Transcription
I was literally driving Uber, and people were like, “Oh, how’d you get driving Uber?” I’d be like, “Well, I just got laid off, and I’m actually going to trade full-time.” Have you ever heard of zero DTE options that roll the dice with everything you got? Exactly how do you start figuring it out? Test, trade, track, and be curious. Over the course of two years, you’re now up to 1.5 million. That’s when it really clicked for me.
You are the ultimate one-trick pony. Right at 9:32, once the opening price discovery occurs, I will basically start trading credit spreads every two minutes until market close.
[Music]
All right, everybody, welcome back. It’s another Rising Star shoot. I think you guys are going to like this one; something a little different. We are going to explore two things that we don’t usually do on Rising Star shoots. Number one is we’re going to talk to somebody that’s gone from being a retail trader to kind of somebody that’s stepped it up to being a full-time gig. That’s one thing. And the second thing is somebody that’s also taken a lot of the Tastytrade mechanics and adapted them to a zero DTE type of trading style. And uh, somebody that trades 100 to 200 times a day, somebody that trades um, very aggressively—my uh, kind of a style I like a lot—um, and so I’m excited to have this conversation and learn more about you as well. Get your helmet on, as we say, because here we go.
So you’re 30. Yeah. When did you make your first trade? Uh, I made my first trade in 2017-2018. It was basically, I read some Warren Buffett stuff. My dad had been trading options for a long time—three years, I think—he introduced me to the concept of a covered call. So I started playing around on Facebook a little bit and was interested in the financial markets. Kind of through my dad and learning about that as well. So 2017-2018, kind of a pretty um, strong market, low volatility, strong market. Um, definitely at that point, probably anything that you bought went up, correct? And um, and you sold some calls against it, so you’re like, “Oh, this is easy.” Easy peasy.
So let’s talk progression. So you’re you’re kind of just starting out. What were you doing for—how were you supporting yourself? Uh, I was working in construction as a superintendent. I was pre-interviewing, kind of like, senior manufacturing and drug manufacturing plants of the day area alongside hospital construction. Okay, so construction. That was your undergraduate degree, too? For—got it. So um, so you’re kind of doing what you had prepared to do, and did you get—did you get bit by the bug? Yeah, or or was it like—was it slow, or you just get bit? I realized very quickly that what I had signed up for in college and what I thought was safe was actually risky in turn by doing the same thing that everyone else was doing. And kind of I was affected by the upward drift and financial markets whether I liked it or not. So I had a lot of time commuting from work and started just picking up on podcasts and such like that, which is where I rolled into you guys. You know, it’s—it’s funny sometimes people—they rolled us because it’s—it’s like it’s something that you feel like you have a little bit of control over, and I a lot of times there’s some disenchantment out of school where you think, “Oh, man, I just lost control of everything. Like, I don’t control my own destiny anymore.” And so they end up with us because you’re thinking, “Well, this gives me some control back.” Now definitely. And the way you kind of speak to it is, “Here are ways to extract Azure why we think it’s present, and here’s data that best basically backs that,” and that really resonated with me where it’s like, “Here is a construction drawing I’m looking after; here’s what makes it structurally safe, and when we follow this, we use to get our output.” Are you kind of like a a little bit of a math geek or um, an engineering geek a little bit? Yeah. I think everything really comes down to the details of it, and I’m a big advocate of the simpler it is, but the more deeply you understand all the concepts around it, that’s what true mastery is. And kind of the way you guys explain those concepts, I think is a good emulation of that. So finance, just quantitative finance, just made sense to you, like it wasn’t—it wasn’t something that seemed very foreign. It seemed like, “Oh, I can figure this out.” Yeah, it made sense basically from day one. And then what really made it click was when I realized the quality of your assumptions around that is really what it gets into, too. And when I started tracking everything and inputs and outputs, I kind of related it to test, trade, track, and be curious. Yeah, and that is really kind of the formula to seeing what fits you and then optimizing your strategy for conviction instead of return, so you can follow through of that, get what you bought.
