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Today, I'm being interviewed by Hiro Takei at Behind the Spread.

Quoting from the site, "Behind The Spread aims to introduce readers to real investors and professionals who have an influence in the community.  Big or small, they all have a story.  Our mission is to help you discover them."


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Behind the Spread

There's a relatively new blog on the scene, titled: Behind the Spread.  This, from their 'about' page explains the reason they exist:

"Do you often run into investors and wonder who they are?  What’s
their background?  What was their journey to success like?  Have you
ever wished you knew them better? Or connect with them more personally?

Behind The Spread (BTS) aims to close that gap by introducing you to
real investors who have an influence in this community.  Big or small,
they all have a story.  Our mission is to help you discover them.

Learn their stories.  Learn their background.  Learn their game. 
This is where you meet and connect with people “Behind The Spread”

I believe that my story – chemistry to trading to writing – makes for interesting reading.  If any of you are so inclined, please fill out this short form and suggest that I be interviewed.  Thank you.


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Interview with Adam Warner of The Daily Options Report

Today it's my privilege to conduct an interview with Adam Warner (agwarner on Twitter).  Adam writes the highly acclaimed and popular blog, The Daily Options Report.

He co-wrote the options
column on Street Insight from spring 2003 to spring 2005, and is
currently Options Editor at

When not writing, Adam is a proprietary option trader with Addormar Co, Inc.  He graduated John Hopkins University with a degree in Economics. 

Adam's blog is both educational and fun to read.


I see
that you have a lot of fun with your blog, Daily Options Report,
including posts on sports, bikinis, and making fun of Lenny Dykstra.  I
like that.  What made you include material of that sort?  How does
your wife feel about the photos?

The Dykstra
photo's? Not a big fan, too much chaw.

bikini's? That's probably what you mean.  She tolerates it I guess. I try to not
cross any lines. I honestly don't remember why I started doing it, but at some
point I noticed that if I popped on a chart I could literally hear the
tumbleweed blowing, then if I popped on Melissa Theriau I'd get 20 comments.


Then unfortunately I discovered there's a brand of bikini named
"ViX", and they run ads without quite attractive models……

Back to
Lenny. When I started writing him up, he was taken somewhat seriously in the
biz. He had recommendations on TheStreet, was on Fox's "Bulls and
Bears" et. al. But I could see in about 3 paragraph's that it was utter
nonsense. So it just started with pointing out the flaws in his early Deep Call
illogic. Ironically, his actual stock picks were not bad, though we later found
out he was just cribbing picks from Rick Suttmeier and then paper-buying Deep
Calls. And then doubling down if it went against him….and doubling
again…and….you get the picture. His representations became increasingly
fraudulent, so I suppose it's no surprise that his representations about
everything else way beyond options proved fraudulent as well.

It may have begun as fun, but the anti-Lenny campaign was a true public service.

I know
you were a market maker on the Amex.  How long were you there and how did
you get started?  Is this experience in any way related to what you
studied in school?

I started
as an MM on the AMEX in February of 1988, so managed to miss the crash.
Probably a fortunate thing because my first lessons were on the wisdom of
options selling, lol. In August '99, the exchanges started to dually list
everything and poof, there went our spreads [NOTE: The bid/ask spreads narrowed, due to competition]. But it was still the bubble, so it
was still a viable biz for a little while longer. But with tight spreads I just
didn't see the advantage staying in a trading crowd and taking the other side
of order flow. But on the other hand, I really loved the floor. But finally
gave in to reality and left in October 2001 and have traded off-floor ever

I was an economics major at THE Johns Hopkins
University. So just kind of tangentially related to what I studied.

You post
several times per day and are active on Twitter.  Do you have
enough time to do justice to your trading?  Do you watch the markets all

I've kind
of grappled with that. I'm a little ADD-ish, and literally can't stare at a
trading screen for long stretches of time. So I probably don't do justice to my

The writing kind of goes in spurts, and often off hours, so sometimes
I'll have a bunch of ideas after the close or early evening and then just pop
it out the next day, so maybe I don't write as much during hours as it appears.
The twitter I kind of like as a pseudo floor
experience. Some value-added and some-nonsense of course, but sitting at home
for work all day, it's a bit of a lifeline sometimes. I thought twitter was
kind of pointless at first, now I wouldn't want to be without it during the
work day.

I see that
your first book is about to be published by McGraw Hill and is titled:

Options Volatility Trading: Strategies for Profiting from Market Swings.
That must feel good.  Congratulations.

From Minyanville: "Options
Volatility Trading
educates novice to intermediate investors on the
nuances of the volatility index (VIX), the psychology behind it, and the best
strategies to employ during dramatic market shifts. It provides a solid
grounding in historical volatility patterns, distortions created by market
noise, and how to use tools other than VIX."

Do you have any pre-publication tidbits to share with the readers of Options
for Rookies? 

