TRADING LEGENDS - Anton Kreil's INTERVIEW with Raj Malhotra

hello and welcome to New York my name is Anton creel I'm the Managing Partner of the Institute of trading and portfolio management I'm joined here today with one of our CEO trading Mentors Raj Malhotra and Raj started working for the Institute last year helping us to teach and mentor retail traders in the financial markets to become more consistently profitable and welcome to the interview rush Thank You editor so Raj why don't we start right at the beginning of your career how things developed throughout your career where did it all begin okay well I started trading stocks in high school on my old Lotus 1-2-3 spreadsheet and that's why I decided I know I knew one that I wanted to work on Wall Street so I attended the Wharton School Business at the University of Pennsylvania and I graduate in 98 1998 and then from there I joined the hedge fund that was owned by BNP Paribas trading S&P 500 index options from there I'm from 2000 they moved me to their New York office and I was trading options for the firm as well as customers until 2000 to 2002 I was hired away by Bank America to be the head of index options and in 2006 I was named head of all institutional options training until 2009 when I left Bank America to join Nomura which I went where I worked until 2012 so I guess my career spanned three different continents Europe Asia and America okay so a pretty successful career that yes and what's quite interesting is you and I started pretty much at the same time so in the late 90s at the beginning of the tech boom what was it like starting and working as a young guy on the trading desk at that time well it was it was a great time because at that time you thought everything would go up forever I mean I started during the one of the biggest bull markets ever and so I saw that cycle and then fast-forward 2008 I saw the greatest bear market ever so I've been through the ups and the downs and I've seen it all I guess you'd see these guys make hundreds of million dollars of paper wealth and all of a sudden they have nothing so it was a it was pretty it was exciting but also humbling okay so what was the what was the options market like to trade at that time well it was crazy I remember one time I price a collar for the girlfriend of a CEO of one of these companies she wanted to call her allocation was 200 thousand shares and the stock price I remember when we first looked at it was around 220 and her put price was 150 s so at were she would walk away with thirty million dollars and when she came in the stock was down 20 bucks so she got greedy and said I want to wait till the stocks back up to 220 and stock went straight to zero so she walked away with nothing Michael that was my first lesson in greed okay so you traded through that cycle you saw the boom you saw the bust mm-hmm you saw the greed on Wall Street you saw the fear on Wall Street then we kind of took off on a slow grind bull market Oh 203 up 207 escalating into the financial crisis in o8 what was it like for you to trade that period up to the financial crisis Oh to 207 was great for the most part they were good trading opportunities but you did see the cracks coming I would say around 2006 it was pretty apparent that something wasn't right and the part part about that was getting the timing right yeah because it did it was a year really a year a year and a half before everything really crumbled and then when it crumbled it was like a game of Jenga you pull out one thing and everything falls just like a house of cards so in 2006 what were the cracks that were starting to appear that you were talking about well the assumption that all real estate would go up forever was the first sign of a crack the assumption was that everything was secured because the market was always going up so if you could foreclose on a bank could foreclose on something but they didn't care because if they foreclosed on it they would it would dicket sell for more and you know you could see the real estate bubble bursting some banks balance sheets had bad bets on that they just couldn't move and that was that was the beginning of the end okay so obviously you were running the options book at Bank of America at the time yes with all the conversations that you are having how are you actually structuring things in the market at that time what were you doing well we got very defensive on the markets and and then since we had a global bank a big risk we had risk across all assets we could see in other in other assets like mortgages and a lot of these structured products and credit markets they were getting very bearish so the equity market was almost the last one to see the cracks happen okay so you are obviously on the equity side at the time yes what was the communication like between the equities Department and the fixed income Department so the typical Investment Bank obviously they had the huge exposures to the subprime market what was it like communicating between the two areas of the bank at the time yeah what we we do is we'd have weekly risk meetings and all the heads of products would meet and then talk about positions and what they're seeing and that helped us position ourself correctly in the equity market for the coming Armageddon okay so when the Armageddon finally did come and the cracks did open what was it like internally at Bank of America at the time obviously they were a very big player during the financial crisis as we as we saw on us