So 2018, 17, 18, 19, whatever, when you’re first starting out, you’re obviously working, you know, you’re—you goes into the pandemic, and you’re still, I’m assuming, trading a little bit on the side, investing a little bit on the side, working your butt off in what—in—in the construction, you know, engineering side of the construction job, and then what happens? Yeah, so at that point, I think it was like most people where you’re trying to put in 10-15 hours a week in trading, and then you’re working 60 hours a week. Yeah, and your house, success, you get in a meeting, you know, try to have a life, too. Everything. Yeah, see, super buzzer goes off when you’re in a meeting, you’re like, “That’s not okay.” And then uh, I’d made it through COVID relatively okay because, you know, I’d taken some positions off. Sure. Uh, but then I’d gotten laid off. You know, I was in construction; I was with skyscrapers at that time. It was no longer needed, and I basically decided that day that I was like, “I can do this. I to leave it.” The difference is like, I have complete control over kind of what my destiny’s been. Sure. And I started to again find another job but really go all in now and kind of put my job on—this was a second priority and trading as the first priority. Not advice that I necessarily lend everyone, but that’s when it really clicked for me. It’s the kind of thing where if—if you’re not going to roll the dice at that point, when would you? Like, there’s no risk to you at that—really at that point—to—to just say, “Hey, let me give this a try,” because the downside is, “All right, I start over anyway.” Yeah. And the upside is maybe—maybe I figured this out, maybe I—or maybe—maybe my timing is perfect, and maybe I’m just entering the space at a time when, you know, they need 25- and 26-year-olds that are strategic that can understand a different kind of a different road through finance. Yeah, and I like that you bring that up, too, because one thing that I kind of related to when I got into—there’s obviously compound interest, which is just making money, but there’s also the concept of compound knowledge, whereas if you start something at before it’s 24-25 and it really gets rolling, it’s a hockey stick return on your ability to learn at that. It is very hard to impress upon people how important longevity is. Just you have to play the game, you know, I mean, like, I mean, Buffett’s probably the greatest example because it may have taken him, you know, 50 years to get to the point where he could create some kind of um, exponential return, but—but it’s all about longevity, and I think at 25 or 26 it’s very hard to envision, you know, it’s very hard to consider longevity because you want instant gratification. So you—so now you’re, you know, mid-20s and post-COVID, you’ve—I’m—I’m going to fast-forward some of the story for you. You’ve—you’ve made a little—you made some money. You have a couple hundred thousand, correct? Through real estate or whatever else you’ve saved up your whole life. That’s everything you got, right? You roll the dice with everything you got. Exactly. Okay. When you decide to go full-time as a trader, late 22 or something? Yeah. Okay. And you were like—you’re like, “I’m all in. I’m going—I’m—I’m—I’m going to take this to zero. I’m going to be zero or whatever,” right? Yeah. Okay, ’cause I love that. Um, so—so okay, now what do you do? Like—like how do you—how do you start figuring it out? How—how’d you—you know, obviously had some idea, but how’d you—how’d you make it work? How’d you figure it out? First thing is just like proximity is power, and modeling from other people that were doing it. So I consumed as much information as possible, watched your guys’ show, and was originally exposed kind of look back at that point, which is the first back test, right thing I’d seen. And as I got into this, I was like, “This result does equal that; I can make money when this happens,” and I saw that even when I took drawdowns, it matched the back test. So I really started getting into the quantitative part and the numbers part, which is like you’re talking about—how do I enable that compounding with limiting the drawdown? What I like to say is I’m locally concave for income and globally convex to basically limit drawdowns, which is the liability to—
So what was your worst drawdown? Like, you’re basically been—you—you basically have two full years under your belt, two full years of which your returns are extraordinary. We’ll talk about a little bit, but have—did you have any really bad drawdowns in those periods? Um, I was running like a 90-day gold, TLT, S&P structure uh, during the Russian invasion of Ukraine, and that had kind of taken me about a 20% drawdown. But apart from that, was zeros. My largest drawdown has been about 8% from that time forward, and it’s been pretty good, quarter, yeah. Yeah, I mean, 8% is—is really nothing given, you know, given some of the returns. And then 20% during that one event just when you’re starting out is—is also like pretty small, yeah, on a relative basis. So you really haven’t had to feel that, you know, the crazy pressure of—Yeah, yeah, yeah. What I like to say is that, you know, we should look at ourselves as risk managers first and then kind of capital allocators second.
