Optionswire Interview Followup: Position Sizing, the VIX, and Gaming to Save Your Trading

By Sang Lucci Trader_Interview

By Sang Lucci

Our original interview with Optionswire resonated with so many of you that we decided to do a follow-up. You specifically asked us to include most of the questions below, so we hope you enjoy! You can find him everyday in The Steamroom

How do you manage the pressure difference between trading on the side when you have a fulltime job and trading for a living?

This is a very tricky question.

Mostly because I did this for many years. But my profession was in my field of interest (I worked in the securities industry for 10+ years). In my opinion, having a full-time job can sometimes be a “good” distraction as a trader because you focus more on bigger trends in the market and not micromanaging ticks.

When you trade full time, sometimes you can’t see the forest for all the trees out there as you hang on every little tick. Also, the idea that you have to be “busy” as a trader is a difficult one to manage as probably 90% of my day is doing nothing but watching the market. Not actually trading. And that is a hard thing to manage in the beginning because you feel like you should be “doing something” and that leads to overtrading. When I am trading less and more on autopilot, I am much more successful and trade on tilt much less frequently.

In fact, I’m going to admit something a little silly but I actually moved my Xbox into my office and will play COD or FIFA sporadically throughout the day just to force myself not to count every tick. My levels are set up and I have alerts and what not but I’m not trying to sit here and watch the odometer tick and move through every mile. That isn’t productive for me.

How have you seen your development as a trader affect the rest of your life? When you discover that much about yourself and practice that radical honesty, that has to change you outside of the markets as well, right?

I know that there is this vein of thought that trading is like some kind of spiritual yoga enlightenment of some kind, and in some ways it is, but it is only because you will most assuredly (at some point) lose just about your whole account and have to look yourself in the mirror and decide if you are giving up or pressing on forward.

I’m cranky. I don’t sleep a lot. I am constantly distracted by my phone. The markets literally give me ADD. My attention span has moved to almost zero. How is that for some radical honesty? LOL.

What are you working on right now in your trading to keep or sharpen your edge (if anything)?

More size, not more points. I often get greedy and look for outsized moves that have lower probabilities (sound like a familiar trader problem, yes?). And meanwhile, I had several opportunities to take the likely probability target and to repeat that 3 time, i.e. you look for a 200-300% option move and don’t get it and eat premium, meanwhile you had a chance to get out for 50%, rebuy the dip get out at 50%, rebuy the dip and get out again at 50%…

We are all odds players. There is a time to press for greater or max risk rewards but I’m focusing on executing more consistency inside of the margins of higher probability outcomes and leveraging that with more size. More size, not more points.

What are your specific trade setups? Flow only? Chart patterns? Indicators hitting certain levels? Support areas? Resistance areas? Fibs?

I’m a swing dip buyer, which means I do look for almost all of those things you mentioned…chart patterns (falling wedges), I do look at fib pullback levels, I have custom MACD settings to gauge momentum…I definitely take options flow into consideration and look at levels as well. I stopped looking at RSI I’m not sure it matters anymore, lol.

What names comprise the basket of tech names you like?  

I prefer very liquid, well-known tech names that I have traded for 10+ years.

FANG, MSFT, AAPL, TSLA., BABA BIDU…options are liquid on all these names. For sector exposure I use ETFs like the sector spyders.

I honestly am the worst energy/bios trader. I can’t pick a right name or move for the life of me, so I just stick with the boring ETFs. I know ETFs are somewhat more boring but options let you lever up on ANYTHING. And sometimes excised moves in low IV names pay massively when they make a huge move.

Have you made any significant adjustments, to your trading, opinion, or view, compared to what you were doing 5-6 months ago?

I started to lever my options knowledge into using options on futures. They help to prevent slippage since I’m primarily an intraday dip buyer on futures. They also lock in max loss outcomes in the event of a massive waterfall.

And in those types of situations, you are supposed to lose money. Sometimes the market is a rock and you are just not gonna squeeze any juice out of it. Try to identify something that lets you define when that is a possibility and set up rules to manage that kind of choppy nothingness.

Since your interview, have you had any losses which have taught you something new? Thanks for being responsive in the steamroom btw!

You mentioned trader podcasts in your interview, what podcasts do you subscribe to?

