Charming Vanna (guests: Cem Karsan, Kuppy) - Market Huddle Ep.113

hit it it's friday january 8 2021 episode 113 i'm patrick ceresna and i'm kevin muir this week we welcome jim carzan from algea capital management we have a fantastic discussion about sbx option flow and he explains to us who this van is that everyone's talking about then copy's back we go over his trades from the last year and most importantly he tells us about his new project cuppy's event driven monitor and no we refuse to call it ed trading like he does then in talking charts patrick brings us up to speed on what the market tea leads are saying and in this week in trading history we go back to the oil spike of 1974 and then we end with our segments of no stupid questions and skin in the game and well folks we might even drink some beers along the way so stick around we've got a great show lena hop on uh what beer are you guys drinking this week so today we're drinking whitewater brewing company's class 5 india pale so nice don't let the smooth appearance of this class 5 ipa fool you the hidden dangers are only found at the at the point of no return when the intense bitterness of this seemingly calm beer hits the back of your tongue a light combination of malted barley coupled with the citrus aroma of both cascade and centennial hops mean that class 5 ipa is only for the experienced beer drinker uh so i just the heads up my buddy brought me this a good friend he sponsored the show he dropped off a whole case of these and uh the experienced beer drinker is is right you this is definitely a unique taste oh and it says it's sessionably hoppy okay is it is that what it's it's very it's almost bitter almost it's like borderline it's pretty hoppy yeah but we'll save the beer unfortunately i'm not drinking it we'll get into that story in the uh after hours but he's on the wagon all right hey kev give us a disclaimer buddy nothing in this podcast should be viewed as investment advice listeners should consult an investment professional before making any decisions regarding topics mentioned in the show side effects of too much huddle may include may includes index inclusion and impotence excessive speculation and fomophobia all right all right let's get to our interview with jam well coming up now is an interview that i've been looking forward to for a long time uh chem kassan is uh from aegean capital management and he's been somebody that is quite knowledgeable in the spx in the option square and a lot of people have asked and told me how much they enjoy your uh your comments and your insights and i've been looking forward to chatting with you for quite quite some time so welcome to the show thanks for having me kevin so so you know when we were chatting earlier we found out that we actually intersected our careers for a little while i was at rbc and i and i'll tell you a quick story when i was a young kid and i was in charge of cutting up inventories i remember cutting up the inventories for your group in chicago such a small world it's crazy it is such a small world so why don't you tell us a little bit about your background how you got to that spot in chicago um how did it come to be like where did you grow up how what was your journey like yeah so uh my story's a little bit different than most probably uh born in uh you know london lived in turkey as a child uh came to the u.s at a young age to texas to houston and uh and uh at after junior high my parents moved to norway to europe and i went to prep school on the east coast at a school called andover outside of boston and uh incredible kind of experience for me really changed my life uh uh really got into financial mathematics at an early age and financial markets and public policy and kind of the intersection of all those things and i ended up going to rice university and studying those both policy and financial mathematics and uh when i left i knew i wanted to go into the derivative space so chicago was kind of a natural place i ended up working for that group you mentioned at rbc dominion out of college on the trading floor in the spx uh 1998 uh long-term capital uh just kind of transpired uh was right before the tech bubble so really kind of a unique moment in history and an amazing way to kind of start my journey in the derivative space for sure you started the two craziest years in probably decades yeah and it really informed my kind of view of the world actually that kind of coming in and learning right as long-term capital management had just transpired was um you know and then we had the kneeter hoffer kind of blow up which some people kind of may know a little bit about but it really had um it made me realize the importance of tails and volatility in the markets and um and understanding kind of uh sizing properly you know the the amount of convexity that ultimately exists in these products um and so sorry i didn't mean interrupt but i just i wanted before you went on a lot of people know the long-term capital management story but i don't think a lot of people know the niederhoffer story so why don't you just kind of tell us sketch that one out briefly yeah so niederhoffer uh was backed by soros and uh it was actually uh maybe six to nine months before long-term capital management happened um and it was um kind of a precursor it was he had made insane returns about 50 to 60 a year for about i think it was four or five years um had become a dominant force one of the first major flow players in the space and that really dominated um kind of market so whereas before that it was you know you could really market make and not worry about getting run over there are lots of different types of flows you know he was so dominant over at the merc that he he really pinned markets and changed the way kind of players started playing space so when he blew out uh you know he lost about 95 in in 90 uh late 97 early 98 um he uh you know he he moved the whole market it was a major major event in the ball space one of the first major ones um and it was kind of like i said a a precursor kind of a a canary in the coal mine of long-term capital right okay so you're a young kid you get uh you know recruited to go work for this group in our rbc now rbc is kind of a strange um firm to be down there canadian firm in the in in chicago but i guess the the genesis of the group that you're with was actually from another firm why don't you tell us a little bit about that yeah so uh you know on the floor in chicago in the late 90s um it was most of the groups came out of the most dominant group you know from the decade before which was o'connor and associates conor associates was by by far the most sophisticated um group down there in in the early 90s um and uh you know it spun off a lot of other very successful groups like wolverine um ctc chicago trading corporation belvedere is one that kind of came out of those groups as well there's a lot of other big names but um you know rbc dominion was basically had you know these guys spun out and as was uh you know want to do a lot of these guys that went off in small groups with backers and rbc basically backed these guys they were a separate division of rbc so they weren't they weren't uh you know core to it but all of the models that the interesting part is early on throughout the 90s and 2000s all the major models that were used basically were derivatives of of a model that came out of o'connor a lot of the work that came from those groups so there's more similarities today you know in models in these equity products still than you might think less diversity than you might imagine so can i ask you a quick question on that you talk about the models being different i guess a lot of people just assume that it's the black control everyone uses that but like that's not the truth like that when you actually go look at these market maker uh groups that you're using a different model can you talk a little bit about how that model differs from the black controls is it just a matter of trying to account for the fat tails a little bit better um there so you know interestingly there all the spx is is actually not even though it's an equity product and it's cash settle it's it's hedged uh exclusively with futures and all market makers are hedging their positions with futures and so um you know that cost to carry difference necessitates a a slightly different version of black shells with specific adjustments um and as all these models do um you know that's just the first step you know the key is how do you model these surfaces um and and how are you managing your distributions of your deltas i mean there are a lot of implicit um assumptions in black shawls and and the key is taking these models and um adjusting them to compensate for kind of some of the incorrect assumptions in the distributions of both market move and vol move uh not to mention skew moves so um i think the core basis structure is the same between all of these those the changes and assumptions and the way these things are modeled has changed over the years but uh it's important note that you know everybody's still generally looking at the same structure and i think that's the important part right okay so your young kid you're working there and quickly they realize that you're you actually know what you're doing in this spx world and so walk me through the next parts of your career yeah so um so after two and a half uh almost three actually just over three years sorry uh at rbc i uh i had an opportunity you know i was looking at the money i was making the firm uh the founders of belvedere were there with me before uh thomas hutchinson and o'neal and uh they they had just left and opened up an opportunity for me to kind of move up into kind of the lead of that you know of that product uh made a lot of money uh during that tech bubble crash uh and for many years there and you know as a young kid i started looking at uh you know how much i was making the firm and how much i was getting paid and realized i could do a lot of this on my own and left and started a group for um john mulhern uh of a liar poker fame uh he was running a bear bear wagner specialist which is a specialist firm on the floor of the nyc um and he wanted to diversify away from the you know the declining specialist business and so he having done a lot of options and derivatives you know in the 80s and early 90s i decided to come look at potentially purchasing um either ctc or wolverine or a couple of these other groups at the time and we um myself and a gentleman 10 years my senior who uh happened to have a connection to him and went and pitched him on the idea of building out the the business forum we ended up doing that we agreed terms launched a separate arm of bear wagner specialist built it out to 20 traders on and off the trading floor uh you know amex p coast uh sibo support trade et cetera i have some questions about mulhern because for those who don't know he was kind of a legendary figure he traded back way back when with both john with ivan bowsky and uh you know in the famous michael milken he was the only one of the few guys who went to jail and the reason he went to jail is because he refused to give in and and kind of snitch on anybody and he was the only one of them that went to jail because he was so kind of steadfast he held steadfast to his beliefs but one of the stories that i remember reading in den of thieves that made me laugh so hard was that one day in front of uh there was a big risk garb decision and everyone was waiting for something to come out and he just decided like he he went out and all sudden the stock started you know plummeting and boesky phoned him up and said oh my god somebody knows something the deal's not going through the deal's not going through and and mulhorn said no no that's just me with everyone i love doing that that was him so i want to know is was he like that like is it was he larger than life he was that's exactly the word i was going to use he's larger than life when you when you met him he was exactly that he he wasn't um vocal term he wasn't quite right you know like all the most um amazing kind of interesting people out in the world they're all very unique and creative individuals he was fearless incredibly risk-seeking in a lot of different ways but also very rational and uh you know a good quantitative mind he was very loyal very stubborn as as you kind of alluded to in that story um but uh incredibly uh unique man had had had a bit of a temper temper but also um you know generally use it at the right times and you know yeah but but an incredible incredibly interesting fellow definitely not like anybody else i've ever met in my life and i can i can tell you that i i think you're you are extremely fortunate to work with him i think he's one of those fellows that you know he's passed away since but i would have loved a gun and drank a beer and heard his story he used to do some crazy things he's very close with bruce springsteen so bruce bruce would come through and play at all the kind of uh you know christmas uh celebrations every year again i wasn't at the firm very long but he would also fly you know when that when traffic was really bad in new york he'd fly you know his biggest traders like uh you know in his private helicopter and to avoid the traffic on a regular basis like just commute like there's all kinds of crazy stuff larger than life for sure yeah okay so you're there and you uh you build this up and eventually uh what happens to that firm so uh because the specialist business went into decline uh you know as he had expected quicker um you know uh a little bit quicker even than he had expected but fairly quickly he uh that the equity of that capital that business went from uh just over a billion dollars to maybe three four hundred so the tradable deal that we had kind of spoken about building that the book out to 200 you know million in tradable equity uh never really came to fruition in the two and a half three years that we despite our profits and building up the infrastructure and so you know we were managed about 50 million tradable leveraged uh you know margin which is still a decent book but um you know i decided there was an opportunity for me to leave and take five gentlemen with me and really start my own uh you know market making group and i did that in the equity indexes i made it a bit more boutique was focused around the cboe in chicago and cme or trade um and uh we built that out back to another 15 20 traders uh and became one of the biggest market making firms in the spx we were 13 of the spx volume at our peak in in 2008 2009 so so before it was automated and before like it that it was all electronic or is this actually when it was when it was electronic it's still a hybrid marketplace it's still open outcry in the spx over the cboe and the cme um but it did go hybrid before that so it was already hybrid and electronic whether but they're you know what happens in these institutional products as you probably know is is it's actually preferential to institutional investors because uh you avoid kind of liquidity cascades and whatnot if you're getting a really big block order done to have kind of this um you know this this open outcry right so i didn't i didn't realize that it's still that way like still that way the spx is one of the biggest uh still you know used pits since it's maybe 300 individuals maybe 250 or so now um you know trading and again one of the biggest volume products obviously in the world so so uh look can you just walk us through like when uh when someone comes in and wants to do a big block of some spx do are they generally doing it against um futures in is there some sort of mechanism to put it up against futures yeah so you you tie i'd say about 75 or 80 percent of order flow is tied to futures when they tie it to futures it's not actually futures they type to combo so a combo is obviously a synthetic future so you tie it to a price and then it's traded with the combos themselves so why don't you just explain that for for people that might you know not yeah yeah yeah no problem so uh you know combo a buying call selling put uh would be a synthetic future um because of put call parity that equals just long futures um so you know there you wherever the front month future is uh the s p e minis um you when they when they tie a product is automatically assumed that you're tying to that expiration month and when it's all priced relative to a price level in the future so any delta is tied to that level and and and when it's quoted by market makers it's it's quoted as such i can't remember our sbs oh no they have to be european because they're settled into cash so therefore it doesn't even matter and the reason you do that is because it's it's on the same venue and therefore you don't actually have to do futures you can keep it all at the cbot right correct and not just because of the venue but also there are cross-margin considerations the sec is a sorry the sibo product is an sec cleared product it's an equity product yeah um and oh subject to occ margin so the uh whereas on the future side it's obviously cfdc so if you're not a market so yeah if you're not if you're a market maker if you're not a market maker you don't get the cross margining so any customers gonna you know want to have their hedge um in the underlying um so so now is there a designation that what makes you actually a market maker i didn't realize