What has happened to you since you—well, like you talked about the Russian invasion of Ukraine, and then, you know, obviously trading a bunch of different products at the time. It sounds like you’ve—you’ve more um, transitioned into essentially just trading in the S&Ps, correct? The S&P is very accurately priced; the friction cost to get in and out is extremely low, which I think a—so to find friction cost, this would be priced across if they asked to get in and out of positions. And then also with the SPX being cash-settled with no risk assignment, and then also the liquidity of it in general with the width of that bid-ask spread, and then the fee structure and commissions on such a large instrument are relatively low that I think it’s the best avenue if you’re playing a pure short-term perspective to take. And what do you think is the—what—what how would you um, define or quantify the bid-ask differential of the SPX? Uh, I would quantify as the price to cross it to meet from a buyer to meet a seller, right? So what do you think that is? From my data, it’s about 2% on the entry and about 5% on the exit if we’re using a stop. It would also be about 2%. 2% of the—of the premium or 2% of the—not the price of the index, no, the premium. Yeah. Okay, option. Got it. So if you’re doing a—if you’re doing let’s just say uh, what delta you usually hang around with? Uh, I’m usually in between about the seven and 20 delta. So okay, playing across basically, right? So—so you’re probably in the neighborhood of—I’m just—how far out? Oh, you’re always doing the zeros. Yeah. Okay, we’ll get into that in a second. So the zeros at that delta, you’re probably—where are you somewhere in like the $6 range? Is it? Um, it depends on the volatility, and it depends how long you go to buy your wings. Uh, I do go up to about—about $4.50, but okay. I do a lot around a dollar to $3 seems to be a good sweet spot as well, on each side or total—each side. I do lean a little more on the bid side for credit selling, and then I’ll hold longer-dated calls. So I kind of look at the call side as a sharp buffer kind of for combo. So you skew it a little bit. Yeah, I mean, we’re always kind of skewed in the SPX because of wing price. So if you collect like a dollar on one side and a dollar on the other, yeah, oh, you’re going to be—you’re volatility risk is actually kind of weaned a little bit. Yep. And then—and then—and you’re talking about 2% on that number, yeah, to get in to cross the cast for the—that’s—so that’s just for for under—so people—it’s a half a tick basically. It’s a—you know, half a tick, two cents, two and a half, something like that. And then on the getting out, you think it’s like double that, correct? And that’s—an again, it could definitely in times of high volatility be 10% potentially, but over enough occurrences, yes. And that’s—that’s closing, correct? Yeah. Are you—are you ever letting things expire or you mostly always closing? I’m almost always letting them expire because that kind of view that us a way to get 2% alpha from not closing it. Obviously, if I’m threatened and I need to manage my risk, that comes foremost. So if that delta is kind of getting close to the money, that position’s definitely coming off at a predetermined risk ratio as I put the trade on, right? Because the—the offset of um, the other side of saving the 2% or the 3% or 5% whatever it is on letting it expire, the other side of that is this massive potential delta risk with two minutes to go, correct? Which I would like to avoid as much as possible. The way I think of managing my risk is I want to limit the degradation of adjusting those options to capture the premium, but I also want to use risk management basically shaped—re-form of the distribution that I like. And—and you only use SPX, right? You’re not using SPY on the SPs. Okay, because with SPY you’d have, you know, post-assignment risk, you know, post-market movement stuff like that. The SPX is cash-settled, so at 3:30:01 or whatever the last ticket is, you’re basically done, correct? Are you ever using anything other than—SPX options to hedge zero-day SPX options? Like, are you using ES or the—the Minis, the micros, the ES options, the SPY, anything else? Just SPX. Okay. So you are—you are the ultimate one-trick pony, correct? And also when we talk about hedging, too, is I think a lot of people do hedging kind of after the fact, like once they get threatened on a position or—but I always, if I’m selling a credit spread, I’m basically buying a hedge for it exactly the same time. So I’m buying and selling the same—so it’s basically even out to offset my exposure systematically. Yeah, but let’s understand when you say credit spread, you’re really not trading a credit spread; you—I think you’re really just trading—you have a synthetic—what you call a spread because you’re buying some cheap way out-of-the-money option, but the reality is that is just a synthetically naked option. It’s a synthetically naked option. Yeah, you—you’re just doing that for capital reasons, and you’re doing that for risk reasons, but you know, I mean, you don’t really—that money is just a give-up money, correct? Okay. Yes. So are you going to like the cheapest option you can find? Uh, yeah, within reason. 