Mark Wolfinger: From Ph.D. to the Trading Floor, the Story Behind His Journey

The next guest for BTS is Mark Wolfinger, a retired professional trader who journeyed from conducting lab researches to orchestrating countless number of trades at the CBOE trading pit.  As a retired options veteran, he now educates thousands of readers through his blog mdwoptions and his educational books.

Mark’s interview questions came to life from many of his followers via the request feature.  The readers had a variety of worthy questions, and Mark responded with value adding stories.  Read on to get the wisdom of this informed trader with more than 30 years of experience.

“Mark, can you walk us through your career roadmap? I’d love to know more about your experience as a Ph.D., your involvement at the CBOE pits, and your career as a writer/blogger/educator.”

That question encompasses a bunch of topics and most of my lifetime.  After Brooklyn College, I went to Northwestern University in the fall of 1963, and fell in love with the Chicago area.  I spent 4 1/2 years at Northwestern, and when I was not in the lab conducting my research, I could be found playing bridge in local clubs.  I attended larger, out of town tournaments, when time permitted.

After graduation, I was hired by Monsanto as a senior research chemist in 1968, at what to me was a great salary of almost $17,000 per year.  I moved to a suburb of St. Louis and was soon transferred to Akron, Ohio.  That’s where I met Sandy, one of my bridge friends who was a branch manager for Bache (now part of Prudential), a national brokerage firm.  In 1976, he bought a CBOE membership and was commuting home on weekends (and found time to chat we me about his CBOE experiences) to be with his family.

I had already been trading options (since 1975) and was very interested in what he was doing.  To make a long story short, a relative of his wanted to buy a CBOE seat, but wanted someone else to do the on-floor trading.  That’s when Sandy recommended me.  I met with the seat owner, we connected, and he hired me.  Thus, there’s not that much to report about my experiences as a chemist.  It was a short career

I received some training by First Options, a clearing firm, including the fact that options have theoretical values.  I learned how to use the computers of that time and learned how to value options – something that many of the market makers at the time eschewed.

Stories about the pits are not easy to describe.  It was constant personal battles in our pit.  Other pits acted as a group; ours provided very competitive markets for the public customers.  We did anything to undercut each other, to the benefit of our customers.  That’s not the path to big profits for market makers, and one of the main reasons I reject all those who blame market makers for any and all problems they have when trading options.

“Well, you have had quite a change migrating from Ph.D. in Chemistry to market maker.  What was the motivation behind it?”

This is not going to sound ‘right,’ but I never loved chemistry.  I was good at it, and just continued taking classes.  I had no real career guidance and had no idea that this was not a good profession for me.  I had always loved the idea of playing games, and trading is a very big game with very big prizes.  I never gave any consideration to becoming a trader, until offered the opportunity to trade for a living.  I made a quick decision to try it.

As an avid game player, I found trading to be thrilling and a real-world, full-time game. The ability to work for myself, the chance to earn some good money, and I suppose the ability to leave the laboratory and work in an exciting environment was too much to resist.

“Can you tell us more about your trading experiences? In particular, what were some of the obstacles faced throughout your career? Any hard lessons learned?”

I faced one huge obstacle: Mark Wolfinger.  I was given excellent advice and guidance.  I was told how important it was to minimize risk and protect one’s assets.  I heard it, but so what?  I was gaining confidence quickly and understood how to make money. However, that big obstacle, whose badge was ‘WOL,’ got in the way.  I took risks, collected the rewards, and took more risks.

Eventually I lost the risk wager and took a big hit when the market surged in Apr 1978.  I was just short too many call options, naked.  I had not covered my shorts when I could have paid 1/8 or 1/16 (we traded in fractions at that time).  Why waste money buying back worthless garbage?  Today, I know better, and do what I can to pass along that lesson.  Some listen; some don’t.  It’s one of life’s lessons that cannot be taught by listening to others.  Too many traders need to get hammered for themselves before they get it.

“Discipline” is the name of the game.

“So how did you become the expert in options? What does it take to get there?”

I try to keep things as simple as possible; I do not try to earn the maximum edge on every trade.  I do not go to the expense of trading flat (neutral) every Greek.  I do not try to trade for a few pennies per trade. That’s for big time professionals with huge computer power and large trading staffs.  I concentrate on strategies that are easy to understand and for which the risk can be managed.

My expertise is in education.  I’m well-suited to be an educator for the world of rookies and beginners.  Sure, I can provide guidance for the more experienced traders, but my ‘expertise’ is in making the world of options understandable to the person who wants to learn how to use options.

I’m not a believer in recommending specific strategies as the solution.  I’m nothing like those online hypesters who claim ‘make 10% every month.’  Instead I’m a believer in teaching people to make their own decisions.  I explain what I do for my trading and the rationale behind my choices, but always make it clear that these choices may be unsuitable for the client or reader.  Thinking for yourself is where my emphasis lies.  To me, that’s the best way to be fair to the readers and give them the best chance to succeed.

To ‘get there’ is similar to many things in life.  Practice and more practice.  That does not mean only paper trading.  It means trading and learning.  There’s a popular theory among psychologists that it requires 10,000 hours of practice before you can call yourself an expert.  That’s a long time and requires dedication.  I have no idea if it applies to options trading, but no one can become an expert overnight.

“Right.  That’s for sure.  Now, what is your current trading style?”

I sell premium, but never naked.  The only exception, and I seldom do this, is to sell a naked put if and only if I want to buy shares at a discount to today’s price. I also sell credit spreads, often as iron condors.

Furthermore, I protect the downside because I think this economy is a disaster and I do not understand why the DOW is 10,000 and not 5,000.  I am not a good prognosticator, so cannot afford to trade from the short side.  However, I can own positions that earn a profit on a black swan opening.

Lastly, don’t be greedy.  Don’t wait for expiration.  Don’t collect the last few nickels on a trade.  Adjust positions when needed (or before it’s needed) to preserve assets.

These are the hallmarks of a very conservative trader.  I was much more aggressive in recent years, and I would never encourage anyone to own a portfolio that is similar to mine.  But I encourage accepting my belief that successful risk management is the key factor that determines a trader’s long-term success.

“Lastly, what is your perspective on trading for a living?”

It’s difficult.  It takes discipline, and it requires one not to depend on profits immediately for living expenses.  While it’s true that some strategies may provide earnings immediately, you cannot assume immediate success.

A professional trader cannot ‘need’ to make money this month to pay the bills.  Therefore, if you have the comfort of a cash reserve, if you have the patience to learn, if your family is supportive, if you learn before trading, and if you gain some experience first, then you have a chance to become a successful, full-time trader.

Now keep in mind that not everyone can succeed at this profession just as not everyone can be a professional athlete.  There are psychological considerations and personality traits that play a big role.  If you have no discipline, you have no chance (unless you want to gamble, and I don’t recommend that.)

Mark, thanks for the pleasant conversation.  Many readers are learning from your wisdom, and we hope you continue to educate the curious.