Terry Allen
Stock Option Success

Full disclosure: I've developed my own unique approach of using options as a long term investing tool that I call Leveraged Investing. It's all about using options to acquire high quality stock at a discount and then squeeze extra returns from that stock repeatedly over time. I think it's a great strategy, but I've found that it really only appeals to those personalities who just genetically seem to have a long term perspective.

Now, I'm fully aware that most participants in the stock market are hardwired more to be traders than investors. Nothing wrong with that. Even though I fall on the investing side of the equation, I don't believe that my customized investing approach is somehow morally superior to short term trading.

What's most important is that you align yourself with the approach and techniques that most closely match your own personality and hardwiring.

So what does any of this have to do with Terry Allen?

Two words - Calendar Spreads.

If you're interested in trading options, one strategy you'll most likely consider at some point is calendar spreads.

What Are Calendar Spreads?

The gist is this: the premium on short term options expires much more quickly than the premium on long term options. So all you have to do then is buy long term options and simultaneously sell short term options, pocketing the difference between the two rates of time decay.

With covered calls, you're writing short term calls against the underlying stock. With calendar spreads, you're basically doing the same thing except instead of owning the stock, you own LEAPS, or longer term options that may not expire for a couple of years.

The benefit? LEAPS cost a lot less than buying the actual stock. Granted, there is no time decay with owning actual shares of stock, but with slow-decaying LEAPs, you end up controlling a lot more shares for the same amount of money. And that means your potential returns are considerably higher.

If you're new to calendar spread trading, don't just rush out and start experimenting. I've only given you the basic premise of the strategy, not all the ins and outs. These don't have to be high-risk trades, but unless you know how to safeguard yourself, you'll likely end up making some costly mistakes.

Prefer a video explanation instead? Here's a 10 minute overview from Terry himself:

Terry Allen's Stock Option Success

The prerequisite to membership is purchasing Terry's "Options Strategy Report" White Paper. And when you download the White Paper, you also get a free membership for two months to his site.

Membership includes what he calls an "Options Tutorial Program" with access to live accounts — some of which are targeted to double within 12 months — that you can track and mirror yourself (and there's both email trade alerts as well as an auto-trading feature).

Translation: Buy the White Paper for $79.95 and essentially get a two month trial subscription to Terry Allen's site. If you continue your subscription after the two months are up, membership runs $19.95 a month.

Now the important questions - who is Terry Allen and how does his service and White Paper stack up?

Who is Terry Allen?

I admit, I find his biography impressive. Not necessarily all the educational stuff, or even the philanthropy (too much Ayn Rand, I guess), but spending 25 years on the floor of the CBOE trading options, in my mind at least, gives him a certain pragmatic credibility.

Terry Allen - Pros

• Calendar Spreads - the strategy itself, when employed carefully and intelligently, is credible. In fact, when I consider the risk-reward profile, I personally believe that calendar spreads are one of the best ways to potentially make a lot of money without assuming an enormous amount of risk.

  The core 10K Strategy, however, is more than just a simple calendar spread. The trick is perfecting the strike price selection and deciding upon an ideal ratio of how many near term options to write and at which strike prices (you can actually get burned if you simply buy a lot of LEAPS and then sell a matching amount of next month options all at the same strike price).

• The White Paper - I actually bought a copy myself a few years back. I was impressed. Terry Allen is a good communicator (be grateful for that - not everyone in the options education arena is).

  The Paper includes several customized strategies, not just one generic "calendar spread." Although some of the strategies are more complex than others and some have a few moving parts, they're all accessible, easy to understand, and, most importantly, sound.

  In addition to the customized strategies, the White Paper is also a good primer for those new to options trading. It's a solid reference document — whether you're setting up a specific strategy, or you're just trying to remember which option greek does what and why it's important. In short, it's a pragmatic, no-nonsense education in options.

