Gutrade podcast: Recent Episodes
Gunnar Haid
Gutrade is a podcast and blog featuring interviews with traders, journalists, analysts, researchers and various other personalities in the financial industry. We look behind the scenes and into the minds of traders, try to get answers to the many questions surrounding trading and investigate some of the myths in the industry. It is all aimed at individual investors in a format that hopefully entertains as much as it informs.
While trying to touch on as many subjects from as wide a range of investments as possible, the emphasis frequently slips back to the trading of exchange traded options (ETO). A lot of the focus is on the Australian Market.
Franklin Sanders Franklin Sanders, the Moneychanger, is back on the show telling me all about the lawsuits he went through when he was sued by the US Federal Government, the State of Tennessee and, just to make it a bit more interesting, the IRS. He has been a gold and silver dealer for about 35 years, is the author of many books, a daily commentator at the-moneychanger.com and goldprice.org, a pastor, a writer, a precious metals expert, a farmer and father of seven.
[powerpress]
I asked Franklin Sanders back basically due to popular demand, because a lot of people asked me about that lawsuit Franklin was talking about in my first interview with him. While the first interview focussed very much on Franklin's expertise as a Gold trader and precious metals authority (as it should in a trading podcast, right?) this time there is not a word about trading, options trading or Gold solver ratios, its just pure and simple Franklin talking about what happened when he got sued by the US government for for conspiracy and failing to pay income tax.
Franklin was kind enough to send me a few photos of his family, one you listened to the podcast you will understand why I post them here.
Franklin & Susan Sanders Franklin & Susan Sanders Sanders family Franklin Sanders' web site
Direct link to the story about the court battles
Tax protestors in the USA - Wikipedia
My second interview with Prof. Patrick Augustin from McGill University in Montreal. He found strong evidence for insider trading activities during company spin-offs by looking at changes to options trading patterns in the affected company. In this new paper he applies slightly different methods than he did in his previous award-winning 2014 Paper where he looked into possible insider trading activities before merger and acquisitions in the US. A great chat for everybody who is interested in trading, options and research surrounding it.
Links:
Augustin's Personal Home Page
Prof. Augustin at McGill University
Link to this latest paper
Link to the 2014 paper on Mergers and Acquisitions
Co-Authors:
Menachem Brenner
Jianfeng Hu
Marti G. Subrahmanyam
I think its time for a rant.
Some of you may be familiar with the fact that one of Australia’s biggest brokers, BBY, has just gone into voluntary receivership. For us who are not corporate lawyers that basically means they have gone bust. Big deal one may say, companies go bust all the time, so there is another one gone, free enterprise doing its job. Ok, fair enough, but let’s see what happened here.
Everybody now acts completely surprised and is wondering how that could all happen. As far as I am concerned, the writing was on the wall. For me BBY started behaving weirdly already towards the end of last year. Let me give you an example. I think it was in November last year, it was the Monday before the expiry of XJO options (they expire on the open on Thursday morning), and I notice that a naked put leg of mine had been closed down, without my consent. It was no major drama the cost was negligible, the contracts were if I recall correctly 3 or 4 cents each, that alone shows you how far away from the money they were.
Was I in default? No! Did I breach any other guideline? No. Was there a margin call? Nope.
My broker tells me that BBY (my broker cleared through BBY) had demanded that I close those positions. Three days before expiry, several hundred points away from the market. They supposedly had calculated my margin requirements on a 15% drop and came up with an outrageous number (a few hundred thousand Dollars) of margin. So they decided that he best way of counteracting that was to close those few contracts that would expire in about 12 trading hours. Go figure!
So I argued a bit but I notice quickly that I was barking up the wrong tree. My broker agreed to cover the cost for that closed leg, which I appreciated, but it still left a bitter taste in my mouth. Someone else fiddled with my positions - that just simply made me angry. Trading and positions I hold are, as many of you traders will understand, a very emotional thing.
Unfortunately that was the beginning of the end of my long standing relationship with that broker firm. The incidents in which I was not allowed to trade the positions I wanted to trade increased over the next weeks, the so called “margin requirements” imposed by BBY were onerous, did not follow any sort of logic or consistency and in summary made it impossible for me to trade there. A few nasty words in writing to me by one of their staff then sealed it all off, I left and moved that trading account to a different broker.
