?
Kurt Frankenberg: I would say get losses under control, that’s the number one thing. In 2009 I wanna say no not 2009. 2010 in 2010 I had significantly more losing trades than winning trades but I won for the year, okay. So let that sink in for a minute, I lost much more often than I won but my winners did very well and my losers didn’t take away too much and the thing is that’s the only thing you can actually control. [Laughs] You can’t control what the market will do but you can control your exposure and so. Yeah if there is one thing I would leave your listeners with it would be that.
You don’t have to use my method there’s other ways of going about it but certainly get your losses under control. The winning will take care of itself after that.
Cam Hawkins: So what’s the biggest mistake most retail traders make?
Kurt Frankenberg: Oh boy. I think most of the mistake that they make most often is failing to pull the trigger and the thing is this is not Rocket Science. You know I mean this is not life or death. If you’ve done your homework and you have a way of reducing what your losses could be on the front team. Go ahead and move forward. [Laughs] Go ahead and take your trades. I think too many folks get caught up in the paralysis of analysis. You know they wanna make sure that it’s just right and they also hold on to being right. I don’t hold on to being right I hold on to trading right.
Cam Hawkins: If you’re not a MetaTrader fan which you may not be given the Markets you’re trading, what’s your preferred trading platform and why?
Kurt Frankenberg: Trading platform is far as where I can use my trade?
Cam Hawkins: As far as the software you use to place your trades.
Kurt Frankenberg: Oh, I use Power Options. I use the Poweropt.com. No, they’re not a broker as far as a broker what I use is I have 3 brokers. I place some trade through Thinkorswim. I place some trades through Options Express and I place some trades through Scottrade. Scottrade is low on the commission side but they won’t let me do some of the things that I want to do because they don’t realize that I’ve actually eliminated the risk that is normally associated with the trade. So for those more complex trades I go to Thinkorswim or Option Express Accounts.
Cam Hawkins: and what is your typical trading day look like?
Kurt Frankenberg: You know it’s, to me trading is kinda like watching Paint Dry. You know I am not a day trader I will check in toward the end of the day, they say that amateurs open the market and the professionals close it. So I would say the last half hour of the day or so is when I’m actively looking in to what my stock should be doing. I was looking in to it just before you called me for example.
Cam Hawkins: Yep.
Kurt Frankenberg: and when you do a Radioactive trade, It’s kind of, it’s not sedative forget it but it’s, you know you put the thing in place and you wait for it to take a direction because you know you don’t have so much at risk, you know what I’m saying? If I was trying to keep my risk down by watching it 24/7, I wouldn’t go to the expensive buying put option, but because I’ve bought some insurance, bought an insurance policy for my stock. I won’t look at it sometimes for days.
Cam Hawkins: Now we’re into the part of the show where myself and my members “The MTM Mastermind” put your knowledge and experience to the test. So Kurt, are you ready to take on the challenge?
Kurt Frankenberg: Ah, maybe. [Laughs]
Cam Hawkins: Ready? Okay right. For those not in the know, my MTM Mastermind community are working towards creating a profitable trading system. If you’re not in the Mastermind yet, just jump on Metatradermentors.com and join today while it’s free. So Kurt today your task is this we’d like you to help us find a high probability entry point for our trading system. We already have a market to focus on so namely the S&P500, I know it may not be one that you’ve traded in the past but we’ll looking forward to specific standard indicators, candle stick formations, market events, those sort of things. So Kurt to help us pinpoint high probabilities set-ups for our trading system, what 3 Golden Nuggets do you have for us today?
Kurt Frankenberg: Wow! Okay, I’ll go ahead and mention that I’m not a technical trader but I will say that I still do pay attention to technical’s and what that means is my decision making is not based on, you know looking at all the different patterns and so forth, my decisions are based on how little risk can I take when I get in to this. That said, I do like to see cup and a handle, okay?