things unfolded what was it like there at the time I mean it was chaos across all not just Beckham air across all Wall Street firms yeah granted Beck America wasn't his wasn't as hurt by the credit markets as because of the balance sheet but our RC also made bad investments he bought countrywide at the wrong time he bought Merrill Lynch when Merrill Lynch was really worthless and so he didn't really get the memo but the professionals definitely knew what was going on and we were we were well positioned for the most part so as far as the fallouts and what happened after i'm obviously there was Bear Stearns there was Lehman Brothers Bank of America were obviously a relative survivor doing pretty well outs of the whole situation I'm you were at Bank of America for another few years then you went to Nomura no what happened was when man Merrill Lynch and Beck of America merged which was essentially a Merrill takeover of Bank America securities Merrill decided to just keep all their employees and okay Beck America was no longer needed so I saw me I moved my team to no Mira and we were there for about three years we we helped them launch their US presence yeah and I retired in 2012 and walk away very happy with a lot of friends still there and wish them I hope they'd become the next deck of America okay so around 2010 2011 I you were starting to bed yourself in at Nomura yes what was it like actually working at a Japanese bank versus a mainstream Wall Street bank like Bank of America well it was just a little bit of a cultural difference there were it you know that the Namira wanted to be as a hands off just let America run the American business but there always some Japanese influence but I have nothing but great things to say about the people I work with in o'meara they were they were aggressive they also bought Lehman at the same time they acquired us they also base bought Lehman's business in Europe yeah so they were you know they really want to make a presence they really wanted to make a push in the u.s. also so think the famous story in Europe is the the Lehman guys they're getting their bonuses guaranteed for two years by Nomura after the buyout I'm pretty sure they were happy with that sure they were so you came out of the financial markets pretty happy in 2012 what was it actually like to leave the markets and the whole readjustment process when you woke up the next day and realized there was nowhere to go a little bit refreshing but also a little scary at the same time sure I mean it was it was a refreshing because I could actually sleep at night without waking up every day and check my Bloomberg of cool every hour see where futures are especially during 2008 at that time you could even believe the numbers wait wait that's down how many points okay so you've obviously been chilling out a lot more since 2012 and I personally know what it's like you know to leave the markets and have that moment of realization when you wake up and you don't have anywhere to go and but you and I got in touch recently and started discussing how you could help retail traders in the United States become a lot more consistently profitable yes and what are the types of guys that you get coming to the seminars in New York what are they what are they like what are they looking for okay I think there's two type of traders that I really when I look into a room like this this there's two types of guys I want to mentor that I think are very successful number one is a guy that's maybe a little bit older has been trading his account for a while and he's had marginal success but the difference is the reason he hasn't been successful is because he doesn't have the right education or know exactly what the markets are telling you usually this person is whether he owns his own business or has been successful in business somewhere so it's acquired have been wealth but he just needs that extra education that extra guidance to actually become a successful trader because his instincts are actually correct most of the time they just needs a little bit more guidance or a little push or whatever just to get him over the hump yeah so we have a similar problem in Europe I we tend to get a lot of guys I guess who have been around the market 1020 years so been on the retail trading side for a long time yep and either they've lost money consistently or had marginal successes where they do make a decent return occasionally but they never managed to actually sustain it yeah I think the problem with them is sometimes they just over trade or they under trade they don't have the optimum trick you know if you if they look at 20 that's the the other don't put any of them on or they put on too many of them they should pick the three or four winners the three or four best okay so obviously the infrastructure in Europe and Asia in the retail trader market is very different to the United States obviously in Europe and Asia the infrastructure but we tell traders use is contracts for different CFDs and in the United States the way retail traders leverage positions is primarily through options with your background in the options market what do you think are the main mistakes or problems that retail traders have in the options market I think what they get wrong is they're not telling you what they miss what the options volume is actually telling you like if a vault maybe I don't have a basic understanding what volatility is or when they see volatility high or whether when they see it low usually