ShadowTrader Beginner’s Options Advisory

Trading Philosophy
Frequently Asked Questions
Understanding Trade Emails

This document is the starting point for those who may be deciding to sign up for the Beginner’s Options
Advisory. It is an overview of the product along with answers to frequently asked questions on the
basics of how the advisory works. There are also comprehensive explanations of the trade types that
are employed and how to understand the emailed trade alerts.

Trading Philosophy: What to Expect…

As this advisory is geared towards beginners to options, it is based around only the simplest of spreads,
those being long and short verticals, long butterflies, and single long options. While the building blocks
of what we’ll use for trades are similar to what other advisories may offer, our approach is different.
We don’t trade probability and we don’t sell any Iron Condors either! We’ve seen too many services
simply sell vertical spreads because the price of a stock has moved too far in one direction. This is
insane to us and a first class ticket to blowing out your account. Stocks stop their directional movement
when they come into contact with historical support and resistance areas. Those may be defined by
prior highs or lows on a variety of timeframes or by trendlines or channels. In other words, we are
technicians, through and through. Technical analysis guides all of our trading decisions and is the logic
behind all of the trades you will encounter in this advisory. The Black-Scholes mathematical model of
options pricing does not take technical analysis into account. That, in our book, is an edge that can be
exploited. The advisory is sometimes directional (long debits) and sometimes trading for credit by
selling spreads in order to capture time value.

This advisory is administered by ShadowTrader Senior Options Strategist, Scott Gillam, and overseen by
ShadowTrader’s Chief Strategist, Peter Reznicek. Scott’s objective is to present 6 new trade ideas per
month which are delivered via email to subscribers. Scott manages all trades with adjustments and exits
which are also sent out via email. All trade activity is posted to a spreadsheet which is updated weekly.
An email is sent out weekly on Friday’s which details all trading activity for the week, along with an
updated .pdf of the trade spreadsheet where trades are tracked.

Furthermore, all Beginner’s Options Advisory subscriptions include a monthly Private Webinar where
Scott teaches options basics, goes over open trades, and takes questions from subscribers. These events
are recorded and subscribers receive emails with links to the recordings if they are not able to attend
live.
Frequently Asked Questions
Does this include Peter’s Premarket Perspective? No. That is included with either of our more
advanced advisories, Weeklies or Time Spreads. As this advisory is geared more towards beginners, we
felt that it wasn’t a good fit to include market profile.

Does this include What’s Peter Thinking audio text messages? No. This advisory only
communicates to its members via email and not texts. That is a feature of Weekly Options advisory and
Time Spreads Options Advisory.

Who is administering this advisory? Scott Gillam is the trade advisor.

I am a member of either Weeklies or Time Spreads because I love the Premarket Perspective
and the audio updates. Is there some what I could switch to Beginner’s Options for the
trades and pay a reduced rate for the PPP and audio messages? No, unfortunately we don’t have
the capability to break up the products and change prices like that. You can be a member of as many
advisories as you like, but you will be charged the going rate for all of them.

I work full time, can I still trade this advisory? Maybe. While we don’t advise this for our Weekly or
Time Spreads advisories, this one is a bit more slower paced. That being said, it would still be optimal if
you could watch the market all day long the trade advisories do come out during the trading day and
may require action immediately.

How much capital do you recommend to have to trade in the same size as the emailed ideas?
We recommend at least $10,000 of unmargined cash in your account in order to comfortably trade all of
the trades along with Scott. Your account must be margin eligible as some of the trades require being
short options. Unlike the Weekly and Time Spreads Options Advisories which specify contract size on all
trades, the Beginner’s Options Advisory does not and traders can feel free to trade as small as one
contract if they like. Beginner’s Options Advisories trades also only use spreads with fully defined risk
which also cuts down on margin requirements for subscribers.

Is there any Free Trial to the Advisory? No. The going rate of $49 per month is far below what
others are charging for similar services so we are not offering a free trial at this time.

If I sign up, am I locked in for some period of time or can I cancel whenever I like? There is no
contract and you may cancel at any time. Note that ShadowTrader does NOT prorate or give any
refunds.

I just signed up, how can I get the current trades and links to webinars? An email is sent out
weekly with a freshly updated .pdf and also links to all of the past monthly webinars. Depending on
what time you signed up, you may have to wait until the end of the first week to receive your first daily
email. If you would like to get any items faster, feel free to email Scott at sgillam@[Link].
Are the monthly webinars recorded and archived? Yes. All subscribers receive the weekly email on
Fridays which has links to all of the recorded webinars.

If I sign up am I locked in for some period of time or can I cancel whenever I like? There is no
contract and you may cancel at any time. Note that ShadowTrader does NOT prorate or give any
refunds.

I just cancelled, but am still receiving trades via email, what gives? When you sign up your
account is marked with an anniversary date of that day. You are charged your first $49 on that day and
then $49 every 30 days after that. If you cancel in the middle of a period you will still receive services
until your anniversary date rolls around again. If you would like to stop receiving emails immediately,
contact support@[Link].

