OPTIONS
Starting Small, Soaring Skyward
Sizing Up For Success
Here’s a look at how an option trader started small and graduated to trading “more size.”
True to his name, option trader Tony Sizemore trades “more size” than most. After a long career in mortgage lending, which included more than a passing interest in the financial markets, he turned his attention full time to options, specifically monthly income strategies from options. “This was the first time I had enough liquid capital to pursue trading as a business, and I reasoned that if I got serious about it, I could be successful as a trader,” he said.
Getting the right teacher makes all the difference, and that’s where things took off for Sizemore. After trading futures on his own for years with up and down results, he connected with option mentor Dan Sheridan. By employing the former Cboe trader’s unique risk management methodologies, Sizemore became consistently profitable.
Gradually, Sizemore sized up, now trading a prodigious 500 to 1,000 contracts per week — and profitably (ranging annually from 41% to 119% increases), because he learned his craft and methodology slowly but surely, eventually becoming expert enough to advance and adapt as the market changed.
CBOE website as the source
The strategies Sheridan was employing were similar to what Sizemore had done in the past but Sheridan’s worked better because his strategies had a plan, and he showed how to adjust these strategies based on market conditions. “I began making money using the basic strategies I learned,” Sizemore says.
Although Sizemore had traded options for about 10 years, he signed up for mentoring with Sheridan. Under Sheridan’s tutelage, Sizemore began trading the condor, calendar, and double diagonal. He learned that every strategy has its own place and should be managed differently, he said, adding that “knowing which type of strategy is conducive to certain market conditions.”
His contract size increased over the years, and now it’s not uncommon for Sizemore to trade 75 to 100 spreads on each side of a condor in the Ndx, his main underlying vehicle, with 50- to 75-point strikes. On a busy week he may trade 500 to 1,000 contracts on positions that require adjustments. He also trades the Spx, Xau, US Treasury bond options, gold futures options, Dow futures options, some of the Spdrs, and individual stocks.
Figure 1: NAVIGATING THE SEA OF DEATH. The sea of death is the void in your position that must be traversed before you enter your profit zone. Some positions that require you navigate the sea of death include a ratio backspread, a long straddle, a short butterfly, and a reverse (short) calendar. Each position requires a certain navigation.
Entering the market
After his first year in the Sheridan program, Sizemore’s style began to emerge. Sizemore follows Sheridan principles, but adds his own style. For condors and diagonals, he starts the week of expiration of the front month. So about the middle of expiration week, he will start positions for the next expiration month. This equates to about 25 to 35 days from expiration. For calendars and butterflies, he starts around 30 days from expiration of the front month.