OAP 065: Interview w/ Todd Tresidder From FinancialMentor.com

financial mentor

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If you're even remotely interested in personal finance or wealth building, you've likely heard of Todd Tresidder from Financial Mentor. If you haven't yet, well, then we've got a special treat for you today as Todd joins the Option Alpha podcast in this exclusive interview. Naturally, he's got an incredible resume having spent much of his time in the Hedge Fund space before retiring at age 35, but it's the actionable and real-world investing experience that backs up all the accolades he receives.

In today's show, Todd and I dive deep into traditional equity portfolio allocations, inherent flaws with buy and hold logic, bond market bubbles, statistical and mathematical risk management systems for investing, and the importance of compound growth rates. And while Todd covers each area with such a simplistic and rationale approach, don't be fooled by the power behind the system and thought process. These principles are critical to your financial success moving forward.

About Todd R. Tressider:

  • Todd graduated with a B.A. in Economics from the University of California at Davis.
  • He is a serial entrepreneur since childhood, building many businesses and retired at 35 from his position as a hedge fund manager where he was responsible for $20 million in portfolio value.
  • Todd’s portfolio management produced almost 100% winning years, aside from one, which was a loss of less than 5%.
  • After he left the hedge fund world, deep dove into real estate investing and has extensively written about how he sold all his real estate before the crash of 2008.
  • Today Todd is a financial educator, author, and publisher who has developed mathematical and statistical risk management methods for the markets.
  • He is considered one of the early pioneers and experts in developing computerized trading models for the markets.
  • Todd has worked in all three major asset classes and tested most investment strategies that exist through computer modeling.
  • Todd continues to coach clients on wealth building and is still an active investor who earns consistent investment returns in both up and down markets.
  • In the interview, Todd shares his investment thought process, the reasons behind his strategies, and how he acts on them.

Focus of the Interview: 

  • "There are more ways than one to skin the cat” — you do not have to be a master of all of them, you just have to find one that works, has a positive expectancy, and leverage it out.
  • Even though we are in different trading spaces, we both have a laser focus on mathematical expectancy and systematic approach to investing and finance.
  • This ultimately will determine our growth rate and ability to generate wealth in our portfolios — two different areas, one similar approach focusing on the same fundamental aspects.

Interview Take-Aways:

  • Most portfolio asset allocations are so similar over time that the differences are essentially meaningless — measured over decades they converge and are within 1% compounded of each other.
  • When it comes to the passive asset allocation formula, the key thing is just controlling your expenses. For example, through low-cost ETFs or Vanguard index funds.
  • The markets are not efficient. The “bubble du jour” right now is the bond market, and there is nothing efficient about it.
  • Buy and hold is 100% a completely valid strategy and has been proven through extensive research that it does have a positive expectancy if held for a long enough time period.
  • One of the primary problems with buy and hold is that there is unmanaged market volatility, which introduces a sequence of returns risk.
  • Buy and holders believe they are managing risk through diversification. The problem with diversification as a risk management tool is it works the 95% of the time you do not need it, and fails the 5% of the time you do need it.
  • Diversification is dependent upon non-correlation to bring benefit to your portfolio. It stands on the foundation of non-correlation of the assets in your portfolio.
  • The non-correlation of assets works well during normal economic times and fails during the big bear markets where most of the assets correlate to the downside. However, during big bear markets is when you need risk management desperately.
  • Different average returns will get quoted depending on what assumptions you use in your strategy; time period, dividends included, adjusted for inflation.
  • Managing market risk is a mathematical truth and it matters to the money you can spend in your portfolio and it must be managed.
  • The essential nature of buy and hold is that you must accept market risk to receive a market-based return. In order to do that, you will endure extremely large drawdowns; 50% drawdowns to receive single-digit compound returns. This is an unacceptable risk-reward relationship.
  • There are two primary phenomena in the markets, based on statistical realities that can be quantified and exist in the data: 1. Reversion of the mean and 2. Serial autocorrelation/trending behavior.
  • Considering the bond bubble, you have to ask: how can you reduce the risk and where do you redeploy the assets? Just knowing to eliminate the asset class is enough to prevent major losses.
  • There is no such thing as a good investment. What there is is a valid investment process, which has good investment cycle through it — focus on your investment process, not the product.
  • Volatility can either be your friend or foe depending on your investment process. Your investment process either harnesses volatility or endures volatility.
  • Since volatility is present for the foreseeable future, it is better to employ investment processes that harness it rather than enduring it — accept that it is going to happen and take advantage of it.

