As with any profession, there are a few good sources of information which change your entire outlook on your craft. The authors of these gems rarely receive the fame and fortune they deserve, rather they seem to be content with exploring and sharing their wealth of knowledge through painstaking research and discovery.

One such gem – which is considered by many as one of the “Bibles” of option trading – is Sheldon Natenberg’s book Option Volatility and Pricing. Sheldon is a pretty humble guy considering his impressive background. He began his trading career in 1982 as an independent market maker in equity options. Since 1985 he has been trading as an independent floor trader at the Chicago Board of Trade.

Recently, I stumbled upon a video interview of Sheldon sharing his thoughts on volatility as it applies to retail traders – as well as some of the things he looks for in trade setups.

Here is the video:

My main take-away from his discussion is how he looks for opportunity within a group of related stocks and picking the outlier of the group (either abnormally high in volatility or low) and trading that particular stock as it reverts back to the mean; in other words, “don’t look at stocks in isolation” – find the instability in the group for your opportunity.

Furthermore, Sheldon states “find where you have a disagreement with the market” then base your trade on that. This is important to remember, especially now when the market is going up, up and away and most everyone is trading with a BUY BUY BUY! Keep  yourself grounded in your own convictions and know when to get out if you are wrong.

I hope you enjoy the video and it helps your trading.