That broker oddly enough also cleared through BBY, but there were no weird 15% fall margin calculations, there was no “we have to get permissions from BBY before we can put your trades through” and other nonsense along those lines that I was given by my previous broker.
In January 2015 I read in an article in the AFR that BBY had been fined $180,000 for being unable to meet a margin call back in June 2014. The article also mentions that strictly speaking BBY was insolvent and only a special deal with the ASX made it possible for them to keep from having to shut down.
That should have been an alarm bell. Not only for me, but for many others in the industry. Like broker firms clearing through BBY - hint hint.
While I was happily trading through my new broker, a friend of mine, who traded through my old broker firm tells me horror stories about supposedly BBY forcing him to close naked positions on numerous occasions. They had to be closed, no rolling down, no rolling out in time, no buying protection below (for puts), nothing - they needed to be closed. There was no arguing, there was no logical reasons given, they had to be closed - at considerable losses (tens of thousands of Dollars) to my friend by the way.
On Friday 8 May at night (so about two weeks ago), my friend calls me up and says that he had heard rumours that that BBY had been shut down. On Monday I get an email from my broker saying that “BBY has run into some liquidity issues” and that they were shutting down their options clearing business.
One day later I get an update basically telling me to not worry, my broker was negotiating a deal with a different clearer. Things from there just deteriorated. I was seriously considering transferring my positions to yet another broker I have dealings with (not clearing through BBY), but I did not (mistake as it turns out).
Wednesday 12 June I get an email from Mr Glenn Rosewall, CEO of BBY. He says that their options arm will stop operating and that I will need to take action to transfer my positions. I have time until 1 June, so he says, at which time my positions will be closed. Mr Rosewall’s email footer states proudly: "Best Investment Firm, Best Equity Capital Markets Firm and Best Equities Research House in the 2013, East Coles Independent Investment Bank Survey and Ranked #1 in Options by market share in Australia".
As Alanis Morissette would say - wasn't that footer ironic?
One day later, on Thursday I am told by my broker that I can no longer enter any new positions but that I could close existing ones. And over the next two days that is exactly what I did, I slowly ease out of some positions.
Mr Rosewall also in an article in the AFR says in a statement that BBY’s exit from the options clearing business had come about as a result of the business experiencing “strong growth”. He added the move would not affect the firm’s other businesses.
Yeah right! That was just plain and simply a lie and I hope he will pay dearly for that. One week after that statement, the firm was put into receivership.
And worst of all, all BBY clients could no longer trade at all. Not even close out open options contracts. Nothing, a complete trading halt imposed by the ASX. On that very Monday, the Australian market dropped just over 70 points - quite unpleasant if you have open positions like me and you cannot adjust - in the week of options expiry for the XJO!
What happens if a BBY Options client gets exercised - that trader cannot even buy (or sell) the stock to cover that exercised contract. What about the trader exercising his or her option? There is no way for the option seller to fulfill the obligations under the contract. And none of that is the trader's fault.
As of today, nobody suddenly has any answers. My broker is frantically trying to move my and his other client’s positions to a new clearing house but cannot give me a date on when I can finally adjust my positions again. I call the ASX, they refer me to their web site which does not give me the answers I am after. I am supposed to call the administrator for any other questions.
Someone screwed up and lied. Yes, I am talking to you, BBY. Someone has no idea what options are and what a selective trading halt means to traders. Yes, I am talking to you, ASX.
Maybe I have a blue-eyed view of how this all works, but isn’t the ASX supposed to make sure that some rogue trader or lying CEO cannot lose their client’s money? It sure looks to me right now that the ASX is right now causing me to take incredible risks through not allowing me to trade. I would never voluntarily take the kind of risk I am now forced to take through the inability to manipulate my open positions. Risks that can very easily turn out to be a nasty nasty loss.
On every trade I make, the ASX takes a cut - and I thought that money was sort of an insurance. An insurance against stuff like that happening. Instead what I get is the moment there is an issue, the ASX runs and hides behind corporate nonsense, a web site and an administrator. Shame on you, ASX!
Who the heck is in charge of making decisions like those over the past few days?
What are Bitcoins? How secure are they? How anonymous are they? Is it really the currency of the underworld? Computer security expert Tom Webster is back on the show, and we are taking on the subject of Bitcoins.
