Trading Options

Trader Scott’s Market Blog

September 29, 2016

Many e-mails come in from our great readers about trading optionsand asking why I never trade them anymore. First of all, let me say, if you are consistently profitable trading options andyou’re comfortable navigating within that market, then keep at it. Do NOT let me dissuade you. But I have not traded options since I left the Chicago Board Options Exchange trading floor over 15 years ago. I have a couple of reasons for this. I never truly felt “comfortable” dealing with options. Option pricing and strategies are very math oriented and I suck at math. However, especially on a very short term basis, options are a very good vehicle for doing directional trading. One of my mentors was a super successful options trader using that method, and he isn’t much better at math than I am. So I figured that I have a shot also.

When I was in Chicago, I did know these two guys who had a hedge fund partnership. One of them, who became a good buddy of mine, was a math whiz. And the other guy was a great directional trader. So their strategy was to buy into the volatility and the fear near the turning point in a market sell off. And always into a SUPPORT area. And for those of you who know options, those turning point volatile areas (bottoms or tops) are where the options premiums usually explode higher. So instead of buying a call with those high premiums, when they believed the market was at a turning point they instead would do a complex put strategy. They could then benefit from the eventual shrinkage of the premium over time, no matter what happened to the underlying market. And they also could get the extra kicker of (hopefully) being right about their directional trade. So each strategy alone should yield a profit, but together it’s pretty powerful. And it really seemed great, creative, and “logical” to me. So I tried it. And, guess what – I don’t remember making money even once. So I just stayed with my original plan of being a directional trader and that worked pretty well over the years when I was a floor trader. I was basically just trading the underlying instrument, such as the individual stock, or an index. But I was using options as a vehicle to accomplish that. But I knew that after my floor trader days were over, I would no longer trade options. Floor traders have several advantages over everyone else, so I knew that when I left that environment options wouldn’t be a good fit for me. Options just add another layer of confusion for me. My only concern in markets is survival and options, at this point, don’t get me there.

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About

Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.