- 2002: Volume 11, No. 3 Puts & Calls: Winner's Circle: An Interview with George Fontanills

If there's one thing George Fontanills is not afraid of, it's failure. In fact, he openly admits to blowing out his first couple of trading accounts when he first started in this business. Surprisingly, four years into his trading career, he discovered options for the first time. The rest, you could say, is history. Today, George is one of the largest equity options traders in the world, the founder and president of Optionetics, a successful hedge fund manager, prolific author, instructor and a sickeningly nice guy with an infectious laugh.

So what is the secret to his success? Within the answer to this question lies perhaps one of his greatest personal attributes: his willingness to share everything he knows about trading. He is perfectly willing to explain in detail how he got to where he is today. In fact, over the last decade George has thoroughly enjoyed sharing his methodology with tens of thousands of willing and eager traders. His philosophy is so simple; you just might walk away from a conversation with him wondering if he's holding something back. Truth is… he's not. He approaches trading with a simple, common sense methodology that combines gut feelings and technical analysis. At the same time, he employs some of the most unique risk management techniques found anywhere in the markets. As a result, his instincts and perseverance have earned him a slot amongst an elite group of supertraders, enjoyed by the likes of Marty Schwartz and Paul Tudor Jones. Over the years, he has without a doubt, proven to be a true balance of savvy businessman and caring friend to the people who are fortunate to get to know him and affectionately call him "George."

George, give us some of your background. What were your parents like and how did you evolve into trading?
Fontanills: I grew up in Miami where my father was an architect and my mother worked for a large company until she got downsized. After getting a degree in accounting from New York University, I went to work for what used to be a Big Eight accounting firm—one of which was Arthur Andersen as a CPA (he jokes). But I didn't work on the Enron audit. I was actually really bad at it because I hated what I did. Eventually they took me out of the audit division because they realized that I didn't have the personality for it. They stuck me in the tax division, and they realized that I didn't have the personality for that either!

How long did you last in that business?
Fontanills: About two years. I got tired of it; so I decided to apply to Harvard Business School to see if they'd let me in. After spending two interesting years up there, I got out in 1986 and basically went out on my own to be an entrepreneur. This was unlike the others who would rather go out and get a high paying job just out of Harvard. The first couple of years I struggled quite a bit in the real estate business. I didn't make much money although I was pretty good at the no money down stuff. Eventually the market died, and one of my investors didn't know what else to do. So one of our guys that worked for us said, "Hey, let's trade." I didn't even know what trading was, so I went out and hired some guys who were supposedly "traders." They lost us roughly 30 percent of our money in less than 30 days. I figured that I could do that on my own, and that's where it started. At that point, I realized that the only person who will really take care of my money was me.

What were you trading?
Fontanills: I started out in the commodities markets first, trading the S&P futures and the bond futures.

When did you get into options?
Fontanills: I got into them about four years into my trading career. I didn't even realize they existed for that long. I was day-trading commodities at the time. One day I looked at a large position I had in the Yen and I said, "Man, if I had stayed in this thing overnight, I would have made a killing." As a day trader, I never wanted to stay long or short overnight because I was afraid of getting killed. So I asked around to find out how I could stay in some of these positions, and someone said, "You should be doing options." That's how I got started.

Were you trading on the floor yet?
Fontanills: Not yet, no. Originally, I started teaching seminars on futures to people. One of our students was a floor trader in the options pits in New York. He got me interested in going to New York. That's how I ended up being a partner of a trading operation on the American Stock Exchange.

When was this?
Fontanills: In 1991.

Optionetics started about what time then?
Fontanills: Around 1992. When it was first born, it was just George Fontanills: teacher, instructor, author, consultant and technical support. Can you imagine that? It's amazing where it is today. I couldn't imagine taking it here by myself. I have to give credit to the people in the company. I'm really just the trader. I let others take care of the business.

Let's fast forward to today. You seem to trade a lot from gut feelings, and then you simply hedge those gut feelings, no matter how strong your convictions are. Is that pretty much how you trade or are you technically based as well?
Fontanills: Although I'm technically based, when you see everything as much and as often as I have, you get a good feel for it. You see one pattern after another repeat itself regardless of the stock. I basically trade a group of about 10 stocks, and then a group of others that come in and out of volume increases in the options. As far as I'm concerned, people make it far more difficult than it needs to be. So many tools are available that those of us at Optionetics just limit ourselves to a couple of them. You just have to focus on a few and get very good at using them.

