Episode 6 Transcript: Zombie Trading Days Are Over (Part 2)

All right, so with that, I think it’s time to move into our interview here. I’m going to go ahead and get Mike Rykse on the line with us here. And just to give you a little bit of background about Mike, well I’ll actually have Mike give some of his background, but he’s really our go-to guy when it comes to Options trading so let’s go get Mike to join us here, Brian, and then we’ll sort of take it from there.

Mark Soberman: All right. So, we have Mike Rykse joining us today. As I was saying, he’s really the go-to guy at NetPicks and the Premier Trader University. You can definitely call him our chief Options strategist. Mike’s sort of been working for us and with us for–I don’t really know how long, a number of years, but he’s pretty–he’s a pretty young kid overall. I think when he started he was probably still taking his big will to school. And the last thing I heard, he may have got his learner’s permit recently. But one thing I do know, he makes Brian feel really, really old because he could really be one of Brian’s kids, so, that’s my introduction for–to Mike Rykse. But Mike, how are you doing today?

Mike Rykse: I’m doing well, I don’t know how I follow up that introduction, but excited to be here so.

Mark Soberman: Great, appreciate that. Well, you can follow it up any way you want. You’re our resident Doogie Howser, but eventually–well, of course, anybody young is like, “Who? Doogie Howser?” So, you have to go on Wikipedia.

Mike Rykse: Exactly.

Mark Soberman: And that cultural reference. But anyway, so what we want to do, we want to bring Mike in because I know this podcast is called “The Day Training Authority,” so what the heck are we talking about options and swing trading and why would we do that? But the real reason is, when you scale your trading business, like we mentioned before, there’s only so much day trading you can do. There are some real limitations in the markets that you can actually day trade successfully, and there’s definitely a limitation on the number of shares, contracts, you know, currency pairs, however you want to argue with it. There is a cap on what an individual trader can do and you also have a cap on your type. So, what better way to supplement and add to what you do, if anything you or if you want to stay with day trading, then to look at swing trading and in particular, Options trading thanks to the leverage involve. So, Mike, I guess my first question is why the heck are you involved in Options trading?

Mike Rykse: Well, Mark, I got my start back in college, that was about 10 years ago, I was actually thinking about that here yesterday. I’m coming up on my 10-year anniversary of trading. So, back when I started, I was just–I was a poor college student. I was broke. And I was a Finance Major at the time, taking some business classes and one of the projects that I was required to do was to research some Stocks, track them throughout the semester, then type up a big long paper explaining why it purchased those stocks and whatnot.

And during that research, I came across Options trading. And it was really appealing to me because, at the time, I had no money to work with. And I saw that, “Hey, I could see some pretty large percentage returns in a short amount of time with these products.” So really, I spent a good majority of my time that semester really researching Options trading. So, that’s really been my background in Options trading. Well, I do some day trading as well. I do actively day trade some different Futures markets. The reason why I love the trade Options is it’s just such an easy way to diversify. It takes very little amount of time for me to come in and trade these charts each and every day.

So, what I found that early on in my trading, I saw a lot of large swings in my overall equity curve. However, by getting a good mix of markets, trading some Options, trading some Futures, a little bit of Forex every now and then, what I saw is that they were so different from one another that I was able to smoothen out my overall equity curve over time. So, that’s the great part about it. You can get into some of these trades with a very low amount of capital, so, it’s great for the newer retail trader. So, there are a lot of benefits of trading Options.

Mark Soberman: Yeah. And I like the point about smoothing out the equity curve because sometimes people even ask me, even on the day trading side, you know, why do I attempt to trade multi markets?” It’s not easy and it’s a lot to juggle, but that’s one of the reasons because I don’t know on a given day or a given week really what’s going to work and what’s going to flop and it’s a very difficult thing to predict. I mean what do you find since you do it all really are the real key differences between, let’s say, your Options trading and your Futures or your day trading?