• Inexpensive - At a discounted rate of $19.95/month (after the first two "free" months), the subscription is one of the most inexpensive legitimate option trading services you're going to find. Granted, you have to pay $79.95 up front for the White Paper, and for some that might be a barrier, but even that price is a potential steal if you acquire a lifetime resource that either improves your trading results or changes your trading philosophy.
• You can make a lot of money - Calendar spread trading is far from risk-free, but it's not like buying a lottery ticket either. These kind of spreads can be very lucrative. In 2003, when Fannie Mae traded in a sort of calendar spread perfect storm, Terry Allen famously clocked a one year return of nearly 200%.

  Is that a typical result? Hell no. The stock essentially traded flat for a whole year while Terry and his subscribers extracted the full premium from it month after month after month. These days, as I understand it, he pretty much avoids individual stocks and focuses instead on ETFs and indexes. But the returns can still be fantastic.

Terry Allen - Cons

• Not appropriate for small accounts - ideally, you should have at least $10,000 to work with. You might be able to get by with $5,000, but anything less than that just isn't realistic. I like to see the little guy succeed, but even sound strategies won't work if you spread yourself too thin.
• Goofy Sales Page - There's a certain "unpolished" feel to the sales page while at the same time it's also a little "hyped." I think the "amateur" marketing undercuts the strengths of the White Paper and related service.
• Terrible Branding - Again, this is more about the marketing than it is the service itself. I think he'd get more subscribers if he picked a single, memorable name and stuck to it. As it is, it's confusing. StockOptionsSuccess? Terry's Tips? Terry Allen?
• There needs to be more clarity in the offer - You know what to expect if you try this service because I've explained it to you. But for the uninitiated, it can be a confusing offer. Is it an ebook? A trading service? Both?
• The White Paper could use a makeover - Maybe this one has already been taken care of, but when I downloaded the White Paper several years ago, it was basically a Word document. I recognize that it's the quality of the information that's most important, but still . . . add a few graphics, convert it to a PDF, and class it up a little.

  Noticing a theme here? I gather Terry Allen is more comfortable trading calendar spreads than in mastering internet marketing. In a way, that lack of B.S. is refreshing. With a lot of services, the emphasis is the other way around (thanks to visitors of this site asking my opinion, I get to see a lot of sales copy).

  Brief Editorial: Sure, stock options can seem intimidating and complicated if you're brand new to them, but honestly, we're not talking about higher mathematics here. You're not trying to land a rover on Mars or anything.

  And yes, option trading can get a little complicated from time to time, but don't fall for that old trap of "I need to pay someone hundreds or thousands of dollars teaching me this dark, secret art." Seriously, if you can prepare and file your own taxes (and I said "prepare" not "enjoy"), you can learn calendar spread trading.

Update: The Mighty Mesa

The Mighty Mesa is designed for a different kind of trader, a more risk-averse trader. Traders can still employ the core 10K Strategy and "target" annual gains of 100% (no guarantees, of course, but under most normal market conditions you should do pretty well).

But the more risk-averse trader now has an alternative — The Mighty Mesa. The target here is a lower but still but ambitious objective of 36% annualized gains. The trade off is that there's a lot more added protection to the portfolio (and some corresponding complexity).

The official description of the strategy is this: "A Tested Options Strategy Designed to Never* Lose Money (and Just Might Make 36%)." The asterisk qualifies the statement — it's been back tested 10 years and never showed a loss during any consecutive 12 month period. That includes during the aftermath of 9/11 as well as the disastrous meltdown markets of October and November 2008.

You should always take back testing with a big grain of salt, of course, but I still admit to being a little impressed by this one.

Admittedly, The Mighty Mesa is somewhat more complex and involved compared to the original 10K Strategy. That's because, in addition to the calendar and diagonal calendar spread trades, he tacks on a customized butterly position. And there are also some additional rules for making some occassional mid-cycle adjustments when necessary.

It all depends on how comfortable you are with complexity and how uncomfortable you are with risk. If I had to trade (I'm an investor, remember?) I'd probably go for the simpler and more lucrative 10K strategy over The Mighty Mesa, but it's all about your own wiring.

The service does include an auto-trading option for active members that he encourages you to sign up for, but my own bias is that you try to mirror the trades on your own. If you're going to trade, I think you should take ownership of your trading, but that's just my opinion.


If any of this sounds intriguing, you can check out Terry Allen for yourself.


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