About

Mark D Wolfinger

I’ve had a long and fascinating ride as an options trader and learned a great many lessons along the way. The idea behind this blog is to share some of those lessons with you.

Mark Wolfinger

Options for Rookies was born in June 2008, and with your help – questions, comments, and support – has become a better blog along the way. My heartfelt thanks to everyone who contributed to that improvement.

I began trading options in 1975 by writing covered calls. In December 1976, I was given the rare opportunity to become a market maker at the CBOE (Chicago Board Options Exchange). I quit my job as a research chemist (Monsanto) and set up residence in Chicago.

Al, my partner, bought a membership, nominated me to have access to the trading floor, put cash into the account and sent me off into the wilderness known as the CBOE trading floor. That’s how I became a market maker.

In those days, there were no put options. Imagine that! No LEAPS, index options, or ETFs. It’s so very different today. We can sit at home, enter orders and get immediate fills. We have software that analyzes our positions. And amazingly, trade commissions are less than those I paid as a market maker in 1977. Nice!

I’ve published four books about options; Three in hard copy and one as an e-book.

amazon link

6 Responses to About

  1. george galla 05/23/2013 at 10:59 PM #

    Glad you’re back. Have read you’re book and thought it was useful. Looking forward go you’re posts.

  2. Alex 04/27/2014 at 10:16 AM #

    Hi Mark,

    Greetings from a fellow Brooklyn’er! I am reading your book, and it’s really helping me with options trading. Thank you! I have a question that I am curious about. I am up to chapter 19–risk management–and I started wondering…

    How many plays/positions would a trader with a high value account(7 figures+) generally be in, in any given day? Would it be a most-of-eggs-in-one-basket situation with some hedging in case the single underlying take a wrong turn? Or is it more of a 30-percent here, 30-percent there, and 20% there with 2-3 underlyings?

    Hello Alex,
    I assume that we are NOT referring to an arbitrage position that has virtually zero risk.

    I cannot imagine any successful trader placing almost all of the trading account into a single trade, even when it has a very high probability of success. If the position is so well hedged that the maximum possible loss is no more than 20% of the total account; and if the probability of success is high (90%+) that would be an occasional exception.

    NOTE: I do not suggest that anyone should risk as much as 20% in a single trade, but under some circumstances that would not be terrible. Your idea of owning a couple of positions with a 30% portfolio risk simultaneously sounds dangerous to me – unless each position is subject to a different risk: one loses to a big market move, one loses to some big change in implied volatility. one loses under some other conditions. But do not own large positions that would get into trouble at the same time.

    I do not believe that the size of the account should affect this decision. In fact, the larger the account, the more likely it is that the trader should be concerned with both earning money and preserving capital. If the trader is managing other people’s money, then the situation changes because preservation of capital becomes far less important (assuming that investors understand that the trader is taking risk, seeking good-sized profits).

    Because we have the potential to earn very good returns with limited risk, I believe that there is no reason to be greedy. It is always a good idea to keep at least 10 to 20% cash in reserve for two reasons: It may be needed to defend (adjust) a position that is getting too risky to leave unchanged and also because a special opportunity way arise and you want to be able to play.

    I prefer some diversification when possible. If you trade a single underlying, I hope it is a broad-based index and not a single stock or sector. If you trade SPX options, for example, you can diversify with 2 or 3 different strategies; or a few different risk points (i.e., if trading credit spreads, the short options should be spaced by some decent amount – perhaps 25 to 30 points).

    Bottom line. There is no best reply. If you WANT more risk for more reward potential, I suppose one position is acceptable. but no trader who wants to make money consistently should attempt that. The probability of losing too much money in a single trade is just too high for comfort. That is, it is too high for my comfort, and I cannot speak for others. We will have a market disaster in your lifetime. We will have a surging bull market in your lifetime. If you are a premium seller, you must be protected. That’s okay. You should not try to get rich(er) in a year or two.

    In my opinion: The big risk taker is going to go broke sooner or later. So, if you want to succeed as a big risk taker, then you want a short trading career. Establish a sum that you want to earn in one year or perhaps two. And if you earn it, quit. Get out of the high-risk game. If you stay in that game, the odds of getting hurt badly increase.

    Mark

    • Alex 04/28/2014 at 8:31 PM #

      Thank you very much for your reply, Mark, and for your advice and insight!

      The scenarios I listed above were just random numbers I threw out. There is no doubt that diversification is essential to reduce risk and reduce losses in any security trading. But for the “casual” trader, would using 1-2 conservative strategy be a bad idea?