that that there's absolutely absolutely so over uh on the uh sibo there you know you have to be that's the marketplace there's a seat leasing uh you know fee uh you have to have certain amount of in person and be held to trading um you know have in person on floor or you can have a permit to trade off the floor but you have to be quoting a certain amount of series uh at a certain width at any time so i didn't realize that and then and then if you do that you get the cross margining against the futures you can't you're you're clear your your clearinghouse can actually get the uh they can provide cross margining for you okay um so and and obviously that because that's the liquid instrument that you need to buy and sell that must be pretty important for all these guys critical because i mean even though you you tie up anything when you're trading it um you know obviously the gamma and delta effects um you know caught you know you're going to need to head for the futures i mean there are a lot of live orders where you have to trade with futures right absolutely okay so so you're you're there you um you have your own shop you're doing 13 of the volume what happens from then so had an incredible run from uh 2000 you know seven through 2010 you know by putting real numbers on it like a couple million dollars call it and started in many many many uh uh you know multiples of that number and i had in 2010 you know i had 98 of my net worth in that business and the music kind of slowed down and so i had an opportunity to to kind of uh you know sell my portion take take a seat a step back and and uh you know i was getting married uh having a kid and whatnot and enjoy the fruits of my labor and and um i thought i'd take a couple years off uh you know really i traveled for about six months uh we had a kid and then i was like investing my personal uh assets uh diversifying some of the some of the products that you know some of the strategies that we use in the background of our market making operation i turned into structured trades and was managing you know call it three to five million dollars and a couple of those products and realized that they were all much more scalable and that there weren't any products out there in the asset management space i'd always been a proprietary trader so i'd never really run an asset management firm um but i i kind of learned kind of uh you know how to structure the trade what people were looking for and really went out there and raised some some capital uh developed a couple products and now i run a firm called aegea capital management which is uh has a family of hedge funds and um you know manages just under uh 250 million dollars okay so i have lots of questions but before we go i want to go back to your market making and uh i want to kind of understand when you you have these great returns is that a matter of just smartly you know having the customers cross the bid offer spread continually or is that like a function of on the whole you know vols overpriced in terms of on the index so we're generally short i just walked me through kind of where the big juice was on that trade where where did your edge come from yeah so it's evolved a lot right and it also depends on the time period i mean so a time like 2000 there's a reason we ramped up so quickly to kind of that bigger percentage of spx volume because it was it was like shooting fish in a barrel right i mean uh during the financial crisis there was a lot of liquidation there were a lot of people um having to kind of um you know pay that ass spreads right and things really widened out so during during times of stress um you know things move much quicker there's much more edge there's risk but if you know how to manage the risk and you're you're kind of sophisticated and have good models um you can you can really um you know capture a lot of of trading bid ask spread so when i first started the business the edge was consistently you know the width of markets was you know but maybe in an outright option was uh 70 cents uh you know maybe a dollar even when i first started uh you know in the spx um you know by by the time the financial crisis rolled around uh you know right before the financial crisis it was probably 30 40 cents in a calm time but during during something like the financial crisis uh that that widens out to five even ten dollars at some points because very few people were willing to make markets given the amount of the lack of liquidity um so did ask spreads definitely matter uh during times of low uh you know low stress low volatility uh that bit espresso is not really going to cover your costs um it really is a matter of of uh most market makers will make their money in terms of bid-ask spreads if they don't have any structured positions that they trade in one or two months a year um that's the rest of the time is really paying costs and in years where you have three three months or two months that are really volatile and you know you get some correction um and some stress uh you know those market makers will do very well in those years and in a year where it's just one month or or zero like in 2017 and 16 they'll really um a lot of them will bleed out and lose money so but that's for the the less sophisticated or i'd say you know the biggest market makers obviously have economies of scale they have slightly better tech they have positioning and other other approaches that they would take and there's other obviously profits to be made through quantitative strategies and positioning and a lot of these market makers have obviously merged and become much more sophisticated and have become broad proprietary trading firms so the line has definitely been blurred between market making and proprietary kind of trading so how much you know gamma are they short like what would or are they trying to keep that pretty are they trying to keep that pretty steady i would actually um i would actually say for the most part market makers aren't necessarily short gamma for the most part they try and maintain a a flat to long oev exposure options equivalent vega i from my experience at least um now that that said there are there are certain shops that are well known for being marketing you know market making but maintaining a certain amount of short exposure they're the ones that are known for market making and being um you know uh very short skew right um like short downside versus long upside and i that's the one thing i would say and i think this will eventually be important as we talk about kind of positioning out in the world and how that affects uh market movement but market makers and dealers universally are short put long call in the indexes um and and that's just you know logically the world is long uh the market right on the index uh if you live your long if you invest your long you know if you have a job if you you know you're along the market and you need if the market goes down you don't do you don't do as well um so you know hedging in the indexes this is the biggest place to hedge equities in the world um is is you know buying downside protection whether it's a put spread or put and selling and and writing calls which is almost as important right so your argument is that at the end of the day the customers are wanting to do that and the in essence the market maker someone's got to be on the other side of that somebody's got a warehouse at risk right exactly and in essence that is what the eventually the market makers are are you know going to be on the other side of those trades correct and to be candid like that's actually a very profitable trade it's a carry trade right you're selling a much higher valve to buy a much lower volume and on realized terms historically at least uh realized versus implied you know implied volatility skew in the indexes is very high and it's very profitable the problem is it's a carry trade just like all other carry trades it has it has a tail on it right and when people need to get out everybody's got to get out at the same time and it creates a feedback loop that creates even more stress right um so but that is the one important that is an important uh part of market making dealer positioning it's a profitable source of you know it's a source of profits for almost all dealers right okay so let's talk about how you've taken that understanding about the positioning of the market the market makers and put it into strategies where you can trade and in some cases even forecast what's going to happen in the market why don't you walk us through kind of and did this come all of a sudden to you one day or do you was it can you remember the point where you started to realize how much this was affecting the market that's a great question so uh necessity is the mother of invention right um and all the best you know decisions are almost always come from from some need and the reality is almost all market makers especially if you're you know 10 13 of option flow you have to understand how to lock in profit right um and what we what i learned over my early career was that there's always bumps in the volatility surface there's always excess demand for certain areas um that that creates you know what's perceived as edge and then i guess relative value is edge um for market makers and dealers but um you know the more you study that edge and how much of it you're able to capture the more you realize that that number is very low um that you know when something's high and something's low and you put it on and you put in significant scale on there's enough scale for you to put it ultimately it's strange it never really seems to realize the edge that's on the sheets and i think a lot of people um you know have realized this over the years very i think very few have been able to verbalize and understand um where that edge is going um what became clear to me early on was it was it was going into the underlying market so the only way you the only way you capture that edge ultimately is is you know for lack of a better term front running or getting ahead of uh you know where where the ball and underlying are going to move given that edge right um and and so you know when i say that that ultimately means the delta or the distribution of the market is different than than the broad assumptions then random than a random walk right given that positioning right and why is that because because when that position exists at that type of size just like in all other products in the world the that means people have to lock in right as as that position decays and moves away right or you know that edge comes out of the marketplace um it's it's got that position's got to be re-hedged right and that is ultimately going to create flows that create reflexively a different underlying distribution right um so so let me just let this and that necessity the hedge those types of positions proactively led to the understanding of flows and and how they affected the animals so let me just see if i can put this in layman's terms you would go and let's just say a customer would come and say i want to buy 10 out of the money put and i'll finance it by selling uh you know uh 5 out of the money call and you would look at that you price it out you sell the put let's say a 30 of all you buy the call you sell to put a 30 ball you buy the call at 20. theoretically you should have 10 points of edge right and when you went to look at your p l after doing this over many many times you would find that the the actual p l wasn't as high as the theoretical would dict or would forecast yeah i mean that's that's a that's a simple example because you're talking about a specific just a risk reversal and that's great for for simplifying it but now imagine you have different puts over a different expiration so not just like maybe it's a counter risk reversal swap you have a risk reversal short in the front long in the back etc point is it's not just a matter of the market going up but it's a matter of the market going up at specific moments in time based on calendar exposure um and whatnot and i know that's probably complicating it for your listener yeah but i i yeah but but absolutely the point being is the market would ultimately move to remove the wrister and because skew like i mentioned is universally dealers are warehousing short skew as a carry trade in the market that creates positive index vana and charm flows and those words i know they may some of your listeners may not know but essentially the decay of over time which is charm of those underlying you know assets is going to create long uh you know short exposure that needs to be bought back that's charm and vana is as ball declines is the same thing so let's talk about those because i think that they as options have become a bigger and bigger force in the market these are affecting it more and more would you agree absolutely and i think the understanding of this is becoming i mean i'm trying to help um you know communicate this on the world into the world especially on social media and whatnot but but the idea of gamma first has become you know much more prevalent as you have a retail buyers uploading you know loading into equity uh you know single list equity names and having game effects to help push them up together that's become more commonplace i think these these understandings of vana and charm flows and the delta exposure of dealers is less understood at this point um you know that said i think they are having a greater greater effects but they've always been there all these things have always been there um i've i've benefited from them profit from them have been you know actively managing positions around these for for over a decade um but i guess to your point yeah there there is more uh volume uh in these options relative to underlying so there is more of effect in that regard but there are people that are more sophisticated that are actually that are front running as well right it's kind of okay so let's go through them both of them one by one and see if we can break them down and explain them to people let's start with the charm term is that what you call it yeah so um so charm is the the delta so the change in mark exposure of a position per day of uh decay so a day goes by let's say i had i had sold a uh 30 delta put to your uh or 30 delta put a day goes by let's say they're only five days left maybe the delta of that without the market moving declines to a 25 or 20 delta right right that's just a function of time the same and very similar related is vana vonna is the same change in delta uh but but per change in one percent of implied volatility um with the with the curve in contango which is what it generally is vana and charm the reason i talk about them together is you're getting a day of decay which is charm but you're also getting a decline in the implied volatility every day that goes by so you're also getting some wanna effects at the same time um so they kind of work together their their related time and implied volatility uh aren't necessarily separate uh in how they move um but but those are the two kind of effects that that create delta buyback in these skew positions um or you know um under events and that's another thing we can talk about they've been they played a major major role throughout uh this election process in the last several months and they've been what allowed me to really you know make predictions about kind of the the flow on on you know they push up in the underlying indices during this period okay before we we get to the election let's just talk about in a standard environment as we approach and it seems to be often that these uh effects the vena and charms seem to increase as we kind of get closer to expiration so often correct i'm correct it ends up being that week before expiration there's this gravitational pull with the high being the morning of expiry and is that a function and i must preface this this is assuming the market isn't uh way down and it's it's it's generally it has to be that the dealers are actually long calls and not short the puts right like it depends on where we are in the market is that not correct correct yeah so so first things first like full disclosure like we we measure open interest and and flow so we have a very very clear sense of what positioning is like it's not always as extreme what i can say it's generally like i say generally like 99 of the time do those are short long calling indices right um that doesn't mean they're you know significantly short put long call there's a big you know variance and and and how how big those flows are um but like you said as you uh that was vana and charm flows accelerate towards expiration the amount of delta change in an underlying position you know if you look at charm right per amount a day increases as you get towards expiration just like gamma increases as you get towards expiration so so those flows become much more uh you know sizable um going into uh monthly op-exes that have the most open interest so so that's why once when you see those kind of incessant bids that don't seem to go away that that's increasingly the function of this vana and charm that's exactly right okay so now let's talk about how understanding these positioning helped you in terms of the election why don't you walk us through what you saw and how you took advantage of it so the higher implied volatility is um and especially as uh the curve gets into backwardation the implied