from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

802-877-8330

The 10K Strategy

The 10K Strategy is my favorite investment strategy. I have used it to make an average of over 50% a year for three out of four consecutive years.  I have now added a twist to the strategy so that annual returns might be less than those years but there should be a much higher likelihood of its succeeding.

I got so excited about the strategy that I wrote a book about it (see special offer below).  I set up an actual portfolio to demonstrate how the strategy worked for my subscribers in March 2009. I called it the Boomer’s Revenge portfolio (designed so Baby Boomers who had lost much of their retirement capital in late 2008 could get it back). The underlying stock was SPY (the tracking stock for the S&P 500, so we were essentially betting on the market as a whole rather than any individual stock. I started with $10,000 but every month when the portfolio was worth more than that, I withdrew the extra amount.

A little more than a year later, I had withdrawn $6600 from the portfolio and it was still worth over $10,000 (after paying all commissions, of course). Hundreds of my subscribers had mirrored this portfolio and enjoyed those returns right along with me.

Some people discounted these remarkable gains because the market had moved steadily higher most months in 2009 and early 2010. But then the May 2010 expiration month came along and concerns in Greece and Europe spooked the entire market. The S&P fell over 8%.

So how did the Boomer’s Revenge portfolio hold up when the market swooned? I am proud to report that we gained over 4% that month while investors all around were gnashing their teeth.

The great thing about this strategy is that it can make money even if the market as a whole falls in value (just as long as the drop is not too great) In May 2010 we proved that the market could fall as much as 8% and we could still make a nice gain.

What we didn’t have to do to achieve these results was maybe even more remarkable than what we did have to do. .We didn’t have to be smart traders to make this money. We did not have to guess which way the market would move. We did not have to pick a hot stock, or any stock. We just followed a pre-determined set of Trading Rules, buying longer-term options and selling short-term options to someone else.

The 10K Strategy takes a little work, and at least a small understanding of stock options, but it is well worth the effort. (Actually, you don’t even have to understand it all if you subscribe to my Options Tutorial Program, where I email you every trade I make once it is made. You can mirror my trades, and maybe even get better prices than I do.) You can order it here.

Are you willing to make the effort?

How would you feel about yourself if you did not take the hour or two it might take to learn how to make extraordinary returns on your money every year, even if your stock doesn’t go up at all?

On the other hand, how would it feel to know that you understood a trading strategy that could multiply your net worth many times over in a few short years? Think of the exotic vacations you could take, the fancy cars you could buy, and the early retirement you could earn — all possible because you understood and used an investment vehicle (stock options) that scare most people to death.

This is no fishy proposition.

While making 36% every year without taking big risks may sound too good to be true, this is no fishy proposition. I am not giving you fish — mahi-mahi, red snapper or sea bass. Holy mackerel, all I’m doing is teaching you how to fish. I will give you a formula. Once you have learned it, you may be able to make extraordinary returns on your money every single year – without any help from me.

You will be proud of your newfound ability to achieve stock market riches with this formula. Your family and friends will love you. Your business associates will envy you. Your mother will take full credit for your success.

Here’s the fine print.

Okay, anything this good must have some drawbacks, so here they are:

  1. I can’t guarantee a 36% return in one year while not risking a loss. But I can show you every trade we made in 2009 that resulted in better than a 60% gain on our money (after paying all the commissions).
  2. You will have to work. That means placing option orders with your discount broker on or about the third Friday of each month. When you subscribe to Terry’s Tips, I will email you the exact trades I make in every portfolio using the 10K Strategy (for two months there is no extra charge). Once you understand how the strategy unfolds you probably won’t need my help any longer. You will know exactly what to do each month on your own.  
  3. You will need to have access to an Internaet connection or a telephone on or about the third Friday (expiration day), and sometimes for adjustments at other times. This is not always easy, but I have made hundreds of trades on the telephone from a remote island in the Bahamas, a bastide in Provence, and a small village in the middle of Russia. So it is almost always possible.
  4. Most of your profits will be taxed as short-term capital gains.  This is a major disadvantage of the strategy and a big reason to carry it out in your IRA or other tax-deferred account.

Yes, you can use this strategy in your IRA. You will have to set up an IRA account with a broker who allows option spreads.

Does the stock have to go up for the 10K Strategy to be profitable? 

As long as the stock moves only moderately (5% or so) during an expiration month, it doesn’t matter which way the stock moves.  We spend a good share of the invested amount in an insurance bet that pays off only if the stock falls (and usually maintain a cash reserve for a downside adjustment as well).

