Table of Contents
Peter Harrigan sits down to share how a Colorado-born index-arb idea snowballed into a career across Bank of America, Chicago pits, San Francisco equity options, and fintech startups. In this interview, Peter explains the wins (like shorting sky-high earnings vol) and the gut-check losses that taught him risk, plus how those lessons fed into building simpler, more intuitive tools for traders—so you see your payoff and risk the way your brain actually understands it.
You’ll learn Peter Harrigan’s practical trader strategy playbook—how to think about edge (arbitrage vs. speculation), why volatility and incentive structures matter, and how to avoid the “I’m smart in a bull market” trap by sizing and managing risk like a pro. We’ll also unpack his push to make derivatives trading visual and drag-and-drop simple, why that lowers beginners’ barriers, and what pros still need to watch for in ultra-efficient markets with HFT and tight spreads.
Peter Harrigan Playbook & Strategy: How He Actually Trades
Philosophy of Edge: Price, Vol, and Incentives
Every trade Peter Harrigan takes starts with a simple question: where is the edge—price, volatility, or structural incentives? He treats markets like a set of payoff machines, choosing the machine where the odds are slightly mis-set and managing the risk with discipline, not bravado.
- Define your edge category before entry: mispriced direction, mispriced volatility, or structural (flow, incentives, calendar).
- If you can’t clearly state the edge in one sentence, skip the trade.
- Require at least +0.30 expected R (after costs) from conservative assumptions; if not, pass.
- Avoid overlapping edges; don’t double-count conviction from the same thesis in multiple trades.
Instruments & Setups: Keep the Payoff Obvious
He prefers instruments whose payoff is visually clear—cash equities, liquid index options, and listed single-name options—so he can “see” the risk and reward in seconds. Complexity is fine only if the payoff diagram remains intuitive.
- Trade high-liquidity underlyings (e.g., top indices, top-volume single names) with bid–ask ≤ 1% of price for stock, ≤ $0.05–$0.10 for liquid options.
- No fills in illiquid weeklies unless spread width ≤ $0.20 and open interest > 1,000 per leg.
- If the P&L path can’t be sketched on a napkin, simplify the structure (e.g., move from iron condor → verticals).
Volatility First: IV > Narrative
Direction is a maybe; volatility is a price. Harrigan leads with vol: what am I paying or collecting relative to realized and to peers?
- Enter long vol when IV < 20th percentile (1Y lookback) and realized/forecast vol > IV by ≥ 3 vol points.
- Enter short vol (defined-risk) when IV rank ≥ 60 and event/dispersion justifies decay harvest.
- For single-name earnings, prefer delta-hedged long straddles only if implied move < 0.7× average realized move of last 8 quarters; otherwise, use defined-risk premium sells.
- Cap net vega per ticker at 0.5% of portfolio per 1 vol point move.
Risk & Sizing: Small, Repeatable Asymmetry
His sizing is volatility-aware and drawdown-constrained. The goal is to survive randomness long enough for the edge to show.
- Risk 0.25%–0.60% of equity per idea; never exceed 1% on any single defined-risk package.
- Target 8–15 concurrent positions with pairwise correlation < 0.5; if correlation rises, cut gross.
- Hard stop on 10% peak-to-trough portfolio drawdown: halve risk until back above previous equity high.
- If 3 losses occur from the same setup archetype, pause that archetype for 10 trading days.
Entries & Timing: Confirmation Without Chasing
He asks price to show its hand. Momentum or mean-reversion entries must be specific and testable.
- For momentum longs: enter only on day-2 continuation above prior day’s high with volume ≥ 120% of 20-day average.
- For mean reversion: buy into RSI(2) < 5 plus positive 20-day drift; fade only to VWAP or 10-day MA, not hero targets.
- For options, open 45–60 DTE for theta/vega balance; roll/close at 21 DTE or when 75% of max profit is reached.
- Never enter during the first 10 minutes; for single-name options, avoid the last 15 minutes unless pre-planned.
Exits & Trade Management: Rules Beat Opinions
Harrigan treats exits as pre-planned chores, not emotional debates. He mixes price, time, and volatility stops.
- Price stop: invalidate at the setup’s structural break (e.g., prior swing low/high); move to breakeven only after +1R.
- Time stop: if no progress after 5 trading days (or ½ life for options), cut to ½ size or exit.
- Vol stop: for short-vol structures, exit on IV crush reversal: IV + 5 points vs. entry or skew inversion.
- For verticals/condors: take profits at 50–75% of max credit; never hold through the final week if short strikes are inside 0.25Δ.
Earnings & Event Playbook: Defined Risk or Don’t Play
Events are where amateurs overbet. He leans toward defined-risk and lets the implied move dictate structure.
