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Michael Gross is director of research at Liberty Trading Group in Tampa, Florida. After graduating from Indiana University of Pennsylvania in 1990 with a degree in Business Administration, he began his study of the commodities markets. His futures trading career began in 1994 when he started trading contracts in grains, precious metals and energies.

In 1996, Michael became a registered commodities broker specializing primarily in the grain and energy sectors. In 1999, he joined Liberty Trading Group where, along with James Cordier, developed various approaches to selling option premium and managing portfolios. Michael remains an active broker at Liberty Trading Group, where he authors many of the firm''s research articles and assists in developing trading strategy

It was a genuine pleasure to talk with a veteran futures and options trader such as Michael Gross. This is the first part of that conversation.

Optionetics: How did you first become interested in trading the markets?

Michael: Shortly after graduating college, I started reading books on investments. I read Trading for a Living, by Dr. Alexander Elder. That was it. I was hooked.

Optionetics: Do you ever use options and if so what are your favorite strategies?

Michael: We always use options! Our niche in the business is selling options and that is what we do best. We study the fundamentals of the underlying and then try to pick points on the chart that the market could never reach based on those fundamentals. Then we sell options with strikes at those levels and collect the premium. We don't have to be right the market to make money. We only have to be not extremely wrong. Our preferred strategy with the volatility of today is either bull put or bear call spreads. But we will still occasionally sell naked premium if we feel the odds are high enough.

Optionetics: What are the things you like best about the trading business?

Michael: The best part of the trading business is doing well for a client and having him tell you that you did a great job. It is the reward for everything that you do. It sounds cheesy but there is nothing like it. Second to that, I just like being in, around or near the markets - the excitement, the movement, the mental challenge. I would never want to do anything else.

Optionetics: How do you treat losses and how to go about establishing their risk tolerance before the trade is entered

Michael: Risk management with options can be a bit more complex than just trading a futures contract or a stock. Stop orders can be used in some markets but they are not always efficient. Some futures pits are no longer accepting stops on options. We have in house software that helps us manage the risk and pinpoint our exit points. However, we always determine our exit point when we enter the trade. Oftentimes, this will be based on the outright premium of the option. For example, if we collect a premium of $500, our exit level may be at the point where this premium doubles. Other times, we may base it on support/resistance levels of the underlying contract.

Optionetics: Thanks, Michael, for sharing your trading approach 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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