P&L from 20 years

This blog is defunct. I realized that in revisiting these old posts, I am a better fire starter than a kiln keeper. I find energy and excitement in creating new things, not making sure the lights stay on. This will *probably* be the final post here, even though, similar to my time on the floor/screen, we may have already missed the expiry

Pain & Lessons from 20 years

Graduation, marriage, honeymoon, 2nd reception, moving into an apartment, get settled, get on the floor. May 4th through June 18th, 2001. 

That’s the hook, that’s how it all started. My first assignment was to be a rail clerk in the QQQ’s at the CBOE for a prop shop out of NYC. Occasionally I was shuffled around to other spots, we had traders in lots of other pits, it was the beginning of the handheld age, and I was a tech savvy college grad. I was always on the move. On 9/11, I was on the top step of the SPX pit, handling our 5 traders and two Merc headsets. 

By 915 we had fled the city, hearing only the sound of scrambled F-16’s flying overhead. This was followed by the long silence of a workless week. We spent time taking walks and trying to finish Thomas Kinkade puzzles. 

When we returned, the firm was up huge. Nearly 8 figures. Our teenies were all nuked, our gamma was golden and our P&L was perfect. Those traders swung biggly and crushed for the next 2-3 weeks as our book continued to print substantial amounts of cash… then we went bankrupt.

AA flight 587 went down in Queens on 11/12/01. Certain it was another attack, those same traders bought 3x the volatility and prepared to get richer. No one on board survived the accident and it was ruled pilot error. Within 3 days, the firm had given back every bit of the year’s profits and an additional 9 million. Virtually everyone was fired before the end of the year.

LESSON #1:

Buying on the news event is a losing proposition. Trading the news is for defending your existing position and for hedges.

The summer of ‘02 was bleak. The experienced traders were gone, the bougie office overlooking I-290 was gone, 7 of us remained. 3 grizzled vets, 3 clerks, and the IT guy. The problem was that our firm had traders in 50+ equities. Our job was to go around, clean up the mess and make back a little P&L in the process. I was ordained a trader on a mission to do cleanup. 

I wound up in the Tyco (TYC) pit, where I traded Coke, Bank of America, and various other lesser names. I was a back row trader that rarely got more than a 5 lot of anything. Most of the traders verbally assaulted me on the hour or whenever I mustered up the courage to make a market. I was quick, I still had decent body mass, I had a sharp tongue, I fought back, and it rarely mattered.

In the early autumn, a hefty, wandering Goldman broker came into our pit and said he had some size to move in Tyco. At the time TYC was hovering around $23-25 a share with the monthly expiration about 12 days. He asked for the $10 puts expiring that month. In all honesty, the $12.5 had a zero value, so clearly the 10s were a great sell at a $0.05, right? The DPM sold him 7.5K, the big locals piled on and all sold 1K+ each. Being a piss-ant, I got 500.

Less than 72 hours later, Dennis Kozlowski, Tyco’s CEO, was indicted on $100M worth of fraud and embezzlement charges. The stock opened under $9. It was my first blowout.

LESSON #2:

Never be short wings without having a bullet or two left in the holster. O’Hare trades are for gamblers without risk parameters, don’t get caught with your pants around your ankles, begging for an out.

LESSON #3:

Goldman will fucking gut you without remorse and they’ll never get caught or punished for their transgressions. Get used to it or don’t trade with them. If you choose to engage with Goldman, know that they don’t lose.

It would take some time, but I found myself working with an older trader who lived out of state. He would fly in for the middle of the week, I would handle the book on Mondays mornings and Friday afternoons when he would commute home. In trading terms he was a small local, well liked, and was very sharp. He knew options and risk and was always incredibly calculated. We were constantly long gamma, buying low and selling high and paying theta.

About 14 months into our relationship, we were getting set for the monthly Unemployment Friday. We were long a small amount of gamma and vega, nothing huge, perhaps 30 total straddles. The pit opened at 720 and as we waited for the data at 730 another local turned to my partner and mentioned that he felt the number was a non-event and if we wanted to sell him a few straddles to cover his shorts, he’d take us out 2 ticks better than settle. My partner sold him a 50 lot. It would be extremely costly as the data came out blistering and the bonds sold off almost 2 full points. We lost $100K that day and it was one of the deciding factors in my partner’s decision to resign. 

LESSON #4:

Trade your own book. Don’t allow someone else’s opinion to trump the work you’ve put into building your position. They don’t have skin in your game, they don’t pay your mortgage or your bills, they don’t have your best interests in mind…ever.

I stayed in the bond options pit. Found a new local to back me. He was dynamic, one of the three largest local traders. His 6th sense was his ability to acutely understand where the combo (risk reversal) was at and where it was going. He was never short gamma, to this day, he is still the most whorish gamma buyer I’ve ever known.

My addition to that team was timely as it was the beginning stages of converting the legacy CBOT products to be co-listed on the electronic markets. We had an old school MS-DOS based risk software that we paired with a newer platform and then ran it all into excel and BOOM, we were quoting electronic trades! I was on the screen, he was in the pit. Whoever got the edge, the other guy tried to exit in their respective market. 

HIM: “Sell 25 straddles, but do the strike below at the money, we need the deltas.”