volatility curve gets to the back relation uh in the indices um the more think of it as potential energy right the more of a possible change in delta um you know is likely to occur uh and the amount of hence the amount of buyback right of flows is likely to occur coming when that volatility declines right particularly short dated volatility meaning that if it goes from 40 to 30 it's a lot different than from going from 20 to 15. correct okay correct and um [Music] and particularly backwardation because you have the front of the curve at a much higher level and and to be clear it's not just because of the size of the ball and the amount that's declining but it's also uh you know the reason the curve goes into backwardation the balls go higher is because they're buyers right it means it means you know people dealers are that's a clear sign the dealers are very very short right um they're backing off they're raising implied volatility as they're you know because it's going much higher because there's fear and there's risk aversion right when when you get large positioning at high vols right prior to a known event okay rarely if as ever do known events realize um you know uh regardless of the outcome um the fear that is that is expressed in the market and actually you know as i talked about with positioning forcing the opposite reaction almost always coming out of these market uh you know priced events you get significant significant rallies it's it's reflexive obviously making assumptions like that is dangerous i don't want to encourage anybody to always fade any known events ever right um but the reality is if you look at outcomes like brexit recently uh 2016 election where trump was elected 2020 where you know essentially we got a blue wave all of these types of election events were and by the way it was a contested election as well recently all of these things were um expect like not expected events uh kind of worst case scenarios as predicted as feared from the market right and all of them were expressed with significant rallies in the market okay so let's just talk about this like going in to the event they raise volatilities because dealers back our market makers back away from making offerings it gets all everyone starts hedging at these new higher levels and then they it rises to such a level that no matter almost no matter what happens in the event you're going to get a fall in volatility which will therefore cause a bid in the deltas have i got it that's that's yeah i want to be careful saying whatever but yeah but yes in essence i mean it gives price an event ball an event ball which is what happens you have a discrete added implied volatility to an event right an event ball um assumes an event so after that event passes the event's done no matter the outcome right whether it's positive negative whatever the events happen the net knowledge is now in the marketplace right and the implied volatilities behind it right because of the backwardation um you know are are now shifted to a lower implied volatility that shift and that removal of of an eventful by definition given the positioning unless you get a big enough event and given the high volatility it's very hard to realize those events right right um unless you get a high enough realized volatility to to make up for those that implied volatility will create um a buyback of of delta based on vana right and not just a little bit and those events given how high they are in the positioning dramatic buyback and they only increase as you get closer and closer to expirations um it also generally because of that positioning by dealers is not just short put long call but it's long calendar put spreads because the curve isn't um is in backwardation um and as you you know seeing as dealers are that way they get longer and longer volatility so that's a volga effect which is a whole other greek that's not a delta exposure but that's a ball exposure um dealers are getting longer longer implied volatility after the events because the things they were short at a much higher volume right um are disappearing and they're decaying long into what is is left at a much lower one right so you get more and more of all compression because dealers are longer and longer ball you get more and more delta buyback the two feed on each other and ultimately you get a you get significant support and then rally it rallies in the marketplace so without giving away too much of your secret sauce how do you structure trades to take advantage of this well so what needs to be understood is is this this is somehow by some people this is interpreted as markets being efficient right and and i guess you can kind of claim that markets are efficient it's hard to make money on these positions when flipping signs something's low my view is not that they're the markets are efficient that they're reflexive it's a kind of a different thing it's very hard to capture profits because of positioning because of because there's a reflective reflexive feedback loop that creates supply and demand flows that make it hard to do that once you understand that and you look at the world in that way you can see that there's edge in the positions that you're you're picking up you know the edge is real i'm not i'm not saying the edge isn't real that it's the market's efficient so i so you know putting on those positions is profitable um the key is understanding the the flows that are coming in and making sure that you are realigning your distributions of market move to align with the effects of an underlying bid in the market under these conditions um and i think once you take that type of a view and you redraw your distributions you understand the the factors that are at play and the flows that are in play uh you know given given these effects you're able to put on profitable positions and then actually uh exercise you know remove that profitability from the marketplace so let me get this right so you know with the black controls assumes the normal distribution we all know that the tails are are fatter but apart from that there's very little else that's usually done by kind of the layman um kind of uh let's just say option trader are you saying that if you actually kind of uh put in a different distribution expectation and therefore price your model based upon that different distribution and therefore have option positions that are you know designed to take advantage of that different distribution yeah oh okay so you stick it in you stick it in so now you just like it how do you do that is it like a binomial equation like and you can actually put in your own distribution and then figure it out what the price is i think i'll leave it there i don't think we have to dive into the exact uh if you don't mind like i don't want to die too much but i think that's enough for like any uh you know educated kind of all person to kind of uh take from there and do it do it in their own way i mean uh you know you could you you could also i'll say this you can do it one of two ways you could you can change your deltas based on that distribution and really kind of manage your volatility uh independently um or you could uh you know you can really model your whole volatility pricing um you know based on those distributions i get it so listen while i you know i i've had this theory and i'd love to kind of toss it out there and ask you what you think about it i thought that in the old days when we used to trade you know in the 90s and even in 2000 the market wasn't quite as uh 24 hours as it is today and when i think about uh you know how you go about pricing an option one of the things that's uh you know implicit or in in that kind of equation is the fact that you have continuous markets and we all know that there aren't continuous markets yet now there is do you think that the market makers are a significant significant factor in terms of these overnight moves and if so do you think that this has actually made it so it's easier for them to price and maintain their hedges given the fact that these things trade 24 hours yeah um i i i think to some extent i mean it hasn't been like it isn't something that just started right this has been an evolutionary not revolutionary right and and uh you know even though markets are quote unquote traded 24 hours they're not liquid for 24 hours okay um and you know even though you can get a price like if you're trying to trade any real size um you know uh good luck um you know at least in the ball space overnight um which but to your point i think it's a very valid point the structure of the markets and when liquidity exists is um given these assumptions of volatility decline and the buyback that needs to happen compensated for really do inform timelines of which or when you can expect buybacks in these deltas of vana and charm or or game exposure you know again i don't want to just focus on vaughn and charm but um you know the hedging of re-hedging of portfolios or the front-running of the edging of portfolios which is increasingly happening um needs to happen under the assumptions of some some liquid uh understanding of of what's happening to volatility if that makes any sense so as europe opens i'll leave i won't get too deep on this but as europe opens um which is the other major of all market right um you have kind of the opening of a liquid vol i get it so you're saying they don't want to do too much because if they do too much and vol moves then they could be finding themselves uh you know having to hedge again and so that's right so bank the banks and and big you know uh buy side firms need to re-hedge their positions they realize that but they can't really you know make a strong assumption on what's going to happen to volatility or the market right until there's more liquidity they can start to but it's it's risky right and there's very little liquidity given the size of these books so as the window for liquidity opens for these these trades and it's a better understanding of where vol will be priced or where the market will be set um you know or even now front running that a little bit people have a better sense of what that's going to be and try and take advantage of that then you start to see these flows really kick in aggressively and so there are windows of time uh which you know given that you know banks and big warehouses of risk are generally doing this at the open and close of trading right um they're they're kind of windows leading up to those that people are kind of trying to front run those flows right um and and you know those but but again the market's not really 24 hours it really has specific open and close times there are you know overseas markets versus here markets which affect each other and are important but you don't so you don't think that people that are short gamma are chasing their gamma overnight um again it's there's definitely some of that going on um but again i think these these these vana and charm these flows to to day forward or change in implied volatility which is 95 of the time the gamma effects are actually tend to be much smaller in the indices um you know uh than you know a 95 of scenarios yes you have one out of 20 days right which you have making up a number uh a big move where gamma kind of uh is what matters but you know on your average day um gamma is a much smaller uh effect ultimately than than the the delta buybacks that exist from from just move up the day forward and move of implied oh i didn't realize that yeah and those and those flows those flows and the timing of those flows are are um are a bit more predictable as well so so in terms of when dealers like to do them well ultimately you you have a better sense of the the general positioning and you understand that exactly that people have to do it it's as a function of like time goes forward right one way or another you know which way time is going you may not know where the market's going but you know which way time is going uh and if the curve is in uh contango you also have understanding of where implied volatility is going you know right in a case scenario your the implied volatility is also going to trend lower um so you know those things are are things that you can lean on and that are well understood and that that if that time moves forward you have to you know you know there will be a certain effect on flow okay so that's i'd like to just understand this a little bit better so we know that i the the term i can get let's talk a little bit about the vana in terms of when the implied is moving around how quickly um it might affect the deltas so if we get a situation where we get up in the morning and the market's up and all of a sudden implied it's down you know you know let's call it 50 50.5 do the people or do the hedgers or the market makers generally go and reach for that delta like within the first half hour or is there is there any sort of like guidelines yeah dealers are tend to be more uh sophisticated when i say dealers i you know i guess that there's a lot of different i'm thinking more market makers um and but they they aren't necessarily the ones holding on we're housing all the risks a lot of the bigger warehousing of risk is that as at banks right oh i get it oh so you're seeing the really big positions the really monster ones are sitting at goldman sachs and jp morgan right so and and hedging those portfolios doesn't happen at you know or for the most part doesn't happen at one in the morning or two in the morning but but but you know you know that on open and close that you know every uh bank desk trader has to have their book rehedged right um and uh and if they're not like the the global book is probably rehedged right so and it's not just banks but i'm giving them as an example um you know ultimately these portfolios are being rehedged on kind of an open close type scenario um and so that leaves a room for people to understand that those flows are coming and to as they have a better sense and are able to kind of hedge and manage uh ball exposure um they're able to kind of get ahead of them okay and so you see you see 1 30 to 2 p.m central or you know you know people start running those those flaws uh it depends what time and exposure and what's happening and the perception right but that you know that creates end of day kind of support um in these scenarios and then you also see kind of when you're an hour before improvements you kind of see something okay and um in terms of when you see a situation like an anomaly you have the market rallying you generally expect the implieds to be coming in and yet they're going up why why don't you walk us through what's most likely happening is that a big customer that's moving it or is it no one that big and it has to be the market as a whole is nervous about risk like you know what does that mean when you see them kind of not coinciding in terms of those two uh traditional relationships i'm sorry i'm not sure i understood that so like so you get the market broken higher and like let's just take you know uh today for example like we had a well not today's not a good example but there's days that the market ripped higher and you generally would see the vix and you know the implieds coming in and instead you see all of a sudden them go they start to rally so yeah yes correlation breaks between ball on the market yeah so so um for the most part um i i don't like to look at and i think it's even though most the world does it just looks at vicks and mixed curves i think they're very deceptive i i think the best way to look at implied volatility is to understand fixed strike ball okay um it's it's actually a much more uh robust uh understanding of what's actually happening um for for most institutional flow in the market what i mean by fixed strike wall is you know how is not just because because what the vix does it ultimately looks at the money versus at the money but most of the volatility market you know the s p and all equities are pricing and options volatility curve which has uh skew assumptions so if the market goes up five percent you're going to slide naturally to a much lower implied volatility the implied volatility of that higher you know call is much lower than the current at the money so you know naturally you'll slide to a lower implied volatility the vix will decline even if volatility itself has not actually moved at all and vice versa the downside the market drops big you could see a spike you'll see a spike in the vix but you know in reality implied volatility might even be coming down if the move is big enough okay wait one second can i interrupt there because actually i don't understand the the how vixx is calculated well enough you're saying that midday as it's moving around it's using different strikes to calculate the vix yeah so back of the envelope about getting into the into great detail is is the the vix is priced uh surrounding the at the money right it's a series of options formula to calculate an implied volatility level by taking in a strip of options across the marketplace centered around the at the money right so as the at the money you know drops right as the market drops um the implied volatility curve the smile of the options 30 day out has a skew to it the downside is a much higher implied volatility than the upside so you know if we drop you know naturally the uh the implied volatilities will increase because the at the money of all ball path is higher right