Notes for Chat with Traders, Episode 87

Episode 87 ... Tom Sosnoff (60:58)

• Aaron recommends Sosnoff’s Ted Talk

• Caddying 18 holes is called a "loop"

• Jimmy Rocko, his caddy master, grifted him out of all his earnings, cheap life lesson

• Current generation way too risk averse

• Current generation has too much student debt, makes them scared

• Take risks when you're young ... it's common sense

• Risks usually aren't efficiently priced

• Graduated college in summer of 1979

• Wanted to work for a lobbyist but couldn't find job

• Worked for Drexel Burnham right out of college, fall of 1979

• "Bullshitted his way" in

• Pre-Milken, he was long gone before the collapse of Drexel

• Gold and silver exploding then

• Stepped on floor of CBOE and knew that's where he belonged

• National Semiconductor (NSM) pit, first words to him: "f-ck you!"

• Trading floors: all alpha males, strong egos, independent, grifters -- fit his personality

• Spent 20 years on the floor of CBOE

• 3-5% of the people they hired made it

• He just got lucky and made it

• Only instruction to trainees was "go make some money"

• Couldn't outsmart anyone so tried to outwork them

• Made enough money so he could build ThinkOrSwim

• The only way to make money with options: trade small, manage profits, sell options naked

• All about creating a statistical chance of success with options

• No such thing as a quantitative model that can beat the markets

• Market making models (and HFT) can beat the market, but that's it

• The world prices everything perfectly -- no free money, no edge out there

• Derivatives overprice for fear, take advantage of this opportunity

• Sell high implied volatility

• There are people who make money, but they're outliers

• Can't steal money from your customers anymore, this is how people used to make money

• Be product and strategy agnostic, all your focus is on liquidity

• Manage your winners, forget about your losers

• Learn all about implied volatility, learn how to sell premium

• Price is not mean reverting, but implied volatility is

• He's on pace to do 10,000 trades for the year (2016)

• Start young and start small and learn

• If you can order a pizza, you can trade. It's not rocket science

• 100,000+ tastytraders [not sure what this means? active viewers?]

• Markets 35 years ago were inefficient

• Individual investors today at no disadvantage to professionals -- fees, technology the same, only know-how different

• Trading psychology is 100% bullshit

• We make people feel good about their lack of know-how

• People aren't successful because they don't take the time and the commitment to be successful

• Industry makes money by managing other people's money

• There's no psychological element to blackjack or even poker (it's all mechanics, playing by the book)

• He stood in the same two foot spot for twenty years in the pit

• Saw the hurricane coming and wanted to be the first one out

• Scott Sheridan his partner ... hired great technologists to build ThinkOrSwim

• Hired smart people to execute their vision

• He didn't see his family for ten years while building ThinkOrSwim

• Built a great company and product

• Didn't want to sell ThinkOrSwim, but it was a public company and TD bought them out

• Sold ThinkOrSwim for $750MM

• Went to CEO of TD Ameritrade and told him he wanted to leave

• Built tastytrade, which is a media company, profitable since Day One

• In order to trade for a living: you need capital and need to know what you're doing, stay small

• His biggest revelation was that he was trading too large ... got smaller, got successful

• Eight hours a day of live content on his website every day, tens of thousands of hours archived

• Website: www.tastytrade.com

Movies Watched -- Only the Brave (2017)

134 minute running time so at least 30 to 40 minutes too long. SPOILERS: I didn’t realize this movie was commemorating a real tragedy, memorializing a group of wildfire firefighters, a.k.a., “hotshots.” It did make me wonder if the disaster were avoidable … were bad decisions made? I guess that’s something you can’t dare ask.

What interested me about it most were the parallels to War Porn … Josh Brolin is a sergeant (“Superintendent”) leading his squad of brave and buff young white men into battle, except they’re not killing ragheads in the desert to protect the homeland, they are battling mother nature to protect homes in the western United States. The classic-rock soundtrack, the pretty blonde wives (and nurses!) who call their men heroes, the fetishizing of the gear and the rigors of the training — all the usual macho stuff, just a different context.

It wasn’t badly made, but it was way too long … the culture of wildfire firefighters is interesting, and they did about as good a job dramatizing it as they could … but, it gets a yellow rating from me.

Mark Zuckerberg, former junkie, current hotshot

Hard To Categorize

I skimmed this Hidden Tribes: A Study of America’s Polarized Landscape (PDF) report. This is how they segmented the groups:

• Progressive Activists: younger, highly engaged, secular, cosmopolitan, angry.

• Traditional Liberals: older, retired, open to compromise, rational, cautious.

