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This interview features Erik Smolinski—options trader, Marine Corps veteran, and founder of Outlier Trading—breaking down how he went from cautious beginner to consistently profitable operator. We talk through his early risk aversion, the wake-up call of a large drawdown, and why he built a written trading plan, meticulous logs, and hard/soft stop rules to keep risk contained while staying agile.
You’ll learn how Erik matches the strategy to the opportunity—using “profit mechanisms” for price movement (drift, momentum, breakouts) and direct volatility trades (variance risk premium, surface relationships) so he isn’t capped when a real move hits. We’ll cover his portfolio-level circuit breakers, per-trade risk caps, and the mindset drills that helped detach from P&L and focus on skill. You’ll also see why he favors manual logging for sensitivity to results, how he balances selling and buying premium across time frames under a month, and the practical path to durable returns that outpace the market without outsized downside.
Erik Smolinski Playbook & Strategy: How He Actually Trades
How Erik Smolinski Finds and Fits Trades
Erik Smolinski emphasizes the importance of fitting trades to the market conditions. He doesn’t believe in forcing a strategy but instead tailors his approach depending on whether the market is trending, drifting, or consolidating. By understanding the market environment, he can choose the right type of trade to maximize potential gains while minimizing risk.
Key Rules:
- Adapt to Market Conditions: Don’t use the same strategy for every market type. Tailor your approach based on whether the market is trending, in a range, or drifting.
- Look for “Profit Mechanisms” in Price Movement: Focus on different price movements—drift, momentum, and breakouts—and choose your strategy accordingly.
- Adjust for Volatility: If the market is volatile, look for options strategies that take advantage of the variance risk premium. If the market is calm, consider premium-selling strategies.
- Use a Mix of Short-Term and Long-Term Trades: Combine trades that target quick moves (such as short-term options) and trades that play on longer-term market shifts.
Risk Management Framework
One of Erik’s most crucial strategies is his structured approach to managing risk. He believes that understanding and controlling risk is key to long-term success. By setting clear risk parameters and rules, he protects his capital while still being able to seize profitable opportunities.
Key Rules:
- Cap Your Risk Per Trade: Always define your risk upfront. Know how much you are willing to lose on each position and stick to it.
- Portfolio Circuit Breakers: If your portfolio hits a certain percentage drawdown, stop trading for the day or week to assess what went wrong.
- Manual Risk Logs: Keep a detailed trading journal. Logging every trade helps you understand where you’re succeeding and where you need to adjust.
- No Overleveraging: Avoid taking on excessive risk by overleveraging. Only risk a small portion of your account on any single trade.
Trade Execution: Plan and Stick to It
Erik stresses the importance of having a detailed plan for each trade. Whether he’s selling options, buying long, or executing other strategies, he ensures his plan is crystal clear and he follows through with it. By having a disciplined approach, he prevents emotions from driving decisions.
Key Rules:
- Plan Each Trade: Before entering any trade, write down exactly why you’re entering, your target price, stop loss, and time frame.
- Set Hard and Soft Stops: Always have a predefined stop loss (hard stop), but also consider using mental stops (soft stops) to help you stay disciplined.
- Don’t Let P&L Control Your Decisions: Detach from the profit or loss of a trade. Focus on executing your plan, not on the immediate financial outcome.
- Reevaluate After a Drawdown: If you experience a significant loss, stop trading and review your strategy. Make sure you’re sticking to your plan and not reacting emotionally.
Position Sizing and Portfolio Balance
Erik uses position sizing as a way to balance risk and reward across his portfolio. He doesn’t just focus on individual trades; he looks at his overall portfolio and ensures that each position complements others, reducing overall risk exposure.
Key Rules:
- Size Trades According to Risk Tolerance: Position size should be proportional to the level of risk in each trade. Larger risks mean smaller position sizes.
- Diversify Across Time Frames: Don’t put all your positions in the same time frame. Mix short-term and long-term options trades to balance your portfolio’s risk.
- Ensure Portfolio Exposure is Balanced: Regularly check your portfolio for risk concentration. If too much capital is tied to one position, consider scaling back or hedging.
- Use Different Option Strategies: Mix different option strategies (e.g., strangles, straddles, vertical spreads) to take advantage of varying market conditions.
Mindset and Psychology of Trading
Erik’s military background has greatly influenced his mental approach to trading. He views trading like a mission—one that requires focus, discipline, and the ability to bounce back from setbacks. Maintaining a stable mindset is crucial to executing his strategy without falling into the emotional traps that can lead to mistakes.
Key Rules:
- Treat Trading Like a Mission: Approach trading with the same mindset as a military operation—prepare, execute, and reflect.
- Be Ready for Drawdowns: Drawdowns are part of trading. Accept them as normal and stay calm, knowing that discipline and strategy will lead to success in the long term.
- Continuous Improvement: Constantly evaluate and improve your strategy. Always be open to learning from both your successes and failures.
- Stay Detached from Your P&L: Don’t get emotionally attached to profits or losses. Focus on process over outcome.
By following Erik Smolinski’s disciplined approach, you can begin to navigate the complexities of the market with confidence. His strategy isn’t about taking high risks or chasing the next big trade—it’s about managing risk, adapting to market conditions, and sticking to a proven plan.