A Conservative Options Strategy

Many people believe that a conservative options strategy is an oxymoron.  Options are leveraged and depreciating investments that involve a great deal of risk.  However, for virtually every option that the 10K Strategy owns, there is an offsetting short option to protect against a moderate stock price move in either direction.

The 10K Strategy in a nutshell – it’s all about the Decay Rate

Decay Rate for a Typical Option

If the price of the stock remains the same, all options become less valuable over time. This makes total sense. If you own an option that has a year to go before it expires, you would be willing to pay more for it than you would for an option that lasted only a month.

The amount that the option falls in value is called its decay. There are two interesting aspects of decay. First, it tends to be quite low when there is a long time until the option expires. Second, decay increases dramatically as the option moves toward the date when it expires (the expiration date).

A typical 12-month call option (strike price 70) for a $70 stock might be about $7.80. Instead of paying $7000 to buy 100 shares of the stock, you could buy the right to purchase the stock at $780. Having the option would give you all the rights of stock ownership except receiving dividends and voting on company matters. For every dollar the stock went up, you would gain $100 just like the owner of 100 shares would enjoy.

Of course, you wouldn’t actually make a gain until after the stock had gone up by $7.80 to cover the cost of the call option you bought. But you would have a full year for that to happen.

Each month you waited to buy this option (assuming the stock stayed at $70), you would pay less much less. When there was only a month to go until expiration, a one-month call option (same strike, same $70 stock) might sell for $1.80 The stock would only have to go up $1.80 before you made money on your call purchase, but there would only be one month for that to happen.

Most option buyers prefer to pay $1.80 for an option that only has a month of remaining life rather than $7.80 for an option that has a year of life. In the 10K Strategy, we do just the opposite.

In the 10K Strategy, at the same time we buy options with several months of remaining life until expiration, we sell someone else an option that only has a month to go until expiration. We are allowed to use our longer-term option as collateral for the short term sale.

When you simultaneously buy a long-term option and sell a short-term option on the same underlying stock or ETF at the same strike price, you are placing what is called a calendar spread (also called a time spread).

The price we pay is the difference in price between the two options. For example:

Buy one-year call option at 70 strike price for $7.80
Sell one-month call option at 70 strike price for $1.80
Cost of spread: $6.00 ($600)

After one month, if the price of the stock remains at $70, the price of the option we bought for $7.80 will have fallen in value by about $.40, and would be worth about $7.40. However, the option we sold to someone else would be worthless since the stock price is not higher than $70 and there is no time remaining for the option.

At the end of one month (assuming the stock is still at $70), the spread that we purchased for $600 would then consist of a single call option with 11 months of remaining life which is worth $740. We would have made a gain of $140, or about 23% on our investment in a single month (less commissions). At that point, we would sell another one-month option for $180 and wait for another month to expire.

If the stock remained at $70 for an entire year, and we sold a one-month option 11 more times for $1.80 a pop, we would collect $19.80 ($1980) on our original investment of $6.00 ($600), or over 300%.

The difference in the lower decay rate of the long-term option we own and the higher decay rate of the short-term option we sell is the essence of the 10K Strategy. Everything else is just details.

Of course, this is a simplified example. Commissions would eat a little into the gains, and the stock will never stay exactly flat. Sometimes it will stay almost flat, however, and we would earn over 20% in a single month in the above example.

The 10K Strategy consists spending most of your cash to purchase call calendar spreads at strikes near and above the stock price. A portion of portfolio value, usually 10% – 20% is retained as a reserve in case adjustments need to be made.

For example, if the stock falls early in an expiration month, some downside protection might be added on to insure that if the market continues to fall, a loss can be avoided. These adjustments might take one of several possible forms. The most common one would be to purchase additional calendar spreads at strike prices below the stock price.

We have also had good luck with what we call an exotic butterfly spread. This is much like a traditional butterfly spread except that one of the legs is in a further-out month. When you become a Terry’s Tips Insider, our options tutorial will include a complete set of adjustment Trading Rules, including both the traditional and exotic butterfly spreads.

Buy the Book and Learn all About Calendar Spreads and the 10K Strategy

If you would like to see how calendar spreads can be used to achieve consistent returns every year that the market moves moderately in either direction, all you have to do is buy a copy of my book (Making 36%). 

You can buy the book here and you will receive:

  1. An electronic version of Making 36%: Duffer’s Guide to Breaking Par in the Market Every Year, in Good Years and Bad.
  2. A copy of the paperback book mailed to you by first class mail.

