Looking for a good mentor for option trading...

M

mizhael

Hi all,

Good morning!

I am looking for a good mentor for option trading. I need guidance and coaching in the wonder-land of the option trading world. I have been trading options on my own for a few months however I just managed to break even with a small gain. I had small gains, then came small losses. I had large gains, then came large losses. So overall I just managed to break-even. I am at a good school and have a good background in Econ/Finance/Math/Stats/Programming. I am interested in a trading career. I am familiar with theoretical option models, stochastic vols, local vols, GARCH, etc. My problem is that I don't know how to turn math theories into real-world profit. I have also read Naterberg book, Option bible, Option Edge, and Volatility Edge books, etc. I know that I am reaching a point that I need some external guidance and coaching so I should advance to the next level in my trading. Please kindly shed some lights on me. Thank you so much for your advice and I am a person who appreciates, remembers, and returns kindness. Thank you!
 
Quote from mizhael:

Hi all,

Good morning!
I need guidance and coaching in the wonder-land of the option trading world.

I am at a good school and have a good background in Econ/Finance/Math/Stats/Programming. I am interested in a trading career.

I am familiar with theoretical option models, stochastic vols, local vols, GARCH, etc. My problem is that I don't know how to turn math theories into real-world profit. I have also read Naterberg book, Option bible, Option Edge, and Volatility Edge books, etc.

I know that I am reaching a point that I need some external guidance and coaching so I should advance to the next level in my trading.
More...

OK. You understand some of the math.

What do you know about trading? Not just options, but trading?

What do you know about the practical uses of options? Do you have any idea of the strategies available to you, or do you just buy options?

Do you have market timing skills? You'll need that if you buy options.

Can you trade without letting your emotions make the decisions for you? Do you panic when things go awry, or can you make intelligent decisions when you have a losing trade?

You are looking to reach the 'next level.' Have you mastered the very basic level? Do you know how to choose which trade to place and why you make the decision to trade a specific option or option spread? Do you understand the risk of the trade and how to manage that risk and collect your profit? I'm not just asking if you know how to buy low and sell high (or sell hig and buy low). Do you understand why the trade is made, how options differ from stocks, and what you are trying to accomplish (besides making a profit) from the trade?

Maybe you need to concentrate on something very practical at this time - such as understanding specific strategies, which options to choose when adopting those methods, how to manage the risk of such positions.

In short, don't assume the math background gives you a big edge when it comes to getting started in a trading career.

I am not putting you down. [If you take it that way, I apologize.] I am just asking if you have mastered the basics before worrying about the next level. Too many beginners get lost by moving too quickly.

Mark
The Rookie's Guide to Options
 
Quote from sugar:

You'll need that if you trade options.

:D
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I disagree 100%.

I don't trade with a market bias.
I do not make market predictions.
I don't trade on my guess as to what's coming next.

I make a living by trading options.
And anyone else can do the same, with the right skill set. And market timing skills are NOT in the set.

Mark
 
Quote from dagnyt:

I disagree 100%.

I don't trade with a market bias.
I do not make market predictions.
I don't trade on my guess as to what's coming next.

I make a living by trading options.
And anyone else can do the same, with the right skill set. And market timing skills are NOT in the set.

Mark
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Mark, I just want to ask - it seems like you have to predict something however, right? Maybe not the market, but something.

From what I understand, you do alot of Long Iron Condors on the market overall, right? Isn't that like making a prediction of limited change and/or lower IV in the market?

Now, if you have changed to something else because of the volatility, then you are basically predicting continuing volatility, aren't you?

I mean for example, a long straddle that is delta neutral can be considered a trade without market bias, but the buyer would still be predicting either a large move or an increase in IV. They aren't predicting a specific event, but they are generally making a prediction, otherwise, why put on that straddle?

So, it seems like with any strategy, to make money you have to predict something - not necessarily the direction of the market's next 1000 points, but maybe predicting a slower market, or lower IV, or higher IV or whatever. When selling credit spreads, you are basically making a prediction the stock won't gap against you (or if it does, you will lose on that trade of course).

Or, maybe part of what you are saying is you do enough trades with a good enough likelyhood for sucess that you realize you will have losing trades and therefore, you don't predict if each trade will work or not.

Thanks for helping me to understand,

JJacksET4
 
Quote from JJacksET4:

Mark, I just want to ask - it seems like you have to predict something however, right? Maybe not the market, but something.

From what I understand, you do a lot of Long Iron Condors on the market overall, right? Isn't that like making a prediction of limited change and/or lower IV in the market?

Instead of predicting, you can say that I'm placing a wager that such and such an event is or is not going to happen. It could be a market move, a change in IV etc.

Yes. I own iron condors. I also own extra insurance.

