30 Year Old Full Time Trader Sticks to Selling Strangles

[Music] Thompson back my friend rising star in the house I like it Louis how are you great how are you thanks so great well actually let me take that back we're okay we've we've been better or market-wise he's a 11 yeah we expect if they're seeing what you've done that the mark will be unchanged to a lower but then this interview is over I'll do my work cut out for you but you're up to it we'll see good you're in from Pittsburgh yes you are how old 30 you started 30 perfect and you are a Christmas baby I'm gonna walk on water later yeah it's a good circle I have two questions about your life that I need to know as I have actually never met anybody that was born on Christmas Day huh he made his parents for Christmas for every Christmas baby or was it was it you know did you get to have a normal birthday yeah I have a normal birthday I really both surprising me I've got a lot of sweaters though - yeah do you like is there like a club like you have a lot of other friends or you know that you met over the years that are Kristin's babies - I went to high school with a girl who was a Christmas baby Wow we to this day is still wish each other a happy birthday oh nice just because she shares in that pain with me so good and my last question is grows ghost peppers yes um the the super I mean there's like all these different kinds of ghost peppers aren't there it's just a hobby it's a hobby it's fun you throw a few flakes in some soup and then you can also prank your friends which is nice yeah so how many ghost peppers cuz Toni grows like no no the guys actually and the research team love you know how many how many plants do you have so I you grow about 15 different kinds every year Wow and I got 20 plants or so Wow and and you do this just because you like you take it yourself to give some away that's it yeah cool I'll give you something beautiful I am I need some carries him wherever he goes so Luis has a very interesting story and I'm really glad you reached out to us to to tell you know our viewers and people are our community loves rising stars because you know it's whatever it did makes them feel like you're one of them sure you don't to be one of us anyway we're we can't be saved you can you know you can have it you can have some real success you started trading recently mm only a couple years ago and you are been watching tastytrade you said pretty steadily for the last a little over two years yeah beautiful given some pretty steadily he said every day for the last two years I'm giving people some context I want to give a little bit about your background so people know undergraduate it's on there just came and you're after you graduated you you with your undergraduate degree which was in what finance finance in accounting finance accounting you went to work in the financial service industry right you thought there was you trade a little bit you thought there was more out there and you decided to go back to get your graduate degree right you went to Boston College and after you got out of Boston College you went to work for a large financial institution helping to do portfolio management analysis right okay and LAN handsome side yeah that lasted a little over a year whatever and you decided that there's more to this you at the time were let's say 27 28 you decided to start trading and that's what you wanted to do and there's a lot of people listening today that that's what they want to do and you decided to make a career out of this mmm you took all the money you had saved up over the years and everything else going by are a 401k right liquidated you're a your you are as we would say I probably trading your own capital right right okay and hence the Lewis C story rolls on is that fair that's fair to put everybody you have I'm not gonna give the specifics you have a you have a I would call it a sizeable account but I'm not talk about you know real numbers and I like how you say your venture and thinker but you don't have a contrarian personality I don't even think so and you've never bought an option contract to open a position which is something that in a decade or two decades ago nobody could ever say that today it's a little bit different you our product and different right trade you don't care as long as it's liquid and has a lot of as enough volatility and enough you know activity okay now it's your turn let's talk strategy sure what strategies to employ so I only sell strangles to open I usually look at twenty Delta strangle okay start and then if I want to be a little more aggressive I may get into the thirty Delta or thirty five Delta but for the most part the default is a twenty Delta strangle do you have a certain volatility criteria that you look for obviously I'd look for a volatility pop and that dictates how aggressive I'll get being product and different is really nice because you can have extremely uncorrelated products and so I usually have a little bit of everything on even if volatility is very low you can still make money in some of those other products that you might not how many different positions to you tend to carry at one time I have at least tang and up to about twenty the very most do you find it difficult to you've been doing this only a couple of years to find it difficult to manage ten to twenty positions you know simultaneously for me I think that's about the right number so the answer no and I think that's a reasonable amount if I had 40 positions maybe then that gets to be a little too much did you start two years ago trading this way or did you start trading some other way you said he never bought an option so there must been you've been pretty consistent but did you start with defined risk never buying an option you start with undefined risk right away I just went full in undefined risk you're just confident but you had some experience you know obviously a lot of financial experience before in in the industry I had some experience I had a professor at Boston College that allowed me to do an independent study and I was looking at put call parity and stumbled on the fact that volatility was overstated in the S&P 500 and started watching tastytrade a little bit more and eventually put those two pieces together with the mechanics of managing a strangle and then also having that knowledge in the back of my mind that okay I've done this research myself I do believe that volatility and fear is overstated and that in the long run if you're in uncorrelated products this should be a profitable adventure when you first started out Lewis were you more directional initially or were you kind of a delta-neutral right from the start so the options were always Delta neutral but I would buy and sell futures contracts throughout the day just scalping and I looked at my account just for