[00:00] for the last year you have not had a losing month no Fe went on one product where I would do the same thing on each trade and not have to think about strategy you've been trading naked short yes that's it yes so you're saying the
[00:16] little bit different approach I would say a lot different approach there's a lot [Music]
[00:28] of hello everybody we are back it's another Rising Star session looking forward to this one today Jim welcome thank you Tom I'm glad to be here to give everybody a little bit of background um Jim's been training for 44
[00:43] years so he's he's that's that's my you know that's what I start not the first rodeo yeah yeah yeah I know 44 years is kind of my the beginning of my career too and kind of 1981 is and uh um you are a physics professor at uh Boston
[01:02] University and as you were telling me before you've been there 36 I've been there since 1988 okay so 36 years I was hired as a 10-year professor and I was the youngest one in physics at the time I love it and before that you were at
[01:17] Harvard and blah blah blah and so so the the tie in there and the only reason I tasty as this as this a little bit different approach to finance more
[01:30] probabilistic more quantitative more statistical and I think kind of it I would say a lot different approach don't you know lot different approach lot different approach and and you've been a tasty Trader now probably over 10 years
[01:44] traded during the 1987 crash we've both learned a lot about markets and trading um you know in uh over that period of time I think we've changed a lot of our
[01:58] methodologies and things like that but what does a first of all as a physics professor and for doing for as long as you've been doing you told me before some of it's teaching but some of it's also some of
[02:12] it's research yeah so uh we are a research institution and uh you know I live for that kind of stuff I work at the St Large Hadron Collider we colliding crons looking at the smallest distance scales that have ever ever been
[02:27] probed we discover the higs Bon right that's the origin of mass in the universe and uh I only know what I know from big bang theories so you have to be I'm working on the dark energy spectroscopic instrument uh we're in the
[02:45] process of measuring 50 million galaxies to make a 3D map of the universe and figure out its equation of State you know why it expands the way it does that's against the polar gravity very exciting that that's very cool I I don't
[03:00] think I fully understand it I think you know I I I kind of wanted to go down the quantum Computing path with you but then again I don't feel like I don't feel like I'm ready to have that conversation yet um but uh super interesting so how
[03:14] much time do you have to actually trade so I I try to streamline you know this as you know it can it could be a full-time thing and I you know if I I'm I'm in uh immersed in my research and keing so I have to kind of pick and
[03:28] choose um so this is part of the reason I wanted to have some uh disciplined approach where I would do the same thing on each trade and not have to think about strategy you know just why I just want to make it routine that's why I
[03:44] decided to concentrate on one product and I want something that is around us all the time and we think about and that's energy and it's seems to be always volatile which the option Trader well let's go let's let's think about
[03:59] let's go back a little bit in time and think about kind of before we get into your you know your current story um talk to me about like what have you been doing for the last four decades as a Trader investor you know um how so I was
[04:17] trying different things it reminded me once of uh of a story I heard you tell detail but you would do something regularly with a friend of yours and you
[04:32] it worked and worked and worked it always worked until it didn't yeah and so for me I ended up selling puts uh very low deltas and it worked right until it
[04:48] didn't right and I learn yall very quickly that it's far more risky it's a little bit cont counterintuitive it's far more risky to have a greater number of contracts at lower Delta than a small number at high Delta size kills
[05:04] basically size and it's always comes down to the number of units and I think that is a lesson that every Trader alerts and see how is Big it's $70,000 no contract yeah you're talking about Futures we're right there yet okay
[05:20] we're just okay but um I think every Trader at some point early on in their career learns that you know how how how we we like see the network how how how big small really is right and it is getting through that
[05:37] challenge making you through that hurdle whether it's the crash of 1987 or 2000 or 2008 whatever it is you know learning that um because most of the time puts or
