Options Trading Manifesto
Nothing teaches us like real-world experience. And nothing compounds and accelerates that experience like time.
My name is Dr Stephen Cooper and what I’m about to share with you is the result of over 35 years of my own experience.
For me, here’s how it started.
- Studying to first learn.
- Then to internalize.
- And finally to live.
You see my dad told me some of these principles when I was a kid but as kids do, I didn’t listen.
If you are a parent like I am you most undoubtedly know what I mean.
Yet they’d eventually catch up to me or I to these fundamental principles and simple truths.
Let’s rewind the tape a bit.
In the first three decades of my life I didn’t pay much attention to the principles of wealth building and financial security.
I was too busy getting through school and trying to get my start in life.
At the time this was quite normal yet life was different back then.
Today things seem to move much more quickly.
Everyone is in a rush.
But I encourage you to take a moment and really digest this manifesto of sorts.
Let it sink in.
Think about it and review how it affects you specifically.
You see some of these will seem very familiar to you.
Others will be new.
And yet all of them work.
I’d like to be able to tell you that each of our tens of thousands of students here at Online Option have practiced every one of them over the years.
Yet while I’d love to, I can’t.
Some of them have, and then reaped the benefits.
Others picked and chose and so gained the commensurate advantages.
Now, before you say to yourself “I just want to trade options”…please stick with me.
Because these are some simple truths and fundamental principles you must know and I believe they set you up for a much better shot at success with short-term trading including options trading.
We at OnlineOption.com firmly believe that options trading is not a stand-alone activity.
Or better said…
Options Trading is Best Employed Within an Overall Framework & Plan for Financial Independence
Before I present these fundamental principles to you, first I feel some context would be helpful.
Don’t worry this will just take a moment and will add a magnitude of value for you.
In 1999, I (Dr Cooper) began teaching students how to both trade and invest in the stock market.
But that isn’t the beginning of the story.
Further back, in 1985, after finding success in my profession I became interested in the study of the markets.
I was particularly interested in recurring patterns of change in these markets.
In post graduate times I had studied patterns, cycles, and relationships in biology and physiology.
Later with my patients, I noted patterns and cycles related to pain and healing, both physical and mental.
My first foray into trading was in silver futures.
I still wasn’t thinking about it from the perspective of building financial freedom.
I guess I was a slow learner.
Like many do today, I expected my day job to take care of all my family’s financial needs without end.
Boy was I wrong.
More on that in a moment though.
From futures to mutual funds, individual stocks to options, and covered calls; when the first ETF’s came along in 1993, I was there too.
But it all was still a fascinating hobby.
So you don’t think me a complete nincompoop, I’ll come to my own defense here and tell you that by nature a few of the first principles below were with me without my being conscious of them.
Maybe it was something my father taught me.
Or what I picked up in school, the military, or just along the way.
Nonetheless, they were there and I think you may even have some laying within you too.
Even if they’re buried down deep and hidden.
You intuitively may know them.
You’ll see what I’m talking about in a few moments.
The Day My Life Truly Changed
In 1998 my financial and personal life was rocked due to an accident that left me unable to work at my profession. As you can imagine being unable to work can trigger a lot of emotions and feelings.
I thought to all the years of school, all the money for specialized training, my practice, my staff, and my patients.
Fear and uncertainty were two emotions my wife and I undoubtedly felt.
With six kids to feed and not even being able to drive a car, I was in quite the predicament.
I feel fortunate to have had the support that I did because while things looked bleak I knew deep down we’d find a way to not just keep food on the table for a family of eight but that we’d eventually thrive.
I ran the options through my mind continuously as if I was hearing a song over and over on the radio.
Mulling over the decisions only one thing seemed to make sense.
I was left with no other choice but to turn my hobby at the time of trading into my full-time work.
I had started to figure things out.
The patterns made sense but remember these were different times.
It wasn’t as if I was jumping online and pulling up charts to quickly review.
Charts were sent to me by physical mail.
My broker…I had to call them on the phone to place trades.
