The Treasure Hunterwriting options against it, that could maybe extend my day longer.
Sometimes I find opportunities where you can arbitrage the S&P
MITTS and mark their strikes against S&P futures and options. So
it takes time to build that type of thing. In that scenario I might be
trading three hours overseas, maybe about another three or four
in U.S., so seven or eight hours of trading total. Then each day I’ve
got about an hour or two minimum of preparation. I look at what
my positions are, what do I look like, what are the risk scenarios of
what I’m doing. What trades do people want to do, I have to risk
study them and see if can handle this in my option book, etc.
Q: You’re still making sure what your worst-case scenarios are
every single time.
A: Yes.
Q: Before you place the trade on?
A: Yes.
Q: During risk analysis review, do you have any hard-and-fast
rules per trade? For example, do you say, I never want to lose more
than 5 percent of my equity in any given trade? Do you have any
kind of formulas that you follow internally to always control your
risk?
A: When I’m doing the trades, in those options scenarios I don’t
actually have a fixed fraction of my capital that I’ll commit, but
I look at the risk versus the reward ratio. In other words, when
I’m right, what’s the amount of money that I’m making given my
scenario? When I’m wrong, what’s the amount I’m losing? The
amount I’m the losing—can I live with that? I mean, is this an
earth-shattering thing? Or is this a percentage of capital that is
devastating and mind-blowing to me in terms of intellectually being
wrong and stuff—but it’s not going to put me out of the business?