- If implied move > 1.1× average realized, prefer credit spreads outside the implied band; width sized so worst-case loss ≤ 0.6% equity.
- If implied move < 0.7× realized, prefer long straddle/strangle with pre-hedged delta; exit into the open or by E+1 10:30 ET.
- Never short naked single-name gamma into binary events; always cap risk.
- Post-event, harvest vol mean reversion with short-dated calendars only if term structure is steep (front IV ≥ back IV + 8 pts).
Portfolio Construction: Buckets, Balance, and Limits
He buckets risk by edge type and keeps hard circuit breakers, so one theme can’t sink the ship.
- Allocate ~40% to vol edges, ~40% to directional/trend edges, ~20% to structural/calendar edges.
- Cap any sector at 25% of gross exposure; cap any single name at 10% of total portfolio VAR.
- Keep net delta within ±0.3 of equity beta target; neutralize drift weekly.
- Maintain a cash buffer of 10–20% to exploit shocks without forced selling.
Liquidity & Execution: Pay Less, Slip Less
He treats transaction costs like a certain loss that must be minimized on every order.
- Use limit orders; aim to work mid and accept up to 25% of spread for fast fills.
- No entries if spread/price > 1.5% (stock) or per-leg spread > $0.15 (options) unless scaling out of risk.
- For multi-leg options, route as a package; reject fills outside mid ± $0.05–$0.10 on liquid complexes.
- If not filled after 3 minutes and the price didn’t move to invalidate, improve by $0.01–$0.02 once; else cancel.
Record-Keeping & Review: Turn Mistakes Into Systems
His journal is a factory: each error becomes a checkbox or a pre-trade constraint for next time.
- Log setup archetype, edge type, expected R, alt scenarios, exit plan, and screenshots at entry and exit.
- Weekly: compute hit rate, avg win/loss, expectancy, edge by bucket; cut bottom-quartile archetypes for a month.
- Pre-market each day: define “two best ideas” with criteria; if no A-setups, trade tiny or not at all.
- Tag avoidable mistakes (late fills, over-sizing, news ignorance) and reduce the size by 50% the next week if > 2 such tags occur.
Psychology & Process: Boredom Is the Edge
He assumes emotional spikes are costly; boredom and repetition are profitable.
- 90% of the job is waiting; never force entries to meet daily trade quotas.
- Pre-commit to a max of 2 decisions/day that can change risk (add, cut, flip). Fewer big decisions, more small automations.
- Use if-then scripts for stress: “If price hits invalidation, then exit—no notes, no debate.”
- Celebrate process compliance, not P&L: green days earned by luck don’t change tomorrow’s size.
Technology & Visualization: Make Risk Obvious
He wants the payoff picture to be unmissable. Visual tools help align the brain with the math.
- Before placing any option structure, render the payoff at 3σ, −σ, +1σ, +3σ moves, nd confirm worst-case fits drawdown rules.
- Simulate vol shifts ±10 points and skew changes; avoid structures that flip sign with trivial skew moves.
- Use alerts (price, vol, skew, term) instead of screensaver monitoring; the computer should tap you, not the other way around.
- Export a one-page trade sheet per position: thesis, payoff image, greeks at entry, exits—review it before any modification.
Size Small, Repeat Often: Risk Units That Survive Randomness
Peter Harrigan treats position size like a survival tool, not a flex. He breaks capital into tiny, repeatable risk units so any one trade is a paper cut, never a mortal wound. Instead of swinging for fences, he compounds singles by letting a modest edge play out across many independent tries. That way, randomness can’t bully the account; the math does the heavy lifting.
In practice, Harrigan keeps each idea well under one percent of equity and resists the urge to “make it back” by doubling down. He scales exposures across uncorrelated names and setups, knowing a cluster of small bets beats one big hero call. If a thesis stalls, time—not pride—calls the exit, freeing capital for the next statistically sound swing. The result is a process where consistency outruns bravado and the bankroll lives to exploit the next mispriced opportunity.
Lead With Volatility: Price Implied Risk, Not Market Stories
Peter Harrigan starts by pricing risk, not predicting headlines. He treats implied volatility as a tradable number and asks whether he’s paying or getting paid fairly for uncertainty. If IV is cheap versus recent realized movement or peer names, he’ll lean long vol; if it’s rich, he looks to harvest decay with defined risk. Narrative comes last, only as a sanity check, because a good story can’t rescue a bad price for risk.
In practice, Harrigan compares IV percentiles, checks skew and term structure, and then chooses the simplest structure that expresses the view. He favors delta-hedged longs when the implied move undershoots what the tape has actually been doing. When selling vol, he caps tail risk and exits on an IV snapback rather than squeezing the final pennies. He avoids entries when bid–ask or borrow fees erase edge, and he cuts quickly if the vol thesis is wrong. The goal is consistent: let volatility mispricings pay, while stories stay in the passenger seat.
