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This interview sits down with Brad Schaeffer—ex–ex-open-outcry floor trader turned natural-gas options and spreads specialist—to unpack how a Chicago pit veteran built a durable edge in today’s screen-driven markets. Brad’s story runs from yellow-jacket clerk to floor trader in Chicago and New York, to disciplined, self-funded OTC trading, and he brings the scars, humor, and clarity that beginners can actually use.
You’ll learn Brad Schaeffer’s core playbook: strict risk sizing, defining the “uncle point” before entry, cutting losers fast and letting winners run, and why discipline beats prediction. He explains why he favors options valuation and spreads in natural gas (think the infamous March–April “Widowmaker”), how he adapts when everyone watches the same breakout levels, and the common amateur traps to avoid when you’re torn between “trader” and “investor” mindsets—all in plain English you can put to work on your next trade.
Brad Schaeffer Playbook & Strategy: How He Actually Trades
What He Trades and Why It Works
Brad focuses on liquid energy markets—especially natural gas—because they offer consistent volatility, clear seasonal flows, and deep options markets for structured risk. He builds positions with defined edges (valuation, seasonality, spreads) rather than chasing headlines or pure prediction.
- Trade core: natural gas futures and options (with an emphasis on calendars and verticals)
- Keep to the most liquid expiries; avoid thin tails where slippage kills edge.
- Favor spreads when possible to express a view while muting outright directional risk.
- Build edges from repeatable drivers: seasonality, weather/degree-days, storage dynamics, and vol regime shifts.
Position Sizing That Survives the Bad Days
Sizing isn’t a vibe; it’s pre-decided math. Brad caps risk at the position and day level so one idea can’t wreck the account, and he scales up only after a string of well-executed trades—not after a lucky outlier.
- Risk a fixed fraction per trade (e.g., 0.25%–0.75% of equity); never exceed 1%
- Daily stop: if down 2R or -1% equity (whichever first), flatten and stop trading
- Max correlated exposure: no more than 3 concurrent bets tied to the same driver.
- Size options by worst-case (buy side) or margin+gap (spread side), not by premium paid
- Add only when trade improves (better basis or vol), never just because you “feel behind”
Defining the “Uncle Point” Before Entry
He never enters without a pre-defined invalid level—price, spread value, or volatility mark that proves the idea wrong. That line in the sand removes negotiation with yourself during heat.
- Write the invalid line on the order ticket before sending the first lot
- If touched on a closing basis, exit—no rolling the line a few ticks to “give it room”
- For options, use either delta shift, IV crush/expansion threshold, or time stop (e.g., -30% of planned holding period with no progress)
- If thesis changes (weather flips, storage surprise), exit first, rethink later
Idea Generation: Simple, Repeatable Triggers
The watchlist is built around recurring catalysts instead of vague narratives. Brad looks for situations where the distribution of outcomes skews in his favor, then chooses structures that monetize that skew.
- Seasonality: map shoulder-season tendencies vs. winter risk and hurricane season
- Weekly catalysts: plan around inventory/production releases; position smaller into major data
- Vol regime: buy options when IV is at multi-month lows into known catalysts; sell premium (via spreads) when IV is extreme and mean-reverting conditions dominate
- Basis/curve tells: watch front vs. back month divergence for stress or relief signals.
- Only trade patterns you can describe in one sentence; if it needs a paragraph, skip it
Options Structures He Actually Uses
Because outright direction is noisy, he prefers structures that clip carry or define risk while expressing time, skew, and curve views. The structure chosen matches the specific edge he’s exploiting.
- Calendar spreads when front-month drivers differ from deferreds (weather vs. storage)
- Vertical debits to express directional views with capped risk into events
- Vertical credits only when hedged by curve context (never naked short wings)
- Ratio spreads sparingly and only when the skew and event path protect the short side
- Roll profitable calendars forward to harvest carry; avoid “hoping” on dead strikes
Entry Tactics and Trade Location
Brad doesn’t punt mid-range. He waits for prices or vol to come to him—levels where reward-to-risk is asymmetrically better—then works orders rather than chasing.
- Pre-plan two entry prices: “A-level” (ideal) and “B-level” (acceptable with a smaller size)
- Use resting limits; avoid market orders in thin moments around data releases.
- Scale in 2–3 tranches; the first risk is the smallest, and later adds must improve the average
- If you miss the level, cancel; the next trade will come—don’t pay up out of FOMO.
Managing Winners Without Giving It All Back
Winners are managed by rules that convert open risk into booked P&L while leaving room for the fat tail in your favor. Brad moves from risk-taking to risk-harvesting as the trade progresses.
- At +1R: remove 25%–33% of size and move the stop to breakeven on the remainder
- At +2R: trail behind structure value (spread level, delta band, or IV percentile)
- Time stop: if profit stalls for your planned holding period, harvest and redeploy
- Convert long premium into spreads on strength to lock carry and reduce theta decay
Cutting Losers Fast (and Clean)
He treats small losses as a business expense. The only bad loss is the oversized one you could have prevented by respecting your uncle’s point.
