Victor Sperandeo, an Options Wizard

When I read Victor Sperandeo´s interview in The New Market Wizards, I thought that it was going to be one of the worst, since his first success came as a market maker trading options in the pit. But nothing is further from the truth. It was one of the best interviews of the book actually.

Victor Sperandeo interview

One of the keys to Sperandeo´s trading was his obsession with cutting losses quickly when he was wrong. That is his most important advice.

During 18 years of profits, he had a return of 72% of average. I do not know if this includes his years as a market maker or when he was trading, but the result is impressive whatsoever.

Sperandeo is another example of a man who did not finish his university studies and succeeded despite o that. In fact, the most successful business people usually do not have a college degree, and for those who had and succeeded in the entrepeneurial camp, they did despite the degree, not because of it.

Victor Sperandeo quotes

This interview should be read in its entirety, but I will mention some of the best moments:

For example, betting on a lottery or playing a slot machine are forms of gambling. I think successful trading, or poker playing for that matter, involves speculating rather than gambling. Successful speculation implies taking risks when the odds are in your favor. Just like in poker, where you have to know which hands to bet on, in trading you have to know when the odds are in your favor.

It is something most people do not understand, or if they do is incorrectly and in a pejorative way.

In fact, most people prefer games of chance because in those everybody has the same probability, so the problem of envy fades away somehow. However, people hate someone that has the bad habit of winning. Envy is one of the deepest human feelings as Von Mises would say (1).

He also said:

Trading the market without knowing what stage it is in is like selling life insurance to twenty-years-olds and eighty-year-olds- at the same premium.

Or:

My goal on Wall Street was never to get rich but to stay in business. There is a big difference. If you are out of the business, you can never get rich.

This advice is worth its weight in gold, and every novice trader should write it down and read it every day. So if you lose, you had better not lose too much so you will be able to carry on in the future when you have more experience.

And to carry on it is better to have some capital than not.

As André Kostolany would say: A famous pianist can afford to lose regularly; since he can recover them easily. However, a professional speculator is not that lucky.

The single most important reason that people lose money in the financial markets is that they do not cut their losses short.

You know, you should use stop loss always. The first rule of trading.

Another interesting things he said:

Yes, but I like to keep it simple. My primary methodology is a three-step process to define important trend changes. Let me take the example of trying to identify a top in a rising market. The first step is waiting for the uptrend to be broken.

In the stock market, the one indicator I give the greatest weight is the two hundred day moving average. I would not recommend this indicator as a sole input for making trading decisions, but it does add a bit of useful information..

In my opinion one of the few indicators, we should look at sometimes.

Victor Sperandeo trading strategy

Sperandeo made a lot of use of statistics.

There are lots of examples in the interview about strategies that could have worked well in some periods and not in others.

This man studied market historic data obsessively.

That is one of the most important things for someone who wants to stay longer in the game.

You have to know what happened before and somehow why.

 

  1. Theory and history.