Mike Rykse: I find that it’s a pretty good mix because we–if you’ve been paying attention to the markets here so far this summer, we’ve been stuck in a lot of slower price action. So, if you’re actively day trading, there’s a lot of times where there’s just not a whole lot to do. Today was a perfect example of that for me. I actually day traded for about three hours this morning and took one trade that whole time. However, on my Options trading, I looked at my charts for about 10 minutes this morning and moved on. I really haven’t look at them since so it’s a great mix for me. It’s a great way to diversify, doesn’t take a lot of my time everyday, it’s just get in and track those charts.

Mark Soberman: Yeah. You know, I think that’s a real key point that you mentioned is the limited amount of time. And the fact that you’re not having to monitor because any of us, who can relate to day trading or the audience who day trades, you know that you always feel a little bit in your stomach when you’re looking at the chart and your trades and it’s very difficult just to separate yourself and sort of go on with your life or to your day. And so, what I hear you saying Mike is basically that, you know, you’ve got your work to do, you know, you got to make some adjustments, your entries or whatever you need to do. But once that’s done, it sounds like that’s about all you can do and you don’t really need to be I guess, staring at the screen. So, I guess, I’d almost ask you, you know, how much time during the day or night do you really think that you spend just strictly on the Options side and nothing to do with your day trading ventures?

Mike Rykse: My typical day looks like this. I try to come in before the market opens, try to get a feel for the pre-market price action, see where we’re going to open up for the day. I go through all of my charts to see, number one, are there any new setups. If I’m in any setups, do I need to make any adjustments? So, I need to document those levels. Then once the market opens, I spend a few minutes making any of those adjustments. If I have a new trade that just came on, I need to get that order in. So, that typically takes me anywhere from 15 minutes and out to a half hour, depending on what’s going on that morning.

And then throughout the rest of the day, it’s really just taking a peek every now and then. I typically come in two to three times the rest of the day. And when I come and I look at the charts, it’s a really quick peek. I’m not trying to stare at the charts. I’m not trying to stare at every tick throughout the day. That’s not what I want to do. It kind of defeats the purpose. So, it’s really just coming in, taking a quick peek at the charts. If there’s nothing to do, I move on with my day because what I see a lot of retail traders do, they think that just because they’re trading, they have to be in front of the screen all day long. And what I have found is the more screen time that I have, the more that I’m staring at every tick, I find that the emotional aspect comes in the trading a lot more. I start to see things that aren’t necessarily there. If I’m in a trade, I start to make decisions on my money management techniques maybe because the trade isn’t working quick enough for me. So, what I have found to be beneficial for me is to get in and get out as quickly as possible. If there’s nothing to do on the charts, move on with my day because I don’t start to make some of those mistakes that really haunted me early on in my trade.

Mark Soberman: Yeah. You know, you’re so right on that. The more you look at it, the more you feel like obligated to over-think and over-manage. And a lot of day trading is spent waiting and so how do you occupy your time, you over analyze and you start to proactively do things that you shouldn’t do. And how many times would you just been better off if you had just left it alone. So, maybe in a way, Options trading and doing it this way, it almost just forces you to behave properly as a trader by simply almost sort of like restricting yourself from seeing the screen.

I know–me personally, I’ve told the story before. A lot of times when I just can’t seem to control that urge, I force myself to turn off the monitor. And if I can’t see it, I can’t do anything about it. So, I mean I think that you really, you know, bring up one of the huge advantages to sort of a style of swing trading and Options trading. I mean, what would you–because it’s always inspirational to sort of get people thinking about this because when we started NetPicks back in the mid ‘90s, we actually were an Option service. And then over the years, Futures started getting hot and Forex got hot and in between somewhere Stock day trading got hot and of course that’s not the case in us anymore. And a lot of people kind of forgot about just all the great virtues of Options trading so maybe describe or tell us a little about some of your–one of your best successes whether it was recently or who knows. I mean what stands out in your mind, you know, a trader so that did extremely well?

Mike Rykse: I think one great example of one of my best trades money-wise, my best returns, but not necessarily one of my best successes was when I first got started; I was taking trades just based out of hunches. I like to trade earnings releases quite a bit because of the volatility around those earnings releases. And I got into a trade on Yahoo!, which is a shout in the dark, just kind of hoping that I could hit on that trade and I was able to do so. And it was a very large return on that trade, but there’s really no rhyme or reason for it. And I started to get in some bad habits because of that one winning trade that I had. I made a lot of money on it, but I didn’t have a proven system in place there.