ME: “Sure, one sec”
HIM: “Did you get any of those sales? I just heard 25 went through on the HARD offer, did we get some? 

ME: “No… shit, I bought them. OK, I’m going to reverse it and sell them out, even if it’s for a tiny loss”

HIM: “Did you get any of those? They traded again…”

ME: “SHIT, I bought them again… FML”

LESSON #5:

Know your product, practice the trades, do the work on paper before you hit go on the big stage. Failing to prepare is simply a failed trade. It’s akin to a roll on the craps tables. This isn’t a ‘play your way into shape” world. Be ready or don’t show up.

Two years later we broke up, painfully, but it was necessary. I found myself alone, staring at excel worksheets while working on trades that were similar, but not the same. An old friend offered me a seat at her trading desk and it propelled me to the next stage of evolution.

We were Fed Funds traders, spreaders. We were essentially the boogie board riders snaking monster waves from the surf crew at Pismo Beach. I was super nimble and kept it tight. I began writing basic auto-spreaders and algos to help us quote multiple months. Super fun work environment, a group of young, exciting traders all plowing away at the same task of eating the paste found between the wall and the wall paper.

May 6th, 2010. I was just back from Prison Chicken with a 5 piece and was standing at my desk. I was running auto-quotes out at least 18 months, even in some thinly priced futures. The screen flickered and a gasp hit our room… We realized our 8 traders in the office were the only market makers quoting the funds. It was just us, everyone rushed for the same button:

CANCEL ALL  

Within 90 seconds, the Flash Crash happened. We traded like rock stars and our office killed it. But it was a mere minute from a very different scenario.

LESSON #6:

Someone will always know more than you. If you sense you’re on an island, GTFO and reassess your situation. Locals are the last to know and if you think you’re the smartest trader in the pit or on the screen… You’re set to get smushed. 

I took the lessons and profits and opened my own desk. Left Hash Capital was truly born. I auto spread Fed Funds and then I started building out a copper arbitrage between NYC and London. I hired a night guy and we were in business 20+ hours a day. The first 9 months were great. Profits were high, moral was high, I eventually found out that my trader was high too… It wasn’t a hard decision to let him go as the words of my very first boss came flooding back to me

LESSON #7:

“You’re free to get as drunk as you wish, do as many drugs as you want, bang unlimited hookers, honestly I don’t care. But if you’re ever on the desk under the influence of anything, you’re immediately fired. There’s too much money at play for you to be dicking around.”

The markets continued to evolve, my hires got progressively better. Jack and Nick were two of the finest. We grew the bottom line, we made some really tasty coin. I was preparing to head out to our family vacation in the OBX of NC. It was late June, 2016 and the polls had just closed in London… word was slowly trickling out that the Brexit vote no one had priced in, was about to pass. 

The 5p market open was chaos, by 630 I was back in my office, manning 3 books and struggling to stay liquid. I traded the entire night, sleeping maybe 30 minutes until the sounds of my fill log jolted me awake. I did the best I could and as the market raced to a close on that Friday afternoon. By the close, I had covered half of my risk and made a decision to let the rest ride while I went on vacation. I had locked in about $65K worth of losers and I realized that it would either all come back or this was blowout #2. 

I didn’t touch a thing for a full week and when I finally got back on the desk…the account was down a total of $8K, the markets had come back and I was once again in the clear. Had I done nothing, I’d have been up well over 6 figures and probably fully gray head of hair too. 

LESSON #8:
It’s never as bad as it seems. It’s never as good as it seems. Like virtually every thing in life, it is NOT binary. There’s always an exit, there’s always a third way. Creativity isn’t just for artists, it has its place in the trading world too.

I began to develop this theory that there are really only two types of trades left in this world. Trend following and mean regression. Either you follow the trend or you fade the trend and assume that the price action will return to the historical mean. I still find value in this idea, though I’m not as adamant about its life cycle as I used to be. The interesting part is… given a long enough timeline, the trend becomes the mean.

My copper arbitrage was built on this premises. I created a mean reversion trading strategy that would sell high, buy low, and scalp in between the extremes because it was going to return to my ‘normal price’ eventually. If I was forced to inventory a few here or there, it was no big deal and I became adept at moving in and out of my arbitrage. However, in late 2018, this model was tested to the extremes.

At this time, I was trading almost exclusively at home through mirrored servers and some high speed cables. I had met a friend to grab a coffee and noticed my phone had 18 new emails. Each one turned out to be 3-4 emails letting me know that I was filled… I almost threw up on the walk back to my desk. Normally I carried 10-20 units depending on market conditions. Suddenly I found myself net long 150, trading 200 ‘points’ lower than settle and my daily P&L was -$615K.

The phone rang, it was risk. I had 15 minutes to exit as best I could or they would be doing it for me. I begged. They didn’t listen. I mentioned our deal. They didn’t care. I asked for 24 hours. They said no. 

I set the algo to suicide and vomited the entire book. I locked over $700K of losses in about 12 minutes.

I sat on the couch, watched a movie, cried on my office floor, screamed at God, yelled every obscenity at my now dark screens. In disgust I turned the monitors back on to see the close. 

