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Review of Making 36% by Dr. Terry Allen
At a recent Money Show conference in San Francisco, I had the good fortune to meet the author of this book, Terry Allen. Terry and I share a passion for using option strategies, which reduce risk while still offering significant profit potential.
He has 25 years of options trading experience, which includes a stint as a market maker on the CBOE. Over these years, he has developed an options strategy designed to make at least 36% every year, in good years and bad. That strategy is the subject of this book.
Allen believes that the 36% Solution, the title he gives his strategy, is far less risky than owning stocks or mutual funds. And, he makes a powerful argument that investors have a far higher probability of making a profit and of avoiding losses by following his strategy than by owning more traditional asset classes and investments.
Ordinarily, I would scoff at what sounds like such an outlandish claim and figure it belonged in the trash along with all the ads you receive in the mail with the incredible promises of instant wealth…provided you get your check in the mail, pronto! However, a conversation with Terry familiarized me with the basic concept, one that had captured my imagination before but that I had never examined closely. After reading his book and reviewing the track record, which is available on his website, I am convinced that his “outlandish” claim may well be achievable and is well worth checking out.
The basic principle on which the strategy is based is the fact that the attrition of time value of long-term options (such as with LEAPS) is much slower than that of short-term options near expiration. Allen has devised an ingenious plan for capitalizing on this principle, which involves a structured options portfolio at various exercise prices, both above and below the current level of the underlying instrument.
Rather than using individual equities for his investment, he advocates the use of an index-based ETF to lessen the risk of sudden, sharp price moves, which are less likely to occur in an index than in an individual stock. He specifies the index, which he has found to be superior for this purpose, citing greater liquidity, tighter bid-ask spreads, a higher ratio between the time near to expiration and more distant options and other factors.
The strategy works best when price movements are relatively narrow but can still produce profits if price moves up or down within reasonably wide limits, as long as it does not move “too far”. Allen provides a list of specific rules to be followed to adjust the portfolio in the event that this happens and in the event of other circumstances that dictate a change in holdings.
Golfers will love this book. It has nothing to do with golf, but it is full of golf-related sayings and wisdom on every other page. The idea is that this strategy can produce enough income for the reader to enjoy more leisure-time activities, such as golf.
One need not worry about being an options expert to understand the strategy…the book is written so that it may be easily understood by all levels of investors -- from those with no knowledge of options to those with extensive experience and knowledge. I’ve traded options for more than 40 years, and I found this book to be interesting, well-written and highly informative.
It is apparent that Allen has written the book with the goal of promoting his options market letter, which guides the reader to implement the strategy that it describes. For those who do not wish to trade the strategy themselves, a broker-assisted program is available.
I highly recommend this book, which is inexpensive, and I would encourage all investors to see if it makes sense for them to look into this strategy, which may not be “too good to be true”. The 36% return the author “promises” may just be achievable with less risk than taken by owning stocks or mutual funds outright.
Edward Dobson, President
Traders Press, Inc.
Greenville, SC