So, what I’ve tried to do over the past number of years as I’ve grown as a trader is I need to make sure I have a system in place that puts the odds in my favor. If I can’t backup why I’m taking a trade based on stats, then I shouldn’t be taking that trade anyway. So, what I have seen in my trading over the past couple of years especially here so far in 2012 is I find myself going for more of the doubles, the singles and the doubles, as opposed to the home run trades.

So, one of the trades that I had here recently was on Apple, Apple is one of my all-time favorite products to trade. And I got into that position. It was a position–a long position. I purchased some call options, gave me control to the upside on Apple. The trade, it took quite some time to play out. We are stuck in that summer slow summer time price action, but the trade ended up hitting my target and I saw on half my position a nice 30 percent return. And on the remainder, I saw about a 70 percent return.

Now, that not–might not sound like, you know, an impressive return when you start to see some of these other numbers posted on the Internet where you can–some people say you can make 500 percent returns overnight. But what I have found as a trader, it’s so much easier for myself to handle those singles and the doubles. So, that’s really what I shoot for as a trader these days so that I can manage it emotionally over time.

Mark Soberman: Yeah. I mean, you know, it’s interesting because it’s funny when we have to almost put a disclaimer out saying, “Well, I just hit 30 percent return in a short time or 70 percent and I know that doesn’t sound like a lot because, you know, we are combating some of these fairly brilliant claims that are out there.” But if you actually trade Futures responsibly, you know, you’re never going to make 30 percent to 70 percent on a trade. You shouldn’t. If you do, you probably do something really wrong because you’re probably trading very irresponsibly. And without question, a Forex trader can double an account overnight, but if you do that, it also means you can completely wipe out your account overnight so once again, not good trading. So, Options, is really cool because of the type of leverage and really I think control risk that it gives you, you know, that your maximum out, the price of that contract, I mean what do you tend to find? We just talked about success. Let’s just say a trade doesn’t work out, do you have any kind rough average of, you know, how much of the premium, sometimes you may have to give back?

Mike Rykse: Well, that’s the great part about trading Options, is that just because I’m purchasing those options, number one, I know what my worst case scenario was. I know what my max loss is right when I get into the trade. And my max loss is limited to the amount that I paid for the option. But the great part about combining Options trading with a proven system that puts the odds in your favor, the system that I currently use it gets me out with a lot of partial losers. If the trade is not working out in my favor, I have no problem closing it out for a loss, moving on to the next trade. If I can limit those loses, those odds will start to play out in my favor over time. So, a typical loss for me is going to be anywhere from, I would say 40 percent to 60 percent of the premium that I go ahead and put into the trade. What I see a lot of times is I get out with a lot of very small winners and very small losers. That’s the great part about the system that I use in my own trading.

Mark Soberman: Yeah. I mean that’s–I think that’s really key and then you obviously move on to the next and best, you know, opportunity that comes. So, it sounds like what you’re saying, your–when you’re trading, it’s not based upon the wing and a prayer or the casino mentally. I mean I’m kind of hearing a little bit that, you know, you’re using some specific methodologies and trade plan and it sounds like almost a technical approach to the markets. I mean, do you stick to something very religiously or how do you go about it?

Mike Rykse: Absolutely. That’s something that’s so important for the retail trader. You have to make sure you have some type of system in place. Now, there’s literally thousands of different systems available on the market today, I don’t care what system you decide to use, but you have to have a definite rule set in place for yourself. You have to know when you get into the trade, where are your targets, where are your stops beforehand, because once you start to get in those trades without a plan in place, you’re going to start to ask based on emotion, and that’s really one of the biggest detriments for a retail trader, is they get into these trades and they don’t know where to get out. They start to freeze once they put that live money on the line.

