What I Learned From George

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I was reminded today that a guy I learned alot from – George Fontanills (one of the founders of Optionetics) passed away three years ago today.  What follows is a reprint of and article I wrote for Optionetics.com a few days later.

Kaeppel’s Corner: What I Learned from George

By Jay Kaeppel, Optionetics.com | Wed June 6, 2012 10:49AM PT (Copyright Optionetics Inc.)

The Optionetics community of staff, instructors and students is in mourning this week, following the loss of Optionetics “founding father” George Fontanills at the age of 52.

To those who knew him, George was larger than life. And the explanation for this is fairly simple.  There is something about encountering a person who you know is doing exactly what he should be doing with his life – and loving every minute of it – that is absolutely uplifting.  And that description fits George to a “T”.

I first met George at the first pre-OASIS meeting in May of 2004.  I didn’t know what to expect.  Turns out he was the most approachable and easy to talk to guy in the room.

My greatest memory of George was several years ago when we met in Atlanta to record six hours of video in two and half days for a course on futures trading.  I was going to cover three topics while he did color commentary and we would reverse roles for three other topics.

I have to admit I was a little nervous going in, for a couple of reasons.  First off, there was a voice in the back of my head that kept reminding me that if something went horribly wrong they weren’t going to fire George.  Also, since we would be doing commentary on each other’s topics, I thought it was important to communicate our material in advance to one another.  Nice try.

Every third day or so I would email George another updated set of Powerpoint slides so he could see what I was going to cover.  And with each new email I would remind George with an increasing sense of urgency that “I really needed to see his material” before we started.  I can’t recall his exact response but it was something along the lines of “I’m really busy right now, but we’ll get it all worked out in the end.”

Also, having not worked with George previously I didn’t really appreciate what a well of knowledge he was, and how he could simply summon it up whenever he needed to.

So when we met in the studio and I finally had the opportunity to pin him down face to face about what he was going to present, his only comment was “I kind of just do it.”  That was not exactly the answer I was looking for.  The first day of taping was kind of like a shortstop and a second baseman working together for the first time on perfecting the double play.  A couple of “drops” initially (the “voice” from the booth intoning, “Cut, OK let’s maybe try that part again”) but ultimately things started to flow.

I knew the material I was presenting pretty thoroughly and was on a bit of a roll the first time George chimed in.  It threw me off for a moment, but as his words rattled in my head I realized that he had offered an incredibly useful insight.  There were plenty more to follow.  I started to like it when he would jump in because I knew that the material was enhanced every time he did.  It all became more of a conversation than a lecture.

When it came my turn to do commentary on George’s topics, I was a little apprehensive at first.  I wondered how well he would react to my interrupting with some minor tidbit of information.  But there were two things I knew for sure – #1) I couldn’t just sit there like a potted plant and nod my head, and #2) the worst he could do was throw me out of the studio.  So at the first opportunity I jumped into the middle of George’s presentation.  The first words out of George’s mouth were “That’s an excellent point Jay”, as if it was something he meant to say but didn’t think of.   Now I am not sure if it really was an excellent point or not, but his reaction certainly put me at ease and immediately catapulted the interplay to a higher level.

The “double plays” came with more ease and frequency as we went.

On the third day we recorded the last hour in the morning.  During the final 15 minutes or so we basically just started bantering back and forth about trading.  It was glorious.  To put things into a little bit of perspective, know that I work at home and that my wife and kids long ago exceeded their ability to listen to me ramble on about the markets.  My only other option is to talk to the dog about trading.  And God bless her, when I do she’ll snap to attention and do that thing where she tilts her head a bit to one side and acts like she’s interested.  But it’s not quite  the same.

I can honestly say that those last 15 minutes of bantering with George about trading were 15 of the most enjoyable minutes I have spent in a very long time.  I clearly remember feeling a little sad when the “voice” said “That’s a wrap”, and how I wished that we could go on a little longer.

A few things I learned from George.

Go With the Trend

By the time I met George I had been in the business “a while” and had in fact spent 9 years as the Head Trader for a CTA trading primarily on a trend-following basis.  So it wasn’t like I was unaware of the concept.  But George had a way of simplifying things (even though in the meantime he was trading a spread with about 8 different legs).

One of the simple things he talked about a lot was the 10-30 moving average crossover.  If the 10 period moving average is above the 30 period moving average then be bullish and vice versa.  Not exactly rocket science, but the point was to focus on “the trend” and not “the noise”.  Different traders use a lot of different methods to time exact entries and exits, but one of the most important lessons George emphasized to all traders was to be aware of the underlying trend and to recognize that there was more money to be made trading with the trend than against it.

Specialization

Another thing that George always recommended was to “specialize.”  In other words, if you find you have a knack for trading crude oil then focus on trading crude oil.  If you were good at trading butterfly spreads then focus on trading butterfly spreads.  This is such simple advice, and yet not necessarily something that is easy to do.  With so many markets and so many trading vehicles available today it is harder than ever to force oneself to specialize as George suggested.

But the idea of “getting very good” at something and then “doing that” is a nugget that all traders should drink in and let rattle around the brain for a while.

Adjusting Positions

Although I had traded a lot of options prior to joining Optionetics in 2004, my background was primarily that of a futures trader and so I approached option trading with the same, “find a trade, get in, and then either take your profit or cut your loss but just get the hell out” mentality.  The idea of “adjusting” an option position was a fairly foreign concept to me.

The first time I heard George explain an example of adjusting one option position into another position, I have to admit, the specifics of it went completely over my head.  But I got the significance of the concept and what he was really teaching – that there are any number of possibilities if you are willing to do the work necessary to explore them and find a way to “lock in a profit” and let the rest of the new adjusted position “ride.”

The ability to open people’s minds to new ways of thinking was one of George’s greatest talents.

The Out-of-the-Money Butterfly

George loved the butterfly spread.  But it took me a while to learn that he was not talking about your generic, run-of-the-mill, at-the-money neutral butterfly where you put it on and you hope to heck the underlying security doesn’t go anywhere and that you can hold on until expiration and make a lot of money.  He was generally looking at something cheap, out-of-the-money and in a ratio of something other than 1 x 2 x 1.  These positions shared a couple of common traits, 1) they were cheap, and 2) they had explosive upside potential if the underlying stock or commodity moved within a particular range, and 3) they could easily be adjusted into “some other position.”

Powerful stuff that most traders never consider.

 His Ultimate Purpose as an Educator

George often stated that his job (and our job as Optionetics educators) was to help get people “up the learning curve” as quickly as possible.  I’m not sure how much people really appreciate the importance and value of this.  So let’s not understate this.  People who paid attention to what George told them about trading stood to literally save themselves years of “floundering” and “trial and error” (not to mention unnecessary trading losses) that many of us “old timers” spent in trying to learn how to trade.  Stop for a moment and consider the value of that.

As George would say, “If I can teach someone in two days what it took me seven years to learn, that’s a pretty good thing.”  A pretty good thing indeed.

All of this just pretty much scratches the surface.  So one last time let me just say, “Thanks for everything George”.

I will miss you.

Jay Kaeppel

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