Herman (Herm) Matos has been writing about investing on the Internet for more than 16 years and counting. He earned his Bachelor of Science degree in Education from City College of New York and Masters of Science degree from Nova Southern University in Florida where he now resides. His area of expertise is covered call writing, LEAPS spreads, delta neutral trading and Forex currency trading. He is a investor and full time options and Forex trader for his Internet businesses.

It was a real pleasure to be able to talk to a veteran options trader like Herm Matos. This is the first part of that conversation.

Optionetics: How did you first become interested in trading the markets?      

Herm: That’s an interesting question, Jeff. In order to invest you need money and the incentive to learn how to invest. My interest has always been in technology and specifically computers. Therefore, when those technologies were invented in my early years and started to become more widespread, I knew that was an opportunity to apply that technology to investing. My wife’s stepfather died of a heart attack on the golf course and left my mother-in-law with quite a bit of insurance money in the late '70s and she knew nothing about investing. So, my wife and I were granted Power-of-Attorney and took over control of her funds in her behalf.

To make a long story short, that provided me the personal incentive to really learn how to invest and find the right risk vs. reward balance. I was able to take her $250,000 and turn it into $800,000 in about nine years. And, that is how I got started learning about the different investment approaches.

Optionetics: Do you ever use options and if so what are your favorite strategies?

Herm: Yes, for sure. I’m really into LEAPS because they are far cheaper to own than buying the parent stocks and you still control 100-shares of equity stock per LEAPS contract. In particular, I have built my wealth by writing ongoing calendar spreads but with a twist. I’m into writing Delta Neutral LEAPS Spreads using the QQQQs LEAPS Calls and Puts and then writing shorter option spreads for ongoing income. I have been doing this for many years. I have to laugh; I remember when LEAPS were first introduced and recall there were only about 50 of them, then 100 and so forth. Today, there are at least one thousand of them.

Optionetics: What are the things you like best about the trading business?

Herm: Well, Jeff!  It would have to be the fact that you can make a great deal of money when you learn a niche inside and out and control your risk. I guess it is the thrill of making the money, maintaining a certain life style regardless of the state of the economy and knowing you did it on your own. It’s a high and habit forming. It’s not easy at times and you get to know your fears and greed.

Optionetics: How do you treat losses and how do you go about establishing your risk tolerance before the trade is entered?

Herm: Investing and trading does involve risk and it is a two edge sword you must learn to control and respect. For sure, Jeff! You must know what your risk are before you enter your trade or position(s) and do not invest more than you can afford to lose. We are not looking to lose, but, even with my average of 8 profitable trades out of every 10 that I make today, there are going to be losses. Make sure those losses are less than your gains in order to come back another day. You must also keep a positive mental state of mind and confidence. My motto is, “a bird in the hand, is much better than two in the bush.”  That means that if I have a quick nice profit, I will take the money off the table. It is more important to me to always make some kind of profit than trying to make the most amount of profit and get burned from greed.

Also, that is another reason that I do Delta Neutral LEAPS positions. Because as you know, as one of the LEAPS appreciates, the other depreciates and that balances out the value of your risk capital and allows you to be fully covered while writing the spreads on the decaying shorter options for that income stream. That allows me to concentrate on the price trend and pivot entry and exits. I have tools for that developed over the years.

Optionetics: Thanks, Herm, for sharing your trading approach with our Optionetics reading audience.


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