Millionaire TradersQ: Was most of that 250K a function of scalping or a function of
your directional calls?
A: I think the main part of it was two things: In the beginning I
was just scalping because I didn’t have a lot of capital. You know
25K is not a very big stake. So I would pick my spots and try to
arbitrage things or find butterflies. Sometimes I’d lay butterflies
out there for credits, so that’s even better than zero and I’d string
some of them. At one stage, after OJ went up to about$1.60 or
$1.70, I thought that it was overdone. Back in the ‘90s we were in
a deflationary decade, so I thought, well, it’s only a matter of time
before this thing crashes and dies, and I started putting on some
positions basically.
Q: You bought some long-term put positions?
A: Yes.
Q: Like spreads?
A: I bought puts and sold some calls, creating collars or fences.
Q: With the underlying or without the underlying?
A: I would hedge the underlying. But the beauty was if the
position blew through the put strikes, it kicked in, and I was long
puts and short the market to a degree. I mean, I hedged everything
but left a little leeway. The reason I liked the trade was that at
the time there were huge volatility skews, calls were trading at
volatility levels 5 or 10 percent above the puts. So I was building
up the positions with a great theoretical advantage and with the
thought that, when this thing crashes, I’m going to underhedge it.
I’m not going to buy back my deltas as quickly as I should because