Only one thing could rub salt in that loss and it happened. The copper market completely reversed and was now printing 300 ‘points’ higher than the low of the day. My algo would have made $325K give or take… instead I was now bankrupt. Blowout #2 was complete

LESSON #9:

You can be right, early and broke. The markets are more irrational than ever and you’re on the wrong side of the information equation. You must remain liquid.

It took a year or two to want to trade again. The mind was grinding on new ideas but the heart didn’t want to sting of failure again. Eventually, I got back on the horse. I crafted a new play that was trend following. I tested it, SIM traded, worked on the math, got it close enough to fund. It worked. It was small, the profits were tiny, but it was in the black. 

That work got me into other conversations. I revived some old trade ideas, overlaid some of my current work. Found some great symmetry and created yet another basket of trades. This time we were not just trend following, we added in options to help with the mean reversion. It was finally time, it was go time all over again. Time to shop this trade to prop desks and hedgies and get it funded. This was my golden goose.

In 2022 we took it live. It worked. Really well. It was seriously a brilliant little trade. In hindsight, I can say that it wasn’t the type of trade that would make you millions, but with a nice set of tight risk controls, this little guy would print $8K a week and that’s pretty tasty.

But golden geese get slaughtered and we lost our way. We over traded, we moved from 1 unit to 5 units way too quickly. We saw $8K and figured why not go for $30-40K? So we upped our size. We upped our execution. We bumped our risk exponentially. We killed the goose. The one way train in equities coming out of late July was one death nail after another. Blowout #3.

We’re older now. So even though the loss was significant, it didn’t bankrupt anyone. However, it drove a wedge between my partner and myself. The accumulated stress cost more than the profits returned. In order to make it to tomorrow, I had to exit. As I sat pondering what trade would be next, it dawned on me. It was time to leave the industry.

LESSON #10:

All great traders have 2 common qualities. They can evaluate risk, they know when to load up and when to lay off all while refusing to violate their risk rule paradigm. They know how to exit a loser and step aside.

 

My wife and I went for a walk that evening. I told her that it was time for a full-bodied reboot of my work, my career, my pay, my life… I realized that for 20+ years I have had the privilege of chasing down the thing I loved most. Trading. It had its low moments but it came with so many great ones too. Now, as the circle of life marches on, it was time to let that chapter close and die. I don’t want to wake up 230a to check my gamma scalps. I don’t want to sit on pins and needles waiting for JPow to release the minutes. I don’t want to be behind the informational eight ball getting picked off and smashed. I don’t want to grind my teeth at night. I don’t want to do it any more. I’m done.

So I find myself at a crossroads. Stuck in mindsets that I frequently counsel and preach about. Part of me believes I’m unemployable because I’ve spent two decades in a niche market doing things that truthfully only benefitted me. My other mindset is that of a recovered pessimist. I have found hope in the resurrection cycle of life, knowing that all great things come, die, and are reborn. I just need to find that next page for the chapter that is yet unwritten. 

~LH

*If you made it this far, thank you for reading my story. My DM’s are open if you have a lead on what’s next. I still lead a faith community on the weekends and you’re always welcome to join in person or online at Greater Chicago Church. I have a few old podcasts under the title “Cardinal Truth” though most won’t interest this audience. 

Once a ________

What started as a few beers on my deck during a warm spring day suddenly escalated. There were at least 36 dead soldiers lining the rail of the deck when someone finally threw down the ultimate challenge. Never one to back away, I immediately accepted and thus 'Once a Runner' was born.

To say that my internal animosity had nothing to do with it is equivalent to saying that small brown landmines in my back yard have nothing to do with my dog Teddy. Running offered an escape. 10 milers to the city became a twice a week jaunt. 20's were dropped on the weekends without question. And logging a 55+ mile week meant that I'd have a minimum of 7 hours to myself and stuck in my own head. But 3 years and a few thousand miles later I'd lost the desire to keep running. I wasn't in the caliber of Forrest Gump, but I did decide to pull the plug, on a lot of things but particularly running, and simply walk away.


So I moved on and left some of the most sincerely wonderful people behind. I endured miles upon miles of pain with a few of them. We had conversations that bridged 4, 5, even 6 weeks worth of runs. But I needed a new quest, a different challenge, something to press me. When I was ask after what became my last run, "what mile did you get your {runner's} high?" I laughed, but internally realized it was completely over. I hadn't caught that buzz since the very first marathon I'd run. That was almost 3 years ago... it was over.

So I took my light, lean, body to the next sporting challenge: CrossFit. Get back to me in a few years... I'll tell you how it ends. So Once a CrossFitter was born, he looks something like this... I'm the scrawny one in the background. The challenges are different because I'm now part of a team. I don't train in anonymity, I lift/pull/push/jerk with some of the greatest people on the planet. I don't have any delusions of grandeur, but if I can tame running to the level of running a Boston... I will crush the WOD placed before me.

But that brings me to where I'm at now and why it may be time for a new challenge. That means hanging up my spurs, putting down my holsters, emptying out my guns... That means, potentially walking away from the one job that has always been there: trading.