99% of days if you’re going 200 bucks or something, you’re basically getting a nickel wing, but yeah, nickel wing, but are you—the only reason you get nickel wings is because it’s a zero day, but are you doing—are you going longer duration? So I am holding longer-duration options that I basically start legging in in about a week out, and then I take those up to one day out, and then those will be all long options. And by doing that, I can kind of capitalize on maybe large overhead moves or if we get an extreme market direction. Even though those long options kind of even out to zero in the long term, it benefits your portfolio and can offset some risk. It’s zeros. So you just hold the—and then just work everything else against them. Yeah, I’m just holding those to expiration. Yeah, they offer you some offsetting of margining, and then they also offer you—I would—to say diversity of risk as well. So yeah, we’re looking at our sources of profit; we have credit spreads. Obviously, credit spreads can be uncorrelated, but when you need the uncorrelation, the only thing that is actually going to be uncorrelated is going to be—
Now, are you always doing—are you almost always vertical uh, on my—on—on these credit spreads? Is it—is it always vertical? Are you ever horizontal? Do you ever go out like—are you doing, you know, uh, one DTE, two DTE, three DTE? I will do some calendarized structures. I think those do offer a lot of edge and kind of having more of a bigger will help as well. So I do offset with calendar spreads.
So tomorrow morning, um, first thing happens, market opens, yeah, are you already in a position from the day before that you set up or are you putting the position on in the first half hour? Two minutes? Both. So tomorrow morning, I will have seven days, six days, SP, four, three, two, one days—all long—and then I’ll also have a one day that I put on at the afternoon before that’ll come to zero. And then right at 9:32, once the opening price discovery occurs, I will basically start trading credits where it’s every two minutes until market close. Every two minutes until like 3:50 basically. So you’re just going to continue to lay them out, correct? Basically, like as the market moves, it will—yeah, you’re not doing both sides; you’re just doing one side at a time. Um, I’m managing each side individually, but I’m putting on trades as condo. So at the end of the day, how many positions is that? Uh, it comes out to between 150-200 depending on the trend, which all basically go with if it’s trending in some certain direction. And because they’re all—you can afford to do that because they are all technically spread off, correct? On averaging in the volatility over the course of the day. So volatility could be extremely—I get it. What happens—what happens on a day—obviously, on a nor—on a regular day where there’s, you know, some contraction, whatever, you know, or we’re either in a lull state or contracting state, you’re fine. What happens on a day when, you know, uh, market goes—market stays unchanged, VIX goes up big, market stays on chains, VIX goes—market goes down, VIX goes up big? What happens? Uh, it’s pretty random. I would say that very large moves toward the end of the day when to have more—you have—border at the same small channel I’m exposed to, but if we rip off at like 10 a.m. from some data announcement, yeah, you know, twice the standard deviation of move and that we go in something, you could be completely fine. What percent of your trades come off at the end of the day? Uh, short of 100%. So any credit spread is in cash, and then I’m—I’m always long the tails, long gamma, long vega, and long delta every day at 4 p.m. And—and 99% of my account is in cash. That’s really interesting. So you take the crap home with you, and then you just start laying it out the next day, so you don’t have to deal with buying the wings again, correct? Ah, very interesting. So I should—I should give a little more context here. So you started out when—when you first decided to commit to this business essentially full-time trading, you had a couple hundred thousand, do correct? And over the course of two years, you’re now up to 1.5 million, correct? Okay, so that—because I—we have to show that this is what—you know, you haven’t really—have you added capital, or is it mostly all profits? Uh, it’s probably all profits. I put in a little bit from a real estate investment that it really started compounding with a larger account value that got me to 1.5. Are you surprised by your success, or are you—because it’s totally okay if you said no, this is—this is what I expected, you know, like—I think that the way I was trading and if you are able to be good at it in the zero-day tener—the benefits of compounding and lack of correlation and basically like the length of kind of a bare market in—