So, for me, it’s very much a technical approach. I have very defined targets and stops in place for myself before I get into the trade, and I have no problem taking a loser. A lot of times retail traders, like we just got done talking about it’s almost as if they’re afraid to take a loser. They want to stay in the trade as long as possible so that you–they give it every chance to work out in their favor. I have no problem for me taking a loser and moving on to the next trade, because I know that my system tends to win 65 percent to 70 percent of the time. So, if I’m winning 70 percent of the time, that means I’m losing 30 percent of the time. So, out of every 10 trades, I’m going to have a few losers and I need to be okay with that.

Mark Soberman: Yeah. I think people don’t realize in trading, you really become your own worst enemy. And, you know, a lot of times what will people do is they’ll look at like an equity curve or the potential of a trading system, and they see that graph just goes steady up, and they look and focus at the hard right top, you know, quadrant. And like, “I can do this.” I mean, of course, I’ll do whatever it takes to get to that spot, but what they don’t pay attention to is all the jitteriness on the way up and the occasional draw downs on the way up. And that’s just a pattern like another one of our coaches says a lot, you know, “Two steps up, one step back,” but sometimes it’s two steps up, three steps back, you know.

We focus too much on really the destination and don’t focus on, you know, the journey it’s going to take to get there. And it sounds like, for you, you kind to realize that, you know, your success is made up of the great stories and the failures because, you know, you’re going to be wrong, you know, as a trader. So, Mike, what are some of your favorite stocks or ETFs like, you know, what are you trading today, what’s working best for you where is your focus going at this time?

Mike Rykse: Well, Mark, it’s amazing how similar the products that I trade today are to when I started 10 years ago. They don’t change all that often. My favorite products over time has been Apple. In fact, I worked with a trader here last week, who actually uses Apple to track the overall market because Apple tends to lead us up and down. So, if you’re not already trading Apple, you need to make sure it’s part of your watch list. It’s just such a great product to trade and I don’t see that changing any time soon. So, by using the Options, you could take that leverage, use it to your advantage and control $600 or $700 stock like Apple. So, that’s a great part about trading Options.

Two other names that I really like are Priceline and Google. Again, I’m just–I’m not trying to reinvent the wheel here, these are pretty popular names and that’s by design. I want to make sure I’m trading very liquid products. So, I want to trade those volatile names, the ones that are in the news all the time so those three are just some great products to trade. Over the last couple of years, I’ve added a number of ETFs to the mix, but where I see my best percentage returns, still remain on the individual equity side.

Mark Soberman: Yeah. You know, remember that Mike’s not sitting here, trying to analyze the, you know, the iPhone 5 or the new iPhone release that’s, you know, going to be hitting here while we’re recording this tomorrow, and how it’s going to impact technology, or Priceline has a new program or Google counters with something, Android. You know, he’s buying calls. He’s buying puts. I don’t think Mike, right, you don’t care if markets go up or down I assume you have no bias, you’re just directional trading, correct?

Mike Rykse: Yeah. I have no opinion on what the market is going to do and that’s–it’s really hard. It was hard for me initially to start trading like that and it’s very hard for me to train retail traders to do that. But you have to be able to block out what you think the market is going to do and just trade strictly price action. Like you said, I’m not interested in, you know, what type of products Apple is going to come out, it does not matter to me. News is irrelevant. I want to trade the price action. And by doing that, I’m able to put the odds in my favor and I’m able to trade a technical system that gives me that defined edge instead of just, you know, basing my trading off of a hunch.

Mark Soberman: Yeah. I mean I think that’s a great point too. I know back in the day, I had a complete CNBC addiction, I had to have that thing on from the moment I started and to the moment I ended my day or night when it came to trading. I mean it got to the point where I watched it so much, I was expecting Christmas cards from the anchors. I mean they felt like family. But what I realized was it was just completely influencing the way I was attempting to trade and was so often wrong and the analysis was so often wrong, and it was just really imploding what I was trying to do. So, I think it’s another great point, just to get rid of all those external influences. You know, later on, if you want to figure out why your Apple trade did great, yeah, read some news, read some fundamentals whether it’s on the upside or the downside. But, you know, I think ultimately, do not let it influence, you know, what you do. So, Mike, what are maybe some of the tools or, you know, what do people need to trade Options? I mean what would you say some people should have in order to start look into those?