This may seem a little hard to believe. For a total cost of $12.94, you will have everything you need to make superior investment returns for many years. It could easily be worth hundreds of thousands of dollars to you. There is nothing else for you to buy (unless you would like to learn even more, and become a Terry’s Tips Insider).

Making 36% – A Duffer’s Guide to Breaking Par in the Market Every Year in Good Years and Bad

Making 36%: Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad Here is what the book looks like (but the good stuff is inside):The book was originally published at $19.95. You will receive an electronic version so you can start right away, and the paperback version will be mailed to you free of shipping and handling charges. Order it today

Back to TOP

TERRY’S TIPS STOCK OPTIONS TRADING BLOG

January 24, 2023

January 24, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of the Saturday Report. With earnings season underway, we’re back to our typical earnings plays with a return to the bearish side.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Tarnished Goldman

With earnings season now underway, we can focus on companies that have recently reported. Though the docket was sparse this past week, there were a few juicy names to choose from. One was Goldman Sachs (GS), which reported a miserable quarter before the week’s trading began on Tuesday.

Earnings plunged 66% from a year earlier on slower corporate dealmaking and 48% lower investment banking fees. Earnings per share came in at $3.32, far below the expected $5.56. FactSet noted it was the bank’s largest miss in years. Revenue also dropped and missed estimates.

The stock reacted by falling 6.4% on Tuesday, its second-largest one-day, post-earnings decline since April 2009. The week didn’t get any better for GS, as reports came in on Friday that the Federal Reserve is investigating whether the bank had the appropriate safeguards in its consumer business. The stock fell 2.5% on a day when stocks were higher.

The stock’s 8.6% plummet last week pulled it below its 20-day and 50-day moving averages. The 50-day is rolling over into a decline for the first time in three months, while the 20-day appears poised to head lower as well. We are going with a bearish call spread, with the short call strike sitting between the 20-day (blue line) and 50-day (red line) trendlines. However, given the 50-day’s current path, it should fall below this strike and serve as a second potential point of resistance to keep the spread out of the money.

If you agree that GS will continue to struggle, consider the following trade that relies on the stock staying below $360 (green line) through expiration in 6 weeks:

Buy to Open the GS 3 Mar 365 call (GS230303C365)

Sell to Open the GS 3 Mar 360 call (GS230303C360) for a credit of $1.25 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $341.84 close. Unless GS falls quickly, you should be able to get close to that price. The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $123.70. This trade reduces your buying power by $500, making your net investment $376.30 per spread ($500 – $123.70). If GS closes below $360 on Mar. 3, both options will expire worthless and your return on the spread would be 33% ($123.70/$376.30).

Any questions?  Email Terry@terrystips.com

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you.

~ Maya

Any questions?  Email Terry@terrystips.com.

Thank you again for being a part of the Terry’s Tips newsletter.

Happy trading,

Terry

January 9, 2023

January 9, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, generated by our trading team, for your consideration. We’re going with another ETF this week, but this time back on the bearish side.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Attention Shoppers

With earnings reports non-existent, we’re sticking with ETFs again this week, this time on the bearish side with the retail sector. The SPDR S&P Retail ETF (XRT) is a broad-based, equal-weighted index of around 100 retail stocks. No stock is worth more than 1.5% of the portfolio and the top 10 holdings are littered with small niche names, some of which I’ve frankly never heard of (Sally Beauty, Franchise Group, Leslie’s). Amazon and Costco, on the other hand, make up a mere 2.2% combined.

XRT had a rough 2022, losing about a third of its value. That puts it on par with tech stocks, which it is not, and trailing the broader market. Should we expect a rebound in 2023? I won’t hazard a guess. But we know the Fed will continue to raise rates to tame inflation. Many expect some sort of recession. The outlook appears muddy at best and bearish at worst.

XRT has staged a mini-rally to start 2023, gaining 3.8% in the first week. But the ETF is now bumping into its 50-day moving average. However, the 50-day hasn’t provided much resistance or support for the past several months. Of greater concern is the overhead 200-day moving average, which has been declining for more than a year. This trendline marked a top in August and kept XRT in check in November, allowing just two daily closes above it.

This bearish trade is a play on XRT once again faltering at the 200-day, which sits 3.7% above the Friday closing price. Note that the short call strike of our spread (red line) sits above the 200-day (blue line), meaning this resistance will need to be broken to move the spread into the money. Options traders have a similar outlook, pricing puts higher than equidistant out-of-the-money calls.

