Keys to Top Trading Profits - Part 6 GEORGE FONTANILLS INCORPORATES OPTIONS TO LOWER RISK Trader George Fontanills first began utilizing options in order to go delta neutral on his futures positions, which would allow him to still sleep well at night. Since he began using options in conjunction with his futures trading, Fontanills believes he has found a way to accelerate his profits while decreasing his risk. Fontanills began his professional life as a certified public accountant, but decided that being a CPA wasnt for me. After earning a degree at Harvard Business School, Fontanills got involved in the real estate market, but then the real estate market died. In 1988, with a few other partners, Fontanills decided to give the futures market a shot. We hired a couple of guys. They happened to lose 10% of our money in 30 days and I thought Hey, I could do that,” and Fontanills began to explore trading on his own. In a systematic fashion, Fontanills studied the market. I was probably one of the first users of Omega TradeStation and I started writing programs to try and figure out all the variables that were involved in a trade, he explained. The first thing I figured out was that volatility and movement in a market meant that everyone was confused,” he said. To this day, Fontanills says he searches out markets with high volatility in order to place his trades. Originally, Fontanills began as a day-trader, believing he could better control his risk in that fashion. However, he began to believe that he was missing a lot of the moves, which occurred overnight. At that point, Fontanills began to study options strategies. I learned how to use options and how to become delta neutral so I could hedge myself in both directions and still sleep well at night and thats when I really started to accelerate my profitability, he said. Delta, by definition, is the rate of change of a price of an option to the rate of change to the price of the future,” Fontanills noted. Its how fast an option will change, relative to the speed of the futures. Delta neutral means whether the market goes up or down, Im in a position to make money, Fontanills said. For example, Im short wheat and long two wheat calls, at the money. If wheat goes down, Im making money on my short wheat position and eventually the rate of change will allow me to make more money on that position. While he notes that some traders tend to be scared away by the perceived complexity of options, Fontanills said someone who can figure out how to make money with options can make money easier and safer than just using futures. In terms of fundamental factors, Fontanills said, I dont ignore fundamentals because I like to see what other people are thinking. Most of my money is made being a contrarian to what everyone else is thinking. The masses are usually wrong. In searching out his current trades, Fontanills said, I look at the momentum of what is happening. If volatility and momentum goes to a certain level of what is way out of line, Im looking for a reaction in the other direction and then I put on a trade ... my greatest returns are made when something is really out of whack. The main future markets Fontanills trades are gold, oil, agriculturals (soybeans and wheat), S&P 500, interest rate markets and currencies. Im looking for fast, volatile markets and the S&P and bonds are definitely up there, he said. Typically, Fontanills said his trades last thirty days, at most. Advice he has for beginning futures traders: Trade small--until you learn what you are doing. Everyone overtrades at the beginning. I probably lost 20% of my account on my first trade, Fontanills admitted. Learn how to use all the methods that are out there to trade ... learn how to use options, because every successful trader I know, knows how to use all instruments. Why reinvent the wheel? Follow the (methods) of people who have been successful, he said. He does note, however, the importance of whatever methodology you use, it has to fit your personality. Finally, of course, learn how to limit your risk ... if you can stay in the game long enough, you will learn how to become successful, Fontanills said. #TeamQuattro #QuattroDigest
Posted on: Wed, 10 Sep 2014 13:13:09 +0000
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