- If an invalid line hits, exit immediately—no reduction to “see what happens”
- Post-mortem same day: log what broke (data, weather, curve shift, execution)
- Do not re-enter the same thesis for 24 hours unless a new, objective driver appears.
- Tag every loss as “bad process” or “good process”; only “good process” losses are allowed to repeat.t
The Pre-Trade Checklist
A short checklist keeps you from freelancing. Brad uses it to ensure each order is aligned with edge, size, and conditions.
- What is the edge? (seasonality, vol regime, curve, catalyst)
- Where is the invalid line? (price/spread/IV/time)
- What is the max loss in dollars and %? (fits within daily stop?)
- What is the plan to take profits? (at +1R / +2R and time stop)
- What correlations exist across my book today?
Routine That Builds Consistency
Consistency comes from a boring, repeatable routine. Brad slots research, execution, and review into fixed blocks so decisions aren’t made in a panic.
- Morning: update curve/IV dashboards, review overnight weather and production notes, set alerts
- Midday: no new positions 30 minutes before scheduled high-impact reports
- End-of-day: reconcile P&L vs. plan, screenshot positions, and write a 3-sentence thesis per open trade
- Weekly: archive best/worst two trades with charts and rules adherence score
Psychology: Discipline Over Prediction
He’s not trying to be the smartest forecaster—he’s trying to be the most disciplined operator. The edge is the rules, not the ego.
- Never average down a loser; only add when the objective edge improves
- If you break a rule, reduce next day’s size by 50% automatically
- Trade less when emotionally charged; use a “one-trade day” cap after a big win or loss
- Remember: you’re paid to take good bets and manage them, not to be right on direction
Adapting to Volatility and Regimes
Markets change; the playbook flexes. Brad adapts structure and size to the regime rather than forcing one setup everywhere.
- High vol: prefer defined-risk debits and smaller size; scale out quicker
- Low vol: accumulate calendars/diagonals and hold longer for carry/IV mean reversion
- Trendy tape: allow wider profit targets; keep stops the same
- Choppy tape: cut targets in half; reduce holding periods and size
Data Days and Event Risk
Catalysts are opportunities when planned and landmines when winged. He sets rules that make event trading systematic.
- Half-size ahead of major releases; full size only after the number of edges remains.s
- No new orders inside 5 minutes of the event; cancel resting orders 2 minutes prior
- If filled into a spike, immediately reassess vs. invalidate line—no “let’s see”
- Post-event, re-price options/IV first; don’t assume the same structure still fits
Record-Keeping That Actually Gets Used
Journals aren’t diaries; they’re a dataset for better sizing and structure selection. Brad tracks only what he uses.
- Log edge type, structure, R multiple, IV percentile, and curve shape at entry.
- Grade execution: A (planned level), B (acceptable), C (chased)
- Monthly review: increase allocation to the top two edges; cut the bottom edge entirely
- Keep a live “Do More / Do Less” list and read it before opening each day
Common Retail Mistakes He Avoids
Knowing what not to do is half the job. These guardrails prevent the most expensive errors.
- Trading opinion over structure (no thesis without a matching risk-defined setup)
- Oversizing first entries; size should start smallest, not largest
- Ignoring time stops; if nothing happens, the market voted “no”—move on
- Letting one market dominate your book; cap single-market exposure by rule
- Confusing activity with edge; flat is a position when the price isn’t at your level
A Quick Starter Template You Can Copy
If you need something to run tomorrow morning, start simple and iterate. This mirrors Brad’s no-drama approach and forces discipline.
- Risk per trade: 0.5% of equity; daily loss cap: 1% or -2R, stop trading thereafter.
- Markets: limit to 1–2 core contracts plus their options; avoid illiquid expiries
- Structures: calendars for curve views, vertical debits for direction, no naked short wings
- Entries: two planned levels, scale in 2–3 tranches, no market orders near events
- Exits: +1R trim and BE stop; +2R trail; time stop at 50% of planned hold if no progress
- Review: nightly screenshot + 3-sentence thesis; weekly promote best edge, cut worst edge
Size Each Bet Small and Cap Daily Losses Automatically
Brad Schaeffer treats risk like rent—you pay it on time or you’re out. He pre-commits to tiny per-trade risk, so one bad tick can’t knock him off the desk. That discipline keeps him emotionally neutral and able to execute the next setup without fear or revenge. By locking the numbers before the open, he removes the debate that usually leads traders to oversize.
In practice, Brad Schaeffer risks roughly a fraction of a percent per idea and caps the day at a hard stop so losses never snowball. If he hits the daily limit—say, around 1% of equity or -2R—he shuts it down and lives to fight tomorrow. Break a rule and the next day’s size gets cut automatically, which resets psychology and protects capital. Small, fixed risk turns trading into repeatable reps where consistency compounds faster than hero trades.