When you say lack of correlation, what are you—what—what are you referring to? Uh, I mean, if the market is tanking, those are some of the best days to sell zeros because there’s so much demand for volatility. So you mean lack of relation, though, to like—to—to some other event because you don’t—because you’re not holding something overnight, correct? Okay, which is—what up the ball, sure. And the consistency of it with it being priced every day generally lends to a smoother panel verb over a course of your time. Of course, with the—the other side to that is, though, that there is statistically less edge—significantly less—significantly less edge—like—yeah, it’s insane how much less edge there is. Like, I—you—you’re playing—you’re playing—you’re trying to master—essentially, you’re attempting to master a zero-sum game, and because somebody has to win, and mathematically there is a—in—
AER—some—I totally understand. Yeah, I get it, but it’s very difficult, correct? Okay. I just want to be clear that this is like—so people listening are like, “Oh, my God, why don’t I just do that?” Because it’s not that easy. And plenty of people have tried and failed, and this is—you know, there’s—there’s a lot of bodies out there. Um, this is—this is something where it’s probably a very small percentage of people that have got to the point where they can, you know, put as much on the line every single day as you do. You’re using a significant percentage of your hand, yes, every single day, correct? Okay. Yeah, let’s be clear, this is not—this is not for the faint of heart. This is—now you’re—you’re young. This is what you should be doing. I mean, it’s kind of how I feel like I started this business the same way. Every single day was everything I had for like 15 years. Um, so it’s not—it’s totally not unreasonable or crazy. It is from the sense of being like a part-time uh, self-directed investor. Yeah, but it’s not any different than if you owned your own business, correct? Right. Same thing. You—you’re—you’re leveraging your own assets, which in this case are cash, and you’re managing it all strategically. Have you—have you—did you—have you ever like varied and done something like you’re just like, you know, “I’ll never going to do like—I—I just—I can’t believe I just did that?” Um, not really. I can get a little feedback from maybe I was sized too large, but after I really started to catch my stride with profit, I sized back down to being like—I don’t want to drawdown, but I ever have to pay a volatility tax to get out of—so psychologically that changed a lot. And then my stressor with executing it each and every day just basically completely changed that, like—even all of my trading—my screens are all in grayscale, so I get no emotional response from red or green on the screen. It’s just purely—I want to get what the back test is, and I want to create my occurrences, and I know that in turn, you know, trading is an art, but math is an exact science now. So it’s—do a bunch—just pass out.
Does your dad think you’re crazy? Uh, I think everyone thinks kind of I’m crazy. An example I like to give is in, you know, 2022 I had gotten laid off, and I was literally driving Uber, and people are like, “Oh, how’d you get driving Uber?” I’d be like, “Well, I just got laid off, and I’m actually, you know, going to trade full-time.” Have you ever heard
Of zero DTE options that talk to people in Silicon Valley in the car to do that. And you know it's kind of that belief in yourself, of breaking patterns of what you previously were doing and what you think you're capable of. And when you're the person that believes the most in yourself, it's, you know, the universe kind of blends towards you, of meeting people and learning new things. And you get small insights from everything, and that feedback loop just continues as long as you stick to it.
How scalable do you think what you're doing actually is? Because there has to be, you know, I mean, the world of finance is massive, you know, talking hundred trillion dollar, whatever. So but but in your little world, is it scalable? Uh, from the research I've done, if you're doing credit spread trades in zero DTE, basically depending on a stop, yeah, you could be probably about 5% of the open interest and still kind of get in at a bid-ask of what most people are doing. With, I mean, it's almost impossible to be 5% of the open interest, just to be fair. Yeah, so it's very scalable. And then I also run a lot of structures that I may use a stop loss on, but because I have those longer-dated options, if we were to gap or something crazy were to happen, it'd actually be quite okay. And like an example, well, if you're taking the long side home with you overnight, who cares if you have a gap? I mean, that's that's all bonus for you. I mean, even another concept is if you're trading one DTE shorts with zero DTE wings during the day, you're still taking them off with the close. Yeah, you know what goes to one faster if you get a massive move on gap, the zero, because if it goes in the money that one DTE still has a little bit of time. Yeah, on so such with that as well.