But the pieces of the puzzle started to fit together.
I learned quickly under circumstances and pressure I don’t wish on anyone.
I was in a situation where failure truly wasn’t an option.
They say when your back is up against the wall that’s where you truly see what you are made of.
Fortunately, by the grace of God, I found out that my knack for trading as a hobby quickly flourished.
So much so that before long I was being asked to teach others to trade using my simple and repeatable strategies.
And that’s when in 1999 OnlineOption.com was born.
To think just how far we’ve come and the impact we’ve had since that day still boggles my mind.
Better yet I’m so blessed to have a former all-star student Ryan at the helm of Online Option leading it into a new and even brighter future. He’s helped considerably with this manifesto as well.
More about him later though.
Right now I’d like to get into the 9 fundamental principles of financial independence into which option trading fits so perfectly.
Fundamental Principle #1 – Avoid Debt like a Know-it-all Brother-in-Law
“…the borrower is servant to the lender” is the Proverbs 22 version of this principle.
Debt is a burden.
We all know that at some level but let’s think it with some added context.
By entering into debt you obligate your future time, talent, and thought to obtaining the money to repay it.
Debt limits your freedom.
Though prudent use of debt can add to personal and financial well-being, such as when purchasing a home to live in, it must be considered carefully and realistically.
Entering into debt for fun, entertainment, toys, nicer versions of what you already have; is not the path to financial independence.
Trust me when I know that these days it’s harder and harder to resist the temptation to do so.
It seems like advertising is everywhere promising that the new shoes, the new suit, the purse, the car or that trip to Hawaii are what you must have to be happy.
It seems as if everyone is trying to keep up with the Jones’ and social media just appears to magnify this.
But a question to ponder…
How much more available money would you have each month if you eliminated consumer debt payments and ultimately mortgage payments that you currently have?
Take a moment and really consider this.
Maybe you even want to take a few moments to calculate this out to the exact penny so you know exactly where you are.
Now imagine what it would feel like to be totally debt-free.
Depending on where you currently are financially this may be a hard thought to consider.
But please don’t dismiss this as some pipe dream.
Let me ask you a few questions that I think are worth your time to consider.
I encourage you to reflect on these honestly to yourself.
How would it make you feel to have zero debt?
Would it feel like the weight of the world is finally off your shoulders?
If so, it’s time to start taking the appropriate steps to eliminate your consumer debts, this guide should help.
Fundamental Principle #2 – Build & Maintain an Emergency Fund
Most financial “emergencies” are due to a lack of planning for the common occurrences of life.
We say things like ‘that will never happen to me’ or ‘I’ll plan for that next year’.
Sooner or later the transmission will go bad, the water heater bursts, the roof leaks, or someone you love will need help (often because they didn’t plan either).
So we must stop and recognize that planning now leads to opportunity for us later.
Opportunity to have the funds we need when we need them but more so an opportunity for peace of mind.
Peace of mind that eliminates stress around so many common money issues especially in relationships between spouses and even with your children if you have them.
And I can tell you that having peace of mind is priceless.
At least it has been for us.
Now I know what you might be thinking…it’s hard to create an emergency fund.
Look…I know you are thinking of a million reasons not to do it.
But I can tell you these reasons are often just excuses. We must push back against them especially in the times that we live now.
To make it easier I always say you should start small.
What’s small for you might be massive for someone else.
Here are some benchmarks I think you should strive for.
First aim to get to $1,000 in your emergency fund.
I don’t care if it has to happen $20 at a time. Set your target at $1,000 and push forward towards that goal every day, week, and month until you get there.
And once you do then build to 3-6 months of your living expenses.
I prefer to have this be normal living expenses not some bare-bones existence like many recommend but you can decide what works best for you.
That money should be kept in a form that can be liquidated immediately without loss of principal.
You may consider a high yield savings account for this.
Sidebar: if you are self-employed or have a career that gives large oscillations to your earnings you may consider getting to a point where you have set aside 12 months of living expenses for additional peace of mind.
But that’s a choice for you and your family to decide upon.