CWT (Chat with Traders) is the podcast I primarily listen to although it is slightly annoying that some of the interview guys are total frauds like Sykes. I think Tim Ferris has an excellent podcast as well with mostly non-traders…just guys at the top of their fields. You will find the overlap pretty interesting in how all these guys go about their days, regiment their schedules, etc.

In the interview, you mention you “give yourself wiggle room” and always assume you bought at the high. Does that mean give yourself lots of downside “room” before you stop yourself out? Do you mind clarifying that one?

Depends on the conviction. If I have high conviction and I am buying massive amounts of time (let’s define that as more than 1 quarter) I have a lot of time to average in, so I will typically put ¼ on for a swing position then as long as there is no technical break I will slowly average in (even higher)…maybe its basing or continuing to consolidate…there is no perfect entry. Just trade management.

And you know what, sometimes the trades don’t work out but the ammo you have left to average down lets you make that a scratch or a small loss. I’d be remiss if I didn’t say it can completely get you eaten up too, so make sure you are doing this on only your highest conviction setups.

To summarize, remember I generally trade very time sensitive decay instruments. That means an option can move 50% against you and you still aren’t “wrong” about direction necessarily, just timing.

So I do give myself a lot of wiggle room on the actual OPTION price; I’m using the underlying symbol chart to dictate if my trade idea is actually any good or not (violating downside levels, breaking a support area I earmarked, etc).

You talk about the opportunities in the market – that there are plenty of trades and opportunities out there – do you still feel that way? I believe that the number of publicly traded companies are shrinking – sometimes I worry we are joining the game too late.

I don’t buy that argument. In the last 50 years of human history, more people have been lifted out of abject rural poverty than in any other time in history. And that is only going to continue to accelerate. That means more markets, more growth…more everything. There’s definitely consolidation but there’s 400 million middle-class people in China that want what we have in America…they will only slowly become more and more wealthy and demand for these goods is going to continue to grind up…and that’s just China.

To be an investor in the market is ultimately to be bullish on the world. That, despite what the media force feeds you, more people are coming out of poverty, more people are climbing social ladders, more countries are growing and expanding…etc etc…you are investing in companies that are dependent on that continued growth.  

People are moving into trade cryptos now because there is volatility in those names…there will always be new products and new markets.

What are your favorite strategies these days – Long options? Writing options? Futures? 

I have and probably always will be purely a long options (calls/puts) directional trader. As I am primarily directional, I don’t generally enter trades as spreads but sometimes I will sell calls against my long calls to lock in gains if I want to continue to hold the long side. That helps with the decay.

Do you trade the VIX or any its many volatility-derivatives? Is that a waste of time?

No, but I monitor them. It is not a waste of time to monitor VIX, it’s very important.

At the same time, please understand that VIX is not something you chart IMO, and take some time to understand its calculation. It’s derived from SPX option action, it’s not a demand product. Also, just about 95% of the analysis on VIX is absolute TRASH. People try to chart it, people try to correlate it with other things… it’s trash in, trash out.

You say that you day trade futures off statistical work. Can you elaborate any more on what kind of stat work you’re doing to give you conviction to get in a trade via futures? 

There’s a lot of things you can measure, and information that is out there that provides some statistics, like volume/market profile and knowing things like the average true range.

Did you know we break the first hour ES range (high or low) 98% of the time?

Did you know that if we break a first hour low or high there’s only a 25% likelihood of breaking the opposite level? Meaning breaks a high, only 25% chance we break the low…and vice versa.

How do I apply this knowledge? Well, if I sit an hour out of the market (and I almost normally always do), if we break that first hour’s low, and I find an entry, there’s only a 25% chance we break that first hour high. That’s a low statistical outcome. So if I’m looking for a target, I’m going to have to be a lot more modest in what I’m looking for. Maybe just the middle of the day’s range. Or that’s the spot you take 75% of your trade off, and you hold on to a small part looking for the lower statistical probability.  

BTW, this is not some secret, it is information that people post out there for free. But at the end of the day its up to you, no one is going to carry your water pot, fill it up, and bring it back home for you.  

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Sang Lucci

Sanglucci.com has been one of the leading trading education resources and communities since it's founding in 2010. Sanglucci.com has trained thousands of traders through its unwavering transparency, singular expertise in Tape Reading and options strategies, and it's game-changing partnership with the infamous Wall St. Jesus.

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