I don’t understand some of the trades and am afraid of putting them on wrong, should I still
do them? ShadowTrader does not advocate the placing of any trades that subscribers are
uncomfortable with. You can always email Scott questions directly at sgillam@[Link].

When will I receive the invites to the weekly webinar? You will always receive an email at least 3-
4 days before any monthly webinar is going to happen.

I don’t exactly understand how I should place the trade according to what I see in the text
messages. Is there a user’s guide somewhere that explains fully how to interpret the trades in
the texts? Continue reading below, there are guidelines further down in this document. Furthermore,
if you are a subscriber (or prospective subscriber) and you have a question on a trade, don’t hesitate to
email Scott directly at sgillam@[Link] and he’ll explain things to you asap.
Understanding the Email Trade Alerts
Convention:
All emails will always follow the same template and look just like the example below:

Let’s go through the different sections, starting from the top:

Right under the ShadowTrader logo will be the symbol of the underlying followed by the direction (long
or short) and the type of spread being bought or sold. In the example above, the stock is Facebook and
the trade is a long call vertical.
Underlying: This is the security that the options are based on.

Status/Type: This will be either “Opening Trade” for opening transactions, “Closing Trade” for closing
transactions, or “Adjustment” for any adjusting transactions.

Trade: This is a cut and paste from a working order from the thinkorswim platform. Let’s break down
the different parts of it for clarity
 VERTICAL is the spread type
 100 is the multiplier. This means that the cost of one contract will be 100 times it’s price. In this
trade example that would be $250 as it’s 100 x 2.50.
 (Weeklys) This means that a weekly expiry option series is being used as opposed to a regular
monthly (3rd Friday of every month) one.
 3 MAY 19 – The expiration date of the options being bought or sold
 175/185 CALL – The two numbers are the strikes that are being used to construct the spread. In
this case it’s a vertical which is being bought. The 175 call is being bought and the 185 call is
being sold.
 @2.50 LMT – The suggested price is $2.50 per contract and should be placed as as limit order.

Trade Price: The price of the trade expressed per contract as either a credit or a debit.

Maximum Risk: This is the maximum amount that one can lose per contract on the trade. Your own
maximum loss would be the number of contracts traded multiplied by this amount.

Maximum Potential Profit: This is the maximum amount that one can make on the trade expressed in
dollars per contract. Note that in this example it is $750 because the maximum value of one $10 wide
call vertical is $1,000, less the premium paid which was $250.

Target ROI: Target Return on Investment. This is the first target level for exit which is a percentage of
the price paid. In this example, the call verticals were bought for $2.50 so the first target of 25-35%
would be to exit half the position if the call verticals appreciated in value to about $3.10 to $3.40
roughly.

Maximum ROR: Maximum Return on Risk. This applies to credit trades. If for example, the FB trade
was a sale of a call vertical for $1.50 credit, the total risk would be $8.50 per contract which is the $10
value minus the credit received, and the maximum return on risk would be 17.6% which is 1.50/8.50.
We call this the maximum return because it implies that the value of the credit spreads sold would have
to go to zero in order for you to make this return. While this is commonplace and possible (as most
options expire worthless), our general rule of thumb is to shoot for a closing trade at 50% of the value of
the credit received.
Duration: This is the time to expiry. It is the amount of time expressed in days that the options have
until they expire.

The Setup: The most important part of the email even though it is at the end. It is an interpretation of
the chart which is the basis for the trade. All of the logic behind every trade is here. If there is ever
something in the analysis that is not clear, don’t hesitate to email Scott at sgillam@[Link].

More on Trade types:

As this is an options advisory geared towards beginner’s there will only be a limited number of spread
types that are presented as trade ideas. Those are the following:

long call vertical – A bullish directional play that is making a bet on upside movement in the underlying.
This type of trade is initiated at a debit and has a cost to put on.
short call vertical – A bearish non-directional play that is making a bet that prices will remain below a
certain level for the duration of the option’s life. This type of trade is initiated at a credit and you
receive money when placing the trade. This type of trade will incur margin.
long put vertical – A bearish directional play that is making a bet on downside movement in the
underlying. This type of trade is initiated at a debit and has cost to put on.
short put vertical - A bearish non-directional play that is making a bet that prices will remain below a
certain level for the duration of the option’s life. This type of trade is initiated at a credit and you
receive money when placing the trade. This type of trade will incur margin.
long butterfly – A non directional play that is making a bet that prices will stay within a limited range
during the life of the option. This type of trade is initiated at a debit and has a cost to put on.
long single call – The most bullish type of directional play which entails simply buying a single call with
no offsetting sale to create a spread. This incurs a high debit but has the greatest reward potential of
any options trade.
long single put – The most bearish type of directional play which entails simply buying a single put with
no offsetting sale to create a spread. This incurs a high debit but has the greatest reward potential of
any options trade.

Feel free to print out this .pdf and keep it close by as a reference guide to the advisory.

-Scott Gillam
-Peter Reznicek