Mark Wolfinger – Option Trader Interview Series

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by Gavin in Blog, Trader Interviews
October 16, 2013 1 comment

Mark D. Wolfinger is best known for his 2008 book, The Rookie’s Guide to Options, an absolute must for novices wishing to learn the essentials of trading with options.

Wolfinger grew up in Brooklyn, where he studied and earned a BS degree from Brooklyn College, to which he added a PhD in chemistry from Northwestern University. Till December 1976, he worked as a research chemist for Monsanto Company, after which he headed to Chicago, where he would become a market maker on the Chicago Board Options Exchange (CBOE). In 2000, his career would take another turn. After leaving the CBOE, he began writing on how to use options profitably and safely, having so far published four books and several magazine articles. From the comfort of his home, in Evanston, Illinois, he also runs his own website ( and blog (

More than 30 years’ experience in the equity options market gave Mark D. Wolfinger a solid ground from where to launch a set of firmly established personal principles that he likes to share, thus helping individuals, with little to none experience as investors, on areas such as risk-management and profit-enhancing. This natural ability to guide beginners from the most basic concepts to the most advanced risk management stands as his most achieved personal watermark in The Rookie’s Guide to Options.

Wolfinger’s approach is consistently conservative, and that is why it should come as no surprise for readers to find him frequently emphasizing the importance of managing risk. Wolfinger asserts that options are a good and safe investment tool that will deliver good results when used with both conservative strategies and prudent risk management techniques. In a recent article posted on CBOE blog, Wolfinger states that “The first priority for newer traders has to be to survive. Keeping it simple, and avoiding some of the more confusing concepts, helps the trader meet that goal.  There is plenty of time for the trader to gain experience and then find ways to boost earning with appropriate risk.” Both “appropriate risk”, and “risk management” are Wolfinger’s favorite expressions. In fact, this attention paid to risk is central to Wolfinger’s work and books, as well as his opinion that “each trader has his/her own comfort zone”, a variable on which each one’s trading goals and the ability to withstand a loss will be dependent. And this is essentially why Mark D. Wolfinger clearly states: “I NEVER recommend a trade“.

It was an absolute pleasure to interview Mark, he had some fantastic insights and I think you will really enjoy this interview.

When did you first get started in the trading business? 

I started trading options in 1975. First trade was a covered call on HIA (Holiday Inns of America). In January 1977 I became a market-maker at the CBOE. Someone I knew had a relative who wanted to buy a CBOE seat and hire someone to trade. I was recommended, quit my job as a chemist, and moved to Chicago.

When did you first realize that you could become a full time trader? What gave you the confidence to take that step?

I took a very unusual path. I was never ‘a trader.’ I was a covered call writer. However, a close friend bought a CBOE membership and I got to see him often because he came home (Akron, OH) every weekend. We talked and talked. Then he offered me a chance to become a nominee for a member (some relative of his owned a seat). I was very happy to accept, but was leery of leaving a solid job. I knew almost nothing about options and I knew nothing about the concept of ‘trading.’ Yet it seemed to be a wonderful opportunity (and it was). I was offered the customary ‘new market maker training’ by Marty O’Connell (very valuable), and then I went to the trading floor to figure it out.

A lot of people want to become full time traders, how much base capital is needed to trade for a living?

I cannot answer that. It depends on what you want to trade, how long the trader intends to hold positions (requires additional margin) etc. However, the majority of people who make the attempt are way undercapitalized. Look at it this way: Earning a 100% return on capital is a super-sensational return for one year. Yet people begin with $20,000 (or less) and expect to earn a good living. It is almost impossible.  Sure, the occasional person can turn $20k into $200k in a year or two, but the far more likely result is to turn $20k into zero. Yes, belly-up.

What psychological challenges are involved with trading full time?

