Michael Gross is director of research at Liberty Trading Group in Tampa, Florida. After graduating from Indiana University of Pennsylvania in 1990 with a degree in Business Administration, he began his study of the commodities markets. His futures trading career began in 1994 when he started trading contracts in grains, precious metals and energies.

In 1996, Michael became a registered commodities broker specializing primarily in the grain and energy sectors. In 1999, he joined Liberty Trading Group where, along with James Cordier, developed various approaches to selling option premium and managing portfolios. Michael remains an active broker at Liberty Trading Group.

I really enjoyed my recent conversation with Michael Gross about how he manages his commodity trading business. This is the second part of that interview.

Optionetics: Are your trading systems geared more toward long-term strategies or short-term strategies?

Michael: It depends on what you consider long term. Most of the options that we sell have 90-120 days until expiration. I know some guys suggest selling options with 30 days or less to take advantage of maximum time decay. That can be a good strategy. However, we feel safer in selling longer term because we can sell so much further out of the money. Selling options with 30 days or less in time value usually means selling pretty close to the money.

It can rack up premium quick but you better be right the market. Selling with more time means that we don't necessarily have to be right about the market immediately. If the market moves against us in the short term, the option will often remain well out of the money and we can still eventually come away with a winning trade in many cases. If the underlying does move our way in the short term, we can often buy out of the options early and take most of the premium as profit.

Optionetics: What are some of the key rules or factors that you consider before selecting any potential trading opportunity?

Michael: We always start with the fundamentals. Before we look at technicals or volatility or strike levels, you have to have a market with a favorable fundamental set up. I look at fundamentals like a strong wind. A market can move against it if it really wants to" for awhile. However, a market trending against the fundamentals will have a harder time advancing itself.

Moving with the fundamental winds will accelerate it. And if a market becomes motionless, the wind will sway it in the direction it wishes. If we have a good fundamental set up, we'll look at the volatility, the technical set up, and the strikes available at certain levels. Some people read our book and think that we are all fundamentals and no technicals. That is simply not true. I would say we consider fundamentals first, technicals second. Technicals may not get us into a trade, but they might keep us out of one.

Optionetics: What are your favorite markets that you like to trade and track with your analysis tools?

Michael: Mostly the physical commodities as they lend themselves best to fundamental analysis. Energies, Softs, Grains, Metals. Maybe the occasional stock index or currency. Energies are a great market in which to sell options at this time.

Optionetics: What is your most memorable trade?

Michael: Short Natural Gas calls when Katrina hit. We took it on the chin that summer. It was a good learning experience, however. We learned that if you are going to sell natural gas calls during hurricane season, you better sell them covered. People ask why anyone would sell gas calls during hurricane season. It is because natural gas has a strong seasonal tendency to decline into late summer. Hurricanes that truly damage production rigs are extremely rare. Katrina was a once in a generation storm. Thirdly, because of hurricane season, there are often call strikes available at ridiculous levels. It can be a great trade almost every year. However, I would advise writing covered, just in case.

Optionetics: With all the different technical as well as fundamental analysis tools out there how does a new trader avoid information overload or "analysis paralysis"?

Michael: With all of the systems and methods of trading often times new traders think "the more the better." Nothing could be further from the truth. The best thing I could recommend is pick one or two systems or methods that you are comfortable with, and go with them. Learn as much as you can about it, and make a decision. The most important thing to remember is, if something is working, there is no need to change it. Don't get sucked into the trap of jumping on every new tool, method or piece of software that comes out every month. That being said, it doesn't hurt to keep abreast of new developments in trading technology. Every once in awhile, they come up with something useful.

Optionetics: Thanks, Michael, for speaking about your trading approach with our Optionetics reading audience?

To read previous installments of this interview, please click here.

Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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