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Free Options Trading Courses:

  • Options Basics [20 Videos]Whether you're a completely new trader or an experienced trader, you'll still need to master the basics. The goal of this section is to help lay the groundwork for your education with some simple, yet important lessons surrounding options.
  • Finding & Placing Trades [26 Videos]Successful options trading is 100% dependent on your ability to find and enter trades that give you an "edge" in the market. This module helps teach you how to scan properly for and select the best strategies to execute smarter option trades each day.
  • Pricing & Volatility [12 Videos]This module includes lessons on mastering implied volatility and premium pricing for specific strategies. We'll also look at IV relativeness and percentiles which help you determine the best strategy to use for each and every possible market setup.
  • Neutral Options Strategies [7 Videos]The beauty of options is that you can trade the market within a neutral range either up or down. You'll learn to love sideways and range bound markets because of the opportunity to build non-directional strategies that profit if the stock goes up, down or nowhere at all.
  • Bullish Options Strategies [12 Videos]Naturally everyone wants to make money when the market is heading higher. In this module, we'll show you how to create specific strategies that profit from up trending markets including low IV strategies like calendars, diagonals, covered calls and direction debit spreads.
  • Options Expiration & Assignment [11 Videos]Our goal is to make sure you understand the logistics of how each process works and the parties involved. If you don’t feel confident in the expiration processes or have questions that you just can't seem to get answered, then this section will help you.
  • Portfolio Management [16 Videos]When I say "portfolio management" some people automatically assume you need a Masters from MIT to understand the concept and strategies - that is NOT the case. And in this module, you'll see why managing your risk trading options is actually quite simple.
  • Trade Adjustments/Hedges [15 Videos]: In this popular module, we'll give you concrete examples of how you can hedge different options strategies to both reduce potential losses and give yourself an opportunity to profit if things turn around. Plus, we'll help you create an alert system to save time and make it more automatic.
  • Professional Trading [14 Videos]Honestly, this module isn't just for professional traders; it's for anyone who wants to have eventually options replace some (or all) of their monthly income. Because the reality is that mindset is everything if you truly want to earn a living trading options.

Option Trader Q&A

Trader Q&A is our favorite segment of the show because we get to hear from one of our community members and help answer their questions live on the air. This week's question:

How do you see the relationship between Thinkorswim and TD Ameritrade? What are the best practices regarding Net Liq and day trades?

Remember, if you’d like to get your question answered here on the podcast or LIVE on Facebook & Periscope, head over to OptionAlpha.com/ASK and click the big red record button in the middle of the screen and leave me a private voicemail. There’s no software to download or install and it’s incredibly easy.

PDF Guides & Checklists:

  • The Ultimate Options Strategy Guide [90 Pages]: Our most popular PDF workbook with detailed options strategy pages categorized by market direction. Read the whole guide in less than 15 mins and have it forever to reference.
  • Earnings Trading Guide [33 Pages]: The ultimate guide to earnings trades including the top things to look for when playing these one-day volatility events, expected move calculations, best strategies to use, adjustments, etc.
  • Implied Volatility (IV) Percentile Rank [3 Pages]A cool, simple visual tool to help you understand how we should be trading based on the current IV rank of any particular stock and the best strategies for each blocked section of IV.
  • Guide to Trade Size & Allocation [8 Pages]Helping you figure out exactly how to calculate new position size as well as how much you should be allocating to your each position based on your overall portfolio balance.
  • When to Exit/Manage Trades [7 Pages]Broken down by option strategy we'll give you concrete guidelines on the best exit points and prices for each trade type to maximize your win rate and profits long-term.
  • 7-Step Trade Entry Checklist [10 Pages]Our top 7 things you should be double-checking before you enter your next trading. This quick checklist will help keep you out of harms way by making sure you make smarter entries.

Real-Money, LIVE Trading:

  • IWM Iron Butterfly (Closing Trade): Exiting this IWM iron butterfly options trade gave us a $1,100+ profit after pinning the stock price one day before expiration at the peak of our spread.
  • CMG Iron Condor (Opening Trade): I just recorded my live trading platform (and real money account) as I walked through the process of entering a new iron condor trade in CMG stock. Inside you'll see me analyze, price and fill the trade in real-time.
  • APC Strangle (Closing Trade): Took about $150 out of this small APC strangle trade even after the stock moved completely against our short call strikes this month. But as always, implied volatility always trumps direction and because IV went down, the value of this spread dropped more-so than the impact of the directional move higher.
  • IYR Call Credit Spread (Adjusting Trade): This adjustment is good for 2 reasons. First, it reduces the overall risk in the trade if IYR continues to move higher. Second, it still leaves room for the stock to fall back down into our new profit window.
  • XHB Straddle (Closing Trade): We were able to bank a $120 profit early in the March expiration cycle for our XHB straddle with the stock trading right in the middle of our expected range.
  • AAPL Call Calendar (Opening Trade): Look behind the scenes as I use our new watchlist software to filter quickly and find this AAPL call calendar spread trade during overall low implied volatility in the market.
  • COF Strangle (Adjusting Trade): Here I recorded my live trading screen (and real money account) showing you the entire thought process we used to make an adjustment to my current short strangle in COF to reduce risk.
  • GDX Strangle (Opening Trade): With gold's high IV we are getting into a new strangle with a 70% chance of success and a decent credit for selling option premium.
  • IBB Iron Condor (Closing Trade): Today we're exiting an iron condor we traded in IBB for a $142 profit. Inside you'll see me analyze the exit price and fill the trade in real-time.

Thank You for Listening!

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About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.