Trading has been good to me. The lessons I've conquered have challenged every weakness in my body. Those weaknesses have taught me how to swim while bloody in shark infested waters. I've tamed fear multiple times even at the cost of my teeth. I've puked some of the greatest trades I ever made because I believe that playing tomorrow is more valuable than playing today. There are stories that I'll tell to my kids when they finally appreciate numbers and math a little more... There was that time when a pit full of grown men started weeping as the second plane hit the WTC and we stood there powerless to even move. I have the stories and the battle scars.

It's not about bragging or being the BMOC but that hasn't always been true. There was clearly a time when I was purely motivated by the money. I dreamed about the payday at the end of every month. My expectation was to crush it every day. I developed a positive mindset that I was always there to make money... vs the one I see in so many young traders "I just don't want to lose any". I was mentored by a beast and if you've read any bit of this blog before you can find references to him scattered throughout. He taught me vol trading, combo risk, delta hedging, and trade creativity. In a world where no one wants to cannibalize their profits by giving away their earned secrets, he gave me a gift I can't really repay, he taught me to trade.

I've mentioned on here that change is the only constant. I've made plenty of trades, good and bad, in the market and in life, and now I think the end is approaching. I don't want to sound dramatic, I don't need sympathy points. In fact, though recently there have been a handful of challenging months, I would argue that the next few years will present some of the finest trading opportunities ever in my markets. That's fine. I'll leave a skilled lieutenant to man the fort {it would help to find him sooner than later...} No, I'm good on the pity points. I am simply ready for the new challenge.

There are a bunch of things I want to do now. I want to work at for my church. I want to answer the call on my life to be in ministry. There are very few things that bring me satisfaction like a Sunday with family. It may still be a few years away, but it is clearly a goal that I'm striving towards. Could I potentially trade and work for church? Maybe, but I'm ready to sleep without a night guard. I would love to get up to get a drink and not log on to see how Asia and Europe are trending... I'm ready to be a little bit more normal. Once a Pastor isn't a bad title at all.

There's just one catch. Being normal means that I'll miss that rush, that buzz, that high that only comes when you crush a trade. What will I do to capture that blitz of emotion? I believe I found that answer as well. I partnered with my brothers J, Cory, and Mike and we're going full tilt into the health and wellness space. That challenge I'm craving; this will satisfy it. New fears and weaknesses to overcome? Absolutely. But just like trading, there is a model that I believe in and a product that I really enjoy. Combine those two and I believe I'll find the next conquest. Perhaps I can add Once an Entrepreneur to the list as well.

I have no intentions of shutting the shop down tomorrow. I don't believe it will happen before calendar '15 expires. But little by little, I expect to be here less and there more. In a true self deprecation mindset, I've have never claimed to be the best trader. However, I am good at getting the right people on the bus. Assembling a team is as important as the execution of X's and O's... My hope is to continue to chime in on here once in a while... until then, remember to Guard the Left Hash.

~LH

Confessions from about a year ago

ITT: The idea that I'm not completely sane.

Here's my confession and it's about a 365 days in the making. About a year ago, I went to Boston to run a race I knew I couldn't possibly win. Not just any race, rather the famed 117th running of the Boston Marathon on a crisp Patriots' Day. At the time, it would go down as the slowest full I'd ever run. I finished in 3:14:29, wondered around for 30 minutes, found my boys and started the stroll towards a station. I was already off of the Red T and in the car back towards where we were staying in Harvard, MA, before I even got wind of what happened.

In an instant, elation was replaced with agony and delight fell to confusion. The pain remained constant though it too shifted from the physical to the emotional. After that initial shock began to dissipate, I realized how angry I was becoming. I had just been robbed. Robbed of months and months of training runs. Robbed from the sensual taste of beer that I had forgone. Robbed of the much needed sleep I desired.

But, that's probably old hat to most of you. So clearly that can't be my confession. No, the confession is the growing belief that the bombing attacks at the Boston Marathon were a really well orchestrated ruse.

I believe I'm predisposed to conspiracy theories. In the grand scheme of life, I actually believe we all are. We all desire to have control and if that control can't be had then we pray that someone {hopefully, someone that we like or have voted for} actually has it. We want to know that someone is actually pulling the strings on the game of life.

I don't actually have some grand theory about why a country or its operatives would bomb a US city during a sporting event. I don't really even care who did it. I don't actually care to debate anyone on the topic. It's simply my opinion as someone who was there, went through the 26.2 miles and had it stripped away.

But this is similar to trading over the past decade. At some point there was a different ruler to the markets. The game evolved from a pit fight to a digital one. It used to be a fight where the biggest, strongest and loudest won, now those players lay defeated against the fastest digital fighters the world has known. Malcolm Gladwell tossed out his new book recently chronicling the abuses of High Frequency Trading. Yet, in my opinion this book more closely resembles the timing of early '90s TV commercials. Remember the kind where they would be post dated by a few months if not years in terms of the current hot songs, themes or issues of the day? Yea, just in time processing and using current music just wasn't happening yet. In the same vein, HFT actually died two years ago. Don't believe me? Go check out the year over year results for Getco, Knight, Citadel, Infinium, Latour. They're getting smoked. The speed game no longer exists, the order type game is dying and now that the public knows, the big engines that run this game will go find a new way to scrape out a living. 

