Preface
I’ve always been fascinated by trading. When I was young, I’d see traders
on television, in their brightly colored jackets, shouting on the seemingly
chaotic trading floor, and I’d marvel at them. What a wonderful job that
must be! These traders seemed to me to be very different from the rest of
us. It’s all so very esoteric.
It is easy to assume that professional traders have closely kept secrets to
their ways of trading—something that secures success in trading for them,
but is out of reach for everyone else. In fact, nothing could be further from
the truth. If there are any “secrets” of professional traders, this book will
expose them.
True enough, in years past there have been some barriers to entry to
trading success that did indeed make it difficult for nonprofessionals to
succeed. For example, commissions, bid-ask spreads, margin requirements,
and information flow all favored the professional trader. Now, these barriers
are gone. Competition among brokers and exchanges—as well as the
ubiquity of information as propagated on the Internet—has torn down those
walls. The only barrier left between the Average Joe and the options pro is
that of knowledge. Those who have it will succeed; those who do not will
fail.
To be sure, the knowledge held by successful traders is not that of what
will happen in the future; it is the knowledge of how to manage the
uncertainty. No matter what our instincts tell us, we do not know what will
happen in the future with regard to the market. As Socrates put it, “The only
true wisdom is in knowing you know nothing.” The masters of option
trading are masters of managing the risk associated with what they don’t
know—the risk of uncertainty.
As an instructor, I’ve talked to many traders who were new to options
who told me, “I made a trade based on what I thought was going to happen.
I was right, but my position lost money!” Choosing the right strategy makes
all the difference when it comes to mastery of risk management and