INTERVIEW: Options As A Strategic Investment
I pretty much determined that it was hard to predict stock prices, and of course, back in 1973 and 1974, it was a bear market. Options were a good vehicle for me
to work with because of their advantages, like shorting a stock, and that fit in well with the way I thought about things.-Lawrence McMillan
Options are a part of general financial strategy that at once draws and repels market participants. It's also a strategy that ironically you've basically got to lose money at in order to understand. So how do you learn more about it? It helps if you're familiar with Lawrence McMillan's Options As A Strategic Investment, a classic tome in the investment field. STOCKS & COMMODITIES spoke to McMillan, who is also the publisher of The Options Strategist newsletter, and asked him about the ins and outs of options. S&C Editor Thom Hartle asked McMillan about, among other things, implied volatility; how far McMillan goes out to buy options; why it's important to do research on your portfolio; some strategies he uses and how expirations of index options move the market. The interview was conducted on November 13, 1995, via telephone.
by Thom Harle
How did you get started in the business?
After I completed my masters' degrees in math and computer science in 1972, I went to work for Bell Labs. Then in 1973 listed options began trading and I was intrigued with that market, so I focused my attention on options. That was my start in the business.
As a private investor?
Right. I ended up writing a newsletter on options on the side. That was in 1974 and 1975. Then in 1976, I became the retail strategist for Thomson-McKinnon. Eventually, I became the senior vice president of the equity arbitrage department and I traded the firm's capital. I did that through the 1980s.
When did you write Options As A Strategic Investment?
It would have been late in the 1970s. The first edition came out in 1980. I wrote the book because the publisher, the New York Institute of Finance, was looking for someone to write a book about options and they went to the Chicago Board Options Exchange, and Jim Dolan, who was the president of the CBOE at the time, referred me to them. It took me about two years to write the first edition, and then I did the second edition in 1986 and the third edition in 1993. I've been keeping it fairly current in the meantime, weeding out some things and adding a few others.
So when did you decide to go out on your own?
It took a while to come to that decision. After Thomson-McKinnon went out of business in 1989, I went to Prudential for a while, but that position wasn't right for me so about a year later I started my own company. Today, I'm publishing a couple of newsletters and trading for my own account.