[05:49] Schmutz and and you know that's it so we go you go through this process and you're trading I mean you've pretty much been trading derivatives going back for almost four decades yes yeah and so I mean the complexity of derivativ the
[06:04] models behind it is I would assume that that part's relatively simple yeah so I mean think back of the old days it was pretty pretty hard so I had to go and buy the Wall Street Journal and there were the tables of option yes in the
[06:17] big ones were there and uh by the time I got that information it was old right so it was uh it was hard yeah yeah and then and then we start building pretty cool
[06:32] technology in the early 2000s and then obviously tasty comes along and all of a sudden you know at your fingertips is very cool technology really simple to use and all the data and everything is right in front of you right so now that
[06:46] kind of opens up you know opens The Floodgate so to speak right and you can pretty much do anything you want to do right um and in the end your most of your success has been since you gravitated towards
[07:00] uh Futures and Futures options but before that you were mostly equities you think or no yeah mostly equities and options on equities I would say is uh I started out like everybody would you know dabbling in stocks and I I chose
[07:17] stocks that I felt I knew something about like computer companies for simple you know products that I use right sure and uh high-tech things and that was uh something called an option you know and if you own that stock you know why not
[07:34] sell a call you know and boost your return a little bit right and uh you know from there it just uh got deeper and deeper into options and now I you retirement account that are more conservative right it's all options
[07:52] primarily you're trading now is I mean obviously you're indifferent to options on equities or options on Futures but you're primarily trading options on Futures and you're also trading the Futures contracts when you need to Flat
[08:07] when when need to flatten out from an an assignment or you know or a settlement exactly okay and especially if if I come to something that's in the money and I'm rolling it at the last minute there might be a spread sure of even a couple
[08:23] pennies that I don't want to pay I'll let it expire and at the second expires I'll even that I'll zero that position by buying or selling the successful and as trading was really important to you because you've been
[08:41] kind of pretty passionate about this for a long time yeah is it the competition is it the game what is it no it's it's the competition and and and it's the it's the it's the you know the motivation the really
[08:57] strong motivation to succeed so the last two years you've kind of um honed in and and move your strategy to really focus on
[09:10] trading strangles incl which is crude oil corre crude oil is probably one of the top three most active Futures options contracts sles and SL mq problem sles mq and uh yeah at
[09:30] this point yeah sometimes you get some pretty decent volume in um in 10year notes in ZN and ZB and gold but but among those depending on how hot um
[09:42] crude oil is it could be number two it could be number four it's in the it's in the it's in it's in the team picture okay and you've decided like what's the reason and and and amongst those that you mention crude oil is subject to so
[09:58] many world events that and shake the volatility and that's what we want as a Trader we want to see volatility because that creates opportunities yeah I've 10,000 times all you have um and and and kudal has been I mean let's
[10:16] face it for the last couple of years crude doall has been in a relatively narrow range um I think you know after the kind of the whole meltdown crash in in 2020 when it went negative and all that stuff I mean we've essentially or
[10:32] was that 2021 I'm trying it was 2020 I think it was it was a first year of code I first year code yeah yeah um yeah ever since then crude dool has pretty much been in that range between let's call it high 60s to low 90s and so it's been
[10:45] relatively range Bound for you almost three years now but first of all why crude oil liquidity liquidity and volatility yeah and it's you know every
[10:57] time I drive right the gas station right if I'm holding there's a gas station gas pump prices seem to react very fast if I drive by the gas pump and I see the have to look at it I can just smile you that makes me happy well but it's all
[11:16] around us is what I'm trying to say and energy is so much and it seems that no matter how much oil there is we will find a way to use it and there's you know the demand will never dry up so you're trading CL mostly options but
[11:33] the interesting thing about what you're doing is you are trading almost exclusively Monday Wednesday and Friday um shortterm options right so
[11:47] part of the reason for this is if I zero in on one product I can't trade it once a month right because there's just not enough trades in year for so so I I I need to do every trade now I get 150 trades 150
