Sean McLaughlin — Options trading, implied volatility & trading truths

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Smarter Trading Podcast Episode 5

Hello everybody, our guest today is Sean McLaughlin, aka @chicagosean on social media.

Sean is the chief options strategist for All Star Charts and Senior Market Strategist at Trade Ideas. He’s been trading for over 20 years starting out as a prop trader during the late 90s, founded a hedge fund shortly thereafter, and since transitioned primarily to trading options.

In this episode we talk about the tech boom of the 1990s, some of the bad habits Sean picked up during those years, and also some of the similarities between those markets and the present day. 

We then geek out on options, and discuss Sean’s framework for placing option trades, how equity traders can start using options, gamma squeezes and a whole lot more.

Please enjoy this conversation with my friend, Sean McLaughlin.

Watch the interview in video here

Episode show notes: Sean’s recommended books

Reminiscences of a Stock Operator: Lefèvre, Edwin. Amazon.com: Books
How to Make Money in Stocks: A Winning System in Good Times and Bad, Fourth Edition: O’Neil, William. Amazon.com: Books
Technical Analysis of Stock Trends: Robert D. Edwards and John Magee. Amazon.com: Books
The Almanack of Naval Ravikant: A Guide to Wealth and Happiness: Jorgenson, Eric. Amazon.com: Books
The Magic of Thinking Big: Schwartz, David J. Amazon.com: Books
How I Made $2,000,000 in the Stock Market: Darvas, Nicolas. Amazon.com: Books
Sports for the Soul (6 Books Series): Donnelly, Darrin. Amazon.com: Books

Key learning points

► Message volume on Stocktwits tends to get very loud at turning points
► Level II quotes aren’t as telling and powerful as they used to be
► 2021 markets do resemble the euphoria in the 1990s, just in smaller pockets, and not quite as widespread
► Trading is really hard, the majority of people who attempt to make a living at trading cannot
► The mechanics of trading is pretty easy, what’s hard is that your brain conspires against you to make it harder than it needs to be
► Don’t quit your day job if you’re looking to full time trade
► You need to find a strategy that fits your temperament
► Starts with implied volatility for a stock before you actually place a trade
► Options trading offers greater capital efficiency
► Gamma squeezes, why they occur, and why they’ll continue to see them
► The faster the markets get the slower Sean wants to trade

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Episode timestamps

0:00 Introduction and about the episode
1:50 Sean’s background Stocktwits
5:40 Sean’s experience from the late 1990s prop trading
4:20 Lessons and bad habits learned from the 1990s
12:00 Similarities of retail traders and euphoria between 2021 and 1990s
14:40 The truth about trading – it’s hard
21:10 The transition to trading options
24:20 Delta neutral portfolios and option strategies
31:15 Using implied volatility to decide when to buy or sell options
39:20 Swing trading using options
45:40 Gamestop, gamma squeezes, and market structure
50:55 Book recommendations
57:20 Successful trading and final advice to traders

Highlight clip: Trading is hard. Don’t quit your day job.

Sponsor the show

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Enjoy what you listened to? Share it below and be sure to tag @thetraderisk.

Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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