This week, tastytrade was lucky enough to have Vic Honnaya stop by our studio on the latest episode of Rising Stars on the tastytrade network.
The tastytrade blog crew was double lucky that Vic sat down with us after his interview with co-founder of tastytrade Tom Sosnoff and veteran trader Tony Battista. Here are some of our favorite excerpts from our talk with Vic:
TT: How do you allocate your capital per account? Do you look at a certain percentage?
Every Saturday, I go through my BP [buying power] and evaluate my current positions relative to my account. Generally I have somewhere between 30-40% of my account in the market, but it varies as I may look to scale during periods of higher implied volatility. I’m a heavy trader during earnings seasons.
I tend to look at the whole year in 4 quarters. Earnings last about 10 weeks, so that’s about 40 weeks a year. I look to allocate about 33% in my portfolio margin to just the earnings trades. My goal is to make 3%/week and to make over 10%/year.
TT: Do you have a particular strategy you like to use for your earnings trades? Do they tend to be more directional, neutral, or a combination?
My go-to strategies are straddles and strangles. I am more of a neutral trader; I generally don’t care what the direction or what the stock is. Occasionally though I do take directional bets, for example I may trade a Sunny Side Up or a Jade Lizard. I like to minimize the loss on one side. What’s really helped on my earnings is watching the tastytrade segment Anatomy of a Trade as well as taking mechanical exits on winners.
TT: When you extend your duration, are you willing to work with a trade rather than close it out?
Yes. I used to close trades when they would lose money and I would get frustrated. But then when I saw I could turn around a bad trade, that changed things for me. It helps in terms of creating a high number of occurrences.
TT: What is one of the biggest takeaways you have learned from tastytrade?
Managing winners early is key. I was able to apply that strategy and that really made a difference on my overall profitability.
TT: How much time do you spend per day/week learning about the market?
Since I work full-time, I’ll do a GTC order the night before. I get up in the morning and check, and look again when the market opens and again during lunch. I have alerts on my phone, and I manage my trades through mobile. And then I’ll check my trades again around 3:30-4. I’ll spend a little more time on this during earnings season.
Every Saturday morning, I download all my trades, and I look at the delta efficiency. I have multiple accounts, and the benefit of that is you are usually winning somewhere.
TT: Do you trade futures? Indices?
A: Yes, definitely. I trade strangles on crude, bonds, sometimes I may do pairs trades between market indices such as /ES and /NQ. I always look to trade futures that also have active option markets, like crude oil. Also, I am always short SPX premium (like Karen) 365 days a year.
TT: Do you try to make trades that have a certain range for probability of expiring?
I look about 5-8% ITM, that’s my go-to. But if the move is large, then I’ll be more aggressive. I trade a lot more strangles than straddles, and I generally prefer to take less money in exchange for higher probability.
This earnings season, I placed about 50 trades. I have my watchlist. I use my watchlist and my YTD, which is helpful. I use that to make a decision about whether or not I should spend my time [on that trade].
TT: Do you have any advice for people new to options trading?
I recommend the 5 P’s:
- Look at Probability
- Know your Products (start with a few ETF's in indices, currencies, bonds, metals, volatility) in addition to your couple favorites. Limit your universe to about 10 to 15 underlyings and get comfortable with those.
- Have a thorough understanding of your Platform
- Profits (take them early- they might not be there tomorrow)
- Pain is usually a direct result of your trade size. If it’s hurting you, then your size is not right. If you have the loser, but you can handle the pain, then you have the option to extend duration. This greatly increases your probability of turning a loser into a winner.
If you have more questions for Vic, leave a comment for him below or follow him on Twitter @OptionsVic