Interview: John Carter Of TradeTheMarkets.com by J. Gopalakrishnan and B. Faber
John Carter was never that intrigued by the brokerage side of the trading world, preferring to test various online trading strategies. Eventually, he found a trading system he was satisfied with, and once he did, he left corporate America to pursue full-time professional trading. After a few years of trading on his own, he grew tired of daytrading by himself, with only his pet fish for company. He started to seek out other traders and post information online, which led to the launch of TradeTheMarkets.com and SimplerOptions.com.
Today, Carter is a Commodity Trading Advisor with Razor Trading. McGraw-Hill commissioned him to write a book entitled Mastering The Trade, which was released in January 2006.
Stocks & Commodities Editor Jayanthi Gopalakrishnan and Staff Writer Bruce Faber interviewed John Carter on December 6, 2011.
John, how did you get interested in trading?
When I was in high school, I spent the summer working at the mall making minimum wage, which at that time was about $4.25 an hour. I came home one day, and my dad, who is a stockbroker, and his buddies were sitting around the dining room table. I think they were reading Investorís Business Daily. I asked them what they were doing, and they explained they were looking at making an option trade for the next day. I had no clue what they were talking about, but I had saved up $1,000 over the course of the summer, so I expressed some interest. Since I didnít have time to open up an account, they told me that they would spot me the $1,000 for this play. They told me that if it made money, great, and if they lost money, I would just owe them the money directly. My response was, ďOkay, letís just try it.Ē
So what happened?
The next day they bought for me 10 call options on Intel at a dollar, and they ended up selling it four days later for something like $1.75. I made $700 or $800. So they gave me a check for the amount. It really hit me. Wow! I had just spent the whole summer working for almost the same amount, and here in four days, where I didnít have to do anything, I actually made almost that same amount of money. That got me really interested in trading. I never had the desire to be a broker like my dad, but I just loved the idea of trading. So I really got into technical analysis, the markets, and trading options.
At first it was all about direction. I didnít know anything about the greeks. I just knew that if Micron Technologies was going up, I should buy some call options. That was the start. I was interested in learning more about it, which led to my taking a course ó I canít remember the title, but I think it was taught by Don Fishback ó and eventually, learning about greeks and selling premiums and other things about options.
So you started trading with options. You didnít start with equities.
That is correct. My first trades were in options.
How did you progress from trading with covered calls to trading more complex strategies? Did it just come from experience?
What happens is that you keep on doing something as long as you are making money. Then when youíre not making money any more, you start looking at why. I would buy the cheap options ó that is, out-of-the-money (OTM) calls. What was happening with the call buying was that I would be right on the direction of price movement but I would still lose money. If I was wrong on direction and lost money, then that would make sense. But if I was right on the direction and still lost money, that didnít make sense to me at all.
Thatís when I started looking into premium decay. I discovered that if you wanted to buy options, then it was better to buy them in-the-money (ITM), and if you were going to sell options, then it was better to sell them OTM. I remember getting into some complicated stuff like iron condors. I did not like that. I went from doing something that was simple to something that was extremely complicated, so today, I am back to keeping things pretty simple.
So what kind of simple strategies do you use?
There is just a handful I focus on. First and foremost is a pure directional play. I base this on the underlying stock. If I get a buy signal on Apple (AAPL), I will buy some ITM calls. I like to use a delta of at least 70. I try to give it a bit of time. If it is one week out, I will go out to the next month. I like to make sure there is a month or so in there. Most of the trade setups I do last a week, give or take. That is pretty easy.
I also like doing just vertical spreads, whether it is debit or credit. Taking AAPL as an example, I like to buy a deep ITM call. Then when price gets up to the zone of the first target, instead of just getting out of the option, I will sell an OTM call. Iíll buy ITM and when it gets close to the first target, I will sell an OTM option and then try to collect some premium from that. I like doing that.
The other way is doing a vertical or just doing a credit spread. What I really like, especially when a stock like AAPL or Google (GOOG) slams into some resistance or maybe breaks through some resistance, is selling a call credit spread.