Remember a few paragraphs ago when I said we all want control. I think there's really something there. Often we're too afraid to seize it because we're afraid of the cost. If there is a real chance that we may get hurt in the process of taking control, many of us shut down. We allow fear and shame to govern our decision making process and then we lock into a hamster wheel that can't be escaped. Brene Brown, who has the TED talk linked below, talks a lot about this process of being vulnerable. It is the foundation for a lot of her work. Interestingly, according to her research many of us operate on an adolescent level when we try to get our own way. We see that something needs to be reigned in before it hurts us, so we catastrophize it and make it a huge deal so that we can control it. 

But what does any of that have to do with a dumb, unfounded conspiracy theory and trading and HFT? I know, it all sounds like a random mix of things that don't really fit together. Truth is, we're all playing the same rigged game. I know that there are market participants that I will never meet, will never positively ID, will never get confirmation about, whom I trade with every day. Some of these guys cheat the system. Their orders go in faster, the get in front of me in the cue, they bail out of the market if I go to slap a big order. They operate in a quasi, state supported {CME} world where I don't matter as long as I pay my fees and get dinged once in a while. But we don't get too angry. Because if we do get pissed and we do ask to take control back, there is the distinct possibility that we will get stung. There could be negative ramifications to my actions. I can't speak out about a state sponsored bombing on US soil because people will shame me, my opinion will become crap, my friends will disown me, and my NSA file will grow three times larger. I can't speak out about a state run oligarchy of market participants because they may destroy my livelihood and my way of trading. 

So... I lob poorly written ideas, conceived on an L, typed on an incognito browser and post it to my blog... which isn't really a secret. 

Oh well, this was just something to type to keep my mind off the markets and my fingers off the mouse. I know it's completely random, probably makes zero sense, and for all I know is full of typos... But if you're down here, you've obviously read more than most. 

Next week, it will be time to fire up the Fed Fund archives and start talking rate hike. I can feel it out there, I can sense the players in the markets, I believe its a lot closer than Yellen and her blokes would ever like you to know. 

Until then, have a great Easter and pound some chocolate. 

~LH

Forecasting the Turn

This wont be a lengthy, in depth piece about the predictive power of charts. In fact, if you ever cared to watch my GtLH segments on BTFDtv you'd know that I can't read a chart to save my life. Now that doesn't stop me from drawing lines everywhere and then shading in the funky areas to make some great geometric designs... However, not a single piece has sold on my Etsy Shop and I've not made one trade off of the colored works. It's probably best that I hang up that skill for one that will be profitable. Rather, this a a flow piece...

Here's just a glimpse of what I see:
There's been a spread buyer in the June / July 1 month calendar spread {ZQMN15} in the Fed Funds for the last 9 weeks. Initially, they began purchasing 1000 at a price of 4.5. After that, they bought roughly 3500 at 4 before moving it all to the 3.5 line and bidding for another 6000. In total, I suspect the buyer is long about 7500-8000 spreads. Roughly the entire open interest in July...

If I was to speculate on the buyer, I'd say it smells of a European player. His playbook always included buying blocks of spreads. The price was attractive too. Even at the top level of 4.5 the buyer was still buying < 29% chance of a rate move. That payout is almost 4:1 and could potentially be more if Yellen comes out with a shock and awe FOMC statement. The spread is currently 4.5 / 5, better bid.

I think its telling where the buying is taking place. For a long time, we've heard that 2015 will be the year we finally fix the ZIRP problem. If that's true and the buyer is right, the mid June 2015 meeting could finally be the tipping point. For the sake of P&L, buying 100 MN15 spreads at 5 and catching a 25 basis point hike, nets you a profit of $45,000. Double that number if Yellen goes 50 bps. Of course, I wont stay in the spread long enough to capture all of that move, but she still seems hell bent on telegraphing the playbook, so maybe she'll tip her hand 6 months early...who knows? I'm long, lezzgo.

Finally, one interesting trade from Friday 3/14. As the trading day was coming to a close all of the Fed Funds were drifting aimlessly higher but the spreads weren't moving. Normally when the outrights trade higher the spreads sell off a bit. Then a buyer stepped in and bought about 1500-2000 spreads on the hard offers. All were executed simultaneously, all mid year 2015 spreads, and none of them were working orders that moved up... they were all new. Now, I realize that volatility was getting bid across the curve and that there was a war premium being built in for the weekend... BUT no trader in their right mind would lift non moving, hard offered spreads as a hedge to a weekend bet on war. Again... just something to keep your eye on.

~LH

Have You Learned From This?

I think that's the fundamental question every trader should ask when their trade is done. 

"Have I learned a lesson from this trade and will I be better equipped on the next round?"

The reality of trading is that you should be taking something away every day. On the most basic and fundamental level, this should be income. If you're not making money, there's really no reason to keep trading. The stress is far too intense and the toll extracted is too great to do this for zero or negative dollars. Ever professional trader I know understands that losers provide great teaching opportunities, but only the mature veterans understand that winners actually create the lessons we should crave for. 