Being willing to accept a loss is the primary challenge. There will be trading losses; guaranteed.  There will be losing days, weeks and even months. Probably losing years as well. Those are very difficult facts of trading life for the overconfident rookie. The goal is to succeed, which I define as making money over a career, and not believing that one has to win on every trade or every month.

Managing losses is essential. We all take out winning trades in stride, looking at them as our just rewards. However, we must work diligently to earn them. The new full-time trader MUST have a cash reserve so that she can learn to trade with no pressure to succeed immediately. When the trader needs profits to live, the chances of success dwindle. Too much pressure. Too likely risk will increase in an effort to make this month’s nut. The other huge challenge is recognizing that trading is a business and that education, training and practice are required. One does not become a successful trader overnight. Then there is the ego problem. Winning ought to be good enough. Making a living ought to be considered as a wonderful achievement. But some players have to beat everyone else, and often sink (too much risk is taken) in the attempt.

Do you have any other tips for beginner traders or for those hoping to make the leap to full time?

Have a bankroll. Have the patience to learn first and trade later. Do not expect it to be either impossible or easy. Recognize that not everyone can become a winning trader. If you want to trade based on technical analysis and chart reading, please believe me when I tell you that it take a lot of time to learn the needed skills. You will be told it’s easy, but the experts will tell you how difficult it really is.

As a traders’ account size grows, small percentage movements suddenly have a large dollar impact. All of a sudden a 5% loss is the equivalent of buying a new car. How did you manage this transition?

I didn’t manage. I lost the first million I made. Then when I made another, I lost it again. Eventually I accepted the concepts I emphasize today – the need to manage risk tops everything else. There is nothing remotely second. Sure earning profits is important, but you can do that and still fail if there are occasional gigantic losses..

One answer is to place a lid on account size. Pull some money out as the account grows. Invest/save it elsewhere. Do not get greedy because there will be drawdowns over the course of a trading career. If you encounter a severe one, you will be very happy that all of your assets were not tied up in the account. I recommend taking increasing percentages of the annual profits out of the account. I also recommend setting an absolute limit on account size. If any trader has the psychological need  to trade gigantic sums, then perhaps he should be managing other people’s money. Do not risk everything you earned by leaving it in the trading account. Most important of all – if you do not have the discipline to handle a large account, if you cannot trade appropriate position size at all times,  then do not let the account grow very far. Cap it and invest earnings elsewhere.

What is the most important trait of successful traders?

Discipline. It’s easy to know what to do. It’s far more difficult to do it.

A lot of people struggle with discipline, have you got any tips that you would like to share?

It’s a personal thing and difficult to develop. Warning to people who are sloppy in their daily habits: If you lack the discipline to take care of little stuff, you may find that showing discipline as a trader is not possible. That’s not a career killer, but you must not ignore this. Just know when you lack discipline, the chances of winning are significantly reduced. Set limits that can be enforced. Take cash out of your account frequently. Constantly talk trading with a spouse or partner and keep that person informed. Think about how awful it would feel to have to explain where all the money went.  Perhaps that embarrassment avoidance will instill some discipline.

What is your number #1 trading rule?

Don’t go broke. Know how much is at risk at all times. Do not take open-ended risk.

What did your trading education entail?  Did you have a mentor that guided you in your trading? 

If so who was it, and how influential were they? As I said, my path was different. I took some valuable group lessons from Marty O’Connell in 1977 and that was it. I had to learn on my own as a market maker. But his was the guiding hand.

How would you describe your trading style?  

Aggressively conservative with careful risk management. I prefer to trade iron condors.

What analytical tools do you use in your trading?

None other than that supplied by my broker.

Can you share your trading results for the last few years? How did you fare during the financial crisis?

I did pretty well in 2008, but had a bad year as the market soared in 2009. Had my best year ever (as a retail trader) in 2011, but lost again in 2012.

Are you willing to share your worst trading experience?  What happened and how big was the loss?