The best explanation of public key encryption I have come across
Another good link on public key encryption
Tom used Coinbase.com to send me US$1 worth of bitcoins. I went there, signed in and sure enough, it was just waiting there for me. If you use this link to go to Coinbase and complete your sign up (free of course), we both get US$1 in bitcoin. If you'd rather not do that, just go to Coinbase.com via that link and have a look around.
Good place to see Bitcoin Price Charts
My previous interview with Tom Webster on Wifi Security and the pitfalls of public "free" Wifi
Tom Webster on Twitter
Tom Webster on G+
Tom Webster's Blog
InThirty Podcast and Blog
This is the second video in the educational series. It deals with applying the concept of options (see previous video) to the stock market.
I published an extremely easy to understand training video explaoning the concept of Exchange traded options.
https://youtu.be/ZHItly2wfD0
Case chats to me about her life growing up surrounded by traders, how she came to being taught options trading on a public TV show by one of the most famous and outspoken traders in the world, how she handles trading stress, what her favorite strategies are and she also gives me quite a good look behind the scenes of TastyTrade and I even managed to get a few comments about Tastytrade's Australia plans from her.
After my interview with Tom Sosnoff a while ago, I thought I ask his daughter Case for an interview. She and Tom have a regular segment called "Where Do I Start? which is a great combination of really good entertainment and invaluable trading information, especially (but most certainly not only) for traders who are starting out.
Case Sosnoff on Twitter
The Jade Lizard Strategy
Haydn has been a broker for a very long time and I think it is fair to say that he has just about seen everything there is in the industry. I thought it would be great to talk to him and ask what is going on on the other side of the phone line when you place a trade.
We traders call our brokers for everything we cannot get done on-line and more often than we like it, there is a lot of money at stake, the stakes are high and so can be the frustration that comes with trading. And on the other side sits the broker, kind of in a lose lose situation, he never gets credit for good trading decisions (those we always make ourselves, right?) but if things go wrong, he may not get the blame, but he sure sits square in the firing line. Then again we all know that a broker's misery is limited, considering that they make their money on any transaction, whether its a winning or losing one, so we don;t have to feel too sorry here either.
But seriously, do brokers get affected by their client's joy and misery? What is the ideal call from a brokers point of view? What's the worst you can do on the phone? Do they "borrow" trade ideas from their clients?
Have a listen, this episode answers those questions.
David Novac is a finance educator and an exceptional active trader himself. He is sharing his views on what makes successful traders, we chat about his career, charts (he loves them), indicators (he loves some of them) and risk management (there is something we both like) and he gives me a brief outline of the kind of courses he teaches.
David was the one who introduced me to options in the late 90’s and we have gradually become friends. He was the CFO of a $6 Billion Merchant Bank at age 27 and founded Wealthwise Education in 1997. He travelled the world as a speaker of Robert Kyosaki’s (Rich Dad Poor Dad) Financial Intelligence and Fundamentals of Investing Programs. And just to add to the public speaking engagements, he was also a speaker in Anthony Robbins’ Wealth Mastery tours.
More recently he has become a co-host on Sky Business’ Lunch Money and also on “Market Day” and he is a TV expert panelist on “Your Money Your Call”.
Wealthwise Education
Tom Webster is a computer security expert from Ohio and we chat about the risks you are exposed to when you log on to a “free” public WiFi
(or for my European listeners WLAN) network. I used to love free public WiFi and after listening to Tom on his podcast, I no longer use it.
As far as passwords are concerned, do you do what I used to do and have a handful of passwords that you re-use for all sorts of sites? Well, here is the short version - don’t! Tom shares a few clever and very secure tips on how you can deal with the flood of passwords we all have to deal with.
I know, what has all this got to do with trading? Well, most traders I know make use of the fact that to trade you to not necessarily have to sit in an office. They take their laptops with them and log on to their various trading platforms from wherever they can. Hence I thought I provide a bit of information about how everybody, but fellow traders in particular, can stay reasonably secure while logging on to the Internet from all sorts of public places.
Links
InThirty:Security Episode #17. This is the episode we were talking about a lot. Its almost as good as the interview I did with Tom (actually, I think its better in many ways).