it's high for a good reason and it's low for a reason usually want to buy it ball when it's on and it's going up and sell ball on the winds going down the same thing actually with stocks you want to you want to catch that if there's momentum in the same direction yes that's why yes I think that's what a lot of the retail investors miss okay so retail traders looking at low vol thinking because vol is low that it's an indication to buy because it will be higher at some point yes and then they just get I guess major decay right there's a difference between being low and being cheap sure what involve while is low doesn't make it cheap usually we usually when vol is high that's when it's cheap and when it's low that's when it's expensive it's the opposite of what they their instincts okay so interacting with these guys in seminars and through the mentoring programs so far we've obviously talked about the classic mistakes that retail traders making the options markets what about successes what are the types of options trades that guys tend to get right consistently I think with the ones that they get right are like I said the guys that have that understanding of when ball is high probably because there's a catalyst whether earnings are coming out or there's a FDA decision coming out that's when you want to buy the Vaught baby because also limits your downside if you if you're totally wrong you don't lose as much as you would if you're just owning stock by trading options and you're levered bet can you can make more money and that's that's the that's what I seen as the successes so far okay so you've obviously talked about the older guys the guys that have been around the block a number of times I in the retail trader options market in the US and either lost money consistently or had marginal success and never made it sustainable what about the other group of it's like you mentioned okay the other guys I like to mentor or guys are young and hungry guys like myself before they started working on Wall Street for whatever reason Wall Street tends only hire from a certain group of schools and a lot of times the guy that's way more successful comes from what they'll call a tier 2 school but are much hungrier and much much hungrier and more willing to learn show and understand that the market doesn't care what you went to college yeah I mean so my knowledge the most successful guys on Wall Street whether that's in the old days investment banks or even now the most successful hedge fund managers they're all the guys who are a young age built their own track records and traded with their own money right I'd prefer like I prefer a guy that comes in Hungary and willing to learn because if you come in with a blank slate that that's better that's the best way to learn ok so obviously Wall Street tends to hire from specific schools I'm what advice would you give to the guys who have gone through tier 2 colleges or guys who have never been to college at all well I think if you join the Institute number one we will teach you how to the same thing they teach you at Goldman Sachs yes you have something audited where it's like okay this I've made this much money trading and here are the trades I've done rather than some fictional trading account this is a real trading account this is real money I made real decisions and I'm I'm ahead of the game ahead of the other guys that are just been following their books and they're much more marketable and horrible as soon as they walk into a investment bank or a hedge fund sure so you've moved from there into the Institute what are the classic mistakes that you see from retail traders at the beginning of mentoring programs I think some of the classic mistakes are over trading and doing trades where they don't really haven't done the research never really done that homework okay so when we're going into a catalyst for example like earnings two or three weeks before earnings I generally tend to find that retail guys don't really have any reason with an edge as to why they're playing that catalyst so maybe they think they're going to beat earnings for a reason that they may have read in an article but it's already priced into the stock and what advice would you give the retail trader who's trading catalysts in terms of looking forward and looking beyond the nearest catalyst so looking further out what I look at a look at what companies are saying about them about their own about their industries in general and when you read about what their industry is what's the derivative that what's if what they're saying is true who wins if if apples saying we're going to sell X amount of iPhones next quarter which is a much which a lot more than they expect well who benefits from that is it that what the guys that put in the batteries the other parts of that that that that's where you want to look so you look down the value chain correct the second sentence exactly okay so what are you tend to find yourself focusing on are you looking at miss pricings are you looking at a catalyst you're looking at multiple catalysts what do you tend to find yourself focusing on the most okay I would say the most options and markets aren't mispriced I'm just looking at this look at the stock itself and then use the options to to express my view okay because it's a better way and a lot of rather than just buying a stock or selling a stock often yeah you get more leverage and if you're totally wrong then you limit your downside good okay and what about