Yeah. Yeah. Well, you can't do it the other way because as their customer, you know, it's not going to work. No, no, you have to you have to own the the longer duration. So yeah, so it doesn't matter. Um, yeah, otherwise you're talking about, you know, an index that's just too expensive to have the naked side to it. And but you know, you can understand why the chunky options in the S&P 500 never go down. Yeah, it's worth it. Yeah, exactly. People don't really understand like why is this why is this put, you know, that's $1,000 out of the money trading for whatever it is? And and you're like, because there's plenty of people out there that that need to buy that for all the other stuff that they sell. Exactly.
Do you think think that you can scale it beyond the S&P or is it just really, you know, an SPX S&P 500 product uh structure? Yeah, I think it goes into every product that is cash-settled. So you could do it in gold, you could do it in crude, you could do it in ZN, you could do it in. Well, those are not I mean, they're not really cash-settled. Yeah, they're they're the problem in the commodity world is you that nothing is cash-settled unless it's unless it's the quarterly expiration, you know, like like their expirations all settle into futures, you know, which is that is the advantage that that's been able to give all that business into the SPX is the fact that that really is the only cash. I mean, there's other, you know, like there's other big indexes like that, but I don't think they have the liquidity that you need. Exactly. And just the way the structure is with skew and the SPX and how big it is, I just don't really think you'd want to go away from it. No, yet. No, no, it's crazy. And um, you know, 20 years ago you couldn't do this. Correct. It didn't exist.
Yeah. Yeah. Do you ever lift a leg? Um, meaning do you do you ever um when you have multiple verticals out and you are, you know, the reason I'm assuming that you have the put and the call side on is because there's no additional capital required to have the other side on, so you want the additional credits, but are you ever lifting individual legs at all or is it almost always what goes on as a spread comes off as a spread? Oh, which is very tasty, is but yeah, so all in-trade as a condor, but I'm only managing the short leg if I get threatened on one side. So you're just yeah, you're just rolling up and down the the the short leg itself, keeping the long leg in place. Correct. Yeah, you don't care how wide the spreads are. Nope. That's a very fun conversation because you know what we don't have a lot of people um that talk about trading the way you do and that can articulate, you know, like the zero DTE space. I mean, listen, in a year if you're making 100 to 200 trades a day and you have 250 days, and I'm assuming you work every day. Uh, I take that days off, but that's it. You take what, Fed days off? But that's you take Fed days off. Yeah, why? Uh, it's it's just everything's held to that announcement and there's so much price discovery I would kind of lend it to trying to trade between 9:30 and 9:31. It just hasn't really settled on what occurred is um and you know slippage tends to be a little higher on those. I I've looked at it in general and there's not really there's a negative expected return on it, so I would say some credit on that days. So what's what I guess the point I was what I was going to get to is that so you make between 25 and 50,000 trades a year. Yeah. Yeah. And and that's like let's say it's in between let's say it's 30 35,000. You you know that for most people that is like 10 lifetimes over. So one of the reasons that you've gotten that you that you've been able to achieve what you've been able to achieve in such a short period of time is that you've essentially shortened 25 35 50 years of trading into into two years, 18 to 24 months. There's a lot of feedback in that uh time period.
Wonder trades going on that frequently. You start to recognize the pattern. Exactly. Exactly. It's really that that whole um just how fast the learning curve accelerates the more that you do something and how fast your decision-making now is probably like ridiculous, I'm guessing, in everything. Yeah. And the thing with that too is I come back to the conviction of it, which is your decision-making and your confidence based on your learnings and well now you own every single decision. There's not there's nobody else involved. These are just your these are your decisions. It doesn't sometimes the market wins, but it's still your decision.
What a fascinating discussion, Mark. I love this. This was um gave us a chance to talk about something different and um that was really fun. I think Tastytrade nation is going to be uh is really going to enjoy this. Thanks so much for coming to Chicago and thanks so much for telling your story. It's awesome. Keep it going. All right, thanks, Tom.