Tom Webster
On Twitter https://twitter.com/samurailink3
Tom Webster's Blog http://samurailink3.com/
InThirty Podeast and Blog: http://inthirty.net/
Tom Webster on G+ https://plus.google.com/+TomWebster/
VPNs we talked about
Torguard http://torguard.net
Private Internet Access https://www.privateinternetaccess.com/
ProXPN http://proxpn.com/
Password Managers
LastPass https://lastpass.com/
KeePass http://keepass.info/
Dr. Michael Shermer Dr. Michael Shermer talks to me about Confirmation Bias, a cognitive bias that affects just about everybody and yet hardly anybody knows that they are a victim. Do you sometimes feel like “the market” is out there to get you? Isn't it amazing how often the phone rings and somebody you just thought of is calling you? Have you ever bought a new car and suddenly you see so many more people driving exactly that car of your choice? It has all got to do with Confirmation Bias and while the above examples are all kind of harmless, people in general and especially investors should be aware of it and be careful - Confirmation Bias can certainly cause harm too.
A few more lines on Dr. Shermer (and I just blatantly steal these lines from his web site):
Dr. Michael Shermer is the Founding Publisher of Skeptic Magazine, a monthly columnist for Scientific American, a regular contributor to Time.com, and Presidential Fellow at Chapman University. He is the author of numerous books (for the latest one, see link below) and has given three, yes three TED talks. He has been a college professor since 1979, also teaching at Occidental College, Glendale College, and Claremont Graduate University, where he taught a transdisciplinary course for Ph.D. students on Evolution, Economics, and the Brain. As a public intellectual he regularly contributes Opinion Editorials, book reviews, and essays to the Wall Street Journal, the Los Angeles Times, Science, Nature, and other publications. Dr. Shermer received his B.A. in psychology from Pepperdine University, M.A. in experimental psychology from California State University, Fullerton, and his Ph.D. in the history of science from Claremont Graduate University. He appeared on such shows as The Colbert Report, 20/20, Dateline, Charlie Rose, and Larry King Live - and now he even has an appearance on the Gutrade Podcast under his belt, something I am sure he is almost as proud of as I am for having been able to talk to one of my personal heroes.
Links
http://www.michaelshermer.com/
http://www.skeptic.com/
The Moral Arc http://www.amazon.com/dp/0805096914/ref=cm_sw_su_dp?tag=skepticcom-20
TED Talk: https://www.ted.com/talks/michael_shermer_on_believing_strange_things
TED Talk: https://www.ted.com/talks/michael_shermer_the_pattern_behind_self_deception
More on Confirmation Bias
http://psychology.about.com/od/cognitivepsychology/fl/What-Is-a-Confirmation-Bias.htm
http://en.wikipedia.org/wiki/Confirmation_bias
Tom Sosnoff, options trader extraordinaire, agreed to talk to me about his way of trading options. Spoiler: Charts? Nope! Any of the classic indicators? Absolutley nope! Fundamentals? Get real, not in options!
So, how does he do it? How does he teach thousands of people to trade options? Well, it all revolves around implied volatility and some simple statistical analysis. Quite a revolutionary way of looking at it all, but it only took a few minutes watching him on his TV show that streams live for several hours a day for me to get totally hooked. Boy do I love what he has to say and how he approaches options trading. Numbers don't lie, and he has lots of them.
Tom Sosnoff is the founder of online trading platform Think or Swim in 1999 that he later sold (for $600 Million plus change). He then took his team and founded Tastytrade and a new online trading platform called Dough.
If you have been trading options for a while and are experienced in multi leg trades, this is a podcast you cannot miss. Tom's approach has changed the way I look at the market and I am in the midst of completely re-learning my trade, completely based on what Tom and Co are teaching at Tastytrade.
Want to hear the best news? Tastytrade is coming to Australia! If you want to know more, listen to the interview with my first big shot guest - Tom Sosnoff.
Video: Underlying Expected Moves (the fun starts at 2:30)
Video: 2 Standard Deviation Moves (start at 3:00)
Video: Rolling Strategies (start at 3:00)
Professor Patrick Augustin:
http://patrickaugustin.se/
http://www.mcgill.ca/desautels/channels/news/professor-augustin-receives-2014-tcfa-best-paper-award-238860
Link to the paper:
http://irrcinstitute.org/pdf/Informed-Options-Trading_June-12-2014.pdf
Co-Authors:
Prof. Menachem Brenner http://www.stern.nyu.edu/faculty/bio/menachem-brenner
Prof. Marti G. Subrahmanyam
http://www.stern.nyu.edu/faculty/bio/marti-subrahmanyam