positions in options on companies that you haven't had any interaction with what do you look for in the fundamentals what do you look for in the financials before you take a position well usually what I'll tell someone is if you don't know anything about the company or the sector you probably should look elsewhere because there are so many stocks to choose from so many sectors you want to go where you think what you have a basic understanding rather than just trying to play catch-up when you read it when you're reading a cup report and this stuff doesn't make any sense to you how are you ever going to make money in that you want it you want to beat rate you want to be trading stuff that you know or you as opposed to stuff you have no clue on if you're if you're gonna buy an engineering company you know nothing about engineering then all that stuff is a pig latin whatever they say I don't know what that means okay okay so somebody comes into the market cold how do they actually go about researching these companies well I think what you do is just just read up about the company read up about everything that everything is available online everything is pretty free you want to know about just you can read it with company reports you can you can see what the CEO says you can we go through financials everything is available now that's what the great thing about the internet that when I started this stuff was hard to get now it's now which is putting in the time and effort yeah so when you're taking guys your mentees through your processes what are you actually show them to begin with well the first thing I tell them to do is look around what's going on in the world that that's and that's how you develop your worldview first figure out like what apps kids are using what how is behavior changing what is go how was the world different than five years ago and then start looking at companies that will profit off the changing world because what what happened in the past you can you can look at Polaroid camera or blockbuster Bri there's so many companies that don't aren't relevant anymore but then you have snapchat so look around the world open your eyes and then use that to develop your stock views and what do you think what do you think dry socks the most what's the most important thing that you would look at to drive a stock first of all the world your view on the world and second of all your view on the sector because and then just notice of what trends like who's going to start what sectors are going to start doing better than others start so stuff and then and then you drill down to the company if you want if you want to if your company the company want to buy is doing great but in a sector that's declining yeah it doesn't make sense to be the tallest you want you want to be picking the best companies in the best sectors sure like you if you think Tech is if you like the tech sector just go go to a tech conference just see what's out there see what people are using look around what are young kids using what what are they what apps are they using that's that that's the best way to start is just to start looking at the world and then you can figure out your worldview was correct sure okay well Raj it's a it's a beautiful day today in New York it would be a shame really to spend the whole day inside why don't we go out for a little walk all right let's do it are you my New York the place he bought this places listings like so anti word Bryant Park behind this is the Bank of America tower where I worked in 2002 to 2009 and it's the world trading headquarters okay so you were Bank of America from 2002 yes okay so interesting you you were there starting there right to the beginning of a bull market yeah but yeah I got the early part of the bull market from 2002 to 2007 that was also there when everything went south during the financial crisis yeah what can we were on the third floor so it wasn't for the job so how was that for you walking that during that time well at Bank America it was great so I had my greatest success I was came here as head of our index options trading when I left I was ahead of all institutional options trading yeah I was also made a managing director before the age of 30 which is unheard of yeah incredible successes yeah very happy with the work I did there the fact I'm pretty sure I helped built that building okay so in terms of mentoring yeah when you were at Bank of America yes a lot of young guys coming in starting to work under you yep what type of structures were in place how did you actually help guys go through their careers well what I was do is I was always look for the young hungry guy and I wanted him to work under me I personally mentored him myself I made sure that he follow the right processes to become a successful trader and a lot of the guys I trained or sprinkled all over the street right now probably a lot I'm still there as well yeah some of them were still there I got lots of other firms as well so we're we're up in Midtown right now yes you were saying a lot of the lot of the banks have moved up here yeah within a ten-minute walk up here you can get the Morgan Stanley Barclays JPMorgan UBS the French banks if Lehman and Bear Stearns we're still around you can walk through their old offices as well okay so all these guys have moved up from Wall Street yes so I mean what's the what's the reason why they've all kind of moved up here well you know what you don't really need to be near each other down in