and this is they say this might actually not decline might not uh increase at all uh the market could drop you know the more you the more you drop the more uh expectations of higher implied volatility are so you may get a situation where the market drops five percent all of a sudden right and you slide from a a 20 ball to a 35 law but the the vix may or you know the implied volatility that's actually where things are trading made for some strange reason because supply demand only be 30. and so even though you see a see the vix go you know from a representative 20 to 30 right um in reality implied volatilities might be getting crushed right so it's not a fixed rate of all is a much more realistic view of of supplying the marketplace and what's actually happening to implied volatility it's relative to expectations and positioning okay um prior to the move um i get it so it's important the reason i bring that up is it's important to take that perspective first because it's really hard to read through these okay correlation breaks what's happening to vicks and ball relative to underlying if you don't first see kind of what's actually happening as opposed to kind of this i get it um right so so but having said that but having said that it's very you know when you do see correlation breaks between the vics and the underlying if you see a situation where the market's going up and the victory is going up or vice versa that tells you how that means a lot actually because for it to even come close to that right there has to be a significant increase in implied quality because you're naturally sliding to a lower level and vice versa to the downside so um when those things happen they are big signals uh even when they outperform relative to trend they're big signals uh relative to the fixed rank um and uh you know they they what that tells you is that they're you know you're sliding to two on the upside that tends to mean you're sliding to too low in implied volatility that the pricing of the implied value of the upside is too low so you're kind of breaking out in that situation and um you know that means there are buyers at those levels and when that happens that tends to support uh a a change in trend of volatility and a buyback because once their support involves too cheap to the downside all dealers start getting taken out of any uh long ball they have they can see start getting four shortfall and that can create a real bit of all which can then reflexively push the market back down right um and so there is not only is it a signal of uh you kind of reaching a top um but it's also reflexively creates flows that can then have opposite vana effects right so because implied volatility starts getting pushed up because of all's too too low and you start seeing selling in the market as opposed to buying which can then force the market down uh very quickly so so these all these things are related um but those are that that's part of why when you see correlation breaks between ball and underlying it's an incredibly good uh signal to use in an array of different signals so one of my uh my readers asked me to ask um you know he's a big follower big fan of you and he says what's your process in terms of on a daily basis what are you looking at to come up with all your voodoo magic here with all your levels and stuff so there's kind of two big things that i think everybody uh you know appreciate so they get they get the most out of that they're there are daily levels right and then there's these kind of this this broad concept of bona and charm flows um the two are actually um you know they inform each other but they're very kind of separate things um all the von and trump stuff i talk about really helps me um helps us focus on on how to be positioned and underlying distributions and how those are different probably than what the market expects um so those are that's broad positioning the levels are obviously help you uh figure out where the points of friction are where where you're most likely to get people coming in to buy or support the market or if you break it where it's really you know relatively good chances of it um kind of cascading lower or higher um so i think we believe this question is about uh as about the support resistance levels specifically those are those are a function of of similar to our models of not just bond and charm but also technical factors so we look at we do look at traditional kind of volume technical factors um but but we complement those with open interest understanding and positioning understanding uh gamma positioning um to understand kind of kind of where there might be more people uh you know dealers might be more likely to buy um or or sell to support you know to hedge their their gamma positions so it's really a confluence of multiple different kind of factors and together pretty powerful i think a lot of people have been kind of shocked by how how good you can kind of pick general areas where um where flow will kind of hit attracts but i think if you combine this understanding of directional bias with uh these kind of these understandings of okay entry points exit points um it becomes a pretty powerful combination okay one of the things that i like to ask our guests is um you know for people that are getting into the industry it's changed a lot since the 20 30 years since you and i have started out what would you tell a young person that was interested today like what would you tell yourself if you were transported and you were 20 years old coming out of school today what advice would you give yourself a couple of things i think one don't worry about how much you're getting paid day one find somebody who has a lot of experience who um you know a mentor uh and try and uh you know pay pay for knowledge you know work as hard as work as hard as you can give them all the energy and work that you can to and in compensation for for knowledge and experience i i think uh i got that a lot of that early on from from several people um and uh you know that that's worth way more than any early compensation um so you know always try and don't don't worry about names of firms as much but obviously you know you want to work somewhere where they have expertise talent knowledge um you know and and people who can mentor you through the process that's one and then and then secondly i'd say um never assume i think early on everybody's starting out says oh my god so many people um uh knows so much um i'll never kind of know xyz i think one of the most undervalued things in this world is creativity i think be willing to to come up with your own theories your own ideas test them you know try and break things that are assumed um i think that's one thing that served me incredibly well i think and the people that i i most respect in this business i've been willing to to really challenge what are otherwise assumed ideas and pave kind of their own path from from the knowledge they came okay so that's great advice for the youngins now for the oldens the the gray hairs or the no hairs like us or like me um what would you think is gonna be the big surprise of the next uh i don't know five years ten years on the investing landscape and and is there anything that is you feel an advice you would give people today in terms of things to watch for or or kind of surprises that might come out of the blue that you're that you're more on the lookout for yeah i've been pretty vocal about this starting uh about six months ago um i think before anybody else honestly about kind of um the move from monetary to fiscal um and you know with that with a blue wave or even even without the blue wave for just broadly that's kind of with greater populism and and you know kind of perceived inequality in the world um this is more of a macro thing than a mall thing but uh but i think it's it really affects the ball markets and underlying markets in dramatic ways um you know we've been in a 30 to 40 year uh you know cycle of monetary dominance and supply-side economic dominance which has created lower and lower interest rates a deflationary environment with relatively low economic growth um i think i think we're about to see a reversal of that and i think that has dramatic effects on on underlying markets on volatility markets and the way these things have traded i think there is a complacency uh in the market at this point uh of of uh you know uh we have had no inflation because it's been a deflationary environment um you know for for a very very long time and i think people assume that inflation can't happen and i um and i really think higher long-term rates um as well as kind of you know tied to this inflation as well as higher economic growth actually which you would think would be positive but it's actually quite uh you know it could be a potential problem in the short term over the next five years even 10 years for financial markets i think we get multiple contraction i think we get um uh you know this isn't doom and gloom i think we get great economic growth i think we you know we do start to see a stronger kind of middle class and more more demand side economics but i think that that you know that pretends uh very very different dynamics than we've seen so if you're modeling things from a quantitative perspective or you're uh and the reason i think these macro things are important to anybody especially if you're managing the models for the last 30 years i don't think will apply as much to the next um 20. okay i really think we're or i missed uh quite a regime change i have to tell everybody that i did not know that was going to be your answer and we did not set this up because jim i i couldn't agree with you more i completely agree i've argued that uh that the covid will turned out to be the 1981 moment in reverse in 1981 uh monetary took over volkler broke the back of inflation and we ended up spending the next 40 years or whatever that ends up being focusing on monetary i think covet will prove to be the opposite and i completely agree with all your analysis the one thing i will ask you though how do you position your portfolio to take advantage of that is that in essence mean that we should be longer vol like i mean the long gamma so my view is that this this affects uh this affects flows again now we get back to flows right in three different ways um you know one the most broadly understood is is discounted cash flows right the higher long-term interest rates are um the more uh the the more you know uh growth names right things are looking at longer periods of time for for evaluation justification get hurt right so uh you know i think that informs a growth to kind of for lack of their term value i hate to call it value because that means a lot of things to different people but more kind of quality discounted cash flow businesses versus kind of these growth high multiple growth names get really hurt by by higher interest rates and so that would force that that shift in valuation i think also second second of all um you know the fact that higher interest rates would ultimately unwind the teen effects so that you know there is no alternative um i think an unwind of that team effect is highly likely with you with higher bond yields um and and so that's very bad for multiples and we've seen again higher interest rates are well documented as causing lower multiples for pro for but most people think of it through the prism of discounted cash flows i really think just as big as the supply and demand kind of change uh because of the team effect and the shift of uh you know of other alternatives and then lastly um you know higher inflation higher interest rates um puts the fed in and more of a box the fed has had this virtuous cycle now for 20-plus years to call it 30 years um of because they're giving money essentially to corporations by lending money and wealthy individuals um that creates more innovation in the sense of of you know globalization and lowering cost of goods ai technology investment and those types of things so so that ultimately is deflationary both technologically in terms of globalization um and also in terms of cost of capital um all all of that uh is deflationary at the end of the day you have something that's that's more inflationary the fed cannot keep interest rates lower they can't stimulate on you know in a stagnationary environment they have a very hard time um lending more and creating higher and higher uh uh inflation so um you know that will decrease the mean reversion which has been at all-time highs of the market and so you ultimately decrease you raise implied volatility with higher rates you decrease uh mean reversion market becomes more trending um you you you decrease multiples through a tina effect and a flow of capital uh back to to bonds and just kind of cash flow so all of these things point to the same direction right we're we we're heading towards a more disk you know a more um normal from for us old folks uh market and not this kind of frankenstein um growth at all costs um free money uh you know environment so um you know as we head towards that the old rules begin to apply again and it's not going to happen at once but uh you know we're at we are at the tip of the iceberg now you've seen a incredible run from september till now uh on the back of this and the beginning acceptance of this um i think there are passive structures or passive flows through through all these etfs and you know the vanguard types type ones that are tied to growth and momentum um you know momentum via growth and i think the more growth falls out of favor and the more value performs the years to come momentum will actually belong more to value names i actually think the passive headwinds that that value has has structurally faced will also turn and to begin to support value eventually so there's a lot of positive tailwinds to to value it it sounds crazy to talk about value after all these years you know nobody no everybody assumes it's going to mean revert and get hit again right um but i but i think there's real reasons from your lips to god's ears okay i always liked the chicago guys i know you were drinking a beer with us um while you're doing this tell us what you were drinking absolutely uh this is revolution uh revolution bruins so fist city uh it's the chicago pale ale so that was in the shrine and is that your go-to beer uh it's one of them i got i got some other ones as well but uh revolution brewing mate puts out some great stuff there's a lot of great microbes bruising uh in the city well listen thank you very much for your time why don't you tell people where they're interested in learning more about what you do and following you where can they reach uh reach you or follow you yeah so play on my name uh it's at jam underscore croissant uh on twitter that's uh pretty active there um and put a lot of this stuff uh regularly daily out on twitter and uh you know uh our funds are at a geocapital aegea capital.com um we're in the process of uh of a merger with our capital management so i've also listed those there'll be more information come out about those in the months to come thank you very much for your time awesome thanks for having me well it's been a while but uh we're pleased to welcome back to the show with harris kupperman uh cuppy's corner aficionado and uh an all-around terrific trader harris great to be with you today hey thanks for having me on guys um so i before we do anything more i just want to chat about what a great year you had and uh there's been so many different stocks i don't even know where to start i guess the one that you uh you really nailed on the show that was uh you know the market huddle appearance actually ended up being the start of the bull move was joe st joe's yeah i mean i don't know i guess you guys have a lot of followers lately what is this 130 what are you 130 episodes 133 uh i i guess a lot of people listen to you i think they listen the the gap higher gap and ran and and that gap that you see was you on the show talking about it it's been a terrific trade well why don't we just kind of quickly update do you you still like it you think it's headed higher oh absolutely i haven't sold a share i mean i'm actually kind of pissed off at ran i was pretty much all the open interests in the 18 19 and 20 puts i thought i was gonna get assigned then some more you were selling those to get long and you unfortunately it took off with you without uh getting you long yeah well i guess i'm part of the reason it took off but i i guess i should have timed it a little better but anyway it's a very full position for me uh it's my biggest position uh you know i think the shares are worth well north of 100 today and uh you know that value is increasing very fast um you know the the the demand for housing the panhandle's just gone parabolic day's inventories you know collapsed it's under a month uh you know property prices in the panhandle are going parabolic this is the way to play that and you know it trades at like a third of the net asset values still and i actually think it's going to be a great trade i mean it's backed off the last couple days because interest rates but um you know in the end if you know a mortgage is four percent versus three percent or two and i don't think it changes anything really people want to leave big cities and go somewhere pretty well let's talk about let's talk about some other ones emailed sandwich was a was a big one we finally