As a parent there is an easy correlation. My kids are phenomenal but occasionally they need a bit of correction. If I only taught them what not to do, that list would grow daily. For a 6 year old boy that just wants to be all boy, there are a bunch of moments where band-aids will be required if there isn't a behavioral change. If my paradigm for correction is always in the negative, he will most likely keep on with his trial and error methods, looking for the best possible outcome. However, given a bit of guidance on what he should do, one would imagine that he'd use that positive reinforced lesson to minimize negative results. His list of "To-Do's" will be kept tidy and succinct. While the actions outside of that list stay vastly umcategorized and ignored.

If I go back and scrape out all the winning factors of my successful trades the list is actually quite small. Occasionally there is something extraordinary, a factor that lands outside of three standard deviations, but the reality is most fall here.

• Genesis: Was this trade crafted from my soul? Did it come from a place of learned experience or is it just a fleeting thought that I overheard at the bar?
• Risk: Were all the pros and cons correctly annotated?
• Execution: When it was there did I pull the trigger? Not early, not late, but when it was there.
• Anticipation: Was I blind to the market or did I see the changes coming. The trade needs to be proactive, anticipating the market's next move.
• The Payout: When I felt the upside no longer justified the risk, did I pull the plug?

Looking at some of my biggest winners, its very easy to pick out a "Yes" on all of those questions. My biggest losers have a couple "Yeses" but a laundry list of bad decisions is often coupled with them. Its much easier to identify the right things I did versus listing the multitude of mistakes I made. Focus on the short list of positive attributes and simply be conscious of the lengthy list of horrible moves you're not doing. Like raising a kid, tell him how to do it right and maybe he'll follow the instructions and win the game too.

~LH

Always Have a Plan

Here's a cross linked post from DYDD.org where they graciously allowed me to post a plan.

Always Have a Plan

~LH

One of the Kings

I interviewed one of the Three Kings on www.btfd.tv the other day.

His name is Tim, he worked on the CBOT floor from '95 until 2010. We worked together for 7 years. Its just two guys discussing the past.

Here's the UStream link: Meet a Bond Option Legend: Tim

Here is the permanent link to our conversation via YouTube in the event that nothing else works.

~LH

In search of a "Team"

Most of you don't know me, so its probably safe to let you in on a little secret about landing one of those coveted 'trader interviews.'

Myself and roughly 8 other established traders have an interview network.

It serves two direct purposes. One, if you're not right for my shop but possibly a good fit for one of my 'friends' then I'll make sure you get an interview there {they do likewise}. Two, if you're a family friend or someone who is owed a favor, I can get you 1-2 guaranteed interviews. They may find something grand about your style, they may just say thanks, but either way you had an interview and gained experience. 

Due to this network, I've directly interviewed or informally charted no less than 175 individual traders looking for a change of scenery. Some of them are previous floor guys who are just now looking to make the jump upstairs. Some of them are people who heard only the positives of trading {make money, buy cars, get laid} and want a piece of the action. Some have been mathletes, so gifted in algorithmic equations they were qualified to teach collegiate courses. Some are college kids, lured by novels, movies, and rumors that this is the lifestyle of the baller. Of course, some are just traders that are unhappy with their current environment and long for a change

I have a special folder on my external hard drive. It is dedicated solely to cover letters, resumes and maybe a few notes. If you've sent one my way in the last 10 years, chances are that I have a copy of your "work life." As I began to pondering the topic of trading teamwork I decided to cruise through some old CVs and resume.docx to see if the pattern I felt was actually present in my notes or in their text. 

My hunch was that a majority of 'free agents' wanted to be part of a team. Almost none were looking solely for backing in order to trade. My hypothesis was proven correct, over and over and over again. An overwhelming number said virtually the same thing.

They all want to: 

• Be part of a team
• Learn from experienced traders
• Grow under the supervision of proven winners

I understand this is a slightly flawed sample. A statically significant number of the applicants were younger college graduates that had been in the workforce less than 3 years. Therefore, their desire to be under the tutelage of a mentor makes sense. But it intentionally looked up some of the more memorable 'older' traders that were also looking for a change. Though they weren't as many in number, their answers mimicked that of the masses. 

My problem with the "Team Quest" 

I'm a very extroverted guy. My Meyers Briggs is ENTJ and I'm all for social interaction. But, when trading, I prefer a dark room with just me and my monitors. I love to be able to feel the entire market, have a read on the pulse of what's going on. When someone else is in the my room, I feel like I'm there to instruct, manage and converse. Though I love to teach, that's not making my P&L soar. In fact, it distracts me, making it more difficult to see the little nuances that create the optimum chances for wealth and it actually causes me to be to angry at the other trader. All that to say, I've found it's hard to make a living when you're not get paid. I'm sure that some people love a large crowd, but group think hampers my decision making process.

That's not to say you can't be part of a team all working towards a common goal, but deep inside, there's only one voice you have to silence in order to make the hardest trades. For good traders, P&L favors those that attack on their own. The rewards of having no one to split your profits with are usually exponentially better than the alternative. But there's no safety net, protecting your ass when you get tagged for 50k. Your missing partner isn't there to shoulder the loss with you either. You're a solo rolo. Remember: It's just you for better or worse. 

So many traders just want to be given a working model or system and then trade it for me. That's absolutely stupid. Why should I:
A) Teach you to be my competitor
B) Reduce my profit margins
C) Give you the plan for what I love doing without you?

