Former Engineer/Lawyer Becomes Full Time Trader with 3 Simple Criteria

[Music] thomas we're back rising star i am looking forward to this less how are you good how are you i'm good it's a lot uh cooler here in chicago than austin texas it's 109 degrees a couple of days ago i i heard dry heat dry tom preston one of our guys lives he's your only our only person that lives outside of chicago yeah but he's been with us for 20 years now so tp lives in um he lives in austin yeah and he's always complaining about how hot it is you know he has no water because he needs the rain you know he lives on has a ranch and he has no water he's got all these animals and and it's too damn hot yep but to dry heat like you said yeah 109 is 109 i don't care it's still hot yeah but it's nice here in chicago yeah 72 75 today it's beautiful really nice um we love austin but um i love austin but but the action's in chicago so that's right so so let's talk a little bit about your um your rising star for a reason and so let's get into it so i think this is um fun i i love the fact you're a family of risk takers two sons or race car drivers uh um it it's it's crazy you had kind of an interesting career as an engineer and then a patent attorney for 20 years right and then at you said after you got after that after that ended when i say ended you know whatever happened that business right you decided to take on trading yes and you're a full-time trader now yep as of three years ago and you discovered it's like also where it says right there 2014. that's right and did you think that what are these crazy people on the internet doing no it was so what i saw was a lot of the things that you were doing i was doing anyway but you were doing things that i wasn't doing and um just before i discovered you guys okay i had i'd been doing doing a lot of trading and doing pretty well but i i had some bad habits and that's one thing me out of was was to get getting out of those bad habits and into some good so one of the bad habits that i had was i'd find something that really worked and i would play i would trade really too big so like on one account i had everybody that's everybody's for yeah and and so i when it when it uh and i've so some of the things i learned by watching you guys is you know that trades uh trade small trade often is is really key um diversified strategies underlyings uh time frames all that kind of stuff preaching to the choir here i know but to me it was there were things that i knew but i wasn't doing and when i saw you guys doing them and um i thought well you know they got you got data behind it i'm a real data guy i like i like that kind of science stuff and so i kind of forced myself to kind of play along with the way you guys were doing and i had a lot better consistent results than i was because i was you know winning a lot and losing a lot and winning a lot and losing a lot and just didn't have you know steady consistency well it's classic when people find something that that works they it's like you find the golden goose and you're like i'm gonna yes i'm all in and um it took us and and to be fair it took us you know years to get over that same thing i mean as as professional traders and even as screen based traders you know we still thought the same way at first you know listen this is what works this is what we're going to go with and the idea of being able to trade multiple positions on multiple strategies is very new one because you couldn't do it before you remember the technology didn't permit you to do it right so what you can do today you couldn't do 10 years ago and 20 years ago forget it yeah so so number one it's and you know that's the first thing is you can actually do it and the second thing is that the technology has made it easy and the fee structure has come down so much so that it's it's act it's it's actionable at this point right and it's nice to have it on a mobile platform too so no matter where you're going you've got the platform with you you can trade on the go so so let's talk about kind of the progression now let me give people a little background if you don't if anything i say is you know off limits sure stop me sure but um uh you have over the last three years you trade about a half a million dollar account and over the last three years your your return has been combined aggregate you said around 50 percent 55 percent 55 yeah okay so that's great and that deserves rising star status i mean you know especially for somebody who's doing this full-time that that's that's great yeah um and i'm sure you know you want to do better than that even um let take us through the take us first through the the progression of of you know the what made you consistent what was it the diversification of strategy was the diversification of underlying was it getting smaller was it putting on more occurrences it's all the above so so was all of the above plus plus becoming more uh mechanical and sticking to that so i'm a tweaker i like to tweak things and like good enough is not good enough for me sometimes so i had to get over this this persistent desire to want to keep tweaking things and turning the knobs and pushing buttons and so so what i what i've decided to do is to just kind of make a cheat sheet for everything and stick to that cheat sheet stick to that flow chart and then the other part of you the monkey mind part of me that wants to kind of twiddle with things i'll do that off to the side you know back testing and paper trading until i figure out a better way to like change my strategy and then i'll change it but until i get to that that level i just maintain the same consistent strategy excuse me on the trading that i do so and what kind of let's talk about strategies yeah so what are your go-to strategies so so there are three phenomena that i trade on and i use five strategies for those for those phenomena so the phenomena are the iv crush around earnings okay that's the first one the second one is just plain old-fashioned plain vanilla theta decay okay and then the third one is when an underlying gets overbought or oversold then there's that tendency that expectation for mean reversion to occur and that's the only time i really get directional on the trade and it's a very high probability trade because you're thinking that's that's going to happen i mean i i think it is at least and you know way more