Well, as a measure of how great I find your site,
I've done this for 21+ years now and I still learn things reading info for
"Rookies". My book is a bit of compliment to the material you cover.
It's maybe "Options for Intermediates". I assume a basic knowledge of
options and options Greeks (although I do have a chapter on Greeks). Much is
similar to your material though, I discuss position management, different
strategies, et. al. A rather unpublicized area imho was the natural ebbs and flows
of the expiration cycle. So perhaps of interest are a few chapters on timing
certain types of options trades within the expiration cycle.

What gave you the idea to begin writing a blog, and when was that?

was really just a whim. I was writing for StreetInsight (which I believe now is
called Real Money Silver). I enjoyed it and liked all the people there, but it
was a bit of an expensive service and I kind of felt like I was writing in a
vacuum. It was 2005 I believe and blogs were just getting popular, so I figured
I'd give it a try. I emailed the random few I knew read me over on SI, and my
actual "break" came with a link from Charles Kirk (The Kirk Report) who at the time
was THE name in biz blogs. Still is probably. We've had contact over the years
and I'd also add he's about as nice as they get.
[MW: I confirm that The Kirk Report is a well-done, influential blog]

Do you have a favorite option strategy that you consider to be your 'bread and butter.' or do you stay flexible and trade based on market conditions?

I try to
stay flexible. In general I prefer selling options to buying, but reading you
and Condor Options and others, I tend to spread them and keep the risk
contained that way. I may end up with an Iron Condor, but I often leg it by
selling the put spread first and then sometimes leaving it at just that, or
sometimes legging a call spread short later.

There's much more to talk about, but that's more than enough for today.  Thanks Adam.

Adam's book


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I’m Interviewed

Today, I talk options with Manshu of OneMint.

This gives me a good opportunity to discuss several things that are always on my mind.  For example, why options are appropriate and helpful for passive investors – those who like to invest, and then pay scant attention to their holdings.

We also discuss whether options are appropriate for rookies, and I have to battle the ideas that investors 'should stay way from options altogether,' or that options cannot be conservative investment tools.

I hope you find it worthwhile.


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Interview with Philip Budwick

Hello Coach Phil,

MW: When I first met you online, you were referred to as Coach
Phil.  What type of traders were you coaching and do you still find time
to coach?


PB: The nickname came up because I was helping a lot of friends
and other beginner retail traders with the basics of options, as well as
answering questions on more complicated strategies.  So after a few people were thanking me for
the “coaching” I figure I would just use the name Coach Phil as my online log-in
for online discussions or chat rooms.  I
always wished I had access to knowledgeable and experienced traders when I
started with options to avoid a lot of silly mistakes, so I figured I could provide some of my experiences with beginner traders and hopefully help
them move faster up the curve, and avoid those same mistakes.  I still “coach” traders when I can and often
do a lot of one on one chat or messenger sessions with people, if time
permits.  People can always contact me at
with option trading questions.

MW: Did you love the law and was it difficult to give up the steady income of a
lawyer to become a full time trader?  Are you happy with that decision ?

PB: I always wanted to be
a lawyer for some reason growing up and knew even before college that I was
going to law school.  However, after a
summer internship at a family friend’s brokerage while I was in college, I started
liking the market more and more.  I never
thought of it as a career, just something you can do with your money.  But after a few years working as a lawyer I
became more and more interested in options and started trading and losing money
like all beginners do.  Slowly and slowly
I was becoming more fascinated with options and less with the law and finally
decided to go back to school to get my Masters in Finance.  Once I finished the degree, the law was still
interesting in a general sense but not a profession I wanted to do any
longer.  I was hooked on trading and
worked very hard to put myself into a position where I could quit and not
suffer financially from the loss of that steady income.  I eventually quit the law fully in 2006. 

The key for me was I worked on other areas of
income generation so I would not be 100% dependent on trading income – and
be stressed over every single penny.  I am
not a heavy day trader so I am not chained to my computer day in and day
out.  Trading actually freed me up to
pursue other avenues such as teaching and consulting.  Leaving the law was an easy decision as my
passion was 100% for trading and there was no turning back.

MW: I agree that it’s easy to get the trading bug!

What else do you trade besides options?  Do you have a
preferred strategy, or are you flexible? 


PB: I mainly trade options but have gotten the futures bug as
well.  I will trade futures on the
indexes as well as commodities on intra-day swings or sometimes for longer-term
plays.  As for options, I prefer spread
trades and mainly do Butterflies, Calendars, Straddles and other combo
trades.  I will often trade volatility
outright and try to be non-directional using spreads.  Occasionally I will take some pure directional
trades with options when opportunities present themselves.  I do not have one specific strategy which I
apply blindly month in and month out as I believe you have to follow the
markets and adapt to changes in volatility and market behavior.

MW: When you trade for clients, how much detail do they get?  If they want
to know what you are doing for them and why, would you disclose that – or do
you even have the time? 


PB: Most clients can see my trades and the positions I have for
them, but I never really discuss the rationale or methodology as that is based
on my own trading strategies and methods and a good magician never reveals
their secrets.  Many arrangements are
usually through a power of attorney so the client retains the funds and account
while I have power to trade the funds. 
Most clients do not care really, as long as they see results and I never
have had a situation where a client demanded to know my methodology.  I try to explain in general terms my approach
and risk management philosophy and that is really all they want to know.

