A Little Turmoil is Good
51% Profit on RIMM
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Legend has it that when young Mozart first encountered a piano at the age of three, he took to it immediately, buzzing through his sister’s lesson books and achieving complete mastery by the age of eight.
It took Jacob Mintz a little longer than that to master the world of option trading, but the principle is the same.
After graduating from Miami University of Ohio, Jacob took his skill with numbers to Chicago to interview with big firms like KPMG. But there was something about the big companies that didn’t thrill young Mintz, and he didn’t reciprocate their interest.
So when his uncle told Jacob that there was a guy down the street that he should talk to who had made a bundle on the Chicago Board of Options Exchange, the suggestion fell on receptive ears.
Within a month, Jacob was a clerk on the CBOE, and he never looked back. He would learn the art and craft of options from two legends of the industry.
Talking to Jacob, you get a strong sense that options aren’t something you can learn in college. You have to put in your time actually making decisions and getting feedback from results. Theories are fine, but only real experience will give you the rock-solid foundation you need to succeed. Eventually, Jacob worked on the floor as a market maker in the chaos of the CBOE for 10 years. He won his spurs by riding with the biggest players in the options world (literally true, since the CBOE is the largest options exchange in the world). And, to keep the Mozart thing going, he was the youngest market maker in the history of his company.
In his career, he has spent 10 years as a trader at a top proprietary trading firm and co-managed a trading desk.
Clearly, this is a man who has paid his dues and proven his worth as a warrior at the top level of the options world.
When I asked him about his predictions for the market in 2013, Jacob said his crystal ball was cloudy. He doubts that anyone can really predict the future of the market. It’s more important to stay cool and pick your spots than to anticipate what might happen.
But if you ask him what kind of market climate he prefers, he’ll tell you that a little turmoil is a great thing for an options expert. In troubled markets, options pricing can go a little haywire, and that presents real opportunities for the trader who knows how to spot it and what to do to exploit it.
When asked about his favorite options option, Jacob says that following a big hedge fund into an option is often a great way to make money. And he has his own proprietary way of analyzing trading volumes to sniff out that kind of trade.
Jacob has an interesting answer to the question of why anyone should go into options.
He says that options can be used to hedge equity bets, reducing the risk of volatile positions. Options are also a great source of yield. And lastly, options can give you lots of market exposure without deploying a lot of capital.
As an example of how options can put on some speed that would make a penny stock investor jealous, Jacob wrote this on December 17:
“Research in Motion, symbol RIMM, is the maker of the Blackberry phone. Seemingly no company has had their business destroyed by Apple like RIMM has. For the past two years, the stock has had earnings miss after earnings miss as Apple's iPhone has cut deeply into RIMM's business.
“Recently RIMM's stock has risen from $6 to $14 on what is assumed to be a short covering rally. It’s my belief that a tactical Put purchase would be an outstanding way to get extremely cheap downside exposure in RIMM for its upcoming earnings release on December 20.
“Therefore, I recommend a purchase of the RIMM December 22 $13 strike Put for $0.33. This trade will be profitable with the stock trading $12.67 or below and will generate a profit of $100 per contract purchased for every dollar the stock is below $12.67.”
I think you’ll agree that was clear unhedged advice, capable of being understood by any reader.
And it was a home run! Because on the very next day, Jacob was able to write this:
“Yesterday morning I recommended a purchase of the RIMM December 22 $13 strike Put for 0.33. This morning the stock is down 3% and our puts are now trading at 0.50.
“At this time I recommend selling for a quick profit of 51%.”
If you’re interested in learning the options business on your own, Jacob recommends Sheldon Natenberg’s book Option Volatility & Pricing. It’s the book that every CBOE trader cuts his (or her) teeth on.
But if you’re not prepared to take on the complexity and depth of Natenberg, you’ll be glad to know that Jacob has written his own Guide to Options Trading that will be sent to all subscribers to Cabot Options Trader.
When Jacob isn’t actually analyzing or executing trades, his time is pretty much taken up by his kids and their growing sports interests. His daughter is into swimming, tennis and soccer. And his two-year-old son has just discovered soccer and taken to it like … well, like his father took to options trading.
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory