Hi! I am Christina Bong-McDonald and I am a self-directed investor / trader. In 2004, when I was preparing to move to Australia to join my future husband, I wanted to learn some new skills that would enable me to retire early from my corporate job and earn a living anywhere in the world. I had a well-paying job with a multi-national IT company at the time but I knew I would have to quit this job when I move to Australia. Having previously lived for many years in Australia, I knew that it would be very hard to have a demanding full-time corporate job and to look after a young family; my kids were 8 and 15 at the time. In Malaysia, I had a full-time domestic helper and my sister lived next door but I knew that child care in Australia would be very expensive and I would have no family support there. Hence, I was also wanted to be able to work from home.
In 2004, I came across an advertisement in the newspaper for a 2 day Basic Options course to learn to trade options in the US market. Trading met my criteria for being able to work from home which could be anywhere in the world as long as I had a computer with an internet connection. I attended their free 2-hour presentation to find out more about the course. At the end of the presentation, the attendees were asked to sign up for their course which was priced at $3,880 with a $1,000 discount if they signed up straightaway. I had no clue what options were and I had never bought shares before in my life but I was assured I would have no problems picking it up if I took their 2 day course. I wanted to make sure I would be able to get a lot out of the course so I bought a basic book on options to prepare myself for the course. If I remember correctly, I think it was Getting Started in Options by Michael C. Thomsett. The first half day of the course was an introduction to options and it covered things I already knew from reading the book. I wished the instructor had asked everyone to read the book before coming to class and reduce the course fees by 25%. That would be a much cheaper alternative as the book costs only a few dollars. He then taught us 3 basic options strategies and the course ended with us watching the instructor do some trades in his account.
Subsequently, I opened my own options trading account and started trading some of the strategies I learned. As I was keen to make money quickly, I started trading with real money soon after I started. I remembered that one of my first trades was a trade on Harley Davidson (HOG). I collected an income of $0.30 per share with a maximum risk of losing $2.20 per share. As I had not learnt about risk management or portfolio management I put on a trade where the maximum loss would wipe out a large portion of my trading capital. The plan was for the options to expire worthless and I could keep the $0.30 and it seemed like an easy way to make a few hundred dollars in a few days. A few days after I placed that trade, HOG announced some disappointing earnings result and the stock price fell heavily. My trade hit maximum loss instantly and I did not know what to do. I tried calling my instructor but he said he could not help me.
Even though the loss was painful, I could see that options were very powerful instruments for generating income and I believed the strategies would work if I learned how to trade them properly. I resolved not to give up on options but I knew I needed more help to master these strategies and a 2 day workshop was definitely not sufficient. In fact, this kind of workshop is where you learn just enough to be dangerous.
Truly believing that there was some merit to trading options, I did some extensive research into options and different training programs available at the time. I looked for a comprehensive self-paced course and I found one in the US that fit the bill from a company, which no longer exists, called Spread Trade Systems (STS). It was a self-paced course which most students completed in about one year. It covered not just options strategies but included fundamental and technical analysis and was good for someone like me who had no experience at all with the financial markets. Due to the time difference between the countries, I had to attend the online classes very early in the morning. I knew that to succeed I couldn’t do this education, build up my trading skills and work a full time job. As a result, I not only spent USD5,000 on the course, I also went without a salary for 8 months as I took a leave of absence from work to build my knowledge and skill.
One of the most important things I learned from this course was to always have both a primary and secondary exit before putting on a trade. The primary exit being for when things went the way you hope it would and the secondary exit is for when things do not go your way. The key to long-term success in trading or investing is risk management.
While the course drilled down into the mechanics of trading, some psychology and risk management, it had a couple of major shortcomings. The first being that the sales pitch indicated that students could start trading with as little as $5,000. In reality, the core strategy they taught, a strategy called the collar trade, would not work properly without having sufficient capital to cover the trade. This has been a common trend I have seen with many training companies, their sales pitch suggests that that you can start trading with a small amount of capital when in reality it is not realistic if you practice proper risk management and / or evaluate cost effectiveness due to commissions from brokers. These sales pitches only exist to entice students who don’t really have the capital required to trade, to sign up for their courses. The other shortcoming was that there was no personal mentoring. If any of the students had a problem with their trade, we had to wait until a designated weekly class to get an instructor to help us to repair our broken trade. We had to show our trade to the whole class, which was not something you really want to do, and often it was too late to do anything to save that trade. I completed the STS course in 2005 and moved to live in Australia in 2006.
Although the STS strategies were good, I did not have much success, probably because it required picking the correct market direction (which I was not very good at) and I was not trading with sufficient capital for the strategies to work properly. In late 2006, I was introduced to non-directional income strategies by a fellow STS student who became my trading buddy. These strategies were taught by Dan Sheridan who gave free seminars on these strategies on the Chicago Board of Options Exchange (CBOE). The concept of non-directional strategies struck a real cord with me as there was no need to pick the correct market direction to make money. Dan Sheridan ’s view to learning to trade is that it is like learning a craft and you will get better the more you practice. He recommended that everyone starts with a small amount of capital and make small trades when you start. The aim of your first few trades is to learn, not to earn. He also had a personal mentoring service which at the time was priced at around USD7,000. I would have dearly loved to have a mentor but I could not afford the fees after already spending so much on my two earlier courses. My trading buddy, Fabio, and I decided that we had enough knowledge from STS to try trading Dan’s strategies on our own. Our favourite strategy was the Iron Condor which was a non-directional trading strategy which meant that you can make money if the market goes up, down or sideways, as long as there is not too much volatility. I started trading this strategy in September 2006 and it worked extremely well right up to September 2008. On average I had 10 out of 12 winning months in a year, and I was getting an annual return of 40% per year. However, after September 2008 the market became too volatile for this type of trade and so I started work on finding safer strategies that can provide similar high returns. So far this is still an elusive goal and something I will continue to work towards.
