Better Trades Interviews: Daniel Passarelli

Joe Taylor
December 29, 2008

What is some general background information you feel would be of interest to our readers?

I'm an author who has worked with the Chicago Board Options Exchange's Options Institute and traded on floor of CBOE and the Chicago Board of Trade.

How long have you been trading?

I started trading on the floor of the CBOE in 1998. I'm still at it.

How did you get involved in trading?

I've always been interested in markets and trading even as a child. After college I printed up a stack of resumes, put on my (only) suit and knocked on every door in the CBOT building asking for any job I could get. It worked. I got a job as a runner. The rest, as they say, is history.

What is the most enjoyable part about trading the markets?

It's the "game" aspect of it. Making money from trading is like racking up points in the ultimate video game.

What is the least enjoyable part about trading the markets? Trading is humbling.

All traders, good and bad, have losing streaks. Making money is easy; it's losing it that is hard.

What do you see as the biggest changes in trading from when you started?

When I started trading about 90 percent of my trades were in open outcry (10 percent electronic). Now, most equity option traders execute more than 90 percent of their trades electronically.

Do you see these changes as beneficial or more of a hindrance when it comes to trading?

Electronic trading has helped enhance competition and make bid-ask spreads narrower. That is great for most traders, though not so good for market makers.

Traditionally stock/options trading is seen as an arena for men...do you think that's changing?

When I started trading in the open outcry markets, it was a pretty testosterone-laden environment. Lots of men. Lots of egos. Lots of aggressiveness. The social aspect of open outcry trading isn't for everyone. Not only were you going head-to-head with the market, but your competitors were all standing right next to you. That is hard for some people (men and women alike). Furthermore, male-oriented physical attributes were helpful in open outcry. The bigger and taller you were, the more able you were to see over peoples' heads in the pit-a big advantage. Now, trading on a screen levels the playing field a bit. The only opponents traders have now are the market and themselves.

Do you think women have any special advantage when it comes to trading that men do not have?

I would say that neither men nor women necessarily have an advantage over the other. The market is the great equalizer. All kinds of people from all walks of life have become successful traders. It doesn't matter who you are. If you can figure it out, you can trade.

What time frames do you enjoy trading?

I am an active trader. My real passion is the fast-paced trading on the trading floor. I enjoy moving in and out of positions as much as possible. But I sometimes hold trades for longer periods of time like a couple of weeks to a month.

What are your favorite instruments to trade (stocks, options, futures, Forex, etc.)?

Certainly options. Option trading is like doing the crossword puzzle every day. It keeps your mind working because there is so much to think about.

Do you have a favorite strategy?

Nope. I'm a contingency trader. What I trade is contingent upon the opportunities in the market. No strategy works in all market conditions. When a trader gets complacent and sticks to a single type of strategy, he is destined to fail in the long run.

Any trading secrets you are willing to share?

Work hard.

What would you recommend to someone just starting out in the trading arena?

Learn as much as you can before putting up real money. And when you do start trading, start small.

How should they get started, where should they focus their energies, etc.?

Start watching three stocks (or commodities). Follow them every day fundamentally and technically, and monitor their option volatility. Learn how they trade. While the market will throw you a curve ball every once in a while, you should get intimately familiar with what you're trading to develop expectations and form trading opinions. Once you master the first three stocks, move on to more.

Do you think trading is something people could do full time to make a living?

Of course. I know lots of people who trade for a living. But that is not to say it's easy.

How big of a trading account would you recommend to someone to start with if they wanted to do this full time?

Less than $10,000. Start small. As the adage goes, "What's the easiest way to make a million dollars trading? Start with two million dollars."

Which of your books is the most popular?

Trading Option Greeks has exceeded my expectations. I'm very happy with its popularity. I have people all the time telling me they've just read it and how much they liked it.

Why do you think that this book is so popular?

I held nothing back. This book explains what you need to know to have a solid understanding of how options work.

Is there a book you would recommend to a beginner to start with? Or do you recommend a particular order for reading your books?

Trading Option Greeks is perfect for a beginner because it skips the fluff and gets right to the core of understanding options. Lots of "beginner" books dumb down options to the point of oversimplifying them. I think this does a disservice to readers. Options are complex. To understand them, you need to understand all the factors that go into their pricing, not just how to draw a P&(L) diagram. Trading Option Greeks covers the more advanced topics that most beginner books don't, but in an approachable way that is easy for new traders to understand.

What books have inspired you in your trading career?

I learned options on the trading floor-sort of a trial by fire.

Where do you see the future of trading heading?

Cheaper, faster, better. Brokerage competition continues to force commissions lower. Innovations in electronic trading continue to make trading faster. And more and more free tools, information and education are offered online to traders.

Any advice on trading the recent volatility?

Change is the only thing that remains constant. While most traders couldn't have predicted the steep decline and high volatility we've seen in the fourth quarter of 2008, they shouldn't have been surprised. Just because the market is a certain way for a long period of time doesn't mean it will always be that way. In trading, always expect the unexpected.