Interview Central: Chris Borgmeyer, Part III

This is the final installment of my recent interview with Chris Borgmeyer.

Optionetics: How would you characterize your technical approach to the markets?

Chris: I use a pretty basic level of technical analysis, as I typically rely on the more simple/straightforward ideas. I look for the underlying trend, and position trades that go along with that trend or momentum. That is until things get so extreme of course, which is when it’s better to be a contrarian, although timing the change of the trend is very difficult.

Optionetics: What do you think are the greatest misconceptions beginning traders have about trading the markets?

Chris: One of the biggest misconceptions I’ve heard is that all you need to do to make money is to be right 51% of the time… There is clearly a lot more to trading than that, as things such as size, risk, time, exit points, etc. all come into play.

Optionetics: What kind of advice would you give a person just now beginning to trade the markets?

Chris:  Don’t be intimidated and start small. Try to learn as much as you can by reading a lot. Keep it small at first because it can be hard to recover from getting burned right away. Keep your losses small, and allow them give you feedback on what you’re doing right and wrong. One of the most important things for a beginning options trader is to understand the concept of implied volatility, and have an idea of how that will affect an option’s price. Then, when making the actual trade, understand whether or not the volatility levels are inflated, depressed or just normal. 

Optionetics: Can you describe what your average trading and analysis day entails from preparation to execution?

Chris:  Ideally I start the day early by reviewing what happened overseas in Asia and Europe to set the stage for the US trading day. Then I go over the big news that’s driving the markets for the day – i.e. any M&A, economic releases, earnings announcements, etc. Then start thinking about the sectors that will be seeing strength/weakness that day, and which stocks within the sectors are worth reviewing. We tend to do the most work on the smaller under-the-radar names that can see a nice move once the rest of the market discovers them – we try to get ahead of those moves.

Optionetics: What kind of decision-making process do you go through before deciding on a particular trade and a particular sector of the market that would be worthy of putting on a position?

Chris:  Once I’ve decided that I want to take a position in a particular stock, I decide whether to use long or short stock, long options or short options. Those are the three ways I would consider putting on a trade – after looking at implied volatility, weighing the potential risk/reward and gauging expectations, the decision gets easier on which approach to the trade makes the most sense.

Optionetics: What type of analysis methodology do you employ to find great trading opportunities?

Chris:  I typically look at smaller-cap names, which may not have a lot of Wall Street coverage, that are seeing a developing trend (which may be seen in some of the larger names in the group). Then I dig into the business, to identify what the improving sentiment in the stock may be driven by, and what can add momentum to the name. From there, I look for any potential pitfalls to the thesis behind the trading idea. There are a lot of really interesting stocks out there that don’t necessarily make the cut for Wall Street coverage, but offer very profitable trading opportunities.

Optionetics: Thanks very much, Chris, for sharing your thoughts about the trading business with our Optionetics reading audience.

To read previous installments of this interview, please click here.

Jeff Neal 
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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