If you agree that XRT will fail to overtake the 200-day, consider the following trade that relies on the ETF staying below $66 through expiration in 6 weeks:

Buy to Open the XRT 17 Feb 69 call (XRT230217C69)

Sell to Open the XRT 17 Feb 66 call (XRT230217C66) for a credit of $0.85 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Monday’s $62.46 close. Unless XRT drops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $83.70. This trade reduces your buying power by $300, making your net investment $216.30 per spread ($300 – $83.70). If XRT closes below $66 on Feb. 17, both options will expire worthless and your return on the spread would be 39% ($83.70/$216.30).   

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you. ~ Maya

Thank you again for being a part of the Terry’s Tips newsletter. Any questions?  Email Terry@terrystips.com

Happy trading,

Terry

January 6, 2023

January 6, 2023

Two and a half years ago, I found myself in the ICU of the University of Vermont Hospital.  I had all the symptoms of Covid even though I had tested negative several times.  My doctor kept saying that the tests had to be false negatives.  Surely, it was Covid, he said.

I checked myself in to the ER of Porter Hospital in Middlebury at midnight on a Friday.  My blood pressure was 65 over 45, and after filling me full of fluids and keeping me awake all night, they couldn’t get that upper reading over 70.

In the morning, they rushed me north to the ICU where they anticipated doing a surgical procedure on my aorta.  They let me make a phone call to Jon Lewis who had been sharing the responsibilities of making the trades in our portfolios.  I told him that he would have to write the Saturday Report that day as well as taking over all the portfolios on Monday.  He said he didn’t think he could do it.  I told him that I surely couldn’t do it, and he was the only one out there who could do it all.

When the test results at the ICU came back, we learned that I did not have Covid after all, and the anti-biotic that they had given me at Porter had saved my life.  Seems that I had a tick-induced disease called Anaplasmosis, and a week later, I felt totally fine.

Ever since that Saturday in July, Jon Lewis has made every trade in every portfolio and written every Saturday Report.  I spoke with him and shared ideas on a regular basis, but he made all the final decisions.  Jon has done a better job than I have in carrying out the 10K Strategy.  For 2022, I traded this strategy in my personal portfolio and did far worse than the market averages. It was my worst year ever. 

Meanwhile, Jon beat those averages by more than 20%. He wisely handled the extreme volatility by keeping about half the portfolios in cash, and placing spreads at a larger range of strikes than we had ever used in the past.

I endured more health issues again this year.  I have had asthma-like breathing issues that prevented me from playing tennis singles or taking long-distance hikes.  In June, a biopsy showed a “high risk” cancer tumor in my prostate.  A long course of radiation has hopefully taken care of it.  And an adjustment to my pacemaker has improved my breathing considerably.

I am almost 84 years old and have been involved in Terry’s Tips for 21 years since I started in in 2001.  I continue to love options trading and place trades in my personal account nearly every trading day.  But this seems to be the appropriate time to turn the entire business over to Jon.

I want to thank my loyal subscribers who hung in there through the difficult years (like 2022).  I have enjoyed conversations over the years with many of you. I hope some of those relationships will continue as we move forward.

I will continue to read the Saturday Report each week, and surely have thoughts I would like to share with Jon. I may offer some additions to the quotations list at the end, but going forward, this is his baby. I am absolutely certain that if volatility falls just a bit to where it has hung out in the great majority of years, he will kill the market averages by a huge margin.

I wish Jon, and all the subscribers who make Terry’s Tips possible, all the luck in the world.  You have made this a wonderful ride for me, and I thank you from the bottom of my heart.

Happy trading,

Terry

Upcoming Market Dates:

Thursday, November 24th. Market closed for Thanksgiving
Friday, November 25th. Market closes early at 1:00 p.m. ET

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This digital book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

    Sign Up For The Free Options Strategy Report & Our Newsletter Now!

    Sign up for Dr. Terry F Allen’s free newsletter and get immediate access to his most current report on his stock option trading strategies.

    tradier

    Tradier offers an auto-trade service which many Terry's Tips subscribers use to follow our portfolios.

    Member Login  |   Programs and Pricing  |  Testimonials  |  About Us  |  Terms and Conditions  |  Accessibility Statement  |  Privacy Policy  |  Site Map

    Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

    © Copyright 2001-2022 Terry's Tips, Inc. dba Terry's Tips
    235 Primrose Lane, Ferrisburgh, VT 05456