Diversify Smartly: Underlying, Strategy, Duration Buckets With Hard Caps
Peter Harrigan spreads risk across clear buckets so a single theme can’t torpedo the account. He diversifies by underlying (indices vs. single names), by strategy (trend, mean reversion, volatility), and by duration (short, medium, long DTE) to keep correlations from sneaking up on him. Each bucket gets a hard allocation cap, and no single name is allowed to dominate its portfolio VAR. If correlations rise—sector panic, macro shock—Harrigan cuts gross exposure and rebalances toward the calmer buckets. The goal is simple: plenty of independent coin flips instead of one oversized bet disguised as variety.
In practice, Harrigan limits sector exposure, staggers expiries, and mixes structures so the Greeks offset rather than stack. He won’t let multiple trades ride on the same catalyst; earnings, macro prints, or product launches get isolated rather than echoed across positions. When a bucket hits its cap, new ideas wait until something is closed—discipline beats “just one more” every time. He monitors realized correlation weekly and trims the fattest, most crowded themes first. This way, Peter Harrigan keeps his edge alive by making sure diversification is real, not just a list of tickers.
Choose Defined Risk Structures; Reserve Undefined For Exceptional Edge Only
Peter Harrigan defaults to defined-risk option structures because they pre-negotiate the worst-case outcome. Verticals, butterflies, and calendar caps tails keep margin predictable and force a clean exit math before emotions get involved. He treats undefined risk—short naked options or aggressively leveraged futures—as a specialist tool, not a daily driver. If the trade can’t justify its tail with a crystal-clear, testable edge and tight management plan, Peter Harrigan won’t leave the downside open.
In practice, he prices the max loss first, then sizes so a total wipe on that structure still fits his portfolio drawdown rules. When selling premium, he favors credit spreads over naked shorts, stepping his short strikes outside the implied move and letting the long leg sleep at night. When buying premium, he uses debit verticals to avoid overpaying for far-out tails and calendars when term structure helps. He never holds undefined gamma through binary events, and he refuses to “roll the dice” into expiry week if the short strike is inside the danger zone. The rule is simple: define the tail, or don’t take the trade—undefined risk is reserved for rare, asymmetric layups where the odds are unusually tilted.
Process Over Prediction: Pre-Plan Entries, Exits, Reviews—Then Execute
Peter Harrigan treats prediction as entertainment and process as the business. Before capital is risked, he writes the exact entry trigger, invalidation level, profit targets, and the time stop—then follows that script without debate. He knows that “winging it” turns small losses into big ones, so he reduces decisions to checklists and if-then rules. Peter Harrigan reviews each trade the same way every week, turning mistakes into constraints and good habits into defaults.
On execution days, he limits discretionary changes to what was pre-authorized: size trims at +1R, exit at invalidation, partials at predefined levels, and roll only if the roll improves expectancy. He ignores new narratives that arrive after entry unless they break the original thesis, in which case he’s out—no heroic averaging down. Each session ends with a short audit: did he obey his own rules, or did emotion sneak in? If compliance slips, he cuts the size next week until the process score returns to target. For Peter Harrigan, the edge isn’t the forecast—it’s the reliable machine that turns small, repeatable advantages into a durable P&L.
Peter Harrigan’s message lands with refreshing clarity: survival comes first, edge comes second, and everything else is noise. He sizes small on purpose, spreads risk across genuinely different buckets, and demands a clearly priced edge—usually in volatility—before he lifts a finger. The common thread is humility enforced by rules: pre-defined exits, fixed time stops, and strict drawdown governors so no single idea hijacks the portfolio. When uncertainty spikes, Peter Harrigan lets the math steer—tight spreads, liquid underlyings, and structures he can explain on a napkin.
He keeps tails capped unless the edge is exceptional, favoring verticals, calendars, and other defined-risk packages that make the worst case explicit. Directional opinions are allowed, but only after the vol read makes sense and the payoff picture is obvious at 3σ to +3σ. Events are handled with discipline: either buy underpriced moves with a plan to exit into the open, or sell overpriced moves with protection and a hard stop on IV reversals. And when correlations climb or sectors crowd, he cuts gross and rotates—no ego, just housekeeping.
Most of all, Peter Harrigan turns process into a competitive advantage. He writes the plan before entry, limits mid-trade “creativity,” and audits behavior weekly so mistakes become constraints, not recurring costs. That’s the real edge here: not predicting the next headline, but running a repeatable machine—small, well-defined bets; volatility-aware timing; ruthless execution—that compounds over hundreds of independent opportunities.
