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.

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2 Responses to Online Interview

  1. Jim 09/21/2008 at 7:06 PM #

    Hi Mark,
    I often see the comment on options forums that you can’t consistently make money with an option strategy unless you have an edge. I understand the concept of an edge but an bit sure how it applies to market neutral trading.
    Do you have any thoughts on the topic of needing an edge to be successful in trading options?

  2. Mark 09/21/2008 at 8:28 PM #

    Hi Jim,
    Good question with no easy reply. I try to find my own edge when trading options.
    An edge gives you an obvious advantage, but the definition of ‘edge’ is not specific in the option trading universe.
    If you are a skilled market timer, that’s an obvious edge and you need no other.
    When I was a market maker, my edge would come from buying options at less than they were worth (at the bid), selling at more than they were worth (at the offer). Then it was up to me to make additional trades to hedge my portfolio to minimize risk. That mathematical ‘edge’ is unavailable to us as individual investors.
    Thus, I must either trade without the edge, or manufacture my own.
    My edge comes from two entities:
    1) Adopting a strategy with a decent probability of success. I do that by selling OTM options – and buying protective options against that sale. In other words, I trade iron condors, double diagonals, credit spreads and diagonals. I prefer the market neutrality of iron condors and double diagonals, but if you have any ability in predicting market direction, you would be better served with the non-neutral credit spreads. But, few have that ability and I think it’s foolish to predict market direction.
    2) Then, instead of allowing expiration to arrive and look to see how much I earned or lost, I proactively manage risk. That means I sacrifice some profits, take losses when profits would have become available, but avoid large losses. By doing that, I come out ahead of the game. If I can do that consistently, that’s my edge.
    Bottom line: I trade with a positions that suits my comfort zone. I have confidence that well managed iron condors produce profits, and even if others tell me I am trading with negative expectancy, I don’t believe it’s true.
    But that does not mean that I am suggesting that you go out and trade whatever you want and not worry if you lack an edge. I am telling you that I believe any reasonable strategy, well managed can be successful. CAN be successful; not WILL be successful. Risk management is the key to success.
    “Be careful out there.”