I suppose you are technically correct that by making the trade, I am 'predicting' that something will or will not happen. But I don't see it exactly that way. I truly have <i>no opinion</i> (on which I am willing to risk money. I do have the opinion that the market will sink by another huge amount - but I am not short, I don't own a bunch of puts. It's just an opinion - on which I will not bet). I just like the risk/reward ratio of the trade - as I perceive it. As I've stated elsewhere on ET, the strategy one adopts is merely a tool for playing the game. Trading skills and risk/money management are the keys to success.

Now, if you have changed to something else because of the volatility, then you are basically predicting continuing volatility, aren't you?

I have not changed. But, if I did - is that 'predicting' continued market volatility? Why can't is simply be 'fear' of continued market volatility - and backing off is a prudent, conservative thing to do. I have, in fact, reduced my trading size (to my regret) for the time being.

I mean for example, a long straddle that is delta neutral can be considered a trade without market bias, but the buyer would still be predicting either a large move or an increase in IV. They aren't predicting a specific event, but they are generally making a prediction, otherwise, why put on that straddle?

Maybe this is a quibble, but does it have to be a prediction? Can't it just be a decision that the straddle feels inexpensive, under the current market conditions, to the buyer? Not predicting a big move, but having seen a big move enough times, the odds of coming out ahead make the cost of the straddle reasonable.

So, it seems like with any strategy, to make money you have to predict something - not necessarily the direction of the market's next 1000 points, but maybe predicting a slower market, or lower IV, or higher IV or whatever. When selling credit spreads, you are basically making a prediction the stock won't gap against you (or if it does, you will lose on that trade of course).

True. But, the house takes the bets in Vegas and the house does not predict anything - except that it will be a winner over the long-term.

Or, maybe part of what you are saying is you do enough trades with a good enough likelyhood for sucess that you realize you will have losing trades and therefore, you don't predict if each trade will work or not.

I KNOW I'm going to have losing trades. that's a given. But my job, as a trader and as a risk manager, is to keep losses small enough so they don't overwhelm profits. I believe I have sufficient discipline to accept losses and move on to the next trade. I also take steps to reduce overall risk when winning. For example, I hold nothing into expiration and I cover all spreads when the price is two or three dimes.

Thanks for helping me to understand,

JJacksET4

This is how I see it. Others see things differently.

Bottom line, I don't disagree with you. We are thinking alike. I just don't think of the word 'predicting' when I trade. I don't select strike prices based on where I believe the underlying will be trading because I have no idea where the underlying will be trading.

Thanks for this question.

Mark
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Mark,

Thanks for the good, detailed reply. I think we are basically on the same page here.

I guess a person could either call it a prediction or just playing the hand over and over. For example, if you could go to Vegas and get 3 times your money for each correct call on a coin toss, you would certainly do it, but you are "predicting" that you will win about 50% of the time - if somehow you only won less then 30%, you would end up losing - yet the odds would show in the long run, it would be easy money assuming no one was cheating.

So, if you do say 10 Iron Condors and using money management, you maybe profit 7 times and make X dollars overall with larger gains then the losses, you feel that you can place the next "bet", because while you don't know what the market will do, you know you are in control of the trade, and can manage it, and you know your money management skills and tools to be good.

JJacksET4
 
Quote from JJacksET4:

Mark,

Thanks for the good, detailed reply. I think we are basically on the same page here.

I guess a person could either call it a prediction or just playing the hand over and over. For example, if you could go to Vegas and get 3 times your money for each correct call on a coin toss, you would certainly do it, but you are "predicting" that you will win about 50% of the time - if somehow you only won less then 30%, you would end up losing - yet the odds would show in the long run, it would be easy money assuming no one was cheating.

So, if you do say 10 Iron Condors and using money management, you maybe profit 7 times and make X dollars overall with larger gains then the losses, you feel that you can place the next "bet", because while you don't know what the market will do, you know you are in control of the trade, and can manage it, and you know your money management skills and tools to be good.

JJacksET4
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That sounds about right.

Mark
 
I am looking for a good mentor for option trading. I need guidance and coaching in the wonder-land of the option trading world. I have been trading options on my own for a few months however I just managed to break even with a small gain. I had small gains, then came small losses. I had large gains, then came large losses. So overall I just managed to break-even. I am at a good school and have a good background in Econ/Finance/Math/Stats/Programming. I am interested in a trading career.
More...
While an option coach can't hurt, I don't think that it's the key to trading success. Your math skils and a solid working knowledgeof all aspects of options (your readings) will go a long way to helping you get there. But equally important being able to be manage risk and an ability react to changing situations, particularly adverse ones. You will only gain confidence in these areas by trading. No one can teach it to you. You have to be able to think the language of options not talk it.

If you have been trading for only a few months in this market environment and you've broken even, do not be disheartened. Many noobs pay dearly for that learning curve.
 
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