[12:01] trades a year a year three times a week okay yeah three times a week times 50 weeks yeah or well you have 150 expirations you get up a lot more trades than that technically yeah yes yeah 150 expirations 150 expirations yeah
[12:15] counting some that aren't there for holidays and yeah Futures only the index options have a daily expiration all the other ones have I mean not all the other ones but some have Monday Wednesday Friday like crude all right and Futures
[12:28] option are a little bit different than let's say like cash settled SPX options or something like that because they settle into the future they settle into the future and they expire at 2:30 Easter
[12:44] right the platform is not going to reflect that until the next day probably at 5:00 in the morning so you have to know what has happened at 2:30 to know your position right the 230 Eastern is 130 Central and so it's a little bit
[12:58] the knowhow Nuance knowhow right you know with with with trading Futures that are expiring that day right and then if you look out in the in at at uh
[13:12] subsequent months they will have some different price right there could be Fano or you know whatever yeah yeah I mean the the most of the time crude dools in contango but sometimes which just means that prices go up into the
[13:28] back Mark months but sometimes it's in back ration which means prices go lower but Monday Wednesday and Friday usually it's pretty close to the same day I Monday Wednesday Friday type stuff I mean how's the volume on that in there
[13:44] it's good you know sometimes uh when I go to to set a positions say uh at Sunday night at 6:00 when they open I'm King e soon all the time yeah that's all they open at 6:00 sometimes the spread on the options is a little bit wide for
[14:00] wait until the next morning yeah have have you had any difficulty with Phils I have I have not you know if if I I'm when I go to do a roll if I'm in the
[14:15] money and I have to roll yeah I'm patient with it and if I don't get the trade I'll let it expire in the money and I'll correct that with a future purchase Jim's trading a $50,000 account we just going to approximate $50,000
[14:31] count and for the last I think it's been the last little over a year you have not had a losing month no yeah it's it's actually longer than that I can't right
[14:44] AC close back but I only I only kept you know a real detail of it the last year the previous year was was a positive NP and I okay over the over the 12 months the reason he's on the rising star is the rising star segment is because the
[14:59] last 12 months and 12 months is is a pretty good um there's there's a lot of statistical significance to that I mean 150 expirations on Monday Wednesday
[15:12] Friday over 12- month period is is something that's important to us and because it's statistically significant and and essentially you've been trading um naked short strangles yes
[15:28] make on that is you mentioned the range 60 to 80 or 60 to 90 whatever um when we get in the lower portion of that I will skew the
[15:45] strangle right so that they a little L Deltas yeah so so not symmetric anymore details so first detail what Delta do you start with Okay so
[16:00] I have set up my routine such that when I take the trade yeah I want to pick a strike plus and minus which is $1 per day to expiration so okay so so
[16:16] of you know interpolate that a little bit yeah as you know the prices the strikes are because you in quarter units you know but but typically I you know if I if I'm doing uh doing Sunday night for the Monday expiration at 2:30 I'll take
[16:34] the strikes plus and minus a dollar now what that does for me is I don't have to pick the Delta the volatility is picking the Delta for me if the volatility is
[16:47] low that's a very small Delta but if the volatility is high that's a big Delta and that's just exactly what I want so if you're doing it on Monday afternoon for when or for Wednesday you'll go two wide if you doing it on Tuesday for
[17:02] Wednesday you're probably like 34 right point right and if I didn't get around to do it until Wednesday morning for Wednesday I might do a half right cuz
[17:14] it's expiring what what what does one point out of the money usually bring you know is typically typically going to bring uh $200
[17:29] per per one lot yeah that's both sides together yeah so that's $600 a week that's $30,000 a year that's a dollar on each side yes okay and if I it might be 75 cents got got it so you don't care about that you're just going to go your
[17:46] cheap really expensive but when I say dollar it's a coincidence that a dollar in strike price is approximately a dollar in premium okay that doesn't have
[17:59] to be you know there $2 that are on the table here one is a STK price and the coincidentally they're they're about the same and we're talking about the the the
