Trader Mindset

Michael Martin interviews options trader and portfolio manager Hari Krishnan on the current environment and how traders can position themselves with options to capture greater profits.

Krishnan is the author of The 2nd Leg Down: Strategies for Profiting after a Market Sell-Off.

Crypto investing is missing some key components that an investor's are used to in trading equities, options, and futures.

In this episode, Michael Martin discusses what's missing and why you should measure 8 times and cut once in the crypto space.

With the likelihood of the fed tightening, investors who rely on certain instruments for income are in a tough spot.

They can use options to transfer the risk and hold their current positions.

Key inflection points can happen with the fundamentals as well as the technicals.

I've seen too many traders try to trade something on a hunch because they thought earnings were going to be a blowout.

It's much more complicated than that.

There's the EPS, top-line growth, expenses, one-time charges, and forward-looking statements that get reported.

I've seen companies beat by $0.02 per share, but the forward-looking statements are bearish or cautious and the stock sells off.

Trading on hunches is a gamble: you don't know the probabilities nor the expected values.

If you can't model it, you can't trade it.

If you believe the adage that "good trading is boring," then system trading is boring to the nth degree.

There are days, sometimes weeks, that I don't generate an ORDER, never mind a trade. Then there are times when there are so many orders, you have to write them all out first in a general ledger and number the tickets.

On the flip side, system trading is also very peaceful because I'm able to scan thousands of instruments in less than a minute and not worry that I'm missing out of an opportunity. That is a mental advantage if nothing else.

Focus on your process and stay out of the results - you're powerless over them.

All you can do is control the "controlables" - that is, your behavior.

Seasonal commodity spreads can be very a reliable type of trade for your portfolio.

While commodities are surely not for everyone, commodity spreads are considered "hedged" because the trader is simultaneously long and short the same commodity but in different expiration months.

A great source of information on spreads is at Moore Research Center. You can find them on the internet at www.mrci.com.

Some investors will test you by asking you questions that are deliberately off the mark.

Stick to you message throughout even if they try to knock you off balance.

You might take a meeting as a CTA and someone interviewing you might say something along the lines of "We're looking to allocate $10MM to a crypto-only portfolio in the next 5 days" when they know you're looking for assets.

It's ok to laugh at them and say "good luck - I hope there is a short selling component to the model."

Tell them that it's "not terribly wise to make such an allocation on short notice." Most want some fight in the dog.

Stick to your message and what it is you can do and leave it at that. Otherwise, you'll look amateurish if you're all over the place.

Every once in a while, the market will open below the point where you would have stopped out your long position or above where you would have covered your short position.

The best practice is to offset the position right away. Bad situations become worse.

Your first loss is your best loss.

Aggravating as it might be, this has not happened enough to me to convince me to stop holding positions overnight or over the weekend. In fact, I'll go so far to say that holding my positions are what I attribute the majority of my gains to.