October 1987. I was short a large number of puts. In fact, I had just paid 1/16 (we traded in decimals in those days) to cover about 1,000 OEX puts, but it was not enough. I really do not know how large the loss was, but probably seven figures. I was trading for a firm and it was difficult to pinpoint my personal loss.

Wow, that’s incredible.  Do you think we will see another day like that in the future?

I would always have said that it was impossible. Statistically it was impossible [The way I heard it is: If the stock market had been open every day since the big bang, the probability of seeing such a huge down day would still be near zero.]  But it happened. I believe that we have enough circuit-breakers in place to prevent anything similar. But in today’s world, I am rattled by the thought that computers could ‘decide’ to overrule circuit breakers and keep the markets open. Combine that with a flash crash and who knows what could happen.

There was no VIX back in 1987, but Bill Luby of VIX and More has recalculated that the VIX would have hit roughly 150 on Black Monday. Today, a VIX at 30 seems high, do you think a lot of retail traders underestimate how high volatility can go during a market panic?  That 150 IV is the consensus estimate. Retail traders underestimating risk? Is that possible?

Ha. You bet they underestimate. Even the professionals are too complacent. If (and it’s a gigantic if) bidders disappeared – not quite as bad as in the flash crash – when sellers dominate, there is no limit as to how far the market could decline – without circuit breakers. However, the following morning would be the real test. If there were few (but enough to get the markets open) buyers for stock, then it is likely that there would be few put sellers. There is no telling what kind of prices would be paid by people who send orders to ‘buy puts at the market.’

With the advent of electronic trading, improved technology and tighter bid ask spreads, retail traders are now able to trade strategies such as iron condors that were previously unavailable to them. Given that iron condors will suffer heavy losses during market panics; do you think large numbers of retail traders (typically the weak hands) using iron condors poses a systematic risk to the overall market?

I am confident that strategies with limited losses coupled with Reg T margin requirements that force a customer to have an account worth the maximum possible loss, there is no systemic risk. Lots of iron condor traders would be financially crushed, but they will not be bankrupt. I cannot say the same for people who sell strangles or who own stock on margin. In my opinion, the threat comes from everyone who owns unhedged stock (mutual funds, pension plans etc.).

I see you have written 5 books, can you tell me about them?  

They are directed to newer traders, with an emphasis on education. I stress risk management. The Rookies Guide to Options is for new and experienced traders (novice through intermediate level) and provides more detail than other primers. I also share a ‘thought process’ or way of thinking that makes it much easier to see the bigger picture. It’s been an amazon #1 best-selling option book and received excellent reviews. My latest is an e-book in Kindle format. The Option Trader’s Mindset is not a trading manual. Instead it’s designed to help traders avoid ‘incorrect thinking’ or what I call a loser’s mindset. The book is a series of articles and lessons on specific situations where it is easy to take a path that is not best, but which seems logical. I offer guidance based on my 37 years as an option professional.

If someone was just starting out today, how long do you think it would take them to become successful? Is there anything they can do to speed up the process?

‘Successful’ depends on goals. To become a day-trader takes talent. There is no way that someone who cannot predict market direction consistently can succeed. To trade options as I do (hold positions for as long as a month or two) requires understanding how the strategies are designed to produce profits. But more importantly, it requires discipline and the ability to manage risk. The trader is who holds positions with the ‘hope’ that they will turn around cannot succeed. Trading is a risk management business.

Is there anything else you would like to add?

Not everyone can be a trader. However, the less stressful direction is to become a successful investor. In today’s world, even investing is problematic. Computers and algorithmic trading have taken over. Thus, picking great stocks is still necessary but difficult. Fighting against the possibility that computers will hurt all of us (think of the flash crash) is reality. So if frequent trading is not for you, become a careful investor instead. Manage your portfolio, hedge to reduce risk (collars, covered calls, own option positions with limited risk instead of owning stock, etc.), and never become complacent.

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Options Trading 101 - The Ultimate Beginners Guide To Options

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