Trade the Edge, Not the Forecast: Seasonality, Volatility, Forward Curve
Brad Schaeffer isn’t trying to be a meteorologist or macro oracle—he hunts for repeatable edges that don’t require perfect predictions. He leans on seasonality patterns, where demand and storage cycles nudge probabilities in his favor without needing a heroic call. When implied volatility gets cheap into known catalysts, he buys time; when it’s stretched, he shifts to structures that harvest the reversion. The forward curve is his lie detector—backwardation and contango tell him whether stress or surplus is doing the talking.
Instead of guessing “up or down,” Brad Schaeffer chooses the structure that matches the edge he sees. If the curve says front-month risk is unique, he’ll use calendars to separate near-term weather from deferred storage dynamics. If vol is underpriced, he’ll own premium with defined risk and a plan to convert into spreads as the move develops. The result is a rules-first playbook where edge selection, not storytelling, drives every entry and exit.
Use Spreads and Defined Risk Structures to Tame Natural Gas
Brad Schaeffer prefers structures that box in the chaos rather than betting the farm on outright direction. He’ll choose calendars when front-month weather risk diverges from the calmer back months, letting time and curve carry do the heavy lifting. When he wants direction with brakes, he reaches for vertical debits so the max loss is known at entry and not discovered during a squeeze. If skew offers a gift, he may shape the risk with a ratio—only when the short side is protected by event path and volatility context.
The goal for Brad Schaeffer is simple: convert noisy price action into controlled payoffs you can manage. He builds entries at pre-marked levels, then upgrades winning long options into spreads to lock in carry and reduce decay. If volatility collapses, he exits the premium and keeps the better-hedged structure; if it expands, he takes partials and trails the remainder by value, not hope. Defined risk keeps him aggressive when the edge is there and calm when it isn’t.
Set the Uncle Point Before Entry and Obey It Relentlessly
Before any order hits the tape, Brad Schaeffer writes down the exact price or value that proves the idea wrong. That “uncle point” isn’t a suggestion—it’s the contract he makes with himself to keep losses small and decisions unemotional. By fixing the line in advance, Brad Schaeffer removes the mid-trade negotiation that turns a paper cut into a wound. The uncle point converts uncertainty into a simple if/then: if touched, you’re out.
Execution is equally strict: no nudging the stop, no “just a little more room,” no averaging down to feel better. He exits on the signal, logs the reason, and requires a new, objective driver before re-entry. For options and spreads, he uses a mix of price, IV percentile, and time-based invalidation so theta or vol shocks can’t drift him off plan. The edge isn’t in being right; it’s in cutting wrong fast enough to let the next good trade pay for it.
Scale In on Improvement, Trim Winners Systematically, Time-Stop Stagnation
Brad Schaeffer scales in only when the trade gets better, not worse. He pre-plans two or three tranches and adds only at prices or vol levels that improve his average and upgrade the payoff. No averaging down to feel right—each add must shrink risk per unit or widen reward-to-risk. When the market runs away, he lets it go and waits for the next A-level—no chasing.
On winners, Brad Schaeffer trims methodically: a first take-profit around +1R to de-risk and a trailing plan that ratchets behind structure value rather than hope. If he’s long options, he often converts to a spread after the move, so carry works for him, and theta can’t give it all back. If a trade goes nowhere for the planned time window, he time-stops it and recycles capital into fresher setups. The combo—add-on improvement, harvest on schedule, exit on stagnation—turns volatility into controlled cash flow instead of emotional swings.
Brad Schaeffer’s edge isn’t a magic indicator—it’s a repeatable operating system built on discipline. He sizes small, defines the exit before the entry, and treats small losses like rent you pay to stay in business. In leveraged markets like natural gas and rate products, he keeps the position risk and the daily drawdown capped, then lets winners breathe with structured take-profits and time stops. The message is simple and hard to argue with: pre-commit the numbers, obey the uncle point, and live to take the next good trade.
He also shows how to turn noisy markets into controlled payoffs by trading structure over story. Instead of swinging at outright direction, Brad Schaeffer hunts for mispriced options and curve relationships, expressing views through calendars, verticals, and other defined-risk spreads. Seasonality, storage reports, weather, and the forward curve give him concrete reasons to act; volatility tells him when to own time and when to harvest it. When conditions change—as they do—he adapts the structure and the size, not the rules.
Finally, Brad Schaeffer models the mindset of a pro who grew from the pits to the screen without losing the core habits that matter. He filters signal from “everybody’s watching it” noise, sticks to a niche he understands, and journals process over P&L so the best edges get more capital and the weak ones get cut. If you boil his playbook down to a sentence: protect capital with rules, express ideas with defined risk, and let consistency—not prediction—compound over time.
