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Cristian Arias

Cristian Arias

  • Residence: Finland

  • Education: MBA

  • Zodiacal Sign: Fish

  • Fav Asset Class: Options

  • Main Broker: TD Ameritrade

Cristian started in trading options in 2008. He had his second child and wanted to have spare time with his family and travel regularly to Argentina, where he is from. While working at a large corporation, he realised it was impossible. So, he decided to invest. At first, it did not go well. After one year of total failure due to trading riskier than life assets, he decided to learn more, trade more and become an expert. Following is Cristian's options trading story.



How did you become an Options Trader?

I consider myself a self-made man when it comes to trading and investing. I have read tons of books and participated in many courses, but a few tutors have really helped me progress in my career. Regarding trading options, I had the best coach anyone could wish for. It is essential to learn and read from the best ones out there.

How do trading options differ from other assets?

In financial investments, options are part of a larger asset class called derivatives.

Derivatives are financial instruments whose value depends on the value of the underlying asset, the one that it represents. Within the derivatives, options are a unique group, as they are leveraged products.

When it comes to the most well-known asset classes, such as shares, gold, commodities, art and nowadays crypto and NFTS, their value is determined mainly by supply and demand, called directional assets.

As the owner of any of those assets, you lose money when the investment goes down in price, and you earn when it increases. So, it is straightforward to understand.

It is different with options, as you have other components forming part of the option price, such as volatility and the expiry date of the option contract.

How do you trade Options?

My procedure is straightforward as I have an essential responsibility at my job and can not look at the market during the day (Note: Although an expert, Cristian is an expert, but trades as a hobby).

If I had the opportunity to look at the market during the day, I would not do it, as I would be taking so many bad decisions based only on emotions and how the market moved that day.

Every weekend I review what happened in the market, what happened with the major indexes, and what happened to the different sectors and based on that, I take my bias on the market's health.

The process of analysing the health of the market takes me about one hour. Then I decide if I should do something with my trades, add a new one, or hedge. But I make those decisions during the weekend, mainly on Saturday morning. After that, I place my trades on the trading platform and let them execute when the market opens.

What is your perception of the market? How do you evaluate what's happening?

It depends on who you ask- You might receive different answers whether you ask a trader or an investor.

For example, when writing this article, SPX fell close to 25% since its pick in January 2022. In this scenario:

  • An investor might say that the market has been very rough.

  • A trader might say it was great since they can benefit from both ups and downs.

  • An options trader might give a different answer altogether. For an options trader, 2022 has been one of the most exciting markets in the last few years (excluding the March 2020 30% correction due to Covid). Options traders generally do well in a market with high volatility.

Knowing how to operate with options is a kind of "superpower" if you are active in the markets. Not only to protect your other investments (hedging) but also to generate additional income.

Can anyone become a trader?

I think anyone can become a trader.

There are thousands of experiments where ordinary people came up with a trading method, and those who have followed the technique have achieved tremendous success. The discipline of following the plan has always separated the successful trader from the unsuccessful ones.

It is essential to understand why you are doing it. Why do you want to become a trader? The path is gratifying, but it can also be challenging. Most people will probably not have the discipline and the patience to become profitable. Most people will become "market tourists" because they confuse trading with gambling.

What is the most common mistake in options trading?

There are many pitfalls that both professional and newbie traders can fall victim to. The most common ones are related to our cognitive biases.

A common bias is the confirmation bias, and it isn't easy to get rid of it as we have been raised with it since childhood. Parents usually train their kids to be always right, and we will look for clues to confirm our thoughts—kind of what happens with social media.

This bias is also related to our primitive part of the brain, which tells us that it is psychologically painful to accept that we were wrong, and now need to change course.

But in financial markets, if your confirmation bias is extreme and you cannot change your mind quickly, you can lose a lot of money.

Related to confirmation bias is the audacious way of trading without stopping. If you are a long-term investor, it is ok to operate without stops losses (but even here, I would not recommend) it.

But if you are a trader, stop losses are part of the game. If you are wrong on a trade, it is excruciating to think about when you will get out of it while you look at the position turned against you. So if you operate with stop losses, you know beforehand where your stop is and how much money you are willing to lose in that particular trade. This way, you will preserve your money and your mental capital, which is much more important than your money.

Tell us about your worst trade. What happens after taking a hit like that?

My worst trade was in 2021 related to Paypal.

Paypal has been a great business, but during the last few years, Paypal's business has suffered a lot from competitors. As a result, I had some open positions with Paypal where I have sold puts against the shares.

When you sell a put, you are taking the risk that if the position, in this case, Paypal, drops from a certain level, you are obliged to buy the shares even if they are at a lower price to which you have sold the put. It was unusual in the trade that a big cap company like Paypal could fall more than 50% in less than four months.

I will not disclose the amount of money that the trade lost, but it was enough to go back to books & past trades and understand how I could avoid the same situation in the future.

I told myself, "This is the last time this will happen". Then, I found a way to "punish" myself when making a wrong decision: I fast for 12 hours, reminding myself that I must thoroughly analyze every investment decision beforehand.

What do you think of Social Trading?

Social trading is an excellent source of revenue for brokers but an awful solution for traders and investors due to two reasons:

  • The first one is that social trading intends to copy someone else's portfolio without understanding the drivers of why the other person built that portfolio. In case the portfolio is very volatile but still profitable, some people might make the right decision to sell at the bottom and buy at the top because they have not put the work themselves to understand what kind of assets are in that portfolio.

  • The second aspect is that nowadays, you can see the portfolio of the best traders/investors almost instantly. So you could replicate those portfolios in your account without paying the big commissions to the trading platforms that offer social trading.

So you don't recommend it?

I'm saying that it is much better to gain confidence and mind power to do it yourself. It might be challenging, but it can be far more rewarding.

Do you think emotions move markets?

In the short term (1 to 6 months), markets move based mainly on emotions and algorithm trading. In the longer time frame (over a year), markets move based on fundamentals and technical. That is why today is challenging to be a day trader. In addition, markets can move violently during the day, quickly taking traders off their positions. That is why 70% and 90% of day traders lose money.

What are your Hobbies?

I am an Argentinian CPA living in Finland. I have two kids, Leo and Aili. We live with my family in suburban Helsinki. I have always been passionate about psychology and philosophy, and having exposure to the markets is an excellent way to live and breathe both psychology and philosophy. In my spare time, I "invest" time with my family and do sports (I am Argentinian, so I am passionate about soccer).

What advice would you give to a new investor?

I think there are many pieces of advice you can give to a new investor/trader, but the most important one is to be persistent and love the game.

If you do not think you will be willing to put the time and effort into learning about the different aspects of the market, then you should not start investing and trading yourself. Instead, pick an ETF replicating an index (not financial advice) and do something you enjoy.

The second piece of advice is not to pick a stock or asset based on somebody else suggestions without doing your due diligence on it. Do not be lazy, do your homework.


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