[18:11] full options not not the micos these are the minis and these are the the regular standard you know most actively traded options and and you're doing them day of
[18:25] or day before the max you can be is technically two days yes right so we won't talk Delta because you're just talking the distance and you're talking the amount of money you take in and then so uh in
[18:40] $2 and what have you been able to keep of that $2 so that $2 would be $30,000 right that's what you're doing is $2 so so let me tell the answer so $2
[18:56] Monday Wednesday Friday 600 600 weeks is $30,000 I don't take in 30 didn't work $188,000 on the year okay of that so so there's a that's about a 40% return a
[19:12] little less than four no it's more than 50 oh or turn on the 50 on the 50 on your net L exactly 40% yeah exactly 40% but that 50 was never at risk no okay
[19:24] but how much Capital are you using on a PR trade basis so as you know that's Dynamic you know it depends on okay so but it's roughly $5 to $7,000 per so this is a one lot that yeah one lot yeah so this
[19:41] year I'm I'm probably going to go I'm I'm I'm thinking about going up to uh two two conts yeah see what's interesting about that is your win percent is much higher than than would be normally for other type of Trades
[19:54] that we do tell me about your what's your worst loss in the last year a few hundred I would say yeah but not thousands ever yeah I saw the results they're really interesting um and what would you do if there was some kind of
[20:11] an outlier if there's some kind of an outlier I would keep rolling for credit and keep going right I think with somebody like hold when you say keep rolling okay the so let's say I you're going to Monday Wednesday let have my
[20:27] strigle yeah yeah oil shoots up kind of Trace me on the upside yeah I roll a little bit higher and out two days it does it again I roll again it does it again I roll it again it eventually I catch up with it
[20:42] if it keeps going in yes okay but are you ever are you going to move when you roll let's say it's oil is going higher so you're rolling you're you're
[20:54] you doing with your put side you roll it up too yeah so I it yeah so I roll that up so the the roll is a net credit but that
[21:08] credit is from something that was in the money which by definition if I kept the out in time yeah so usually I can go up and strike you can always roll it for a
[21:21] the credit I count is both sides because the put has expired worthless in this example and so now I can put on a new put and so the credit that's important
[21:33] to me is the new put plus the new call together has to be better than the old moving that put so that you're controlling that otherwise you're just
[21:45] going to be make sure a future a lot right either up or down because the one problem with zeros is that your your Delta is going to go from you know basically 50 to zero in like two ticks yeah and so you're going to have to move
[22:00] yeah you know I mean it's a fair question to ask how could this go wrong right there a type of question we should ask all the time the way it could go wrong is if oil kept moving very deeply in One Direction any extended move any
[22:16] extended move any day of the week in oil like what goes wrong is when you get like the average daily expected move at all I I'm not I'm not sure what it is but it's it's less than a point isn't it far less far less yeah so what is it
[22:32] then what is it about 60 cents or 65 cents or something like that so if you look at the crude oil chart of the of the last year yeah uh and look at the steepest Parts yeah the steepest part might go up $10 in 14 days yeah okay but
[22:50] the average is so that's 70 cents right so that's on a steep part of the curve the average is much less than 70 yeah but I've seen we've seen moves of you know2 and half $3 you know on a single day sure I think the biggest one last
[23:03] year was something like three and change on one day yeah that kind of looks dark for a little while you know but then it fixes itself yeah that's the risk in this in this particular trade yeah um but what you found over the course of
[23:16] last year even including the $3 move is that is that the majority of time it stays within um you know within a reasonable range so kind of is there is
[23:30] there a profit Target to close early or is it always just let it expire I just let it go because uh you know this uh to close it if it's only
[23:42] $200 right in that strangle to leave 20 cents or 50 cents on the table is a big percentage of that right so I don't want to do that but I would say that the majority of times that you put out a position one of the sides is going
[23:58] to be the the money is that true majority of the time is not in the money oh really okay that's because in those two days yeah I got a dollar of cushion per day and and oil doesn't move
