For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Adam Warner, a professional options trader who writes for Minyanville and GlobalTechStocks as well as his own site, the Daily Options Report.
Adam spent time as a member of the American Stock Exchange until 2001 when he moved off the floor. Read on for more on Adam’s take on the options business, the two best books on options, and his approach to trading options.
StockTickr: How did you get started trading the markets?
Adam: My first job out of college was for a firm that had what at the time was a state of the art “on-line” option pricing service, predominantly for bonds and currencies. Great and brilliant group of people, but unfortunately my task there was tech support. Of which I knew little. I started looking for a new job, and my dad, one of the original AMEX options traders said “why don’t you give floor trading a shot”. Sounded great as a stop-gap, I had done a little trading before a couple summers back. But I didn’t plan on it as a career. Little did I know…
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Adam: My first stop on the AMEX was the Disney options crowd. I didn’t quite understand the concept of declining volatility; I must have thought it was like etched in stone or something. I remember buying moderately OTM calls over and over again on prices wildly cheap according to the sheets I printed out each day. And I dutifully shorted stock over and over again to stay *neutral* and watched as the stock I was short kept lifting, while the calls I owned went nowhere.
Funny how nothing has changed, LOL, it happens to this day.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Adam: Probably not getting mentally carried away with the ups and downs in the trading biz. Don’t get too excited about the good days, and don’t get too down in the bad days. I kind of transfer that attitude over to the rest of my life, to my wife’s displeasure, LOL.
StockTickr: Describe your style of trading. How long do you typically hold positions?
Adam: I am more of a positional, than day trader, so I may roll and hold stuff for months on end.
StockTickr: What’s your exit strategy for winning and losing trades?
Adam: It is a tricky answer in options. Much of the exit strategy is borne putting the trade on to begin with in the form of defined risk spreads. Like let’s say I am bullish on a name, maybe I buy a call spread that benefits in a lift, but only up to a certain level. The flip side is that I can only lose what I have paid for the spread, so I am in essence “stopped out.”
StockTickr: What 3 books do you recommend traders read?
- Options as a Strategic Investment by Larry McMillan
- Option Pricing and Volatility by Sheldon Natenburg
Those two are really the two bibles of the options business.
StockTickr: What is your typical R value per trade? i.e. what % of your portfolio do you risk with each trade?
Adam: Very small %. Part of it is the nature of options to begin with, the leverage they afford. Part of it is that I am not a shooter by nature. I can’t ever remember a time I rued not being bigger in a name.
StockTickr: What technical indicators could you not live without?
Adam: I generally look at MA’s, as well as Bollinger Bands both for chart points, and for the implications on volatility.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Adam: The options biz has gone through a veritable earthquake. Until August of 1999, exchanges had exclusive listings on the lion’s share of their products. You want to trade some options in Caterpillar? Come to my crowd, it is the only spot in America. Spreads were as wide as we could legally make them; the game was totally tilted in our favor, in return for our obligation to take the other side of every order. Then dual listing happened, followed soon by automation, then decimalization. And coming soon…pennies. Those spreads and edges went to nothing, meaning there was little reason to trade on an exchange and be obligated to simply take the other side of what some wired-in hedge funds wants to do.
So how did I adapt? I left the AMEX 5 years ago and trade from home and initiate my own trades.
StockTickr: Do you backtest?
Adam: I don’t backtest.
StockTickr: What advice can you offer traders who are just starting out?
Adam: Be disciplined. Define your risk. In many respects, you make money by NOT losing money. Good days come, often when you least expect them. It is your ability to whether the inevitable bad days that will keep you in the game until then. My experience is that traders who routinely “double down” losers ultimately get carried out; traders that halve or take off losers tend to survive.
StockTickr: What is the most common but easily correctable mistake you see traders make?
Adam: I wish I knew, LOL! I would say sticking with losers too long and winners too short. But it is WAY easier said than done to correct this.
StockTickr: What do you like best about trading?
Adam: You are really your own boss. And it is the ultimate meritocracy; you get paid purely and solely on performance.
StockTickr: When did you start your site and what prompted you to do so?
Adam: I wrote part time at a site under That Evil Empire, and decided I had had enough. But for no particular reason, I started the blog in April 2005, really just because I liked the idea of something resembling a trading diary.
StockTickr: Thanks, Adam!
Adam: Sure, Dave.
Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Roger Nusbaum
- Dave Johnson
- J.C., the NYSE Scalper
- Brian Shannon, AlphaTrends
- Jamie, Wall St. Warrior
- Howard Lindzon
- Kernan of TRADEthemove.com
- Richard Todd
- Andy Swan
- Steve Nison of Candlestick Charts
- Dan Mirkin from Trade-Ideas
- Bruce Brotnov
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp – Free autographed copies of Van’s book still available! Get yours now!
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!