If you had to choose your favorite couple of tools, what would they be?
Fontanills: My brain, and my gut, and Optionetics Platinum. But honestly, my brain and gut feeling is number one. It's like being a doctor. When you've seen something a million times, how hard is it to diagnose it? Likewise, if you see something getting killed in the market, how hard is it to diagnose? It's going down.

How true. It's like learning a foreign language. You struggle to learn it through repetition. Then one day, somebody rattles something off to you and you know what they're saying without having to interpret it.
Fontanills: Right. We like to explain it as the light bulb that goes off in your head. You just have to realize that there are times when the market is not going to be very good, and others when it's almost too good to be true. Those are the grand slams. If you get two or three of those a year, a bunch of base hits, and a couple of strikeouts, you'll be fine.

So you must have been totally and utterly confused when the Internets came on the scene.
Fontanills: You bet; they totally confused me. But they trade a lot like the futures markets—very quickly. We just stepped back and looked at our basket of strategies to see what would be the most appropriate for something that can go up and down as fast as they could. That's when we started doing a bunch of put and call ratio backspreads. I just didn't know what else to do.

Which brings me to my next question. When you get to the point in trading where you are, it's nice to be able to recognize and see things the way you do. So how exactly is it you ascertain that the trend has changed and a new strategy is called for?
Fontanills: Well, that's obviously the hardest thing to learn how to do. That's what happened to people in the Internets. They made a lot of money on the way up and gave it all back on the way down. The best thing to do, no matter how good you are, is to always assume you can be wrong and then figure out how to protect yourself. That's what was so great about the put ratio backspreads I put on. Even as the stocks kept shooting up as they did, I wasn't losing any money because I was doing them at no debit.

That's where experience comes in I guess. I can put on a trade and let it ride, but I can also be very aggressive and just have a good time trading the long and the short side both. Especially when something's moving fast. I did a lot of straddles back then as well.

Also, you need to make adjustments. These days it's harder to make money in those strategies, so you have to adjust accordingly. I continue to play momentum stocks, but I find them using my Five-Minute Success Formula. [Author's Note: this is a proprietary formula for finding momentum trades using our Web site that George gladly shares with his students at our two-day seminars] I use the formula every single day.

So what is your daily regimen? Fontanills: Believe it or not, I probably spend a lot more time on it than most because it's not really work to me. East Coast time I get up around 6:30 a.m. I'm looking at my positions that I have on from the day before to see if I need to hedge them or lock in some profits. Some days I don't even sit at the computer because I'm traveling or doing something else. But I like to sit at the computer. At the end of the day, I take a look back at what I did and see what I could do better and see what I can do for tomorrow. My day doesn't end when the market closes. It usually ends a couple hours later.

What are you generally trading at any given time these days?
Fontanills: That's a difficult one to answer. I'm mixing bulls, bears and sideways strategies all of the time. Mostly, I'm trading complex strategies that we actually teach at our Advanced Seminars. They're too difficult for the two-day Seminar, but we've got to get people up the learning curve first.

What would you say trading has given you that you can't get from anything else?
Fontanills: Trading has given me and many other people the freedom to enjoy life. You can trade anywhere or at anytime. You can create the work or play environment, which makes you feel good. Work as much or as little as you want. It also has given me the ability to help others and hopefully show lots of people how they too can enjoy their lives more. I can't think of anything else I would rather do.

So what would you say to someone just now thinking about getting into options today?
Fontanills: Education, education, education! Get educated and never give up. Although the road may seem difficult sometimes, it is worth always fighting for. Many of us who trade are educated for other professions, but I can't think of any other area that can provide such great rewards. Learn as much as you can in the process. Test your methods and build up your confidence. In the end, a good system with strong management techniques and confidence will make you a successful trader.

Kevin Lund is a staff writer and seminar speaker for Optionetics—an investment education resource. You can e-mail Kevin at klund@optionetics.com and visit the Optionetics Web site at www.optionetics.com.