Uncover how Erica Joan trades options.
In this in-depth Q&A session, we delve into crucial strategies for options trading, exploring stock selection, risk management, and profit maximisation. Don’t overlook these valuable insights from this successful options trader.
Table of Contents
🚀 GETTING STARTED
1. Who are you? Where are you from? How did you first become interested in options trading, and what motivated you to start?
I live in the Chicago area. I was born in Iowa and lived in Florida and England in the past. I own a production company that I started 25 years ago in Chicago. I’m a creative entrepreneur at heart, a business minded-airy-fairy type.
A partner in my business was options trading and called me one day and told me he thought I’d love it. Sometimes the stars line up and the universe brings you something new that changes the course of your life from that moment forward. That’s what that call did for me. He was right. I fell in love with it.
2. Can you share your early experiences and any challenges you faced when you were starting out as an options trader?
The first challenges were trying to figure out how to do it.
My partner’s advice was to do covered calls and learn how to do them from YouTube.
The problem was that I didn’t find any videos that explained what I wanted to know in a simple and concise way.
Few talked about the risks, which I wanted know to protect myself, as a new investor.
This is one of the reasons I’m now a coach and I’m launching a trading program. I want to provide simple instructions on the how-to, the benefits and the risks.
My goal is to make 1,000 millionaires.
📊 PREFFERED STRATEGIES
3. What are your preferred options trading strategies, and why do you find them effective?
The covered call is the starting point for everyone, IMO. I use this as my primary, reliable, tried and true trade.
I also trade LEAPS, bear call spreads, volatility and calendar spreads.
I sell a put every now and then.
That’s all I do. And it yields fantastic results.
If you follow me on Twitter you know I’m all about keeping it simple and fun and reducing risk. These strategies checks all those boxes for me.
4. What’s a lesser-known tip or hack in options selling that has made a significant difference?
I see a lot of people that trade only calls, puts and the wheel.
Those are great, but branching out to LEAPS, bear call spreads and calendar spreads will increase your percentage returns dramatically.
I don’t like the idea of branching out into those without a coach though. This is because there are specific rules you have to follow to make them highly profitable.
Rules on Delta and expiration dates for LEAPS, rules on bear call spreads based on if we’re in a bear or bull market and rules on calendar spreads with the date of expiration on that upper leg and how much you’re spending to buy that option. If you get the formula wrong, it won’t work out.
5. Do you trade earnings, if so what strategies do you use?
I’m now trading earnings with a lot of confidence.
My strategies only work on earnings IF the stock has a good 5 year, 1 year and 1-3 month chart. Good means all those charts are green.
I buy a LEAP a month out from earnings. This is one of the only trades I look at Delta for.
The minimum Delta I go for is .5, but I may go as high at .75. I sell this just before earnings. I sell the day before, or the day of on a stock like AAPL, I’m always making a great return on this. A 30% gain is common.
If the first LEAP is gaining a lot in value, I’ll buy a second LEAP to hold through earnings in the event the stock takes off. I’ll set a good til cancelled order to sell it and often it will execute after hours on earnings.
If the stock dumps- no worries. I’ll turn that LEAP into the top leg of a calendar spread.
The whole month before earnings I do covered calls like crazy. I’ll leave some shares open to do covered calls like an hour before earnings when the premiums are sky high because of implied volatility.
If the stock gets called away, great. If the stock drops, no problem, I roll the call in an make extra premium.
Earnings is not only about earnings day. It’s about the whole month before earnings.~Erica
🛡️ RISK MANAGEMENT
6. How do you approach risk management in your options trading? What steps do you take to protect your investments?
My prerequisite that stocks must have green charts does worlds of good to protect my trades. It has to have a green 5 year, 1 year and 1-3 month chart. I make some exceptions but every stock I own has to either be retraced to it 2021 highs or is 75% the way there.
Stocks that pay a dividend also go a long way to protect my account size and risk. There aren’t huge selloffs in dividend stocks like there are in growth stocks.
My trades usually have a back-up trade to the first trade if the first trade goes pear shaped.
I have a plan for a blackswan sell-off event. That’s as simple as if my account goes down a certain percentage based on world news or economic event, I will buy all my open calls back and sell out to move to cash.
