285 · Greg Magadini - Cashing in Through Exploiting Volatility
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Why did Greg Magadini choose to focus on options trading rather than just trading stocks?
Options trading offered a never-ending pursuit of learning, with complex dynamics like non-normal distributions, volatility skew, and term structure. This complexity provided more opportunities for edge compared to simpler stock trading.
How did Greg Magadini start his trading career?
Greg began his career trading for a small prop firm while in college, managing a five-figure account with a goal of making 25% per quarter. He later worked at Chopper Trading and DRW in Chicago, focusing on volatility trading.
What was Greg Magadini's key strategy for making consistent profits in volatility trading?
Greg's core strategy was mean reversion in volatility. He would sell volatility when it was low and buy it when it was high, focusing on timing rather than direction. This approach allowed him to profit from the natural tendency of volatility to revert to its median value.
How did Greg Magadini turn $50,000 into $1.3 million in profits?
Greg bootstrapped his trading by starting with $50,000 and focusing on short-term volatility trades. Over nine years, he consistently pulled out profits, aiming for a median P&L of 120% per year, which he achieved without a down year.
What attracted Greg Magadini to the crypto market?
Greg was drawn to crypto because it was a new asset class with no historical data or professional traders dominating the market. This created inefficiencies and opportunities for edge that didn't exist in traditional markets.
What was Greg Magadini's most profitable trade during the 2020 bull market?
During the 2020 bull market, Greg profited from the extreme skew in crypto options, where calls were trading at 40 volatility points above puts. He used strategies like buying Bitcoin, buying a protective put, and selling a covered call to lock in a 1:3 risk-reward ratio.
How did Greg Magadini handle the stress of trading?
Greg managed stress by not trading other people's money, which reduced pressure. He also took breaks after losses, avoided substances, and focused on long-term development rather than short-term gains.
What challenges does Greg Magadini face as a trader?
Greg struggles with holding onto winning trades for too long due to nervousness as profits grow. He is also aware of the emotional volatility that comes with trading and works to manage it through breaks and self-reflection.
What advice does Greg Magadini have for aspiring traders?
Greg advises traders to expect volatility in their P&L and to respect the game of trading. He emphasizes the importance of learning to handle both winning and losing trades, as both are part of the journey.
What is Greg Magadini's view on the future of crypto trading?
Greg believes that as traditional finance flows into crypto, inefficiencies like the variance risk premium will diminish. However, he sees opportunities in volatility events and the introduction of new products like spot Bitcoin ETFs and their options.
- $50,000 to $1.3 million in profits over nine years
- Consistently profitable, with an average annual return of 120%
- Focus on short-term trading with a hard-line risk management strategy
- Mean reversion as core component of volatility trading
- Counterintuitive trading: Sell volatility when low, buy when high