this year and realized I've lost about 25% of my account value just due to being what I would call a directional hero and you knew something when I really really knew something when you were sure it was sure yet everybody else was wrong did you originally start out at like the 20 Delta like you said you start out at like a 5 or 10 or 15 Delta G went right to the 20 Delta I won that's your comfort zone that was where my comfort zone was so what if a position started to move against you so as a position moves against me I generally don't do anything until I reach a break-even point okay and then at that point I'll roll up that untested side now there are times when it's advantageous to roll up a little bit even if you haven't breached that break-even point so for instance you start out with a 20 Delta strangle right and that 20 Delta goes to a 35 and 5 let's call it just making a film version of it it doesn't make sense to hold on to that 5 Delta position not giving any protection for simple yeah and it's not gonna stop running up to about a 10 or 12 Delta somewhere around there to still get that directionality in for the position to come back but also taking a little more premium how when you initiate your positions because you're it's you sound like you're kind of trading by but which I love you know because it's your trading clearly by mechanics that we we encourage everybody to use are you how far out are you starting when you make trades like what's the duration what do you think's your average duration that you set up to transport average duration is somewhere around 35 days to 40 right and adults I've extended duration just because there's a volatility and almost nothing that I trade so I'm looking at 60 days out right now personally but that's just where my comfort zone is from our risk perspective have you found that when you put a position on are you are you a virgin into the positions meaning are you putting on like a very small quantity at first and putting more on or you basically just making the trade and then moving on to the next trade I make the trade in move on I'm I haven't like you don't yet you don't like in you don't add any add to any positions I'm a leg out a little bit yeah but generally don't leg in if it goes poorly and being in so many different products that are uncorrelated you're always gonna have what you call a problem child sure it's miss craving all right is there when you have a position and is starting to go your way what are what's your criteria for taking those positions off I look at the amount of capital have to put up okay and then decide on an annualized basis can I still collect enough premium but in general if I sell something for two or three dollars it's call two dollars I'd like to think about taking the position off at around a doll or maybe a little less sure and it is there a time frame like if you get to a certain number of days you put it on with thirty five days if you're trying to take it off at 2017 15 in that range half the time half the time there and then other times I'll go down to the 10 five-day range it sounds like you are really you know the way you're explaining this it's very much in line with exactly the way we think we do we trade we try to you know across the board so let's talk about your first full year was 2016 right no 2015 so 2017 is the first four year starter days sixteen Oh April 21st okay perfect April 21st I like to get the exact dates oh you've got a beautiful little graph there I like this even better so use this is 2017 I am look around okay Toby of 2016 no we we have two charts we have a cumulative performance there you go that's they give it to him that's all time okay and then he is last year okay all right leave that up for one second so you started in April 22nd 2016 and you and how did you do what what's the first year like I'm not the first full calendar year but just how did you do in 2016 so 2016 was 72% and that was a partial year it was a great year to trade delta-neutral it was absolutely the best because we did absolutely closed unpretty much unchanged 2015 2016 with pretty much closed unchanged so you made how much 70 what 72 percent 72 percent from April to December 31st in 2016 now did you think there was something weird about that or did it seem normal to you there was something not quite right it was it was a little too easy for the seller sorry I suspected to not do well initially cirrus inland strangles who expects not to well and you make 72 percent on a fairly substantial amount of capital and you're thinking to yourself either I'm a genius I should've been doing this my entire life I did apply to even go to college more so the second one but you and or what's wrong with this picture yeah you know why isn't everybody doing this okay whatever is cuz you just you know you just found it whatever it he asked all these questions and then all of a sudden along comes 2017 which is very different 2015 2016 the markets didn't do anything we kind of normalized with respect to market movement 2017 and we have a year worth there's very little two-sided movement so tell us about 2017 2017 started out really well very consistent and was actually in cattle you see that rather precipitous drop there that's a cattle move that's a cattle move so you're all over the place a couple weeks then it had since about 2003 is reading online where traders were going bust and I ended up not rolling out the position I reached my maximum pain point and looking back on it I wouldn't have made money there but certainly would have recaptured a lot of that capital got it and yeah there's always some outlier or things like that right but so so what was the cumulative performance for mm what was the performance for 2017 so 2017 those numbers are a little old I'm now at 17 percent for the year plus 17% record Jeff nice that's a nice comeback from a you know from from a bad drawdown yeah so in 2016 for three-quarters of the year 70 percent of the year was plus 70 something percent in 2017 plus 17 percent just started get the numbers right yeah okay and that's on your total portfolio right using about how much of your cash have your comment all over the place I could use zero I could use up to a hundred percent a few times but in general I'm around that 50 percent of capital around it so you always have some kind of capital available sure yeah and what do you think about like when you think about your you talked about your directional drawdown but you know you said yet about a 25% drawdown on just your directional scalping and things like that what other kind of mistakes have you made the biggest mistakes I've made have been not rolling out and taking that Delta that you go into the last 5 or 10 days and reestablishing the position out of another 30 days and if it takes a year to get that back