Review Of Radioactive Trading
We Take A Hard Look At The Radioactive Trading Blueprint From Kurt Frankenberg And Question Whether It's Any Better Than Buying A Call Option...

TheOptionClub.com - 2007 

It is elementary. There are no unique or proprietary option strategies. Kurt Frankenberg's Radioactive Trading is no exception to this rule, but it does have quite a bit to offer.

What it brings to the table is something of a mixed bag, however.

While Kurt Frankenberg's methods do incorporate well conceived risk management and adjustment strategies, they are delivered under a screen of euphemism that is likely to confuse and, as such, draws away from the enlightening aspects of the publication.

The Story Behind Radioactive Trading

The original Blueprint provided an explanation of how its author had spent time and money with an "option guru" to learn how to trade covered calls. Applying what was taught by the guru, a covered call position was opened on a volatile stock. This position produced a devastating loss and sent the author searching for answers.

What the author discovered was that a put option could be used to protect against the risk of a downside price move in the stock. Having limited his risk of loss, he then looked for ways to sell calls and adjust the put option so as to lock in profits.

The Radioactive Trading Blueprint

What Kurt Frankenberg has done in The Blueprint is document the application of known option strategies in a methodical fashion. It all begins with a deep in-the-money married put and is followed by one or more adjustments intended to lock in profits.

The Radioactive Trading Blueprint offers several benefits, but there are also unnecessary pitfalls that have been created. Those pitfalls arise from the confusion created from manufactured descriptions for each constructed options positions which serve only to re-packaging well established option strategies.

Nonetheless, what might be taken away from Radioactive Trading is a focus upon risk management and the methodical approach to opening, adjusting and closing trades. To derive ultimate benefit, it would be prudent to translate the positions and adjustments from "Radioactive Trading" terminology into the more commonly accepted terms.

Radioactive Profit Machine, aka, Married Put

The center piece of the Radioactive Trading method is the "Radioactive Profit Machine (RPM)," more commonly known as a married put. More specifically, it is a deep in-the-money married put.

A married put position simply consists of 100 shares of stock, plus the purchase of a put option. The stock gains value from upward price moves, while the put option protects the investor from downward price movement.

Because the investor is able to exercise their rights under the option, and sell their stock at the defined strike price, the risk of losing money due to a downward price move in the stock is limited. That reduction of risk does come at a price, however.

The Cost Of Owning A Married Put

With a married put position, upward price movement in the stock will produce gains more slowly than if you simply own the stock outright. The reason profits are less robust is because the cost of the put option must be offset by the price gains in the stock.

To explain it in another way, as the stock increases in value the put option will be losing value. As such, while the investor who simply bought the stock will enjoy a dollar-for-dollar increase in the value of their position, the investor with the married put will experience a fractional increase since the put option is losing some of its value with each incremental increase in the stock's value.

Income Methods And The Radioactive Profit Machine

A series of position adjustments have been documented, each labeled as an "Income Method." Despite the label, these are not income methods. In fact, some of these adjustments require an investment of additional capital, resulting in a reduction of cash.

The adjustments consist of selling calls, rolling the puts, etc., for the purpose of locking in profits once the underlying stock has made a desirable move. Kurt Frankenberg has been offering the basic strategy, that of the married put, and his "Income Method No. 1," i.e., writing a call against the married put position, as a free download.

The remaining position adjustments are shared in "The Blueprint," which is currently sold for more than $250. While all of the adjustments are legitimate methods for locking in profits, reducing risk, etc., they are consistently mislabeled which will likely cause growing confusion as the reader attempts to reconcile Kurt Frankenberg's methods with known option strategies.

For example, Income Method No. 1, is labeled as a "covered call." It is not, however. A covered call consists of 100 shares of stock and a short call option. Income Method No. 1 creates a position consisting of 100 shares of stock, a long put, and a short call. The resulting position is either a synthetic time spread or a collar, depending upon when the respective options expire. Both positions, the time spread and the collar, are quite different than a covered call.

Bullet Proofing Your Position

In Radioactive Trading parlance, a position becomes "bullet proof" once the risk of loss is reduced to zero. This is achieved by locking in profits from directional movement in the stock or selling sufficient premium to offset the time value of the original in-the-money put that was purchased as part of the trade.

The basic concept is that once the initial married put position is opened, the investor should wait for a favorable price move sufficient to offset the original risk of the opening position. The profit from the favorable price move is then "locked in" by selling a call or adjusting the put option.

The result is that by locking in the profits from the favorable price move, the investor is no longer at risk of losing their original investment capital. As always, there is a cost involved and that will differ based upon what adjustment you make. For example, by selling a call option you have limited the upside appreciation potential.

Call Options Versus Married Puts - More Efficient Trading

If the use of an in-the-money put as part of a married put strategy intrigues you, consider simply buying an out-of-the-money call option. The call option and married put position are synthetically equivalent, which means that the call option provides you with the same risks and the same rewards as a married put.

The primary difference between an out-of-the-money call option and an in-the-money married put position is that the call option requires far less capital. A married put position requiring thousands of dollars can be duplicated with a call option that requires just a few hundred dollars.

Synthetic Equivalents For Radioactive Trading Income Methods

Every "income method" documented in The Blueprint can be duplicated with a comparable adjustment applied to the call option. This means that you will be able to "bullet proof" your call option just as effectively as you can bullet proof a married put.

It also means that you can pull profits out of a call position just as easily as you can pull them out of a married put position. In fact, you will find that you can often do this without the commitment of additional capital required in the case of a married put, allowing you to trade a smaller account or re-direct that capital to other uses.

Married puts have been around for as long as options have been traded. They are a perfectly viable options strategy, but there are more efficient means of trading and you will need an upward trending market to realize profits.

To learn more, consider registering for our free video series. You will learn that this "ultra-safe" Radio Active Profit Machine is no more, and no less, safe than owning an out-of-the-money call option. From there we will also be pleased to demonstrate when this may be a good strategy, how you how to make it better, and introduce adjustment strategies for a call option that mirror those used with Radioactive Trading for the married put.

 
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