often than not so in um so for that for earnings i do an earnings trade very similar to what you guys do you love earnings trades i love earnings trades they're my favorite trade and i do them more than than any of those so i have a watch list of about 240 underlyings that that i um i know you know day by day what earnings events are coming up of course that's one thing i love about earnings trades is because you know when they're coming it's you know an event yes it's a known event that binary event so i know in my calendar 30 underlyings would give you um i mean on each assuming four earnings a year for most you know um even if you only did a hundred or or 150 of those would be you know somewhere between let's just say you know that could create 500 to a thousand trades a year on those alone right now i only do about 250 trades a year on earnings so so that 240 times four you would think that's a big universe but those are just the possible candidates i start with right and so if all the criteria are there i pull the trigger if not i don't pull the trigger the number of trades you make you told me i think it's around 900 900 a year yeah yeah and that's very typical the average thousand trades yeah so that's three or four trades a day yeah it's very very typical three or four trades a day exactly so that it's all in that criteria yeah with respect to earnings trades um i know why you like them because it's instant gratification and you get to see you have to wait for right time but what do you do what strategy do you apply so um similar to what you guys do i do a one standard deviation on on the shorts either strangles for for smaller uh underlyings and iron condors for larger ones okay i put those on at the top of the hour in the last hour of trading so you know 2 p.m central time and then the next morning i'll wait a few minutes for all the bots and algorithms to kind of clear and then about five minutes after the open i'll start taking those trades off and over the next 10 or 15 minutes i'll close out the trades i don't let them linger sure and so i've done that over over over time like letting them go during the day and some are some turn out to be bigger winners some turn out to be bigger losers and so i just get gotten to the point where i become mechanical at two o'clock every day i put on the trades at uh 9 40 every morning i take off the trades that i put on the previous day and then the ones that are that happen to be losers which are about 25 percent of the time because that's about what you would expect with the statistics about half of those are small you can just eat them the other half are ones that uh if there's a good mean reversion type of history with that underlying right i'll do a rolling trade very similar and again something i learned with the taste test is essentially what we do almost almost step or step do you ever put on a trade an opening trade after earnings uh yes so that that third uh phenomenon i mentioned about overbought oversold that happens when there's a big gap after earnings right so that's when i do put on like a bull put or a bear call spread to kind of ride that meter version you know kind of fade that fade the trade have you been pretty consistent over the last you know three or four years started watching 2014 right you really didn't you know the 2015 um you know really 2016 17 18 15 16 17 18 your real trading years go looking back at your returns yeah um have you been consistent like it hasn't been like 50 one year and then you know two percent two percent it's been more it's been consistent over three years it has been pretty consistent okay and um again that that mentality that i had of being consistent with the actual trades that i'm doing but then having this other part of me that does research on the side like well maybe i should tweak things but i don't actually make the tweaks until i've kind of satisfied that that it's a good tweak to make until that happens got to stay consistent and how often do you um how much time each day do you commit to to your craft uh only about two or three hours a day okay yeah so what do you do the rest of the day um [Laughter] i i enjoy not having a day job okay i do does your race driver kids who are obviously risk takers themselves think you're crazy no because so i'm a risk taker too okay so before i was a lawyer before i was an engineer i made explosives for a living so i made tnt nitroglycerin and then i had a job where i blew them up and so fingers i still have all my fingers and toes and and um so being around risk and being able to quantify it is something that they do and my sons do my daughter does you know working with wild animals it's like that it's dangerous but if you know what you're doing and um if you know what you're doing you can do it do it smartly if you if you're if you maintain that i work with wild animals but it's um in the last couple of years you know um how would you to two questions how would you break down the the amount of capital that you commit like you know has that changed are you getting smaller in size and more occurrences are you how do you use your capital on a percentage basis how do you break it down and and what are tell me about the most difficult times you've had in the last couple of years yeah so i keep about 20 of the of the account in cash okay and that other remaining 80 percent i trade it pretty pretty heavily okay now uh depending on whether the mix is defined risk or undefined risk because i do both if it's defined risk i'll use up to that 80 percent because i can't get any larger than that but if it's undefined risk you know margin can fluctuate so i don't use quite as much of that available eighty percent as i otherwise sure of course that makes sense um the um and so your question about occurrences i've i i have over the last three years well i guess i actually my occurrences have been pretty consistent come to think of it the um and the sizes have been pretty consistent as well for the last three years so what about what about situations that have like what has hurt you you know so what are some of the drawdowns so the um i'm actually the drawdowns haven't been really bad in this in this in these three years because i try to keep things small right and just do a lot of occurrences the the big pain points for me when i look back before the before these past three years when i