Young motivated options trader seeking words of wisdom

Discussion in 'Options' started by optionsdude, May 28, 2008.

  1. Long time reader, first time poster.

    I appreciate all of the great dialogue here especially from optioncoach, opt789, yip1997, Mverickz and others of course.

    I have been trading options since I was a freshman in college (about 5 years now). I am by no means an expert but am able to pay for mine and familial bills. I do see that this is something I will do indefinitely in some capacity.

    I haven't had a "real" job in about 4 years because I told myself that after seeing how horrible working for someone else is (via my parents jobs and myself working retail) I was going to make this work for me. I then sold my old CJ7 Jeep - then, at the time my pride and joy and dove right into the market by buying a laptop and throwing the rest into a discount broker and learned the hard way how to try and make money (like I said I am by no means an expert as I have flirted with a few blowups so far).

    I have over the years migrated from equities (mostly biotech stocks, as my major was molecular biology). I would put on a cheap suit and take a road trip out to California with friends (where the lion's share of biotechs are) and basically faked it to management until I made it (making them believe I had a 100M dollar fund and would just as easily short them as go long them). This was my attempt to get an in with the story behind the equity. I thought if I was going to put my money in a company I better make sure it wasn't a hole in the wall and that I better know as much of the story as I could. Long story short I started doing this full time and became a sort of independent sell side analyst - Yuk, I know. I also got to play analysts off of each other - ratings, recs. etc - that was fun:)

    BTW, I started as an all fundies type of guy and thought technicals had no merit.

    I then migrated to equity options as I could play the approval/non-approval of drugs/medical devices with much more upside then the equity itself. Just so happens that biotechs are usually on the NASDAQ's gainer/loser lists for the day so this form of speculation and in some cases hedging became very interesting.

    I further migrated to options on the indices (mostly the SPY, however - I know, not the true index, but the relations I have been able to derive from the SPY,QQQQ/XLF,CL along with ES, NQ volume lead me to more often than not profitable trades). I have sized up my trades accordingly.

    I use only price and volume when executing intraday trades as the greeks don't apply all that much. That is until I employ an overnight spread or strangle strategy.

    I am mostly and intraday options trader (is scalper the proper term here?) and have started to push the 5% barrier as far as total daily strike volume (roughly 1500k-3k contracts on puts or calls with strikes of the SPY that are either just ITM or OOTM.

    I keep it simple. Just price and volume. My charts are not heavily marked as I feel the patterns that I have seen time and time again are ingrained in my head. My opinion is individuals behavior in regards to money (fear/greed) changes very little over time and thus patterns tend to repeat - that is overly simplified, of course, but it works for me.

    My question is what do I do next? I love trading options and would love to work on the floor before it becomes less populated. Should I? What is the best way for me to gain greater experience in this area?

    Any and all wise opinions are welcome.
     
  2. magicz

    magicz

    Ask yourself if you are happy with the money you make or not?

    If so why change? if not then go prop for more capital usage.

    I also trade biotech options exclusively. Be interesting to hear what you have been doing the past several years in this sector.
     
  3. Well, my advice as usual is not to trade because you will probably not succeed in the long run. But you sound like you will do it no matter what, so you have to ask yourself some questions. What do you want out of this, do you want to trade by yourself for yourself, do you want to trade other people's money, why do you want to trade on the floor, do you really want to be an options trader or are you just using options to increase your delta leverage intraday, do you have enough for a PM account?

    It makes me very nervous anytime a new trader says they trade options intraday. It is usually just to leverage their deltas in a way that is too risky to work in the long run.
     
  4. C- kid

    C- kid

    did you spot him or what :D
     
  5. sg20

    sg20

    I think neke is the only good intraday option trader around here, he's doing pretty well I supposed, but to me, I think intraday is too temperamental.

    Biotech is the promising area in the future but beware that it can go down pretty fast if programs are not supported by the government, likewise meds are very risky on the down side, it goes up and down like a yoyo and then drops like a dead duck on bad news or unapproved clinical trials...

    I traded long-term options for fun on the side when things are not very active, and I don’t think there’s more to the up sides to option, all depends on whether the market you trade can make money for you or not IMO.

    sg20
     
  6. I am satisfied with my returns but I know I can accomplish more. I just need to figure out how to make an entrance into the industry other than from a retail/small fund perspective.

    I run a small fund (small being under 1mil AUM) and have only 3 close, accredited clients. I say "fund" in that it's in a 2 LLC structure.

    As far as biotech goes I started out in names like Solexa - now ILMN (nice buyout:), AFFX, ISIS etc.

    Great management over at ILMN as they are eating AFFX's lunch. A few other names but we'll go over them later. I like to have no more than 10 companies on my radar so I can know them like the back of my hand.

    ISIS option plays can be very profitable if you take into account actions of the CEO. He's burned allot of people in the past so not many people except for names like FMR like him. They could be on to something with mipomerson but the FDA sucks balls right now when it comes to cholesterol drugs.

    What names are you into?
     
  7. opt789,

    Thanks for your reply. Let me first clarify that I "scalp" options intraday to provide only income. I "manage" a very small account in equities. My goal is by the time I'm 40 I want to grow the fund I have to 100M.

    I have become accustomed to moves in the underlying instrument in relation to the strike in place. It's not so much a need to increase delta but more an advantage I see in trading the different instrument - I have often pondered why don't I trade futures full time, but the answer is I like the flexibility options provide.

    I always trade the nearest month. I trade mostly 50 and 100 contract lots.

    Opt, what's a PM account?
     
  8. PM=portfolio margin which you need over $100k. It enables you to get risk based margin like a market maker instead of the overly restrictive reg-t.

    If you are already managing other people's money and want to grow that then I don't really see an advantage to working on the floor. By the way, I hope you had a very talented lawyer (much harder to find than most think) draw up all your documents, otherwise you could be in for a lot of trouble.

    Growing a 1M fund to 100M without connections and a pedigree is extremely difficult, but anything is possible. When your best friends and great, friendly clients turn on you because of one bad month you will see that managing your clients can become even more difficult than managing your investments.

    If you are scalping options intraday then you are just trading deltas which you can do with the underlying, and the underlying usually has much better liquidity and spread.

    I left the floor and managing OPM for the freedom of trading for myself and spending time with my family, so I can't tell you the best way to grow a fund, but there are plenty of websites out there for aspiring hedge fund mangers and companies that will help you raise money once you have a proven, established track record.
     
  9. Thanks for the reply Opt789,

    I to have thought of the give and take of managing opm. That's why I haven't gone full force.

    I enjoy the freedom trading provides and have been able to be relatively consistent with my daily targets.

    I still need to weigh the risks/rewards of managing a large fund. I'm starting to see that time is the most important factor but, since I don't have a family yet, I have allot more freedom.

    I just feel like I have allot more to learn.

    I find it more comfortable to trade the derivatives than the underlying. The spreads are not deleterious to profits since penny spreads (IMO).
     
  10. dmo

    dmo

    I would mostly agree with that. But with certain options such as those on SPY, there is such a marked and consistent pattern of IV dropping when the underlying goes up that if you're bullish, it's well worth considering selling puts as an alternative to buying the underlying.

    Of course, that "leverage" works both ways - if you're wrong and the underlying drops, IV will go up and you'll lose on your short thetas as well as your long deltas.
     
    #10     May 28, 2008