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Options trading can be tough but they can give investors' strategies an edge. At least, that has been the case for Market Rebellion co-founder and CNBC contributor Jon Najarian.
Najarian has been trading options for nearly four decades, managing his own money as well as that of giants such as Goldman Sachs. Najarian recently sat down with CNBC and spoke about how he got started trading options, his worst trade in the business and where he sees opportunity.
Here are 7Qs for Najarian:
"I started in 1981, so this is my 38th year.
I was playing football for the Chicago Bears. Played for four games, got cut and went down to the trading floor because I loved Chicago. I had never been to Chicago before, but after being there for however many weeks during training camp and playing for the Bears, I loved it.
So when my agent offered me a chance to go down to the trading floor and learn how to trade, I said sure. For about three months, I hated it because I didn't understand it.
I knew stocks, but I didn't know options.
That was a pain in the butt. I was very unhappy even though I loved Chicago because I didn't understand what was going on. Finally, after three months, it clicked."
"Worst trade for me was on my birthday.
When I turned 29, one of our traders lost a couple million dollars of my money. It was the worst and the best thing because it made us focus on why we lost the money because you always try to learn from this.
We lost the money because 10 minutes before the close, somebody came into the pits that we were specialists in options and started buying puts like crazy. If somebody is doing something at the end of the day — which sometimes the do — they usually know something.
They think earnings are going to be better, or there will be some news breaking after the bell. You never want to be on the other side of that trade.
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So they came in buying a ton of these puts, which is a downside bet, on a medical device company. The company came out with good earnings, but guided horribly and the stock traded down like 30%.
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We lost millions on that, but what it did is it made us ask the question: if you're coming home long or short, are you doing so because you want to?
Because you think it's going to be up or down tomorrow? If that's the case, that's OK, but don't let somebody make you long or short."