In 13 professional years, I've found trading to be a spiritual experience. For me, trading is a very similar to my walk with Christianity. I was born and raised in a devout family, my faith was always part of life. I was taught how to think about the world as it related to my faith. But it wasn't my faith. It was my parents'. When I did finally examine what I believed, I was kind of shocked to see that I didn't believe what I'd been told. So I crafted a relationship that I was confident in. One that was marked by the lessons I learned while wandering down life's paths. Similar to trading. I can teach you my strategies, I can give you my playbook, I can show you my results, I can instill trading confidence in you. But NONE of this is your own. That has to be created by you and your wanderings, so that you believe in it. That intimate understanding will be paramount on the day when you're down 35K before the opening bell and you need to trade for your paycheck.

Final Blip 

Have confidence in your trade. Be willing to stick your flag in the hill and say that you're going to be able to make it. There is a simple relief and satisfaction in knowing that no other person pays your mortgage. If you're a trader you should WANT to be on your own, a slave to no system other than your own determination.

~LH

ps If I do interview you formally, don't mention you want on my team, I'll ask you to leave

Race Report Boston 2013

My fourth installment of a full marathon was the granddaddy of them all, at least in running terms. Looking at it now, in the light of all the tragedy, makes 26.2 seem a little less significant, but nonetheless I still want to write about he race and not the horrific ending to the day.

My training partner's family lives in Harvard MA. in a beautiful log cabin on the rolling hills about 10 miles from Hopkinton. Not only is it a stunning home, but it allowed us quick and direct access to the starting line. In my opinion, this is marathoning done right.

We easily got through the runners' check point and on the bus to the staging grounds. The athletes' village is a set up on a beautiful high school campus about .5 miles from the starting line. The entire area is very well done. Even though there are plenty of porta-potties a bunch of people {including us} slipped into the surrounding thicket... more on that later. It was a very gorgeous morning and the brief walk to the start was already lined with a bunch of kids. Everyone passed out stuff, oranges, water, Vaseline, and band-aides... We loaded into our corrals. Time to run.

Miles 1-6

The start of the village

The first mile out of Hopkinton is a powerful decline. Though you may never notice it in a car, it is very apparent to anyone who is trying to control their speed. The natural urge is to open up and barrel down. Plenty of runners did. In hindsight I probably screwed this up. My plan was to keep it slightly above my goal pace, so instead of the 6:40 I wanted for total pace time, I shot for 6:55 in the first few mile. I figured this would give me enough in the tank to really take on the Newton Hills in miles 16-20. The net decline is broken up every so often with small, 50 ft rolling hills. They aren't really difficult and are very similar to what I'd been training on at the Argonne trail course. But the constant effort to control the decent really starts to wreck your quads. Also, during this portion of the race, many runners that started in front of me, peeled of the road and pee'd in the woods ~1.5 miles in. I'd estimate the number to be between 100-150. Reminds me of the pee stop that is under Wacker Drive after .25 miles of the Chicago marathon. All things considered {Boston Marathon, first timer, perfect day, & downhill start} my 10K time was 42:58 for a 6:52 pace, almost perfect to my plan.

Miles 7-15

This is where you begin to move from the countryside into the small towns that dot the path to Boston. The terrain is moderate with slight hills and still an overall net decline. This is the only part of the race where you can see 1-1.5 miles ahead of you because its flat and mostly straight. The crowds congregate in solid bunches. Looking back, I think its advantageous to take the water from the little mom and pop offerings because you don't have to fight the crowds or the cups. Groups of Harley bikers, drunk students, and BoSox fans scream as you make your way to mile 13 and the famous Wellesley Scream Tunnel.

Athlete's Village on the lawn of Hopkinton High School

The girls were loud and their signs were actually hilarious. "Kiss me, I'm Canadian." "Kiss me, I'm experienced" "Kiss me, I'm frustrated" "Kiss me, she'll kiss us both" The tunnel wasn't short either, I bet it went on for about a half a mile. Unfortunately, as my Harvard intern @HugeDitts had warned... "Women of Wellesly all kind of look like Hillary Clinton" He wasn't too far off. It did cost me a few seconds, but time well spent reading signs and really enjoying one of the great traditions. My half was a respectable 1:30:43 for an average of 6:54 however, that is almost 4 minutes slower than Chicago 2012. 

 

Miles 16-21

Cresting Heartbreak Hill

The Newton Hills loomed ahead. I had driven the course the day prior and knew to expect a very steep decline at 16 followed by 3 smallish hills and then the monstrous Heartbreak Hill at mile 20.5. My plan was to shorten my stride, get up the hills in the most efficient manor possible and then allow myself to open it up on the way down. Unfortunately, it turned out being too much and way too late. As I came down the hill at 16 I felt the weight of my legs steadily increasing. I understood that it was going to be a fight for the last 10 miles. My speeds began to decline. I was now right around 7:35 a mile. Hill #3 was done and the climb up Heartbreak was intense. I knew that my own little cheering section would be near the top. I also did some quick marathon math and knew that 3:10-3:15 would be a challenge. By the time I finally did ascend the half mile climb at Heartbreak, my quads were rubber. I'd lost all pep and there was virtually no fight left in my legs. I've done 22 and 24 miles runs faster than these 21 and felt completely fine...this was different. The saving grace was knowing that the last 4.2 miles was all downhill.