I recently pulled that off with Twitter. Twitter had a nice gain the other day which I locked in and it was a long curvy base and then just before the big volume moved, I got positioned and she jumped up. Three Golden Nuggets, I would say cup and a handle.
Cam Hawkins: ep, Yep. So for those out there, that’s a candle stick formation, is that right? Or a price formation?
Kurt Frankenberg: It’s a price formation.
Cam Hawkins: Okay.
Kurt Frankenberg: It’s a base formed over a period of weeks or even months to where there’s a gradual down slope on the left and gradual up slope on the right, and then volume dries up and then after the volume dries up then volume goes to the roof, then you know that that’s a very good entry point for stock that can go up 20 percent or more.
Cam Hawkins: Okay, brilliant.
Kurt Frankenberg: I wouldn’t do that, personally I wouldn’t do that on that on the S&P. I would do that on an individual stock but I have traded S&P before.
Cam Hawkins: Okay, and have you got another two that we could use or think about adding to our system.
Kurt Frankenberg: Boy, you know what? The other two Nuggets are these. Number one, protect your downside and the best way to protect your downside is not a stop loss order. My goodness a stop loss order, you know as your stock goes through its normal volatile gyrations of the day, back when I use to trade stop orders I used to joke around with people and say “I’ve got a reliable way of predicting the future. I can predict the exact low of the stock for the day.” It’s where I set my stop [Laughs] and so the stock comes down, you get stopped out and then the stock goes back up but it goes back up without you, you know. So that’s one way a stop order can betray you.
The other way the stop order can betray you is a gap. You know if your stock gaps down over 9, now you’ve got a market order in place cause that’s all stop order is. It’s a market order in place. If you get a 5 percent stop loss and the stock gaps down 30 because of a news item, you’re gonna get stopped out at the 30 percent loss. Not so with the put options. That’s my second Gold Nugget. You have a put option, you have a legal and binding contract that says you can get out at your pre-agreed price and that’s better than any stop order.
Cam Hawkins: and can you put puts on the S&P. I’m guessing you can.
Kurt Frankenberg: On the, on S&P yes you can.
Cam Hawkins: Cool.
Kurt Frankenberg: Yeah.
Cam Hawkins: Okay.
Kurt Frankenberg: and then finally the 3rd Gold Nugget would be, learn to do riskless spread trades and that’s gonna have to be a topic for another show Cam but it’s possible to take income within the context of one of the setups that I’ve described read by stock and put option.
Cam Hawkins: Yeah.
Kurt Frankenberg: It’s possible to take income and leave your upside open which a Covered Call would not allow you to do and use that income to pay off your put.
Cam Hawkins: Yes. I’m with you. I’m with you.
Kurt Frankenberg: Yeah that’s a real Gold Nugget I think. The Bulletproofing idea has been kind of revolutionary I had people when I presented this first at DMIT in 2008 I had PhD economist. I mean guys that are my rock stars follow me on to the bathroom, you know I’m trying to take a break from the lecture and they’re following me into the bathroom with questions but it was over this Bulletproofing idea and the fellow did introduce me at the lecture had actually bulletproofed himself in network appliance kinda cool.
Cam Hawkins: Cool. Those are 3 great Golden Nuggets that I think we can take into the Mastermind and discuss further and work out how we work them into our entry point of it of the system. So before we wrap up what’s the best way that traders can get hold of you?
Kurt Frankenberg: Okay, the best way for traders to get a hold of me would be at my email address, Kurt, K-U-R-T if I spoke it correctly. Kurtf@radioactivetrading.com a one word and if you go to this site, if you go to radioactivetrading.com we do webinars twice a week. Twice a week we’ll do Beginner Level, Options Trading webinars where we teach folks how to cut your losers short and let your winners long.
Cam Hawkins: Brilliant, okay well thank you Kurt and thanks for sharing us today everything we discussed here along with the links and all the show notes will be on MetaTradermentors.com and remember to pick up my trend line or join the MTM Mastermind, all for free while you’re there. So until next time I wish you all happiness and success.