got that thing up to life yeah it got up to four bucks last week uh yeah it was just funny because i think every show you guys asked me about it it sat there in a bucket a quarter and you couldn't give the thing away and you know i walked everyone through the thesis it must have been you know five ten times and you know finally the price of oil started going up and everyone goes oh yeah it's trading for less than that just the cash trading is though how a lot of times with these things you don't know what the trigger is going to be and you just have to cheap stock and stay cheap for a long time and then all of a sudden almost overnight it it gets people wake up to it and it gets repriced it's kind of crazy because i mean they have north of two dollars a share in cash they're probably going to earn a buck or two this year at current uh energy strip and it trades with three and a half today it just doesn't make any sense um i mean it should be you know five six seven bucks or right it makes more sense than it was a buck and a half that's trading guys so speaking of trading another one that you've nailed that i i've been just hugely impressed on because not only have you nailed it from being on the long side but you've been the first to admit that you're not even a believer this was a pure trade was the crypto frauds and you have consistently come on our show and talked about different things i think galaxy was one of your first that you brought up way early that ends up i think you started telling us about that at a dollar i looked at it today it's ticking at 11 bucks mira riot hut you know all you name it you were in these things you were early and you did a lot better than me in terms of hanging on ah jeez do you think we're near the end no i mean bitcoin's going higher and these things are proxies for bitcoin and they're going higher uh of course you know i sold too soon on all of them i mean i mean when you think back to uh like march and april i was buying shares of galaxy for less than the crypto assets they owned i mean it was the only time in my life where i could say a sort of a value investment and you were a benjamin god disciple there were you yeah i mean i was buying bitcoin at 60 70 cents of the dollar uh sitting inside of a shell it was kind of funny actually when you think about it i mean the only other guy buying was no regrets he was buying pretty much every share that traded so i was in good company but you know i sold that about four bucks and i was pretty proud of myself and you know that it tripled because i always tell salty soon uh the same with mara and riot which are you know blatant frauds run by criminals but i don't even i think it's sort of in the middle i think they set it up to be like a stock promote but then they actually got good at mining bitcoin they call it mining bitcoin which doesn't make any sense because it's like a computer but um anyway uh no these were great they're multi-baggers uh you know i own some micro strategy for a bit i still own all of my grayscale i have not sold it i am amazed at uh what it's done i assume it's just going to keep going up 10 a day because that's what it seems to do but uh no bitcoin's been very good to me i don't understand why it has value i feel pretty strongly that in the you know five years it'll have no value again but if there's gonna be a giant global ponzi scheme bubble you might as well participate right now the other one that uh you know i'd love to talk to you about um harris's this shippers and early on you came on and you were really pulled up on those and you know they didn't go they went up for a while you you know you were a trader you're in and out and then they got weak and they kind of came in let's just pull up sting or something like that sorry yeah no and and uh one of the things that i remember talking to people about is that everyone was focused they would you would come on our show and they'd say ask him about the shippers ask him about the shippers and i'd be like why do i want to ask him about the shippers when there's stocks to the other stocks that he's trading that are actually moving and they're going the right way and why one of the things that i'd like to just kind of highlight for a lot of people is that stanley druckenmiller which is generally considered one of the greatest traders of all time if not the greatest trader of all time he went calculated his batting average his batting average is 60 percent meaning that 40 of his trades are wrong and you know i think that you ended up making money on this you know in the in and outs and trading it around but let's just say that it wasn't probably as it didn't live up to your expectations but one of the things that i just like to kind of remind people is that you're not gonna get them all right and you know you should fall in love with your partner not with your position and uh i found that people were probably more um in love with those than than you were and you had already kind of driven on and then people were still stuck and you know talking about them and so one of the things that i just like to highlight is that you know make sure you diversify and you look at all these different positions that you're talking about because uh you know you missed a lot of great opportunities if you were stuck you know talking about tankers now having said that what do you think about them here they finally seem to come to life i mean they've come to life a little with energy but in the end um i i didn't get it right i don't know if i got it wrong cause i made money and there's nothing wrong with making money but you know i had a thesis about imo 2020 and you know i didn't expect that uh covert would come and global energy demand would collapse and you know we see where the energy supply side has dropped off it's opec and opec oil tends to go on tankers so you know the demand for shipping oil by tanker has just collapsed and you know it's been off now for nine months and you know that killed my thesis or postponed my thesis however you want to think about it and you know when you're you're out there and you see what's happening in the world you got to adjust when the facts start changing and i thought we'd either have a situation where you'd have super contango last forever and it lasted about three months or you'd have a situation where demand came back and instead you're kind of stuck in this little this like middle range where tankers don't make any money and so i accepted that and moved on uh you know but you had two opportunities there to basically double your money from my initial call and there'll be another great opportunity in tankers sometime probably next year uh but in the meantime i i moved on i i didn't sell enough on the you know when they were up i added a bunch back in uh march you know february march i saw the super contango coming and i caught it just right and i took some off again at the top but i rode a lot of it back down i kind of round tripped it twice but you know the the when i tossed them all this fall what i did do is cycle into a company called dorian which is also a tanker with a lot of the same dynamics in play but it's for propane and it's been very good to me i've basically doubled my money on it i i bought a ton of it in the sevens and eights and you know here we are today at 14 and a half it's it's my remaining tanker position it's been very good to me okay well let's talk about one you got the last one that you got right which was dillards you came on the show and you talked about how there was a potential for squeeze and man oh man did they squeeze this that was quite the move yeah yeah it was kind of nutty i mean i didn't expect that what's his name from berkshire would end up buying a filing position but you know i was out before that happened um look i do a lot of event driven trading it's i don't talk about it too much because it's kind of hard to you know come on a show like this and be hey i'm in this i might be out of it tomorrow i might be short it tomorrow but there's a lot of these setups you see where you could do something that's very actionable it's really driven by fund flows or it's driven by some sort of strategic corporate action or something like that and in the case of dillard's you had uh pretty much more share short than shares in the float and the company was buying back stock you knew it was going to solve itself at some point and when you saw the borrow rate spike you knew that was go time and you know i wrote to my readers about it uh my blog adventures in capitalism and about a week later the shares went uh parabolic and you know we made about 50 in about two weeks and you know you don't have to do that too many times to have a really great year especially when you play it reasonably large a lot of the event driven stuff i don't play too big just because you know you're playing the laws of averages but this one i felt pretty you know good about it kind of leaned into it okay so let's talk about that you have you mentioned your strategy you call it event driven and you have a new kind of uh venture and it's uh the uh it's kedm and why don't you tell us a little bit about it sure uh let me give you i guess a little story kind of how this came about because i won't make any sense otherwise i've been trading event driven stuff for my whole career there's always something to do and you know for a lot of this time you know i'd build a spreadsheet and then i'd you know stop tracking it or build another spreadsheet or someone would email me things i'm so lucky that so many of my friends are real smart and they flag stuff for me uh but you know i was never really systematized there was never really a process behind it and this spring when event driven really started working and i mean like really started working i said to myself i need to systematize this uh i'm missing too much you know that feeling where you're like oh that was this week you know what yeah and i just kept having that feeling and i said i have to systematize this so i hired a good friend of mine uh and basically said here are the 20 or so strategies i track let's build spreadsheets let's track this stuff and as soon as he started doing that i realized just how much money we'd left on the table for the past decade quite honestly and you know we just started systematizing it and putting it into excel spreadsheets and then some of my friends came to me and they said hey copy if you're building this do you mind flipping it to me so i started doing that uh we we called the the weekly email a copy's event driven monitor for for lack of a better uh name i guess and then we realized spreadsheets aren't as good as a pdf so we put it on a pdf and then friends started reaching out to me and saying hey cuppy i've always wondered about this data set you mind you know adding it to your list and you know pretty soon we had more data sets than we had uh manpower for so now i'm looking to hire two guys it's kind of like snowballed on its own um but anyway we've created this thing we're now on volume 15 i believe uh with the pdf but what it does is it tracks all the event driven strategies i am interested in uh my friend he puts it all together for me and you know um we're tracking all these different strategies and you have like some of the kind of like uh common things which you would be tracking like secondary offerings or ipos or spin-offs whatever and you know those sort of things you can get them off bloomberg there's you know probably a thousand uh newsletters that track these sort of things too it's nothing proprietary it's just good to have a list each week so you can take a look at the charts and see if anything's setting up right but then we started adding uh some of the stuff that really takes manual effort you know uh where the bloomberg doesn't spit out an answer for you and that's really where i think the alpha and the edges gonna come from you know ceo changes uh index deletions demutualizations privatizations uh exchange listings uh busted m a like all these sort of things activist campaigns you know bloomberg isn't tracking this and which means you're missing it and partly it's good just get a weekly reminder of hey let's see how that activist campaign is going but partly it's good because uh stuff pops up that i would totally have missed otherwise there's too many uh ticker symbols and so anyway this has been a project of mine where um i i'm just amazed how much stuff i how much money i've left on the table over the years and just how many uh of these event-driven situations uh this has been able to flag for me uh i'm really excited about it i've got about 100 friends reading it right now and you know it's going to eventually become a little bit of a business because uh in the end if we're going to hire a couple analysts to uh flesh out some more of these data series can't be a pro bono sort of thing for my drinking buddies you know it's got to have some sort of a revenue stream to pay for all these people uh so we're gonna you know have a subscription uh you know right now we still have some kinks we want to work out on our side uh you know especially on just clean up the data and making the data uh i guess better uh so it's free anyone who wants to subscribe is welcome to subscribe it's uh ketum.com kedm.com but uh you know i i i hate it when uh you subscribe to something then you know a couple of months later they throw down a paywall and you're like i get it i get it so i wanna be as clear as possible this thing has to have a paywall just because uh i'm not gonna be subsidizing uh everyone else's research process right so but anyway uh while it's free i recommend you go subscribe and hopefully uh you'll make some money out of it and you know i hope you make enough money that you decide to pay for it afterwards right and listen i've been getting it uh along the way and it's invaluable it's that's awesome it's terrific so k-e-d-m kevin edward davidmary.com you can go sign up you can get it for free why don't we talk about a few different things that are on here one of the things that i like best uh cuppy is the cuppy's clip notes cliff has got a k which i i really like just like cubby's corner uh we're not too smart here we just use alliteration when you're uh when you're stuck um and what you do is you go through all the different um let's just say all the different strategies and you highlight some of the ones that you like best let's just take an example i'm reading from this week's you have uihc had a bunch of insider buying after declining dramatically um you you note how hymc also had a bunch of insider buying after declining by more than 24 from the spac and you talk a little bit about your skepticism of high craft and which who is short allied nevada almost to zero anyways you go through all these things um why don't we talk a little bit about all the different sections that you have here copies fallen angels what are those so i mean just go back to the cliff notes i mean one of the suggestions from my friends is basically saying hey this is a big long document can you flag the stuff that you think are like the 10 most interesting you know give or take things to take a look at because it's just too much in this world to follow everything and so that's kind of what we've done with the cliff notes kind of flagging things that are really actionable or that are exciting uh you know when it comes to the fallen angels this is kind of a proprietary screen that we have inside our my hedge fund of uh tracking stocks that are down dramatically over the past two years that we think actually are you know have a reasonable chance of recovering uh you know these are uh businesses that are reasonable businesses that have come on uh some hard times i guess and you know it's kind of like uh the the the the short list of things that we're tracking here waiting for some sort of inflection to get long usually with some sort of a value backdrop right so how does that differ from copies left for dead well left 4 dead are companies like joe where you know it's really cheap but no one's cared for a decade okay so there's a lot of those sort of things i mean it's kind of funny everyone's like wow i can't believe you found joe cuppy like you know it was more than a double on a multi-billion dollar company and i'm like hey man it was on the left for dead sheet for like 10 issues right and so then you have three different types of spins announcements completed domestic spins and international spins what do you uh when you tell people what spins are and why you're watching those so a lot of what happens that makes money and event driven is fun flows based and i think the reason that event driven has done so well lately is you have all these retail idiots that have no idea what they're doing and they're moving stuff around and then you have uh the passive world taking over from the active world so when something happens like a spin-off and that's when a corporation takes one of their division and they basically dividend it out to shareholders uh you have these etfs that own the thing that are you often force sellers because the etf says exactly what it's supposed to own and it's not supposed to own the spin-off so the you know you have a situation where the etf is a seller you don't really have a lot of active guys watching these situations anymore and you know you'll have a situation where you can often buy something that's