August 9th 2010
How I Trade: 5 Traders Discuss Their Overall Trading Strategies
Tim Bourquin: John, can you explain how you find good trades?
John Gilner: Because I am primarily focused on index options, there’s a good measurement for that volatility and therefore, the price of the options of course is the VIX. And so, the basic principle there is you need to develop an ability to understand if options are priced high or priced low relative to the expected volatility of the underlying instrument. So, during the course of trading options, what I was always trying to do is sell expensive premium and buy cheap premiums. And so, you’re generally always looking for ways to buy cheap and sell expensive. In all of trading, you have to try to be careful not to think of it like you would think of a salary that you earn at a job because my experience at least, is that my profits are a lot lumpier from that. That’s in a general sense.
Now, I think when it comes to options trading, that’s even more true because what you’re trying to do in options trading, particularly, well, it’s really true on the long and short side but particularly the short side where you’re trying to sell expensive premium.