In parallel in 2006, I wanted to trade options in the Australian market but I found that there was very little information on the ASX about Australian exchange traded options. I even paid for a training course on trading Australian options but it was so bad that I asked for my money back. The guy who sold me the course refused to give me back my money until I threatened to report him to consumer affairs. Although I was pretty familiar with trading US options, it still took me quite some time to learn to trade Australian options on my own. It was really hard to open a brokerage account in Australia which would allow me to trade income strategies because it involved selling options which was considered risky and only advanced traders were allowed to do this. In addition, the functionality of options trading platforms offered by Australian brokers was extremely limited compared to those provided by US brokers. Adding to the difficulties was the fact that there were very few stocks with options on the ASX and if they had options, the options market was very thin. The minimum broker commissions were really high and one standard Australian option contract was ten times the size of standard US contract (although this has recently changed) which made it very hard to trade with a small capital. Despite the challenges, I was determined to find a way to make trading options in the Australian market work. My goal for trading income strategies is to generate income to live on and given that I live in Australia, I do not want to worry about foreign exchange risk and thus wanted to trade in an Australian dollar account.
I am so glad I did not give up on trading Australian options despite the initial difficulties because over time I discovered some other benefits that were only available in the Australian market. One such benefit is fully franked dividends. Many Australian stocks pay a generous dividend compared to US stocks and franking credits can increase dividend income by up to 43%. Another benefit is the high interest rate for cash held in trading accounts. In October 2010, I met Boris another self-directed investor who was very experienced with Australian options who helped me refine my income strategies to maximise my return on capital.
Trading/investing is a business and like any other business, you need money to make money. Even if you have found a fantastic trading strategy that can make a 40% return per year, you will still not make much money if you have a small amount of working capital. For example, if you only have capital of $50,000, you can at most earn only $20,000 per year which is less than what you will make earning the minimum wage. However, you can very easily double your income if you can double your capital. This is one of the great advantages of trading, there is little to no additional effort required to earn the extra income as you simply double the size of your trades. You cannot easily do this with a job as you are paid for your time. You need to work twice the number of hours if you wish to double your income. As my trading / investing skills improved, the next step was to look for more capital to invest with and in Australia the most tax effective way to accumulate capital is through superannuation.
In March 2007, my husband and I decided to start our self-managed super fund (SMSF). As I was trading full-time and actively watching the markets, we felt confident that we could do a better job managing our own money than the retail super funds that we were with at the time. This proved to be true when we decided we didn’t like the market behaviour and we, within a day of making the decision, moved all our funds into cash in December 2007 before the markets crashed. Had we stayed with our funds, we would have lost at least 30% of our super the following year.
In August 2008, I made my first Australian options trade in our SMSF. I set aside $100,000 for trading my income strategy and had good success. I collected over $16,000 of income just from option premiums alone in FY2009. The share market fell 30% in that financial year and we would have had a really poor return that year if we had not sold options over our stock portfolio. I continued to use this strategy in the next two financial years and managed to get good results (10-15% return) every year despite very different market conditions each year.
Trading is actually quite boring once you have a trading system that works for you. To make more money, you just need to add more capital. It does not take more time as you simply increase the size of your trades. This is why a single fund manager can manage billions of dollars. I started trading with a capital of $10,000 in 2004 and slowly increased this as I became more experienced. You can add capital in a number of ways. Using your super is one way but if your SMSF is still in accumulation phase, you will not be able to get access the income earned.
As you get more experienced, you can use leverage to increase the capital available for trading. You could use margin lending or use the equity available in your home, which is how many property investors find capital to buy their first investment property. Today I use an equity loan on our home to provide additional trading capital to increase my monthly income.
It now only takes me about one day a week to execute and manage my income trades. You can also save time by buying the right tools and the right research to help you find good trading ideas. I use independent research providers like Morningstar to help me quickly find the right stocks for trading my income strategy. With the right amount of capital, my income per hour is far higher than what I can get working at a job. The best part with trading for a living is you can work from home, live anywhere in the world and set your own work schedule. You do not have to apply for leave when you want to go on holiday.
Since I do not have to work full-time to get a full-time income, I have plenty of time to do the other things that I love which includes looking after my family, writing and mentoring others. By working from home, I am able to cook healthy meals for my family and be at home when my younger daughter comes back from school every day. I write e-books and blog about the things that I am passionate which include investing and building financial security.
In 2011, I created a training and mentoring program* to teach people this income strategy in a way I wish I was taught. The first step is to get some basic Education on options. There is no need to attend expensive 2 day workshops like I did as there are plenty of books and free courses available, I have provided a list of these on the Resources page. The second step is to get some Exposure by watching how an experienced person trades in real life. To make this cost effective, I have created practical “how-to” training videos which students can use to get this exposure. The benefit with videos is that you can watch these as many times as you require, to either learn or to use as a refresher. The final step is to get some Experience yourself, first by paper trading and then trading with real money. Start trading with small amounts of money if you are doing it by yourself without a mentor. Things CAN and DO go wrong and you do not want your mistakes to be too expensive. Learning to trade is like learning to swim. You can read all the books on swimming, watch videos of other people swimming but you only really learn when you get into the water yourself.
My dream is to enable every Australian baby boomer to achieve a comfortable retirement even if they only have a modest nest egg saved up when they retire. Selling options can help to achieve this by increasing the income received from a portfolio of blue chip stocks.
*Note: As of July 2017, this training and mentoring program is no longer available. I have gone back to working full-time as all my children have grown up.