Wall Street like the old days says everything's done upstairs everything's done electronically the exchanges are more of a museum now okay well speaking of Wall Street I think we're going to take a little wander down there why don't we why don't we get a get a cab and go down Wall Street all right let's do it cool okay so we're down by the New York Stock Exchange next to Wall Street this is where all the action happens in the financial markets globally Raj you were stationed down here in this area when you went to work for Nomura post financial crisis what was it like to be there at the time did do the pessimism actually turn into optimism at the time well it took a long time for the pessimism determine optimism especially if you look at right here we're right in the middle of the stock exchange the New York Fed and now there's all these tourists back then there's this as a ghost town no one wanted to be associated with the financial markets or anywhere near here okay the atmosphere was very pessimistic everywhere it was long faces no one everyone thought the party was over and one thought the stock market was dead the economy was crashed there was all all bad thoughts and five years later here we are we're back to the biggest mall market in history so things changed quickly yeah the current situation now been looking around it's as busy as I've ever seen the area yeah what do you think in terms of the market now investment banks the infrastructure of financial markets do you genuinely think we're actually experiencing bull markets of bull markets past or is this a different type of market I think it's a different type of market I think the stock markets doing great but the people in Wall Street aren't happy like they weren't past more markets because they're just not making them out of money that they did in the past so it's a time to be more entrepreneurial rather than go and work for a big bank because it's just that the risk reward isn't what it was in the previous more markets yeah I think I mean what I've certainly noticed in the last five years this bull market is pretty different in terms of being on the sell side the banking side yes everyone everyone I know who was actually big in the financial markets in the previous cycle has led yeah and it's a much more career ladder occupational ladder predefined titles and predefined payer every level at work in terms of retail traders who are hoping to go into the financial market what what advice would you give now in terms of where they should be going to what what should they be concentrating what the governor wall street's not the only way to make money anymore the the amount of information at your disposal is different than any other bull market so you don't need to go to this one of these institutions to make a lot of money all the information is at your fingertips with the the expansion of the information on the Internet retail traders have got it better than they've ever had before I mean I totally agree if you look at New York Stock Exchange behind us it's basically just a museum now they don't they don't really do any actual trading there it's all done electronically it's all done upstairs it's all the ICS actually based in Atlanta so this is more of a this is more of a historical place show than than the than the current future that you can create for yourself and sold the tourists yes exactly okay let's go for a walk down Wall Street I guess back in 2008 nobody want to be anywhere near this bowl now everyone not now the boat markets back everybody wants to be next to the bowl so as he did a couple of stints by Wall Street the Goldman yeah it was good to work in this area so ed Khanna I wanted to bring you here because this was the subway stop I used to go to and from work every day when I worked at Nomura and then one day I just stopped coming here and that was the end of that part of my life okay so I guess this was the end of the Investment Banking Korea at the end of not joining the up that was the end of that journey and now I'm looking for the next thing fantastic so I guess that's all about joining the Institute being a mentor to the retail traders being a mentor to the unti to the Institute traders and helping them I guess apply the knowledge that you acquired here yeah I'm hoping to help them and have them well on their way to the same success that I had during my career fantastic well listen Raj it's been an absolute pleasure thank you for taking the time out it's been a great conversation and I guess too many years of success in the future absolutely looking forward to

Channel: InstituteofTrading

Views: 245,291

Rating: 4.8801875 out of 5

Keywords: Million Dollar Traders (TV Program), Market, Stock, Forex, options trading, anton kreil, institute of trading, portfolio management, goldman sachs, wall street, Trading, Stocks, Interview, Finance, NYSE (Stock Exchange), NASDAQ (Stock Exchange), tim sykes, lex van dam, Trader (Profession), Bank Of America Corporation (Business Operation), instutrade, training, success, Coaching (Industry), Motivational Speaker (Profession)

Id: XlWPTmk8f3o

Length: 30min 25sec (1825 seconds)

Published: Thu Jul 02 2015

Reddit Comments

[u/masudhossain]

Places where I found it interesting: 13:20

[u/[deleted]]

13:20 in a nutshell: iv rank is misunderstood by retail option traders. Retails think low vol is cheap and high vol is expensive when it's really neither.

[u/onerok]

Buy Vol going into earnings? Don't let Sosnoff hear that...