Andrew Keene's Non-Blowout Trading Plan

How Much of Your Portfolio Can You Risk?

Finally, after 16 chapters of options education, we get to my proprietary trading plans, which I have been working on for over 11 years. This is how I have lasted in the world of trading for so long. I have made 30 percent year-over-year on my cash, and netted over $7 million in profits trading equities and equities.

I want to start with a little story from the trading floor about blowout risk.

Trading Pepsi Back in the Day

Early on in my career, I traded PEP (Pepsi) when it was trading between $60 and $70; had it one day opened at $35, I would have lost over $1.5 million. My partner pulled me into the office and said, “What's going on with Pepsi?” I said, “I am short puts, calls, and straddles.” He said, “You know, if the stock opens at $35, you lose over $1.5 million, your trading career is over, and you're out of business.” I looked at him and laughed. “It won't.” Pepsi has always been a rock-solid company with few flaws. He said, “What if they find 10 syringes in Pepsi cans in China, it could happen.” I said, “You're right, it's not worth it.” So, I altered my position and bought about 500 puts for $.10 and then sold about 50 puts for $1, taking my risk down a lot. Did the worst ever happen? No. However, you never know what can happen. I have blown out before and it is no fun. I want to make certain it never happens again.

Going back to my example of protecting myself in AAPL, say ...

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