undervalued short term as the fund flows go in the wrong direction um and we're flagging these because there's a ton of alpha here uh the past few years spin-offs have been less good in terms of uh interesting situations but you know these things go in cycles and you know there's a lot of uh alpha in the first couple weeks of a spin-off um you know can i give you an interesting one that uh last week or two weeks ago uh there was a company that's aiv got spun off i mean what is aiv it's a dysfunctional collection of real estate assets but it got spun out of a company that was in the s p 500 and the s p 500 coughed up the aiv so when you look at a chart of aiv you can see this huge volume in the first week that it was spun out and i mean there were a lot of things you could do you could write puts you could play uh you know the volatility spike the implied volatility you could have bought it uh the the spin deletion day i mean it traded about four dollars sixty cents i bought some uh you know a couple days later it was in the low fives i tossed them i mean it's ten percent whatever but i mean those ten percents add up and i'm just saying there's a lot of alpha around these sort of events i mean one of the things i want to do with this uh with ketum in you know i think what that makes it different and special is a lot of uh newsletters give you stock picks uh you know this is what the guy writing the newsletter thinks is interesting and you know we're not trying to do that in any way uh what i want to do is flag interesting uh events where uh fund flows move uh an equity around and you know i would really hope that uh two investors can look at the same situation take opposite views one guy long one guy short and both feel like they got value out of the fact that i flagged the opportunity for them right i'm going to read you some of the next ones and you pick which ones you want to talk about cluster buys buy back short squeezes upcoming ipos recently completed ipos secondaries upcoming unlocks ceo changes actually you know what i'm going to ask you that one ceo changes why don't we talk about that that's kind of an unusual one that might not traditionally be on anyone's radar well it's not on anyone's radar which is why there's alpha um you know this is one where we're actually basically a proprietary way to uh scrape the data and clean it up and track ceo change and what's interesting about ceo change is that from a inflection standpoint you have a new person steps into a situation it's often because the old guy got fired or even if the old guy retired someone new comes in with fresh eyes fresh ambition you know fresh new stock options at today's price and he's going to do something different with the company and the company's going to go off in a different direction and you know sometimes the direction is better sometimes it's worse but it's definitely going in a different direction uh you know the ones i like the most the ones where the stock is down 70 or 80 percent uh the ceo is terminated you know that press release you see in the morning uh effective immediately the ceo has left the building and like you know we take one of our board members who's interim while we do a search for a new ceo but it's one of those sort of situations where the stock is down the boards just lost their patience and then someone new comes in and uh i've seen some just dramatic turnarounds because the business itself is just fine it just had the wrong guy running it and so you know these are sort of things we're trying to flag and keep track of because you know you do have uh a real event there right okay so i'll keep going bankruptcies bankruptcy exits recent spac announcements completed specs newsletters shorts new 13ds m a busted m a upcoming stock splits listing change strategic alternatives and these are the last two that i wanted to talk about private privatization i can spit that out and demutualizations why don't you tell us about those two and what you're looking for yeah so like let's talk about privatizations because i think this is one of the greatest uh sources of alpha in the world that uh people just don't pay attention to um for whatever reason governments end up owning businesses which you know seems like the worst possible idea every once in a while you'll have a new president or prime minister and he looks at all these businesses that are kind of failing it says why do we own this and have all these employees and they decide to privatize it and when they privatize it it's often done in a way that uh the government isn't really focused on getting them the best price as much as the government is focused on giving handouts to their supporters so it's often rigged and i've done you know dozens of these around the world but it's often rigged so that local guys can buy it very cheaply the ipo you know let's say they do the ipo at 10 the thing is really worth 30. it opens at 13 all the local guys toss it at 13 to guys like me who then ride it to 30. and you know everyone in the country is happy about it and then once it's private and you know you actually have a ceo who's focused on uh the profits as opposed to focused on you know keeping jobs or you know hiring political supporters or like the kids of senators whatever uh usually the operations improve over time and so you get kind of like a double dip where the the thing was priced too cheaply to begin with but then over the next year or two the business starts uh doing better than expectations and i've had just some multi multi baggers in this world uh you know we flagged last week uh iceland banky which is the iceland bank i mean there's three banks in iceland it's kind of a monopoly sort of business you have excess uh net interest margin they actually have a yield curve still in iceland which is very different from pretty much everywhere else uh the you know this thing had been nationalized when iceland basically i guess before the the global crisis in 2008 iceland was more or less a giant hedge fund and also did some fishing and uh so anyway when it turned out that the banks had like you know was it like 20 times their equity in a bunch of like insolvent assets they all got nationalized and iceland went bankrupt and 10 years later they're now privatizing it and you know it's kind of a quirky sort of thing where it can be privatized you have to be icelandic you have to open an account there but then i'm sure this thing will get listed on like the lsc or something a year later it'll get added to the msci because it's the biggest asset in iceland and it's probably just a multi-multi-bagger but these are sort of things we're uh flagging and doesn't mean you have to actually you know go do the legwork and do all of them i would actually think you probably do very few of these trades but we just want to flag what's happening in the world and let you know people figure it out on their own right and finally do you mutualizations what are those so this is kind of like a legacy of america more than other countries but a lot of banks were thrifts or mutual associations a lot of insurers as well uh you know i caught a monster there was a company called it was still called calavo growers it's avocado cooperative for whatever reason for 75 years and they basically had a cooperative that bought avocados and marketed them and for whatever reason they decided to demutualize uh about 10 years ago and anyone who was part of the cooperative got shares and so you have this funny thing where you have an avocado grower who suddenly gets shares he says i don't really want shares i want fertilizer or more land or you know new boat or something and they just dump the stock and uh you know i was buying this uh cooperative i mean at five dollars a couple years later it was at 50. um you know you just get these sort of situations there was a demutualization in australia last year of the rice growers association yeah you have these quirky weird things where you know people end up with shares that have no interest in owning shares there's no uh ipo there's no underwriter there's no brokers behind it there's no one uh pushing it there's probably no investor relations function even and so the shares just you know flail around for a year or two and then eventually they get quote unquote discovered and they're amazing investments so as another place full of alpha okay well so let's just repeat one last time i go to kedm.com you can sign up it's gonna be free for a while eventually he will charge but in the meantime you can get it free it's probably you know you at least got a month or two i would assume right at least yeah as he irons out the kirk that works and uh so if you have any interest in these kinds of trades make sure you check it out it's uh it's something that i put it comes out sunday afternoon what time does it come uh kind of usually saturday morning unless something in costa rica traveling in which case it comes sunday yeah so i mean it's free you get what you pay for right so it's always uh it's always weekend reading it's really interesting and uh cuppy thank you so much for being on the show for this past year we really appreciate it we we enjoy all your calls your your unique insights your your true gem and we look forward to another year with you at cuppy's corner hey really appreciate having me on guys and thanks for doing the infomercial [Laughter] thanks guppy all right take care patrick i know everyone's been dying for this time just like me i've gone a couple weeks now without talking charts i'm curious what you're thinking all right well before we get to the actual charts of everything let's talk about the top three things we were watching before we got to our holiday specials uh and so the first thing we uh we asked was does the santa claus come to does santa claus come to town with the santa claus rally and well i mean it was a little bit choppy but generally the market was rising throughout that entire period right i think that santa claus came it looked yeah santa claus came no no santa claus came it wasn't it wasn't like a parabolic santa claus rally but uh but i mean generally the trend was higher and so yes and i would say the only thing about it is traditionally that rally has continued to the first day in january and i believe that the first day in january this year was not as good uh let me just have a look yeah that was the first down day so if anything that was really you know santa claus was a little hungover from the new year celebration all right well the the number two was uh uh is uh there this a breakout in precious metals and it was interesting that we talked about that because we were talking about this uh all the way back over here in in the latter part of december and yeah we right into uh the early part of january we got this big breakout and suddenly in just in the last three days uh the entire breakout uh reversed quite violently and so it's sort of a wishy-washy outcome at this moment uh what's your take on this break it looks to me like that noble animal pattern yeah the prairie dog it's a prairie dog no doubt about it it the gold prairie dog did it's looking terrible it was an ugly day today friday what were we down 70 bucks 78 it's uh it's the ugliest day since that november 9th drop when the vaccine use came out so this this takes all the wind out of the sails of gold and um and so be interesting to see uh what what happens at falls we'll talk more about that in uh when we get a little more deeper into the charts but the number one thing we were watching uh was uh does the dollar bottom out in the 2020 calendar year and the answer is no yeah of course because that was you always looking for your dollar bottom well we were just no it was very oversold but i mean look we have some reversal candles coming off there but it but it didn't stop like i mean the first few days of january really just continued to break down lower we're down at the 89 handle um a bit the the big move obviously was even again in the renminbi uh just some of the different currencies are it's it's the us dollar continues to be distributed um i think that uh we are way overdue for a a counter trend rally then there's nothing about a major trend reversal uh in the big picture but it's so consensus that the dollar short is the easy trade that you have to think that there's going to be at least some event that kind of checks everyone's willingness to stay with it with some sort of a squeeze you know you don't think that that's uh it'll happen when it's no longer in our top three for sure it's not in our top three i agree all right so let's talk about the top three things to watch um uh for next week and so let's go through and obviously the first thing we have to talk about is bitcoin uh because this is just absolutely gone parabolic yeah and and just up every single day uh and uh and you know what i i always look at these moves uh in a perspective like this like when it when you got a parabolic rise it's very challenging to even try to speculate what price level the high will come in at i mean it could easily be 50 000 or 60 000 or even higher but what i do know from the least experience is that when we get to this parabolic phase it means that some sort of a inter short term to intermediate top is likely to happen in a very reasonable window probably even in the month of january but it could still be at much higher prices so i don't want to already be bearish it but this parabolic rise is just like the froth getting really thick here um uh and so i don't know what's what's your feeling on it well i'm having fun staying poor and uh for those who don't know you got hammered on that to it for those who don't know if you get on twitter and you talk about bitcoin being anything but uh the next coming of jesus you get told have fun staying poor uh so i'm having fun staying poor it looks like a cult to me uh but so be it it's going up it's listen you guys nailed it good for you guys you absolutely nailed it but i do think it is getting frothy and uh just as an aside i started off a little bit of a stock market game with my son uh you know on on market watch you can go and put it you both get a million dollar account uh we started on monday patrick guess what he's at already he's at three 1.35 million i'm sitting there down a little and uh and he's got it figured out he's got it figured out man he's telling me like he's buying all the bitcoin companies he's he's got it all figured out so you know i i would just uh i'd be scared if i was people but uh so far i've been scared the whole way and uh you know i'm poor because of it number two what do we got so does the new year money uh uh run out this week yeah so the we've got a huge push into the stock market with all the the stimi checks as the kids call it right did you know that the stimis that's really called yeah the stimulus patrick you don't know anything i'm i'm a little no i i'm not in the lingo yeah you're not in lingo and so they took their 600 stemi check and they put it all in bitcoin or out of the money tells the calls when they yolo those into you know all the money but it's rushing into the markets it's causing a real froth and the question is does it run out or is this just the start of a bigger move i don't know that's what we're watching well you know what uh well for me uh i i continue to think that uh all every rally always is checked and so it's i don't want to try to call that there there's a um you know imminent major top any day now but but the market is very uh robust it's been rallying quite a bit and particularly the bubble stocks that have been running have already gotten into these real parabolic phases it really feels like uh some sort of a swing high is is going to come soon but maybe the s p 500 crawls all the way to 3 900 to to 4 000 before that happens uh you know i don't see much asymmetry in pressing without having an exit strategy on your trades but i mean as long as you have a shorter time horizon and you have an exit strategy i guess you can keep riding the momentum of the of the prevailing trend that is quite dominant right that's for sure what do we got for number one well we got to talk to 10-year yield right like that that that one percent level on the 10-year yield was uh was such a key overhead resistance for um for so long and uh and suddenly we've broken it right and uh and so with this breakout we've already hit about 112 on the upside but really just the last two three days have just been a legit full-on breakout and the big question now are we is this the breakdown in bonds that kevin muir has been looking for well before you start giving me too much of a hard time about that patrick oh where's the yield group control that everyone was screaming about that was coming well you know what i mean uh yeah it could come at higher levels yeah you're you're probably right on that one but you know there's there's been more pushback about but when i said that then then when uh barack obama wore a tan suit after labor day like it's like i i i got so much flack for saying no no there's no yield curve control it won't happen i still contend it's not going to happen until 2. like everyone's freaking out about these bonds step back can you do that can you make that chart a 10-year chart for me yeah yeah oh like here let's go even a monthly chart well no let's step back and really think about this if you go back and look at like 10 years you know and we think