Miles 22-26.2

The downhill race to the finish wasn't as pretty as it sounds. Actually, it hurt a ton. My pace had been rocked to a very pedestrian 8:15 a mile. Legs were simply turning over because I refused to let them quit. I noticed the extreme density that lined the streets. Everyone was out. Boston College kids, random racing enthusiasts,

and countless children yelling and screaming to hurry up and finish. I finally saw the giant CITGO sign as I made my way past Fenway. At this point, I just wanted to be done. I was accepting any food, treat, water, or juice that was handed to me. I finally saw Hereford and happily made my right turn. It was a very slight climb and Boylston was just ahead. Made the left on Boylston and floored it. Then it hit me, "Holy crap...the finish is really far away." I tried to muster any amount of speed I could. Unfortunately, it was gone. I was spent. I saw the Boston Marathon flags over the finish...just, had, to, finish. My watch clicked off at 3:14:25...but also had registered 27.3 miles. Maybe that's why I hurt so badly.

The Chute and post race thoughts

The chute took forever. I had finished with a pretty large group of runners and maybe it was just the masses trying to get to a place where we could just sit. I remember asking the volunteers for Advil as the cramping was starting to get to me. I ran into my future training partner John, he had beaten me by about 15 secs, now we were grabbing our mylar blankets and heading to bag claim. It was probably another quarter mile until I found my partner Jeremy waiting for me at my bag bus. He'd run his best ever Boston in 2:57 only to be clipped at the line by his race partner Ryan by ~1 sec. We laughed, ate a bit and walked to the Red T. By 2:15 we were on the train and by 2:45 we were in the car at Alewife, heading back to the house.

I had run my slowest full ever. It was undoubtedly the hardest course I'd ever run and even though I had been diligent on the treadmill hills...they were really no comparison. The one thing I had not prepared for were the crushing downhill drafts. As much as I tried to keep it under control, I think it damaged my overall run. In the future, I think I have to be willing to go with it and cruise at a faster pace while worrying less. Maybe work on my tangential running {27.3 v 26.2}? Maybe more tempo training runs? Maybe its time to run 10 story parking garages? Its very tough being a flat runner and combating the hills of Boston. I own a BQ 3:03 from Chicago 2012, perhaps I use it to get back for the 118th running next April.

As far as the aftermath of what transpired near the 5 hour mark I am still in a state of surrealness. Yea, I was there and I've seen the videos, I ran the race but it doesn't seem real. I hurt for the people that were injured. I've yet to encounter a mean spirited runner in 2+ years on the road. To do this to such a peaceful, good-natured group of people is horrible. I'm thankful my racing crew, my friends, and most importantly my family were all spared both injury and the sights. If there is one thing to motivate me back to Boston, it is that I don't want my last one to be that one.

I tweeted this the other day, I stand by that this is a wonderful idea: 

"The 100th @bostonmarathon in '96 was open to everyone. 40K ran it. Next yr should again be open, qualifiers in front, free-for-all out back"

~LH

Where I landed

So, I mentioned that I left my previous trading home and struck out again to find my fortune. In some ways, I feel like a prospector heading west in the rush of '49...full of hope and anticipation, blind to the perils that may lie ahead and intensely focused on just one goal.

This isn't my first rodeo, I've moved or rebranded or regrouped at least 10 other times in the dozen years that I've spent in the financial markets. It is part of the game. Most contracts are a year long, they have a graduated payout that peaks as the contract expires. While I was writing this, I took the trip down memory lane and dug up a few statistics about my career path thus far.

• I've been fired 1 time, it was my first trading job. I learned that you don't trade against Goldman Sachs when they come in to buy a ridiculously 'over valued' put. 
• I've had a 12 positions ranging from clerk to junior trader to trader to partner to owner. The spectrum is pretty broad and the pay scale didn't always match the titles.
• Speaking net income, the smallest yearly total I've made since striking out on my own {circa 2003} is an abysmal AGI of $18,750. Ugh, that was a nasty stretch.
• I've traded the following: 
• Indexes
• SPX options/futures
• NDX options/futures
• Equity options in: 
• TYC
• BAC
• HOG
• KO
• CIT
• CPN
• QQQ
• Yield Curve 
• ZB options/futures
• ZN options/futures
• ZF options/futures
• Commodities
• Nat Gas options/futures
• Copper futures
• Corn options/futures
• Wheat futures
•  Soybeans futures
• I've had 3 partners, all three have eventually quit. 2 have left the industry completely
• I've been with 5 different clearing houses
• Paid one fine for $30,000.00

Seems pretty tame when you write it all down and piece it all back together. But that's my story and I'm stuck with it. My goal has always been the same. Provide for my family and my lifestyle while doing something that I really love. I've often said, "I would have no idea how to assimilate into the corporate world." This career in trading is a dead end. Once you really taste it, really taste it...there is nothing like it.

Back to spreaders. Updates and predictions next post. Also, a pretty decent set of calls happened HERE.

~LH