I don’t feel the need to protect myself much more, because, once again, my stock picks are good.
I make sure I’m following earnings reports from the stocks I own. If the stock has 2 bad quarters, I’m out. I’m currently selling out of NKE because I don’t like what it’s doing with earnings and revenue.
7. Are there some companies that you would avoid trading options on completely?
IPOs, steer clear. I don’t trade anything that isn’t 5 years old yet. Nothing heavily related to crypto or oil. There’s too much government regulation that can affect the stock, or situations where a country can decide to manipulate the supply.
8. Have you ever had a trade go against you in a big way, did you manage to repair it, what learnings did you take from it?
When I first started the stock market was booming and I had a lot of PINS stock and some CHWY. Those both dropped dramatically in 2022. Why? Because they are new and they don’t pay a dividend. I held on to them way to long as they were sinking. I’m glad it happened though. It taught me a lesson I know for life now. It made me a better trader.
🔥 Quick Fire Qs 🔥 How long have you been trading options for? 3 years What is your favourite option selling strategy? LEAPS What is your total account size dedicated for option trading? $350k traded with multiple strategies and goal of generating income. $250k traded with only covered calls with goal of making unrealized capital gains. What % return do you normally aim for each month? 3.5 - 4.5% How many stocks do you normally trade at any given time? 8-10, with 75 % of the stocks in 3-4 companies Do you prefer weekly or monthly options? 2-3 weeks on covered calls. LEAPS I’m looking for a percentage gain, so there is no timeframe involved. BCS 3 -4 weeks. Calendar spreads 3-4 weeks. What delta range do you normally trade? I only pay attention to DELTA on LEAPS. I buy delta .5 - .75 What is your favourite online resource or tool for options trading? I read Yahoo Finance.
💰 EXPECTED RETURNS
9. What kind of returns do you typically aim for with your options trading?
Funny, I don’t try to reach a certain percentage, but my goal is $30,000 a month because that would make me work optional. I’m 80% of the way there. I thought this would take me 5-8 years to accomplish, but I’ll be there in 2024 unless the market sinks quite a bit. It’s like a dream come true.
I am living off my trading income currently.
📈 FUNDAMENTAL / TECHNICAL ANALYSIS
10. How important is fundamental and technical analysis in your decision-making process?
My fundamental analysis is as simple as this: Buy good stocks that have rising 5 year, 1 year, and 1-3 month charts. I’m parroting this.
Make sure the bulk of my stocks pay a dividend to protect the portfolio value.
Stick to the simple easy and fun trades so I can trade just a few hours a week and live my life.
I don’t look at candles or wedges in stock charts, I don’t look much at Delta. It’s amazing that you don’t have to, to make a ton of money.
11. If you use technical analysis, which indicators do you find the most beneficial?
I don’t read charts other than looking for companies that have green charts and the earnings and revenue are up year-over-year.
When I sell covered calls, I’ll do a little math to see if the 2 week call is more profitable than the 3 week call, or 3 week vs 4 week. But that’s it. There’s no need to complicate it more than that. That’s why I believe anyone can options trade. It’s simple if you stay in discipline.
💡 ADVICE FOR BEGINNERS
12. What advice would you give to someone who is just starting out in options trading? Are there any common pitfalls they should avoid?
Making 1.5 -5% per month is an absolutely stellar result. Don’t chase high return trades, that falls into gambling. You’ll blow up your account if you try to learn too fast.
Start with the covered call and get a coach. If a coach charges $150 for a call and teaches you covered calls, you can make $350 on your first AAPL call. That’s a $200 profit on that lesson. And you’re going to be doing AAPL calls for life. That’s a crazy return on investment.
Don’t mess with trades when you don’t understand the risk.
Some people say to start trading with paper. I’d say- don’t. Get a coach, learn the skills and then get going making real money.
13. Are there any specific strategies or concepts that you recommend new traders focus on mastering first?
Yes. Learn the covered call.
Final Question: Where can people find you?
You can find me on Twitter and on TikTok.
You can also see all the products and services I offer on my linktree here.
I am also running a CASHING IN ON COVERED CALLS course, starting 13 September. You can find more about that here.