• Passive Liberals: unhappy, insecure, distrustful, disillusioned.

• Politically Disengaged: young, low income, distrustful, detached, patriotic, conspiratorial.

• Moderates: engaged, civic-minded, middle-of-the-road, pessimistic, Protestant.

• Traditional Conservatives: religious, middle class, patriotic, moralistic.

• Devoted Conservatives: white, retired, highly engaged, uncompromising, patriotic

Where do I fit in this? I’m secular, cosmopolitan, retired, open to compromise, rational, detached, patriotic, and civic-minded.

Movies Watched -- Girls Trip (2017)

122 minute running time so at least 20 to 30 minutes too long. I only made it 10 minutes in before going to 16x fast forward. This is so squarely aimed at black women of a certain age and class that it holds no appeal to anyone else. Who wants to watch foul-mouthed women with chemically-straightened hair spout vulgarities for two hours? Terrible. Red rating, avoid at all costs.

This made the Rotten Tomatoes Top 100 list, which shows you how broken that list is.

Donald Clarke’s review.

Gag me with a banana

Trading Psychology: Painful versus Hurtful

I learned the following idea from Jeff Davis, who is a wise man and a veteran trader.

When you’re trading, it’s important to distinguish between things that are hurtful and things that are painful. For example, if you don’t take a trade that goes in your favor, that’s hurtful but not painful. If you’re in a trade and get stopped out at breakeven, only to watch it go in your favor, that’s hurtful but not painful.

Painful is when you actually take a loss, there is real harm done (even when it’s a planned, controlled loss). Missed profits are not painful. You don’t want to equate missed profits with actual losses in your mind. You have to be very careful about this. Your mind will play all sorts of tricks on you, so you have to stay right on top of it.

So the next time you get tricked out of a position (or “juked” out as my buddy Smash likes to say), quickly ask yourself, was that truly painful or merely hurtful?

The Politically Correct Beatrix Potter

I’ve been reading all of Beatrix Potter’s many “tales” with my daughter, and was surprised to see in one of the books from our local library that the original text had been changed and an illustration had been excluded!

In The Tale of Benjamin Bunny, the original text, which I remember well, reads: “When old Mr. Bunny had driven the cat into the greenhouse, he locked the door. Then he came back to the basket and took out his son Benjamin by the ears, and whipped him with the little switch.”

In the 1991 Ottenheimer Publishers edition from our local library, the text reads [my emphasis]: “When old Mr. Bunny had driven the cat into the green-house, he locked the door. Then he came back to the basket and took out his son Benjamin by the ears, and spanked him with the little switch.”

The politically correct editors of 1991 had no trouble with Benjamin being pulled out by his ears, but they did change “whipped” to “spanked.” They also dropped the accompanying illustration of Mr. Bunny whipping Peter Rabbit, while in the background Benjamin Bunny is holding his backside and crying:

Then he took out his nephew Peter

Movies Watched -- Maudie (2017)

115 minute running time so at least 20 minutes too long. Stars Sally Hawkins, whom I first saw in The Shape of Water … she’s a pro actress, probably will win (or has won) an Oscar somewhere along the line … she plays a simpleton woman who paints folk art in the wilds of Nova Scotia, and eventually finds some fame (though not fortune) … but life was hard, and she had crippling arthritis … it’s sad and mostly unsentimental. She has an abusive, even more of a simpleton husband played by Ethan Hawke. It’s the story of this odd couple over the decades … I wasn’t super thrilled. Yellow rating.

(Mick LaSalle hated it.)

Ask the Boss

Multiple Time Frame Analysis

If you want to trade stocks successfully, you have to have a deep understanding of this image. Price patterns are identical regardless of time frame. Be clear about the time frame that you’re trading, and then zoom in and out in time to understand how those patterns relate.

Thanks, Ben-wa

Movies Watched -- Frantz (2017)

In German and French. 114 minute running time so at least 20 minutes too long. A romance-mystery of sorts … kind of interesting (set in post-WWI Germany and France) … exploring times when the truth brings more pain than lies … ultimately unsatisfying. Yellow rating.

Life goes on….

Rearranging Everything Under the Sun

The great Tal Wilkenfeld (who normally doesn’t sing) and a crew of percussive hipsters:

Tal Wilkenfeld - Under the Sun Recorded Live: 3/4/2016 - Paste Studios - New York, NY More Tal Wilkenfeld in the Paste Cloud: http://www.pastemagazine.com/search?t=Tal Wilkenfeld&m=Video Visit Paste Magazine: http://www.pastemagazine.com