How to Trade Volatility Without Chasing the Market

Here at FinTech TV we are expanding our reach and collaborating with Chicago's CEO Exchange.

Let's go out to contributor Mark Payton who's live from the Cebo.

Good morning, Mark.

OK Hi Remy, it's great to be at CBN Chicago, a global hub for options, volatility, and market innovation.

And let's just say to you, Chicago is probably the best sports town in the United States.

You agree with that.

I definitely agree with that.

Well, right now I'm with Scott Bauer.

He's the CEO of Prosper Trading Academy and a market veteran with more than 30 years of experience trading equity and index options, including right here at CEO.

So what does it feel like to be back here?

I mean, this is awesome.

You know, this is a Brand new trading floor.

It's just a few years old, so I was on the trading floor across the street, Cibo, where, you know, it's a little bit more antiquated, but it is, uh, it's always great.

This is like my home away from home.

Yeah, absolutely, I totally understand that, especially the hours that you put in in an institution like this.

Now tell me about your company, Prosper Trading Academy.

Sure, so I, I was a floor trader for 20 some odd years, and when I left the floor, I started a company to teach people how to trade.

So that has been built up over the last 13 years.

We have about 15,000 students and myself and some other coaches who all were, were traders on the floor.

We teach people live in the markets how to trade.

So we are educating them, we're, we're going through signals with them.

We're, we're, you know, keeping them abreast of what is.

Actually going on in the markets, what's going on right down here.

So because I have access to the CIO, I can, you know, let our, our students know, all right, this is what's going on down on the real trading floor and you know, most people don't understand or don't believe that there's still open outcry, that there's still a real trading floor.

So, um, you know, we try and get that word out, and then I, I do a lot of, um, speaking also on, on networks and other places here for the CEO.

Yeah, and you know, you mentioned open outcry, and that's one of the reasons we love to be here at CEO is to see some of this action behind us.

You know, I mentioned volatility is here, innovation is here.

When we talk about innovation, again, 3 decades of experience, what has changed the most?

I think what has changed the most is going from full open outcry to almost full electronic, where, you know, many of the floor traders are, are not in existence anymore, but then coming back over the last, you know, 5 to 10 years when, when open outcry was just kind of left as something, you know, in a bygone era, and now it is so vibrant.

It is.

It is so incredibly busy all the time here.

So what I really, really like is, is over the last few years, the Zero DTE product that came out that, that really re-energized and revitalized the SPX, and quite frankly really putebo back on the map.

Yeah, no, I totally agree with that.

What is something that you're kind of keeping your eye on right now?

Especially as we make that turn into 4th quarter.

I mean, there's so many things out there that can move this market at any one time, whether it's geopolitical events, interest rates, the midterms coming up, end of earnings season coming into another.

So, I, I think that volatility overall is way too low.

Yes, I know it's the summer doldrums, if you will, but I really think volatility is too low.

And we are going to move.

We, we are absolutely going to move.

I do like where the market sits right now.

And if, you know, one of those kind of outliers doesn't, doesn't really derail the market here, I think we can absolutely move higher going into the end of the year.

You know, let's unpack some of that.

You know, one of the things that you talked about is the geopolitical environment of what's happening now, right?

And then the thing that I always like to keep my eye on, and I think everybody else too, the VIX, which is right here.

So what are we interpreting with that right now?

Sure.

So, so for those that don't really understand what the VIX is, the VIX is a measure of, we'll call it market sentiment, but what it's really doing is looking at the implied volatility of here in the SPX 30 days out.

So the VIX is really a representation.

Of overall market volatility when you see a VIX of 16, which is pretty much near the long term average, a VIX of 16 is equivalent to a 1% daily move in the SPX.

So that's a really good gauge for people.

So, you know, right now we're sitting at 14.25% or so, which is telling us that, all right, maybe the market is not as volatile as it has been.

I personally believe the VIX should be probably closer to 20.

That's my, that's my opinion here because I think there are just too many things that can move this market.

Yeah, you know, and again, it always gets labeled the fear gauge because of that reason.

Why 20?

Because that's quite a bit of a jump from where we are right now.

Where's that coming from?

No, it is a jump, but when you look at the The daily moves that we're having, the moves we're having other than maybe the last week just because, you know, summer or whatever, the moves we're having are, are, are much greater than 1% daily.

So if I look at at any sort of arbitrage and how the market is moving, it's moving more than, than, you know, 3.74% or 1% a day.

And then, you know, again, you're a teacher, you have a school.

Anything you recommend right now for, let's just say like the, the, uh, the daily trader, like the average person out there, not somebody at an institution like this.

Absolutely, and, and honestly, right now is no different than any other day for me and what I teach my students, and that is don't go out there trying to hit for the fences.

Do not go out trying to hit a home run, especially in this market.

You really. need to keep things closer to the vest.

Singles are OK, right?

Have the we were, we were talking about Chicago being a sports town.

Be the best bunter.

Be the, have the best batting average on your team.

That is how you keep coming back day after day after day and how you can be successful in the market, because if you're, if you're out there and if you get caught up in the FOMO, you know, of, of some of the things that We're seeing it's probably not gonna wind up well.

Yeah, I, I love we always bring it back to Moneyball, right?

Just get on base.

Yeah.

Oh, there's no doubt about it.

There's no doubt about it.

And, and that's how I have traded for, for my entire career of 35 years, and I'm still standing here to talk about it.

So, and then, uh, last right now, so SPX options, anything there?

Anything to keep an eye out for?

I think that volatility is too low here as well.

So, you know, if an investor, whether retail institution, whatever, they, they have positions in the marketplace, and let's say they want to stay long.

They, they believe that the market still is going higher, that's great.

That's great.

However, with volatility where it is and premium levels being, being, you know, I would say overall pretty cheap, it's a great time to get that.

Protection, right?

It's a great time to get that insurance.

We all, you know, when, when we go shop for our insurance, whether it's auto insurance, homeowners, whatever, we want to do it when we don't need it, right?

Now is the time where if you don't need it, that's when it's cheapest, and I would absolutely buy some downside protection.

Yeah, no, I, I love that, and that makes a lot of sense, and it kind of comes back to what you're talking about here.

I don't want to say being conservative.

But in a way you are with the approach to the market.

100%.

I am, I have always been conservative from the time that I hit the trading floor back in 1991 and, and trading on the floor for, you know, 25 years to the way I trade now on the screens with my students, very, very conservative, but that's OK.

You grind it out, right?

Nothing has to be flashy, and that's, in my opinion.

You're successful and then let's talk a little bit about the classroom right now too.

What is that experience like?

How do people contact you?

Just what does it look like?

Absolutely.

So it is a live virtual classroom.

So we have 5 different trading rooms, whether it is trading option volatility, day trading, whatever it may be, and we are interacting live with our students literally.

From 8:30 to 3 o'clock central time every day while the markets are open, we're talking about what's going on in the markets.

We're looking for potential setups, signals, we trade with them, and, and it's really incredibly, incredibly interactive and incredibly educational.

Well, Scott, thank you so much for your time, all your information, getting out here and, uh, hanging out with us.

We really appreciate it.

My pleasure.

Thanks for having me.

Thank you.