OptionSellers.com’s Michael Gross interviews CNBC’s “Dr. J” Jon Najarian on Selling options, fear in the stock market and trading outlook for 2016.
Michael: Hello readers and listeners, this is Michael Gross of optionsellers.com, I have a very special guest for you today. Today we have with us Jon “Dr. J” Najarian, for any of you that watch CNBC you’ll see Jon on Closing Bell and also as a feature trader on Half Time Report. He’s also co-author with his brother Pete of the book “How We Trade Options”, he’s co-founder of optionmonster.com and trademonster.com.
For those of you who don’t know Jon he was a floor trader at the CBOE for 23 years before founding these enterprises. For those of you that trade stock options, Jon has some deep insight into that form of trading he’s going to share with some of those with us today. Jon welcome to optionsellers.com, guest expert series.
Jon: Well it’s my pleasure Michael, thank you very much for having me.
Michael: Sure, Jon you’ve got a pretty rich background in the industry, one thing many of our listeners might not know is that your resume includes a job as a linebacker with the Chicago Bears. Can you tell us a little bit about that and how you got started with your career in trading?
Jon: Sure, well I was lucky enough back in 1981 to come out of college and go right to the Chicago Bears, and unfortunately even though I picked a good team I think too, – because I was a free agent, I was not drafted – so it was my choice because several teams had contacted me Michael, and the Bears looked like they were probably my best chance.
So I went there but unfortunately Michael Singletary ended up being a number two pick that year and obviously a future Hall-of-Famer, it was not long before they figured out that they’d rather have him at middle linebacker than me. So at least it got me to Chicago and that’s what I always thank Mike Singletary about.
Michael: That’s some pretty tough competition.
Jon: Yup it is, and he’s a really tough guy and a good guy, so my mother is the only one that resents him. I instead admire him, and I’m sure if my mom had met him she’d admire him too.
Michael: Okay, so you were in Chicago and then you ended up on the floor of the CBOE, can you tell us how that got started and what you did there?
Jon: Sure, basically my agent was a trader and a money manager, and he was on the floor of the Chicago Board Option Exchange, managing money for clients. And when he asked me what I was going to do, and I told him that I thought I’d go into the markets, from being around so many interesting people up at our training camp.
Bears training camp at that time was up at Lake Forrest, a suburb on the northern edge of Chicago. So he said “well if you’re even interested in that, you’d much rather be on the floor Jon, trust me”, so he gave me a job and I did that with him for about six months and worked with another trader for about six months, and then went off and started trading my own money out on the floor.
Michael: Wow that’s a great story, now when you first started trading… Jon, were you trading options, were you trading or were you selling options, were you buying options, what type of trading were you doing?
Jon: Basically as a market maker, so I would have to do both, buy and sell, but I was primarily I guess a premium buyer. Because most traders you will find that are on the floor end up having long premium positions I think, but the primary reason is that they’re scalping throughout the trading day.
In other words that long gamut, the fact that you’re long on option contracts, and that it gets longer as it goes higher, and shorter as you go down, means that scalping can be a very lucrative way to make a living.
So basically scalping gamma is what most traders do, and obviously the further you get from the trading floor, the more it favors the strategy like what you guys do where you’re and options seller rather than an options buyer.
Because a combination of people just don’t have a full time access to the markets like a floor trader does, and the time decay can just eat you up as an off floor trader that trades a couple times a day or a couple times a week or a couple times a month. That’s different from a floor trader who probably trades hundreds of times per day.