was not consistent that those are those are the things i tell tell people about is uh before i learn to be consistent and you know trade small trade off and i i just um so a few years ago it was early in 2014 before i discovered you guys i got contacted by my broker and they said hey you've tripped over this threshold where you've got to go and register with the securities and exchange commission i was a large trader and i didn't know what that meant but i was trading um 500 contracts of a dollar wide spy credit spreads so if you do the math the way the sec does it triggered this threshold and and so i i felt like i must be big stuff now i'm big time i got i got registered with the scc and and i got bolder and bolder more confident more confident more stupid because i was taking more and more risk and then the trades blew up and i didn't know what to do and so that was one of the learnings for me was not only trading way too big but like not having a plan b like an exit strategy and knowing if this blows up what do i do are you managing trades early for winners yes you are yes so 50 of the credit i get out yeah 21 days until expiration it's made quite a lot of differences for me too you know so so the um i used to let trades run try to eke out those last few dollars and just as often as i would make more i would lose more and i just realized i think what you guys have uh proven by your research too is if you get out at 50 or get out at 21 days till expiration then you've got this you've cleared the boards you've got new fresh money to put in that higher volatility with longer time and make more money over the longer over a longer time horizon you do better than trying to eke out these little you know scenes along the way i almost breathe deeper once i've rolled everything like i always feel like i'm on my toes even if i'm sitting down right you're still in that have are you using products other than um other than earning stocks are you using any of the etfs yes i use etfs do you stock at all or is it pretty much just 100 options um all options all options the only only stock comes when i when i sell puts and it gets put to me and i then i sell covered calls on top of it right so you're almost exclusively almost exclusively options and so getting back to that etf stuff have you mixed it up with other underlyings or anything like that meaning like you know something other than like spy index only stuff that's that's really highly liquid so it's the cues you know iwm yeah uh tlt and gold those are those are probably the only five with spy the only five etfs that i trade have you found that sticking to have you found liquidity playing a key role in totally it's amazing because you know getting into a trade is easy getting out um you better have liquidity you you you have you have nailed kind of like our mechanics you know it's amazing do you think that's the engineering you uh it's the it's the it's the engineer and the learner in me i like to learn things and you guys are good teachers that's what i'm why i'm attracted to yeah that's crazy because i mean you know you you talk the talk perfectly and the the results have paid off do you think this is harder than you thought no it's actually um easier than i expected it to be to be honest with you yeah when when you spend let's say three hours a day looking at markets trading do whatever you have to do the rest of the day how often do you look at the markets not at all not at all so i said i have alerts that that will ping my phone to tell me a certain setup or certain close is about to happen do you want to take a look at it otherwise i don't take a look at all got it i love that so the the so the trading is easier than i expected when you trade it's in the morning and the afternoon or is it just the morning it's the morning and the afternoon so in the first um in the first 45 minutes the hour and then then the last hour or so typically so the hardest thing for me what are you doing it's 109 degrees out you stay inside where are you going to go well um it's not that hot year round but during the summer you stay inside most of the day got it but basically neutral leaning a little bit long lean a little short no pretty pretty pretty delta neutral no futures yeah pretty pretty uh pretty boring in that regard but but it works sure sure and so i'm not gonna i'm not gonna knock that unless it's a it's a it's it's a really good story because what you've done is you've kind of humanized a little bit in the sense that you know you stick to the mechanics which i love your story is spot on mechanically and um i can't even find a hole in it and it's working so i wouldn't change a damn thing you know i think one of the things is you can you can introduce just like tony's mentioning at some point you can introduce you know when we launch futures options you can introduce futures and futures it's just more it's just more product agnostic there are little bigger products but there are some opportunities like in you know crude oil options or currencies the game's the exact same right and over time there's going to be more underlyings that have you know more option trades like i'm sure we'll have digital currencies trading options right in the near future and who knows there may be options on a presidential election coming up in 2020 i mean it could be and so the strategies will all be applicable no matter what it is so i think you're in i think you're in great shape yep thank you that's really awesome so um uh let's continue to stay in touch and i'm curious how this goes and and it sounds great to me tony yeah awesome awesome good job yeah yeah we love we love the story well you know thanks to you guys for what you do it's it's uh like i said i've i've polished up a lot of what i've done based off of you know what your shows what you guys teach it works making it your own i got no holes in it and it's all on you so good job out of you thanks so much thank you we appreciate your time we'll take a quick nine second break when i come back at opening dell nexus you

Channel: tastylive

Views: 140,426

Keywords: stock, finance, learn to trade, beginner trader, tastytrade, profit, trading tutorial, investing, how to trade, interview, success, Stock Market Trader, Options Trading for Beginners, how to trade options

Id: 5cu3PTHSDOM

Length: 18min 57sec (1137 seconds)

Published: Mon Jul 30 2018