Tailoring Your Strategy to Market Conditions: When to Buy, Sell, or Wait
In this chapter, Erik Smolinski explains how he adapts his trading strategy based on the current market environment. Rather than using a one-size-fits-all approach, Erik emphasizes the importance of identifying whether the market is trending, ranging, or consolidating. He stresses that each market condition demands a different set of tactics to maximize profits and minimize unnecessary risk. By tailoring his approach to fit the situation, he ensures that he’s always aligned with the market’s behavior rather than trying to force a trade that doesn’t fit.
Erik highlights that this strategy flexibility is crucial to long-term success. For instance, in trending markets, he may focus on momentum plays, capitalizing on strong directional moves. During range-bound periods, he’ll lean more on options strategies like selling premium or taking advantage of volatility. This flexibility allows him to adapt to whatever market environment he’s dealing with, making his trades more precise and less prone to failure.
Managing Risk Like a Pro: Setting Clear Limits on Every Trade
In this chapter, Erik Smolinski dives deep into how he structures his risk management to protect his capital while still pursuing profitable opportunities. Erik believes that understanding and managing risk is the foundation of consistent trading success. He talks about setting clear limits for every trade before entering, ensuring that no single position can jeopardize the overall health of his portfolio. By defining his risk upfront, he can make decisions based on strategy, not emotions or fear of loss.
Erik also stresses the importance of using hard stops and soft stops, which are predetermined points to exit a trade if it goes against him. This system helps him avoid the emotional pitfalls of holding onto a losing position for too long. Additionally, he integrates portfolio-level circuit breakers, which prevent him from overexposing himself when the market isn’t moving in his favor. By sticking to these rules, Erik can stay disciplined and focused, ensuring that even a string of losses won’t derail his long-term strategy.
Why Volatility Is Your Friend: Using It to Maximize Profits
Erik Smolinski reveals how he strategically embraces volatility as a key element of his trading approach. Rather than avoiding volatility, Erik views it as an opportunity to enhance profitability, particularly through options strategies. He explains that in highly volatile markets, options premiums tend to rise, creating potential for profit through selling options or trading volatility-based strategies. By understanding the underlying volatility dynamics, Erik can place trades that capitalize on these conditions, often with higher reward-to-risk ratios.
Erik’s approach to volatility isn’t about simply chasing big moves. Instead, he looks for volatility as a tool to adjust his strategy—whether that’s through variance risk premiums in options or using volatility to align with market trends. He also emphasizes that not all volatility is the same, and understanding the market’s behavior allows him to choose when to sell or buy premium, adjusting his exposure accordingly. This mindset helps him leverage market fluctuations to his advantage, turning what many traders fear into a consistent profit-driving factor.
The Power of Process Over P&L: Building Discipline for Consistent Success
In this chapter, Erik Smolinski stresses the importance of process over profit and loss (P&L) when it comes to sustainable trading success. Erik believes that focusing on executing a well-defined process is more crucial than fixating on the daily P&L. He talks about how traders who chase profits often fall into the trap of emotional decision-making, which can lead to inconsistent results. Instead, Erik prioritizes following his trading plan and risk management rules, regardless of the outcome of any single trade. By staying committed to his process, he ensures that success isn’t just a matter of luck, but a repeatable strategy.
Erik explains that this discipline also helps him maintain emotional stability, even during losing streaks. By detaching from the outcomes of individual trades, he prevents the highs of big wins or the lows of losses from affecting his mindset. This mental resilience is a core part of his strategy, allowing him to keep making objective decisions. For Erik, consistency in process and mindset is what truly drives long-term profitability in trading.
Diversification Beyond Assets: How to Balance Time Frames and Strategies
In this chapter, Erik Smolinski explains how diversification isn’t just about holding different assets; it’s about balancing various time frames and strategies to reduce risk and increase opportunities. Erik emphasizes the importance of looking beyond asset classes and spreading risk across different types of trades. This includes mixing short-term and long-term strategies to create a more resilient portfolio that can weather different market conditions. By diversifying in this way, he ensures that his trades complement one another, preventing any single trade from negatively impacting his overall portfolio.
Erik also notes that balancing different strategies—such as combining options selling with buying or focusing on volatility-based trades—adds another layer of protection. Each strategy can behave differently depending on the market’s movements, and this balance allows him to capture profits from multiple angles. By spreading his trades across different time frames and strategies, Erik increases the likelihood of consistent returns while managing overall risk. This approach gives him the flexibility to capitalize on both immediate moves and longer-term trends.
Erik Smolinski’s edge isn’t a single “holy grail” setup—it’s the system he uses to fit the trade to the market, protect downside first, and let upside take care of itself. He starts with environment—trend, range, or drift—then matches tools to conditions so he’s never forcing a position that doesn’t belong. That flexibility is anchored by strict risk limits, hard/soft stops, and portfolio-level circuit breakers that keep small losses small and prevent a bad day from becoming a bad month.
Just as important, Erik treats volatility as a resource to be harvested and not a hazard to be feared. He balances premium-selling with premium-buying across multiple durations, so he can monetize both movement and non-movement without concentrating risk in one bucket. Over it all sits a process-first mindset: plan the trade, log the trade, audit the trade—then repeat. For traders looking to level up, the takeaway is simple: size for survival, diversify by strategy and time frame, align tactics with the tape, and let disciplined execution—not prediction—compound your results.
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