MW: As you can see from the title, this blog is being written primarily for
newcomers to the world of options.  But I do cover many more advanced
topics.  Is there a specific part of your book,
The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading)that's most appropriate for option rookies? 

PB: I think the first 2 chapters of my book are the most
appropriate for option rookies.  In those
chapters we describe risk and trade management and specific ways to approach
trading to ensure you are making logical and rational trading decisions.  We also go into great detail on the specific
tools of the trader needed to trade options successfully including the Greeks,
Synthetic Positions and risk/reward profiles. 
We have added a lot of detail in the 2d Edition of the book which we
just finished and should be out in the near future.  Our goal in this edition was to really go
into explicit detail on what the Greeks are and how to use volatility, time
decay and theta to truly understand options and how to make better trading

MW: I discuss iron condors more often than any other strategy in this blog.  Do you have
any comments specific to adjusting iron condors – perhaps deciding when to
adjust?  Or perhaps a favored method? 

PB: As you know I was a big trader of Iron Condors for several
years when the VIX was in the 10 – 20 range and did them monthly with very good
success until Aug 2007 when the whole market volatility environment changed
dramatically.  When I did Iron Condors
exclusively from 2003 – 2007 I tried to make strike selections where adjusting
was not something I would have to consider often.  However, as you know markets will
occasionally make large moves and threaten the short strikes.  My experience has been that adjustments for
Iron Condors are quite limited and most either eat into your credit
significantly, or increase risk.

The only adjustment I really considered was based on time to
expiration.  One common adjustment “regime”
I would use if the Put side was threatened, for example, was to close the put
spread and roll it down and close the calls and roll them down as well as long
as I still maintained a total net credit. 
The goal was to simply give me more space in the time remaining for my
options to expire worthless or get to a point where I could close for a
profit.  I only considered this though if
time to expiration was short.  If there
was 4 weeks left to expiration then the adjustment would still leave me plenty
of time for the position to move against me while reducing my credit.  However if there was 1-2 weeks and I felt the
market had a good chance of moving back away from my threatened strike then I
would do the adjustment to sort of buy me more cushion to wait out the

If the market kept coming at me, I would have to accept the
loss and bail.  I found in my experience
that you really only have one adjustment in an IC to give you some cushion, and
if market still will not cooperate then you get out and look for next

Thanks Phil.  I enjoyed this conversation and am pleased to have you as my first interview.


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Portfolio Insurance

I've previously discussed the idea of buying extra options (calls, puts, or strangles) – not in an effort to earn a profit – but as protection for an option portfolio that loses money when the market undergoes large moves.  This is something that iron condor traders ought to consider.  NOTE:  I'm not saying everyone should buy such insurance, but every iron condor trader ought to be aware that such insurance is available.

Today I'll describe an alternative method for buying protection. This method is not 'better,' but it's less costly to make the trade.

1) Buy OTM puts.

2) Sell OTM put spreads.

3) Conditions:

    The puts you buy expire before the spreads, and have a strike price that is slightly farther out of the money. 

    Sell more spreads than you buy puts – often 5 x 2 or 3 x 1.  The lower the ratio, the better your portfolio is protected. 

    The cost of this transaction ranges from a small debit to a credit.  The idea is not to pay much cash, and if possible, collect cash. 

    Use position analysis software provided by your broker to be certain the risk profile indicates you have enough protection.  You may be forced to trade the combination at a reduced ratio to obtain sufficient protection. 

4) Risks: 

The options you buy expire first and if they become worthless (as they will most of the time), then you are short some unhedged put spreads. If far out of the money, buy them back cheaply ($0.25  or perhaps a bit more).  The cost of repurchasing these spreads is the cost of the insurance (subtract any cash you collected from the original trade).  This is pretty cheap insurance. 

    But, if the spreads are not very far OTM, then you are in a poor spot.  That's the big risk of owning this type of insurance.

  If the market has made a big move and your long options move far into the money, you should make more than enough by owning these extra puts than you lose on the put spreads.  This profit is used to offset all or part of the losses associated with your iron condor positions.

Example:  Here's one sample that I initiated two days ago:

        Bought RUT Mar 340 puts
        Sold 3x as many RUT Apr 350/360 put spreads
        Cash collected: $0.15

I don't expect to earn a profit from this spread, but if the market undergoes a rapid decline, I'll earn a profit.  If the Apr spreads are available @ $0.30 any time before Mar expiration arrives, I'll cover them.  That results in a loss, but it's very inexpensive insurance.  If necessary, I'll manage the risk when I lose the protection of the March puts.

There are different ways to play this.  Different ratio.  Strikes that are closer together.  Months further apart.  The advantage of buying nearer-term options: they cost far less (in dollars, not in IV).

Warning:  This is not a good idea as a money making trade.  It's strictly for insurance.


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Online Interview

Kevin Cook recently (9/18/2008) interviewed me for the Options News Network.  Kevin hosts the segment called 'Street Smarts.'  Check it out because this site contains useful educational material.

The 5-minute interview can be found here.

ONN requires that visitors register before being able to view their content.


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