Five Minutes With Dan Keegan

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Interviewed by Jim Kharouf

Keegan, who started in the options business in 1978, is an options instructor and head options mentor at The Chicago School of Trading. He co-founded the school with Bill Gruzynski, who teaches students about futures trading. Keegan is also a guest lecturer at Marquette University and a graduate of the school.

Q: How did you get started in the options business?

A: I worked for Dunn & Bradstreet as a business analyst and it really didn’t do much for me. I didn’t grow up in Chicago and hadn’t heard anything about the exchanges. When I heard about it from friends, I became excited about it and thought that was what I wanted, so I got a job working as a price reporter for the Chicago Board Options Exchange (CBOE). Then I worked for A.G. Becker as a runner and worked my way up to floor broker. Back then CBOE was only five years old, so you could go up the ladder quickly with plenty of opportunity.

After five years of that, Steve Fossett backed me as a market maker and I made markets from 1985 through 2005.

Q: So what did you start trading?

A: I traded OEX for a month and then moved to General Dynamics, Brunswick, Mede and Viacom.

Q: So when you left the floor, is that when you started The Chicago School of Trading?

A: Yes, one thing I experienced on the floor was that I was surrounded by option mentors. I could pick their brains relentlessly, so when I began to trade I was prepared. You’re never 100 percent prepared, but if you don’t have any preparation for the way the mechanics work, then your chances of success are maybe 5 percent versus about 50 percent. So with The Chicago School of Trading, we provide the mentoring that is no longer available.

Q: When you look at the last year - its extreme volatility and unprecedented markets - how do you instruct traders to trade now?

A: One thing about options is that you can prepare for these Black Swan events before they occur. There is defined risk in options that there isn’t as a stock or futures trader. You can put on a position so that if something crazy happens, you can take advantage of it while it’s happening. After that, you do the next best thing.

So if the VIX is up at 80, you try to put on some kind of strategy where you can sell that volatility because it may go higher, but not much higher. You always have to play the probabilities, and that is the great thing about options. It’s not just up or down like stocks or futures where you buy it or sell it. With options, you have thousands of combinations to arrive at your destination.

Q: What is the hardest thing students learn before they trade options?

A: Options give you a multitude of opportunities. If you put on a spread, where do I take that spread off? If I put this on, what can I do to limit my risk and increase my return? You may want to take that exact spread off or you could do other things that neutralize your position. That’s my goal, to get them to that stage.

Q: How long do you typically train a student?

A: If they are aggressive and really want to learn, in three to four months they should be ready to trade on their own. I’m their mentor but they have to do a lot of work.

Q: What is the key to being a good mentor or instructor?

A: The key is to really connect with the student and know how fast to go. If you go too fast they’ll get discouraged. If you go too slow they get bored. Every session I try to throw two or three things at them I know they won’t know to stimulate them a little bit. For the most part, we go building block by building block so they understand one thing and are ready for the next concept. It’s gratifying when the light bulb goes on and they suggest things that I haven’t even thought of.

Q: Do you recommend simulated trading before real trading?

A: That’s a major part of what our mentoring is. I teach the X’s and O’s before the simulated trading. The key isn’t whether you made or lost money, but why and what adjustments did you need to make.

Psychologically it’s a lot different than actual trading.

Q: As a Marquette University graduate, are you a Warrior or Golden Eagle?

A: Not for one nanosecond in my life will I ever be a Golden Eagle.