Mike Rykse: The great part about technology is that we have broker platforms available to us these days that give us a lot of professional tools. One of the platforms that I use is ThinkorSwim, and that platform gives us a lot of tools that are available to a floor trader, a very professional trader. So, that number one is a big advantage for us as a retail trader. I really feel like it’s kind of even the playing field for us as retail traders compared to a professional floor trader.

Number two, as a beginning Options trader, it’s very important to have that system in place. It’s very important. I don’t care if it’s based on technicals or some other reason. You might have your own set of indicators that you like to look at. I don’t care what it is. You just need to have some type of system in place that tells you where to get in and where to get out. So, before you put any of your live hard-earned money on the line, you want to make sure you have those rules in place for yourself.

Mark Soberman: Great. Yeah. I mean the technology these days available to us as traders it’s amazing from, you know, when you started 10 years ago or I can think back double that it’s pretty incredible, you know, what’s available to us. Literally, anywhere we go, whether it’s on a desktop, a laptop, an iPad, whatever the case maybe. So, I’ve got one final very difficult question to ask you and a lot of times people always just curious to know, you know, what else outside of trading are you into? What intrigues you? I mean obviously, you don’t trade 24 hours a day, that’s one of the beauties of Options trading. So, what are the things does Mike Rykse do with his day when he’s not staring at the charts?

Mike Rykse: That’s one of the big reasons why I love to trade because another one of my passions is to play golf. I played golf in college. It actually paid for my schooling so it’s something that’s been a big part of my life for a number of years now. And by trading, it just really opens up a lot of opportunity for me that I wouldn’t necessarily have if I was working a regular 8:00 or 9:00 to 5:00 jobs.

So, by trading the morning hours, it gives me a lot of time, a lot of flexibility during the rest of the day to get out and do something that I really enjoy. I have no desire to be sitting in front of the charts eight, nine hours a day. That’s just not something that sounds appealing to me. But by using these approaches, by trading Options, it really allows me to get in, check the charts for a few minutes every day, and move on with my life and start to do other things that I enjoy. So, that’s just–it’s very appealing to me and I don’t see, you know, that lifestyle changing any time soon.

Mark Soberman: So, it’s really right back to what we’ve been trying to preach a lot especially this year, which is kind of that lifestyle trader, you know, having to balance. You know, we’re going to work hard on our trading, but we’re going to also work hard in everything else outside of trading.

So, Mike, I want to thank you a lot for taking some time out to ask or really answer these questions. I want to give everybody a link to get more information about Mike, his training, his programs, options, and all you need to do is to go to netpicks.com/easyoptions, all lower case, no spacing and a little “s” on the end. So, again, it was NetPicks, which is N-E-T-P-I-C-K-S.com/easyoptions and will get you some more information on how you also can work Options trading into what you do as a day trader. So, again, thank you so much Mike, really appreciate it.

Mike Rykse: All right, thanks Mark.

Mark Soberman: All right, everybody. Well, that brings us to the end of another NetPicks Day Trading Authority podcast. Again, thank you to our guest, Mike Rykse. Hopefully, he’s got you thinking about the opportunities available to you, it really should have, in Options trading. I want to give a few more links to some reminders that we talked about at the beginning. Make sure you go to premieretraderuniversity.com to learn all about our education, myself, and Brian, and Mike, and the rest of our team is heavily involved in that. And if you’ve missed some past podcasts, just go to netpicks.com/podcast. And then of course, you can always go to our website and click the “Trading Tips” and get to our free blog where we’ve got all kinds of great content that our coaching team puts out. They are all free; lots of great lessons there. And finally, make sure you go to netpicks.com/easyoptions to learn about Options trading from Mike. So, Brian that’s it, I guess we did it. We did it again. Check on the to-do list. Any closing comments for the audience out there?

Brian Short: Mark, it was fun as always, lot of good information shared, and hopefully the traders that are listening picked up on a few tips that they can implement. So, it was fun and look forward to the next time we get together.

Mark Soberman: Awesome. We’ll talk soon. Take care, everybody.

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