about it this the yields were for a considerable amount of time uh stuck just in even this one one and a half to two and a half percent range right yeah well patrick we guess what it was at the end of 2018. the ten year was three and it was three percent yeah so everyone's freaking out because the bond has gone from 50 basis points to 112. this is nothing this is the like no honestly this is nothing this hasn't even started wow it's it's entirely possible right like it's uh and and i mean and because the fed's got the front of the curve pinned uh i mean this is going to be a full-on bear steepener right like you're well this this is are you are you playing this predominantly with like a two tens or fives thirties like i have them both and i have lots of long i puts on the long end and you know me i'm like a big huge fixed income yes yeah but it's i got to do something in the fact because i i'm busy staying poor because i don't own any uh tesla so i need to have some trades working or not tesla bitcoin although that's another one yeah well actually anyway that was our that was our top three so let's actually just talk about some of the other interesting charts um what i wanted to just highlight which was i i continue to think is is so interesting is uh is this uh um russell uh over the nasdaq which is sort of showing that rotation and and that russell um was a huge underperformer for years and years and the nasdaq was clearly that we're taking all the money flow and we've now seen the the a substantial basing formation establish itself and it looks it looks like a chart that's like a breakout in yields right like it looks like the the base and breakout in the 10-year yield when you look at this right sorry it is a very similar chart yeah and uh and so the biggest question and you know what's interesting is that a lot of new money rotation is finding uh global developed markets like i mean uh when you look at some of the uh mar like the euro stock continues to uh to do very well in the in this kind of post uh november ninth period in when the vaccine started coming but look at the rip that we got overnight on or yesterday on the nikkei or earlier today like i mean the nikkei is just breaking out with a huge velocity but even take the south korean uh cosby like this thing has gone bitcoin parabolic like it's maybe not but it but it's it's just a pretty significant where you're seeing so and even like china this is the china a50 just their their stock market so the thing is interesting is that not only is the russell doing well relative to the nasdaq but we're seeing a lot of global equity doing very well so we were in that period where being long u.s equity was the trade right and and it seems now that you you have so many places to go around the world where you're getting uh some incredible performance relative to the s p even well yeah those are great charts i don't think a lot of people are talking about them everyone's busy staring at the u.s and meanwhile other markets are flying yeah that's for sure and uh what's also interesting and let's i wanted to just touch on uh on oil which just doesn't want to quit right obviously saudi arabia kind of gave this a little bit of a boost but uh but with this breakout i mean are we going back to the the pre-covered highs and back to 56-58 certainly feels like it it's it's got some really nice momentum but what's interesting is it's really being confirmed by this breakout in gasoline i mean gasoline futures were kind of stuck in a trade range for much of the second half of 2020 and really uh this this kind of last couple weeks i've just really seen this start to accelerate and break out of that range uh and and so we're seeing that in gasoline um obviously net gas has been relatively weak but copper breaking to a uh to once again a higher high so many of these commodities but even like the eggs like did you like did you i guess you are watching the soybean and and corn charts but like unbelievable rises right across the board on ola's that's the beans you got uh corn just ripping you've got uh the commodity markets outside of gold are are pretty um robust and frothy it's like bull markets everywhere right it's not almost like there's inflation there out there it's almost well i mean obviously that's what's driving a lot of the um those uh the 30-year break evens breaking out like i mean inflation expectations rising how does the 10-year knock go up in this environment right like it's don't say stuff like that you're going to go to my trade hey i'm not in so you you're you're safe once i get in then you should be worried all right anyway i think that's enough uh we have a full show i think that's what i wanted to cover but uh it's lots of really interesting things to watch actually no wait one more thing we have to cover tesla holy cow like this thing like is gone full like it's at 900 bucks like 880. like believable isn't it no no but but what is nuts is is that right now tesla uh has you take general motors and you merge it with ford and tesla is now almost 10 times the market cap yeah well i thought what i find even more amazing is that he is the world's richest man yeah this is the guy if you go and look at his tweets like my 16 year old has more sense than this guy seriously like you see the shitty tweets like it's just like unbelievable it's it's not even huddle-worthy like i can't say stuff that he doesn't on you know on on the on the huddle oh anyway you know when you're the world's richest man you could say i guess you can do whatever you want not only that when you're endowed like him you have a bad back okay all right let's move on okay patrick time for this week in training history what do you have planned for us uh it's just a super quick hit what uh was really it was back on january 1st of 1974 when the arab gulf nations doubled the price of their oil overnight so it kind of started a little earlier the oil embargo was announced on october 6th earlier then oil prices in the u.s quadrupled in just the following four months after that uh originally the the price increases uh from the arab subset of opec came as a result of the united states support of israel during the yom kippur war of 1973 and the price increases pushed the u.s into a deep recession and it became a key precipitating factor to inflation which spiked during that period so in 1974 both unemployment and inflation would be around nine percent the highest the united states had seen in decades and besides the drop in the stock market and the rise in oil the period would usher in several long-term changes but notably was sticking with the oil theme it would lead to the considerable rise of power of opec uh this period in 1973 and 74 proved to the arab nations that the strength that they held over the rest of the world with their oil reserves and for several decades arab nations such as saudi arabia iran iraq qatar and the united arab emirates would find themselves flooded with cash as the value of their oil reserves grew substantially so it was uh it was that period of inflation and a lot of people have forgotten it haven't they kev i haven't patrick although i wasn't around no i was around for it oh you were i was watching six million dollar man on tv but otherwise i was there even you were there i would no i was i was i was uh born after this i'm uh i was born in 74. well anyway but uh watching six million dollar man yet because that's only four years old but anyways who knows what i was watching that's me there you go anyway that is uh that is our history for the week so let's go on all right time for no stupid questions lena hop on hello hello hey so uh it's getting closer to the end of the show here but let's uh punch through a couple of these questions so what do we have here the first question of the new year good job with jack schwager interview lads very cool i'm still a noob so i hadn't read any of his books i've just completed the market wizards audio book marathon so thank you for introducing me to that my fiance probably thinks you a little less firstly how come neither of you two are in these books secondly secondly a common theme amongst the traders was keeping a trading journal as a result i went out and bought a nice new 2021 hardcover diary i opened it today and realized i don't know what the i should be writing in it do you keep a trading journal if so what do you write in it how do you structure it that's you know great question um i was just chatting with patrick the other day and i told him that my father brought by a book for me and it was my trading journal from 1991. i was 21 years old and it was the start of my kind of chronicling what i thought of the markets and what i was experiencing and the funniest thing was that it wasn't as bad and as cringe-worthy as i was expecting i was expecting it to be terrible you know i i actually did that as well and i dug i dug up an old one and uh it was as well i was i was doing a lot of s p day trading at the time so i was kind of journaling a lot of the the day trades i was doing and i thought it would be a lot worse and it was uh i i i it's so much how how we learn over the years right yeah but the funny part about it was todd you know i jotted down kind of what the market had done and put down the moves and the funny thing was to say like i read the s p had a huge day it was up 10 handles that was a huge deal handles okay so let's get to it no but what i was just gonna uh mention that at big picture trading in our trading masters program we have a whole segment on uh on writing trading journals so you can always check that out uh and see if if that would be able to help you out shameless plug anyway but let's uh let's just get to this just a quick uh actually before we do we'll just go patrick one quick second in terms of the trading journal what you should put we'll just keep it nice and brief there's two things you should write down all your trades and then you should write down how you're feeling about them and that's the in essence of what you should be doing and too many people think that trading is all about um figuring out the optimal moving average or this trading system where they don't realize that actually what you are battling is not just the market but yourself and as you get older and as you trade more you'll realize that that second part battling yourself that is going to be the part that holds you back and so the trading journal is a design to help you try to realize where you're kind of forcing about you know where you're making mistakes so one of the things to write down is your emotions what you're thinking and trying to figure out ways to help yourself through those periods yeah all right lena hit us with the next one the second question here is this is a question for patrick about the dark art of options trading i'm a member of your big picture trading website it's a great way to learn about options trading you divide your options strategies into four broad categories breakout trades hedge positions long-term options and options for income over your 20 years of trading which of these categories have been the most important driver of your portfolio returns whether generating upside or protecting against the downside by the way love the dennis gartman interview great stuff kevin oh it gives you the plug right at the end anyway well you know what uh the the interesting part is is that um uh my for if if we're going through my entire career the vast majority has been uh option writing because that's where i cut my teeth when my cibc days uh when i was trading with the poor uh portfolio manager and and managing in so my early years was all about um uh theta harvesting and and and premium harvesting the the markets and that has been probably the single most consistent way i've made money over uh throughout my entire career like a lot of the other services that i provide have been things that i've kind of honed in over the last five ten years but uh but income harvesting is uh is by far the most consistent one and the one that has done right by me the best over the long term that's all i'm going to say about that how about you kev you're always a theta harvester right well yeah i'm kind of changing my tunes a little but you know you're not giving yourself enough credit i've seen your trading i've seen how you done it and the fact is that you went through march and if you were truly short all sorts of options you would have been down a lot more than you were in fact you were like i i anyways folks like i probably shouldn't say but the reality is that much better than most people through march and the reality and the reason was he was long options there's lots of parts of his strategy are actually long gamma and you know what he's teaching me the benefits of being long gamma i'm converting you eh why do you know all right you better figure out how to sell more then all right lena tell them where they can submit their questions if uh if they want to find us if you have any questions for kevin and patrick submit your questions too no stupid questions at markethuddle.com all right so kev oh god time for skin get in the game and i've lost listen sometimes it's just these streaks like you know i felt like an idiot losing three in a row right off the bat when we started this it's like sometimes you just go through it's these drawdown sequences where you go through uh i think you figured out how to get my number you dangle the you dangle my you know weaknesses in front of me and you play for them very wisely i must say well i mean that we have to be a little bit tactical about it i think that was i am you weren't tactical you know enough at the beginning and now you've figured it out and you've kind of i i gotta stop telling you what i think about things because you use it against me anyways well done buddy well done you deserve that so let's first go through the bet so last when we um did our last show we it was a very simple bet as to whether or not on the week uh christmas eve on december 24th whether tesla would close above or below 650 and at the time it was trading um uh slightly higher than that and you're the the bear in you uh was uh was itching and you uh and you said below yeah i don't think straight with elon i don't i don't i said it and you know what the thing is though patrick i was i almost won going into that going into thursday in the morning i woke up i was on side and then they had this stupid santa claus rally you rightfully realize that and they ramped it up you know in the last day you know i feel like you know you know what i i but you know i feel really generous and i'm going to do something that is going to make you cringe a little bit but i think you will know which side to take but when i had i had to kind of choose a level on this bet uh that that would be but uh that would be something that would make you think about it so let's see if let's see if i did it or not so before you do this let me let's talk about the rules thank you yeah the skin in the game is a weekly opportunity for us to demonstrate that we are degenerate gamblers at heart every week one of us presents a wager and the other guy chooses which side of the bed he wants every wager needs to be settled by the next episode and the currency for the wagers is as follows a duke and duke which is a dollar crisp american dollar bill pint of beer burger bed a pitcher a case of beer which is a 2 4 here in canada bottle of wine with a 100 limit and finally the big catuzi the uh steak dinner which we still have not done yet we have not done anyways the winner of the bed is obligated to create a new bet for the following week all wagers settle in full and be this is like before long term or not long term before the great financial crisis there will be no netting of positions all swaps and must be settled in full with the counterpart settlement you know when the pitcher bears the hardest one to deliver we're just going to have to call a whole bunch of our listeners we're going to have our one time piss up yeah because otherwise all the all the wine and beer i'm just going to get a rent a a u-haul van and come over and collect we're doing it the moment that we go the kobe goes uh we're allowed to we're going to do it there you go all right so it's time for me to present this week's bet because you lost and you get to pick ready yup i'm going to go for bitcoin oh god you bucker one touch fifty thousand over the next week oh sold i i won't take that it's not hitting that well done good good good bet you i'm probably gonna lose but i'm i'm i think we're close to the top so you're you're saying it won't touch no i went too high damn it i should have gone a little lower i i was trying to pick something that would ah all right anyway oh you wanted you wanted the downside too you wanted the new well i don't know like i was trying to well we'll see we'll see let's let's see what happens if you've gone any lower i would have taken it probably like if you've gone you've gone 45 it's a no-brainer so 45 i had to put the right hand i had to i had to put the the right handicap on this right like it's anyway so all right so uh what do you want to start at the bottom let's just do a picture let's let's get the pictures adding up for you know no let's take it down to burger bet let's just i'm hungry okay burger bet it is then all right okay all right burger bet 50 000 one touch yeah it doesn't matter when it happens but it's it's