      For example, for someone who is unable to be near a computer during market hours half the time, he/she might choose to only trade SPX options to reduce risk(relatively) and have less portfolio maintenance. He/she would also choose conservative strategies so a few points in the wrong direction won’t require their immediate attention. In this situation, would it be a considered unwise to place a majority of the account value into 1-2 conservative strategies?

      Thanks in advance!
      Alex

      Hello Alex,

      As you present your scenario, no. It would not be a bad idea at all.

      Trading only SPX is a very reasonable idea because it already builds in some diversification.

      Holding positions that use only one or two conservative strategies is a GOOD idea. As market conditions change, you may decide to adopt different strategies, but actively owning positions that use only one or two at one time is a sound idea. Too many different strategies can be counterproductive. Yes, a 3rd strategy offers more diversification, but it also takes more time to manage positions and you never want to feel that it is mandatory to add another strategy to spread risk. If ‘too much risk’ is a consideration, better to reduce position size that to add another strategy that you don’t truly want to adopt at that time.

      Just because you have $X in your account does not mean that you have to invest 80 to 90% of that sum. There will be plenty of times when you are satisfied to work with a smaller sum. For example, if volatile markets are difficult to manage, or you don’t have much experience with trading during volatile markets, there is no reason for you to trade more than half of your ‘normal’ size during such conditions.

      Bottom line: Decide how much of your portfolio you want invested at at this point in time. Decide which strategy (or two) to adopt right now. Choose appropriate trades (i.e., you have lots of strike prices and expiry dates from which to build a position). Verify that you can survive a disaster. Make those trades.

      Do the same each time you are ready to add positions. The strategy will probably be the same as last time, but do make it a conscious decision. In other words, don’t just do what you did last time out of habit.

      Your questions tell me that you understand all of this but are only looking for some assurance. Best of luck to you (because there is always some luck involved when working with statistical outcomes (such as investing)).

  3. Aldo Omar 08/22/2014 at 11:03 AM #

    Helo Mark,

    I’ve just starting to read your book, bought from Amazon. I also read several other options books, while doing my paper trading with OptionXpress with thinkorswim platform.

    I also have joined an options course and what they teach are very basic, which is just Buy To Open (Call / Put) and Sell To Close (Call / Put) and pay attention to the candlestick chart for entry point. So making profit from that simple strategy. What do you think of that strategy? They didn’t teach any strategies mentioned on many options books.

    But after reading couple of books on options, they all teach the Covered Calls as basic strategy, which from my understanding that one investor has to have real stocks in order to make the options trading. Do I need to buy real stocks? Is that true?

    How about if we only open an options account, and didn’t have a real stocks to trade in that Covered Calls strategy? And why I can’t trade the Covered Calls in optionsXpress? Please help me.

    Thanks in advance,
    Aldo Omar

  4. BK 08/27/2014 at 3:15 PM #

    Hello Mark,

    I would be grateful if you could share your experience and answer a few general questions for me:

    1) Do you see any benefits of using long calls rather than bull call spreads if one uses sell limit orders, thus capping one’s upside from the outset anyway?

    2) When swing trading with the use of monthly options, would you normally recommend closing one’s positions no later than on Friday preceding the expiration week, or do you sometimes see some merit in holding them into the expiration week?

    3) When one does not intend to hold one’s position into earnings but wants to capitalize on the pre-earnings volatility rise, do you – other things being equal – recommend closing one’s positions immediately prior to earnings or a few days earlier? Does your experience suggest that there is some general rule as to when volatility rises the most?

    4) What, in your opinion, is the maximum percent of one’s portfolio that can be safely committed to options positions? Is it around 15-20% or more/less?

    Thank you in advance for your help.

    Reply can be found here. Thanks for the good questions.

  5. Jakub 09/07/2014 at 4:42 PM #

    Hello Mark,

    I have a question that is not related exclusively to options, but, given the time decay element built into them, it may be particularly relevant to them. The question is this: are there any general rules that you use for exiting trades that start to go against you, especially if they are not based on an anticipation of a specific catalyst? For instance, do you tend to liquidate your positions in the event of a general market correction that sends a particular stock lower than the general indexes, in the event of your position losing a given amount of value (say, 50% or 33%), in the event of a clear-cut technical trend being broken, in the event of a combination of these and/or other elements, or with the use of some other methods altogether?

    See Reply.

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