Fundamental Principle #3 – Live on Less Than You Make and Invest the Rest
So easy to say.
And at the time it can be easy to do but great temptation is all around us.
The temptation to spend.
The desire to increase our lifestyle as we make more money.
The thought that we deserve that new car, that bigger house or that thing you want, need, desire…you can fill in the blank for yourself.
But I’m telling you I’ve been around a bit longer than I care to admit.
I’ve seen booms and busts.
And one thing I can say is that living below your means is something you will always be grateful for.
So do it.
No ifs, ands, or buts.
Make the commitment and stick to it.
So how far below your means should you live?
Well…again let me give you some guidelines to assist.
At a minimum 10% of what you make should be put into investments for your long-term savings or more likely retirement.
Perhaps in your case, 4% of your paycheck is already going into a 401K.
That is a good start but it is not enough.
Adjust your lifestyle and or pay off credit cards and put the savings into investing.
I’ve seen folks eventually adjust this to much more than 10%.
Some folks even aim to live on 50% or less than what they earn.
I’ll leave the choice to you but get in the habit now of living on less than you earn.
Put savings and investing as the priority and live on the remainder.
You may say it’s easier said than done but the reality is that it’s just as easy to do as it is not to do.
We must decide.
Fundamental Principle #4 – Never Trade with Sacred Money
Whether short-term trading or long-term investing; do not fund them with money you will or may need between the present and 5 years out. I have seen an alarming number of people who have gotten cash from credit cards, refinancing their home, robbing the emergency fund or family vacation fund to go into short-term trades.
Please never do it.
These actions are driven by fear and greed.
And if you learn anything from reading this manifesto understand that fear and greed are two hidden enemies that do not belong in any trading, short-term or long-term.
But more on emotions in the next fundamental principle.
Over the years I’ve seen others who have put money into “long-term” investments only to find they need that money back in weeks or months.
Don’t do that either.
Money that is sacred i.e. money you need to live for you and/or your family should not be used in your long-term or short-term trading whatsoever.
This is a trap that many fall into because of emotion.
And it’s like a bear trap once it goes off it can be incredibly hard to recover.
So do yourself the favor now by making a promise to yourself of avoiding it altogether.
Fundamental Principle #5 – Emotions Are for People, Not Trading and Investing
In order to trade or invest successfully over the long run you must learn to detach, in so far as possible, from emotions.
Primarily, fear and greed are the two that cause most of the trouble as I mentioned above.
The first four fundamental principles prepared the way for number five.
It is virtually impossible to control emotions and our ego in investing or trading when you are using sacred money, living beyond your means with no emergency fund, or are burdened with considerable consumer debt.
I recommend reading that again…maybe a few times.
And please let it sink in for a moment before going onto principle number six.
Fundamental Principle #6 – Create and Follow a Plan
These days when I get in my car I can rely on my GPS or Google Maps on my phone to help me get where I need to go.
It wasn’t always this way though.
I used to have to sit down and map it out.
I’d pull out the heavy road atlas and figure out exactly how to get where I was going, where to turn left, where to turn right, what highway to get on and what exit to take.
We often take for granted the luxury something like this has become.
Yet the point should be clear…
It isn’t easy getting someplace if you don’t know what or where it is that you are going.
Yes, absolutely have long-term goals.
Define for yourself what financial freedom is for you specifically.
Then make your plan.
How will I get to where I want to go?
From what, when, and how to enter and exit short-term option trades to how to manage your own portfolio, it must be planned in advance; that is written down.
Of course, if these principles resonate with you…you can model our plan as laid out in the Online Option Trader Manual.
Fundamental Principle #7 – Employ Sound Investing Discipline
Discipline. For some reason I flashback to the ’80s. And not for the music, fashion or hairstyles…but for Mr. Miyagi.
The year was 1984 when Ralph Macchio (Daniel Larusso) and Noriyuki “Pat” Morita (Mr. Miyagi) leaped into our hearts with the Karate Kid.
There are many lessons from that movie that fall into our fundamental principles but like in any martial art, one of the key focuses is on discipline.
