Accredited Investing Education

Market Expert Interview – Marty Kearney CBOE Instructor

The Friday Market Expert Interview is where we are going to interview Experts from around the Stock Market and Options Industry. This gives us, as investors, a look at what is happening in the industry and what the experts are seeing and saying.

Marty Kearney: Mr. Kearney is the co-author of Understanding LEAPS®, published by McGraw-Hill, released in September of 2002 and a contributing author of Options: Essential Concepts and Strategies (3rd edition), edited by The Options Institute, the educational arm of the Chicago Board Options Exchange (CBOE). Mr. Kearney began his long association with the CBOE when he became an independent Market Maker in early 1981. Mr. Kearney traded equity options full-time on the trading floor until 1992 and periodically thereafter until 1996. In early 1992 he became a founding partner and Registered Options Principal of a brokerage firm based in Chicago. Mr. Kearney’s responsibilities included development and implementation of hedging and trading strategies using listed options for their institutional clients as well as their retail investors. Mr. Kearney authored a weekly strategy letter for over four years, and composed the daily comments on the firms’ website, which he helped develop. He has been a regular contributor to many news services including Reuters, Group W, The CBS Radio Network, Derivatives Week, BARRON’S, FORTUNE, Ticker Magazine, Stock Futures and Options, CNBC, Bloomberg, NPR and others. Mr. Kearney served on various committees at the CBOE, including the Arbitration Committee from 1984 to 1996. Prior to joining the CBOE Mr. Kearney was a marketing director for NCR Corporation. Mr. Kearney is a graduate of St. Mary’s University (MN), BS, 1971, and pursued his MBA at Lake Forest Graduate School of Management. In 2006 he completed a 3-year SII/SIA program at the Wharton School of the University of Pennsylvania. At The Options Institute his duties include helping brokers develop new business with conservative option strategy such as covered writing and portfolio hedging. He also trains brokerage firms’ compliance department staff.

OptionsANIMAL: How did you learn to trade?

“Marty Kearney: I learned to trade back when I was an individual investor. Back when options were new. I found a broker that understood options, which was pretty unusual then, and in fact is still fairly unusual now.”

OptionsANIMAL: Is that Broker still around?

“Marty Kearney: No, he is long since retired. Thank goodness for him. But the idea was, I started doing 1 or 2 very simple strategies and started doing covered writes on a couple of stocks I owned. And then there were a few stocks that I liked and my broker said to me, rather than sell the stocks you own, maybe we can buy options on these stocks or we can do a spread because they were high volatility stocks then. So I started out by doing the covered write then buying options and doing vertical spreads, debit spreads, bull calls and such. Now that is what got my interest up. Now I had friends that traded at the different exchanges in Chicago and I took a week off of work and spent a day with everybody and the idea of options to limit risk was at the time a better instrument for me to trade than trading futures.”

OptionsANIMAL: Are you able to actively trade as an employee of the CBOE?

“Marty Kearney: I was not allowed to trade anything that was traded at the CBOE for many years, while I was on staff. They eased that rule, now I can trade most products, but there are some that I am not allowed to trade. Member firms, banks, and a few others, but for the most part I can now trade just about anything else here.”

OptionsANIMAL: Why is learning how to trade options so important, and why should it be important to the average trader?

“Marty Kearney: Options are like any instrument, stocks, bonds, and futures. You should know what you’re getting into before you start investing. Why would you play it or trade it if you don’t understand it? That is why on the CBOE website we have a paper trading platform where it’s not real money and you can put on positions without using real money and that can help teach you strategies. Going to webinars and classes is important to learn the concepts and strategies and then start trading with funny money until you get it.”

OptionsANIMAL: Why should the public invest in options?

“Marty Kearney: The reason that investor’s trade options is the idea of limiting risk and the idea of leverage, and that is what drew me to options many years ago. This leverage allows you to buy something and control the underlying for a fraction of the cost many time, either to the upside or downside. “

OptionsANIMAL: Is the increased volume over the past few years as a result of more traders or just more trading by those who have used options?

“Marty Kearney: With volume and these numbers I think that I am probably rounding down, but I think in 2006 option volume was up 40% over a record year the previous year. In 2007 it was up over 40% above that of 2006. In 2008 it was up only 26% and last year it was pretty flat. Now this year the numbers are better than the comparable months last year. So using the product more is the individual investors and institutional customers as well. So I think the volume points to the fact that options are being used by more people for a variety of reasons.”

OptionsANIMAL: What Spread Trading strategies are your current favorites?

“Marty Kearney: My would be LEAPS calls as a stock substitute, Covered Call Writing, and, in this low Volatility environment owning Index options if you have a directional view.

OptionsANIMAL: What options positions do I have on?

“Marty Kearney :Those three and being short a few puts on stock I wouldn’t mind owning, at this time they look like they are going out worthless.”

OptionsANIMAL: What are you seeing happening now in the markets?

“Marty Kearney: I talk to people who say that there is still a lot of institutional cash on the sideline, now I don’t know if that is true or not. It might be this whole thing with the market grinding higher and higher.”

Thank you for your time Marty, it was good to get to know you.

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