what whether it did it or not by friday's show next week by the way the fellow who gave us our beers my good pal andy he's actually a huge like he's he doesn't like bitcoin bull is not the right word he believes there's a huge demand out there and he thinks it's headed a lot higher he has been steadfastly picking us all off with his bets and i've been waiting because i got tagged you know before and i'm offside a steak dinner with him already and yesterday when it started to look weak i decided to double up and i did a bet and it was basically 30 up or down and it was like one of us is going to win so if it touches 30 percent up then he wins and if it touches 30 down i win and our number is 51 000 so not only might i lose this bet but i could also be losing my steak dinner bet at the same time oh that's there you go anyways okay such is the world of being a gambler yes that's true well being a bitcoin bear well you know what i have to make good on my have fun staying poor if i don't lose anything then i'm not going to be poor oh that's and that's that's huge thanks for tuning in to the market huddle we appreciate you spending time with us please give us a follow at the market headline we're there on twitter every day give lena a shout out she gets tired of packing talking to patrick and i you can listen to market huddle on all the networks google podcast pod being spotify android play itunes and youtube a lot of people watch on youtube to see all of our charts and visuals and while you're there please like and subscribe to really get our latest content i've learned actually patrick by the way that you're supposed to say smash the like button so smash the like button i you know i was watching some other thing i was cheating and watching somebody else anyways please if you could rate us and review us on itunes that appreciate it and patrick where can they find you you can find me on twitter at patrick seresna and you could find me at big bigpicturetrading.com how about kev where can they find you so i'm on twitter at kevin muir or you can check out my web my newsletter at themacrotourist.com and listen we can never have too many friends bear market bull market we're just happy to spend some time together on this crazy ride so thanks for tuning in now stick around for the after show oh that's a good show so um lina yes hello hello we have to tell everyone about patrick first of all well let's let's talk about this beeping noise that's in the background yes i don't know if anybody can hear it yeah so for those who don't know lena is um well first of all she's a woman and so that's right there uh and so she notices tiny little things that uh makes sounds and stuff like that the only other time that a man might notice this is if his car something his car was rattling but otherwise men are pretty oblivious and uh during the uh gem interview uh lena was saying who's got who where's the beeping coming from yeah and uh patrick patrick why don't you tell us what the beeping was well well i've uh i've um i'm down here in barbados i set up a winter headquarters for uh big picture training training winter headquarters you're like ken griffin griffin from citadel when he's got his miami uh headquarters but you're you're going barbados you're going full carry i went i went straight to the islands yeah and uh and this place is littered with these like tree frogs that basically uh are so loud and like lena is picking and my my windows are all closed there's absolutely no no way that i could make it any more sound proof and they're so loud outside that lena's picking it up on the microphone it's like but kevin you couldn't hear it i couldn't hear you i don't know i don't hear you so so unfortunately for for the next three months i'm uh not going to be partaking in you guys sampling our featured beers and i'm gonna be drinking this uh banks caribbean lager basically the the whole time i'm down here uh well we really feel for you yeah patrick sent me some pictures and i was like that bugger so lena let's rate this beer i love andy i appreciate all of his time you know all the things he does but i i do not like this beer i don't know sam i am i just don't like it uh i'm giving it a six which i know is a rookie score because it's even but that's what i'm going that's where i'm going oh okay you you disliked it more than i did i think i didn't i didn't mind it at all actually it was oh not a hobby for me but it's again it's it wouldn't be my first choice but it's not something that i would dismiss either um i would give it a 7.3 oh you're very nice you're just always so nice danny was kind enough he gave me a whole bunch of other ones so we're gonna work through the other ones maybe i'll find one that i like and and it works comes to worse that i'm gonna drink his wine that he also gave me he's very kind he actually gave us he's a big fan of the show and he's been he's actually done this before he was all what all of our niagara beers that he gave us for for a sampling back then he was the one and so i did definitely found ones that i liked in there but uh my son built him a computer a new computer so he was uh paying us back with that even though he did also pay my son anyways thank you for the beers yes thank you very much so what are we going to talk about how did you guys have a good holidays well i don't know alina did and you have a really good holiday i had a pretty good holiday anything to happen look anything really interesting happen i got a rock a rock like like you got like your kitchen you got a new a new countertop no i got engaged ah oh awesome congrats i'm sure all the listeners are really upset that [Laughter] damn i thought she was single for all you know i could be like you know overweight and living in my mom's basement [Laughter] congratulations we i actually saw you know leno has shared it with us and uh he did it luke did a terrific job and we wish you all the best and uh i know you two will be very happy together wednesday when are you gonna have the wedding are you waiting for the covid oh yeah we can't really plan anything until you know our cobia restrictions are lifted and god knows when that's gonna be so we'll see we'll see we will see so he so he has an excuse to keep kicking the can down the road right it's gonna be forever yeah or we would just go down to city hall and sign some papers to be honest that's kind of what i want i don't even want a wedding wedding so elena do you know what my wife and i did we were getting married and we were planning it all out and we were doing all this work we're going and looking at different gods yeah and we looked at each other and i was like dude like this doesn't seem like very much fun and she's like no i don't want it and i was like i don't want it why are we doing this and she's like okay well and so we took the money we were going to spend the wedding and we blew it on a cruise and we went on like this little 100 boat cruise in the caribbean and we got married on the boat in um st thomas oh wow xavier the bartender was my best man and our witness and literally that was it so you didn't have any family nobody we just we just basically evolved and you know what the the most amazing part of this story we did not have a kid for another couple years oh wow i was about to ask if your kids attended the wedding because everyone figures oh you were really she was pregnant that's why you didn't know the shotgun wedding the shotgun wedding no anyways yeah so we did that it was great i just don't really see a point of spending you know weddings are expensive nowadays like they're like i think a friend of mine spent like 30 40 grand on a wedding and she was stressed out that's it yeah like that's that's a cheap wedding right like to me it's like okay it's supposed to be one of the best days of my life and i'm gonna stress out and be broke by the end of it no thanks exactly yeah so just do what we did spend it all and spend the 30 40 on a cruise that's kind of what we're thinking maybe not a cruise you know something something else that's not like renting a banquet hall or something yeah but we said we were gonna have a party when we got back we never did honestly we did and we're like oh we'll have a party anyways that's good so patrick how are you enjoying the barbados oh i'm still in goddamn lockdown over here okay so tell us the story what happened oh well no it's just the thing is that um there's still a backlog on the test so you when you land here you don't have like a 14-day quarantine like we have in canada but you need to have the results of of the second kova test when you land over here uh cleared so that you can uh go and roam the island and it's all backlogged and we've been basically here uh locked in this horrible villa right yeah anybody uh but uh uh yeah still waiting for the results we gotta we gotta set the picture here first of all patrick says we it's him and his entourage crew yeah he he's like vince uh what's vince's what's his last name i can't remember yeah and he's got ari and all the other guys that were down there with him there's a little it's a pretty cool of them and uh the best part of this story is so what happened was he got there and you have to stay in the government-sponsored lockdown or if you're willing to you can hire a private guard private security to stand outside your house make sure you never leave so patrick says yeah for sure i mean the boys we want to do that and then there's this huge outbreak there which is not because it's a backlog yeah there's still that's not because of me and so there's this huge thing it's good it's costing me six hundred bucks at the u.s day to be locked down and i'm just like this is the greatest scam the barbecue people ever came up with yeah yeah like you gotta do this guard and uh don't worry about it it'll be fixed in one day you know eight days later patrick's it's like uh oh that's good you should have figured out any prison yeah anyway that's pretty nice though but you guys must be going a little stir crazy oh no there's a there's plenty of rum to keep uh keep us in check i can just imagine i've been with that crew and they definitely are drinkers it's uh they hope they don't run out of booze that would be tragic oh no we've we've had so many deliveries already that's the one thing that's being constantly delivered to the villa [Laughter] as long as the alcohol is stocked it's all good stupid canadians need more beer and rum send over yeah that says oh well anyways we really do you have tv patrick or did you watch anything uh no no no i got one for you did i tell you about the flight attendant no oh lena you're gonna like it what it's called the flight attendant yeah on hbo okay it's the woman i didn't realize this because i don't watch this show but the big bang theory it's the woman from the big bang theory which woman there's two i don't know the blonde one yeah like the the quote-unquote pretty one i don't know i anyways it's one of them once there google it while we're talking and uh and i loved it big fan actually i should see how many tomatoes there are what was it called the flight attendant let me see how many tomatoes let's see if my theory works because i liked it a lot um oh my god this is a bad call 68 tomatoes is wrong you know what this something's happening to the markets these days a lot of prices are wrong and this is the this is another example everything is mispriced everything's the biggest price this is two that's that's too low that should be higher what kind of movie is this it's not it's a t it's a series okay yeah anyways i liked it i have mixed feelings about this actress so i don't know maybe i'll check i don't know i had no i didn't know her at all so to me she was just some new actress i'd never seen before i liked it it was campy it's kind of ocean's 11-ish oh okay yeah you know and james bond in terms of like all the the way they do multiple screenshots and stuff which can come it can be annoying like i kind of get it but i loved it i thought it was great my wife didn't like it as much as i did but i really liked it anything like james bond i would love it yeah well anyways i'm just saying the way the the the cinematography and the in this uh you know they make the multiple boxes and stuff yeah and then the other one lena are you watching uh is it bridgeton is that what it's called i haven't seen it yet i'm saving that for uh after next week because oh my dog is having puppies your dog is having puppies yeah yeah see i this that's why she got the rock because uh her dog was pregnant that's right okay well um don't know what uh tv has to do with your dog having puppies but anyway so be it um bridgerton actually gets 86 tomatoes i i'm they got this wrong i'd i'd flip them but bridges it's pretty solid it's gossip girl meets downton abbey oh perfect yeah i gotta binge watch that that's why i'm saying i can't watch it until it's pretty good actually my uh my um daughter crushed that oh she should watch that i did i refuse to watch that kind of but you just refused to watch any tv period no pop culture no no no none at all how about you lina did you watch anything good over the of the holiday you know why i actually didn't watch much because i was looking at my ring oh i was staring in my ring for a week and a half nice okay well how are we tell me a little bit about your dog having babies so did your dog get out and like and uh no no no it was she was like next door knocked her up it was all planned out uh we have a we have a toy slash miniature poodle and we were thinking after this whole coveted lockdown i was like oh you know maybe we'll get another dog we'll get a second dog and then uh we decided to um look for him buy a second dog you don't need to have bait you don't need to get the dog pregnant to have something no no i understand but when we were looking for another dog even our you know regular breeder when we went to look for them a they're not really available anymore i don't know if that has anything to do with covid but yeah i think it does there's no dogs like if you go look at the pound the pound is empty of dogs yeah and then plus um when we when we did find some they were they were like four or five thousand dollars oh my god for dog yeah i could not believe it so i was like this is not happening and our friends have a mini schnauzer and they're best friends um and they wanted a second dog but they also couldn't find another second dog so we said well why don't we just make puppies so you're having a mini schnauzer mini poodle uh half brief schnoodles schnoodle yeah i love it a schnoodle we're having a mini schnoodle yeah we're getting minish noodles uh she's pregnant with four four puppies so uh she's due next weekend nice yeah i have a kind of a weird question yeah did when you like first of all how did you know the dog was in heat wow she like she's had her heat before psycho oh you know what it looks like yeah i know everybody can smell it and so did you just like did you put on some berry white and yeah like turn off the lights and just leave them like what did you do how does this work oh they just know you just let nature do its own thing and it you know it runs its course they just you know it's just a wild weekend is it a whole weekend they're together it's like we we you know we ended up getting together and then you know five minutes into getting together they're already at it so it's they they know what needs to get done so did you videotape it and put on national geographic you know what you always take things too far man you always take them too far although i had you know seeing it happen in real life like in person i've never seen dogs mate before like i've seen dogs humping each other before and stuff like that but never actually really mating or breeding yeah it was it was it was something else i was just i was very surprised i was not ready for what was happening okay let's just put it down i'm not gonna i'm not i can't just say that and you and like that's not good enough i'm sorry you got you gotta you gotta google it or youtube it or something because i cannot explain it really it was something that i had didn't expect um yeah it was it was interesting did your dad not or your mom not talk to you about the facts of life the birds and the bees and the dogs i'm so i'm sorry you had to figure it all out that way lina no it's really sorry it's when they were done that's that's kind of like oh oh and then yeah something happened and i was like wow okay i see but uh i'm not gonna get into details it just it has something to do with now we'll just put it we'll just leave it at that i'm not i don't even know what to do i'm not googling that i'm embarrassed if i die tomorrow and then someone goes over my history they're gonna think i'm a freak i refuse to google that i'm just gonna have to leave it as one of those things that i'll just never experience and i'll just always wonder about yeah me too me too i'm like threesomes like okay um anyways uh all right on that note yep okay well listen great show everyone thanks for tuning in we'll catch you next week all right thanks everyone take care

Channel: The Market Huddle

Views: 18,573

Keywords: bigpicture trading, market huddle, macrotourist, kevin muir, Patrick Ceresna, cem karsan, kuppy, harris kupperman, finance, investing, macro, trading, stocks, macrovoices

Id: AdN2_7Xat1o

Length: 142min 44sec (8564 seconds)

Published: Sat Jan 09 2021