Tom Sosnoff

Biography

Sosnoff, a native New Yorker, got his first job as a caddy at the age of 13. In 1979, Sosnoff received a BA degree in political science from University at Albany, SUNY and immediately began working for Drexel Burnham Lambert.

Starting in the early 1980s, Sosnoff, through the Sosnoff Sheridan Group, was a market maker at the Chicago Board Options Exchange. By 1999, Sosnoff believed that option trading would largely move online and that individual investors would become interested in trading options if they had the software tools to do it. This led to his co-founding Thinkorswim in 1999. In 2009, Thinkorswim was sold to TD Ameritrade for approximately $606 million and Sosnoff personally received $84 million. In 2011, Sosnoff announced that $20 million in venture capital had been raised to support his idea for a financial network called tastytrade. His aim in founding tastytrade was to create a financial news show focusing on options, which mixes content with comedy somewhat like the "Daily Show". In 2014, a Silicon Valley venture fund, Technology Crossover Ventures, invested $25 million into Dough Inc., also founded by Sosnoff, which includes tastytrade. In 2014, Sosnoff was co-winner of the EY Entrepreneur of the Year Midwest Award.

Options trading

Sosnoff advocates options trading as a viable long-term financial strategy for individual investors via investing online. He argues against financial experts who claim that options trading is too risky for individual investors. According to Sosnoff, the use of call and put options can reduce the risk of owning stocks, and options trading is a portfolio management strategy that is well-suited for the individual investor. He devotes considerable time on his financial network, tastytrade, and in seminars demonstrating the mechanics and strategies of options trading.

According to Sosnoff, the two main keys to successful options trading are the market liquidity of options and understanding volatility and, in particular, implied volatility and implied volatility rank. Options trading can be successful in liquid underlyings, when volatility is properly assessed, and options strategies appropriate to an individual investor's risk and financial resources are used. For example, for an investor with a sufficiently large margin account, with stocks with liquid options and high implied volatility rank, selling a straddle or strangle might be a viable strategy. Similarly, for an investor with a smaller margin account, selling an iron condor or iron butterfly (iron fly) might be more appropriate. When implied volatility is low, a calendar spread might be a better option.

Sosnoff argues that, while liquidity, implied volatility, and implied volatility rank are crucial to successful options trading, there are other key elements. It important to trade small, by which he means that individual investors should invest only a small percentage of their portfolio in any given stock, options, or futures position (e.g., selling only one or a few option contracts). By investing in many small positions, losses can be minimized, as long as positions are uncorrelated.

While liquidity, understanding volatility, trading small in uncorrelated positions, market awareness, and delta neutral portfolios are essential for successful trading, according to Sosnoff, trading mechanics are also essential. Trading mechanics are heuristics that an option trader learns when applying option strategies. For example, rules of thumb for when to roll call and put option contracts as a function of time to expiration and moneyness of a position are examples of trading mechanics (heuristics).

In Sosnoff's view, the introduction of online trading created new investment opportunities for individual investors, but the software tools required to take full advantage of online trading are lacking. He views the continued development of options trading software as critical for individual investor success. For individual investors to be successful, they need graphical user interfaces that instantly bring together relevant information so that investors can use the best strategies and mechanics for options trading. To this end, Sosnoff has devoted considerable effort to the development of software platforms for the individual options investor.