directionally just keep rolling it out and and you've you found that to work in the underlying I mean you haven't you've been lucky and that you haven't got caught in in something that just hasn't come back sure you know you have a lot of commodity-based underlyings you know that have been two-sided as opposed to you know some of you you but you've effectively avoided some of the stock drawer moves that haven't you know yep they haven't turned around at all which is which is listen that's a credit to you know to what you're doing sometimes this little bit of luck you know sometimes a little bit luck I mean sometimes you you'll end up with a year where you know the stocks move crazy and next year the commodities move crazy you know you never know so you have to just be you have to be careful in that regard what do you think gives you differently in 2018 like what did you learn in 2017 that you're gonna do differently in eighteen I think trading less would be good in terms of scalping and I've taken that down to maybe five percent of what I actually am trading so I'm looking forward to that it was all a busy you know sometimes it's just about staying busy yeah yeah I found that my best weeks are when I'm sitting there and doing nothing because I have the positions on everything is behaving and I'm not rifling off trades right and left are you able to stay are you is this enough is this enough engagements simulation for your mind I mean are you are you are you can you stimulate the the sense is enough by you know being a self direct to stay at home or office I don't know where you trade from the whatever you know is this enough to keep you intellectually challenged intellectually engaged I think it's the most intellectually challenging thing that I have ever done so really yes so like compared to figuring out somebody else's portfolio value or webpage right the the distribution you know purple allocation when somebody says to you how come why don't you just buy an index fund you know I mean which is I'm sure you've heard that before because what do you say I have to take a pause and just shake my head a little bit and I feel like people need to wake up and realize that it's not just passive index funds that are going to get you to where you want to be on a risk-adjusted basis there are other ways to do things when you got out of when you got out of when you graduated from grad school and you got out of the and you worked for you went to work for a large financial service firm do you look back at that and go what was I do like I mean you know do you think about like the skill level there versus the skill level that you've acquired now like it does it does any that stuff doesn't come into play when you think about you know opportunity and things like that sure I mean it's a little scary really the financial education even when a financial adviser side is pretty interesting for me because I went in there and understood a little bit about options and really loved what I did love the clients and got to work in private equity in a lot of different areas but when you look at the difference in education of what professionals know versus what the average tasty trader knows it's it's huge that gap is massive it's scary yeah it's scary and these we're talking customers too you know as opposed to sure people managing trillions of dollars is there anything about the market now that like what makes you nervous about what you're doing like what's your biggest concern somebody put this in terms of risk and how I live sure risk for me in England position I'm willing to take a certain amount of instantaneous risk on the portfolio where I look at maybe 3% because the overall portfolio because just one position correct yeah and the long-term risk I don't really care about because I can adjust the position to recheck that risk and I think taking what you're comfortable with on a risk level is very very important because if my risk level safe instantaneously is 3% and really I'm only willing mentally to take 1% you're gonna make mistakes when you're trading you're not gonna be mechanical you're gonna become emotional in other ways you can kind of tell that you're trading too large you have too much risk is when your heart starts beating a little faster and you're looking at and you're going well I hope it goes up or I hope this happens that's when you know you're in trouble a little bit and you should trail it a little smaller do you think that I'm gonna kind of wind this up and ask to the most important what is the most important criteria then with respect to your success has it been the liquidity of the underlyings has it been managing your winners or it has it been kind of the the strategies have selected or the size of your positions I know that's kind of a it's like a multiple-choice questions are for different I think size of the positions is the most important thing is that lets you cascade into yeah being mechanical and not doing any stupid yeah I you know what and it's so funny when you say that because we know that and we still make those mistakes right sure sure know the only thing that I can handle being wrong in the market and everything else but the only thing that's created drawdowns for me is just my size yep you get erection all size and that yes yeah it's still it so even if it's non directional initially everything everything's non directional on day one till it because I'm day five it's a directional position for and then you're dealing with some kind of you know directional adversity and you have to figure out how to deal with it it's been a over time no it's 903 it's been a great discussion your performance over the last two years is spectacular and I hope that you're you know I'm confident obviously the you know you sound like you've got your act together and so hopefully you keep this up into perpetuity and we'll maybe see back in a couple years who knows sure but thanks so much for coming out to Chicago for telling your story to the entire kind of tasty nation and hopefully we'll see on the on the road when we hit the East Coast definitely come to Pittsburgh yeah Pittsburgh is not on our list for this year but you never know about next year you know I mean we have we have a lot of listeners in Pittsburgh yeah so looking forward to it Louis thank you so much thank you so much for coming in we make a quick 92nd break you keep up those great returns we're gonna come back with market measures X's Tishri life you

Channel: tastytrade

Views: 104,518

Keywords: trading, trader, stock, market, finance, learn to trade, beginner trader, options, options trading, tastytrade, profit, trading tutorial, investing, how to trade, interview, success, strangles, low volatility, return on capital

Id: 9TEN6Q2BzGc

Length: 22min 8sec (1328 seconds)

Published: Fri Dec 15 2017