And when it comes to our trading it is just as important.
Here though we are speaking of discipline in money management.
For successful options traders, money management is a must.
This is most evident in our short-term trading practices.
To help with this…
One should define what a winning trade is and what a losing trade is.
Again you should write that down for you in advance to trading.
At Online Option, we teach new traders to “know where the back door is before going in the front”.
A concept that has served us well since day 1.
One of our many mottos is…
“Live to trade another day!”
This can only be done by those who make money management a priority and part of their trading plan.
Fundamental Principle #8 – Paper Trade Before Using Real Money
I would say 90% of the people who desire to trade options are rip-roaring ready to go.
Many want to fly before they even can crawl.
Some are even looking for ‘hot picks’ or alerts so they can jump right in.
We’ve never been a fan of picks or alert services…but I’ll discuss that in greater detail another time.
Realize that trading options or any type of trading are a skill.
And skills always require practice.
Let’s look at a very obvious example.
Imagine wanting to fly a plane your first day out.
Pretty crazy, right?
Think of paper trading as part of the ground school for traders.
It is the practice field on which you try out what you’ve learned before the real game begins.
Once you find consistent success in paper trading it is time to employ funds (according to money management rules) to actual real money trades.
This takes patience (trust me I know) but it’s critical for your long-term success.
If it helps reframe this as something you’ll be doing over the long haul so the short time of paper trading will seem like seconds on the long timeline of your trading career, which hopefully spans decades upon decades like it has for us.
Fundamental Principle #9 – Embrace Your Inner Tortoise
Let me share a secret with you.
Consistency trumps flamboyancy or even brain power.
This is no Hollywood movie about Wall Street that we are talking about here.
Don’t get me wrong there are some good movies about investing.
Making the small correct decisions over and over, month after month, year after year is what makes the difference between the financially free and all the rest.
Read that again…a few times.
It should sink in because I need to really emphasize that success long-term like with anything in life comes down to consistency.
Doing the small often trivial things correctly day in day out.
If you are thinking about hitting the lottery or founding the next Microsoft or inventing the first practical hydrogen-powered car; good for you!
While those things are flashing around on your personal neural network go ahead and follow these nine fundamental principles while you are waiting for your ship to come in.
Then if you don’t hit the jackpot you will still hopefully be in a much more sound place.
Where to Go From Here
Now it’s one thing to read these fundamental principles and a whole other to really embody them. To internalize them and most importantly implement them into your life.
Remember at the beginning I mentioned my own three stages.
As a reminder they were…
First study to learn, than to internalize and finally to live them.
So let me give you some advice.
We do this over time and we let our results help dictate how we truly live them.
Of course, you can go your own way to learn, internalize, and live these principles.
If you choose this path I wish you the best of luck with them and please share your progress with us.
But I must be honest that this is the tip of the iceberg.
The rabbit hole goes deeper.
Please don’t let that overwhelm you because it’s about starting not being perfect or even knowing everything right out the gate.
We are after progress.
Progress leads to more progress.
Seeking perfection usually leads to us never starting.
You likely know what I mean.
At Online Option, we have created what we consider the definitive guide to learning to trade options in a simple and repeatable fashion. And we’ve helped tens of thousands of people utilize these strategies since 1999 and we will continue to do so for decades into the future.
Our bar was set high already but we recently fully updated our Online Option Trader Manual to provide even more value to you.
In it, you’ll discover the core principles, our foundational strategies, our rules on money management, our full trading plan, and a full behind the scenes look at everything we’ve used to base our trading on for several decades.
Our goal with this training is quite simple.
In fact, it’s the same as it was in 1999.
We aim to arm you with the principles, strategies, tools, and resources for successful long-term options trading.
As a companion to our trader manual is our weekly Online Option help sessions through our Advanced membership. These weekly group help sessions are designed for you to truly learn, internalize and live everything that we teach with the watchful eye and continuous help from Ryan who assists you each and every week with his nearly two decades of experience.
– Dr C and Ryan