[24:14] anything yeah I would say roughly we could count them but roughly a half a dozen days there were moves that were bigger than that where I was in the
[24:26] money and had to dis something that's seems like it's so such a small percentage that's that's kind of crazy um I wonder if that's like historically either way okay so I'm the first one that would be very cautious about you
[24:43] know saying that just because oil behaved that way last year and the year that way next year right we have to understand that risk so you have to be
[24:56] available at 1:30 every day I have to be available now right right so you've got your schedule so that at 1:30 when there is a uh when when the crude o market closes you you'll you have to flatten out that position yeah but most of the
[25:11] time I just have to look at it and say I'm within this I'm within the Str sure yes and then when do you put the next trade on I'll put that next trade on usually I'm busy that afternoon and it closes at 5:00 is you know I keep
[25:26] talking Easter foure time okay and that it fight then that closes for an hour be and when we put the trade back on the same rules go into effect yeah and you
[25:40] are very discipled so you've done it the you made that trade the entire year and every time I put the trade on I get to reset it of course yeah and so I actually hope that oil moves
[25:54] to almost touch my strangle right yeah that's good now I can reenter it and you'll be comfortable that yeah okay yeah you know not be caught in that
[26:06] Trend anybody think you're crazy with this yeah probably I mean does anybody else watch you or know what you're doing some friends of mine you know like the
[26:18] the friend dear friend that got me interested in tasty trade I in turn got him interested in options he was a conservative guy that was dividend stocks yeah so I got them into options at least you starting off by you got
[26:32] your positions you collecting dividends at least sell some calls okay so we started out that way then he went into the usual things he got me into tasty trade yeah and he and you so you talk to him about what's going on yeah and so so
[26:45] follow I said okay if you want I'll tell you each trade I make and you can follow got to check the position every Monday Wednesday and Friday
[26:58] at 2:30 Eastern I said yes he said well I can't do that so yeah the way you're doing it yes that's correct do you ever adjust the untested side so like if your calls are being tested do you ever move up the the side
[27:12] so interesting that you said that so on Monday I was holding uh 75 and a
[27:24] half call excuse me put you're short to 7 that put yeah and and uh stock went below that yeah and so I had to roll yeah and I and it rolled into a pretty big Delta which my $1 rule
[27:40] good and as it happened I had to get up at 2:30 in the morning to make my flight here I to get the airport by 5:00 I Believe by house at 4: okay so I work coffee and it turns out that oil had spiked
[27:59] and I got all everything back so okay I'm not going to take the risk while I'm riding the plane on you I'm just I'm going to close this now you know and reenter and so yes I do make adjustments like that but not typically that's
[28:11] interesting see I'm I can't I I feel I'm almost like forced I I'm compelled to make those adjustments because you want to have uh ad is balanced yeah yeah yeah
[28:24] cuz I want to deal with it I mean that's the strategy yeah what what other little tidbits nuances with this strategy can you tell us is there anything else you know I just I just think one you know I I I said I looked at this range you know
[28:38] that's how I came up with the dollar and I like the fact that it comp it uh compensates for volatility automatically so I don't have to think about delis it just that's already automatic yeah and I I think that you know when I look at the
[28:52] crude oil graph it reminds me of the statement that I think Charlie Munger said know who Charlie Monger is sure yeah okay I think we do him he said you know when when the markets hit a high things aren't as good as people think
[29:08] you know when the market hits a low things aren't as bad as people think either and so what I'm trying to say the other little Nuance is that oil curve will turn around it's not going to go to $1,000 a
[29:21] barrel it's not going to go to zero although we saw that exception on Cas don't never say never we've seen weird exceptions but yeah yeah yeah we've seen some weird exceptions but I I I mean look look at the crued oil your you it
[29:35] turns around the chart is yeah we have seen some weird exceptions but you don't what you know no I want to have some guideline that $1 a day is a big move I
[29:50] you don't you're not your strategy doesn't has no technical there's nothing fundamental about it there's macro geopolitical about it
[30:02] nothing I thought once about devising the strategy I don't think at all about started to think about it you would be it would not work right CU then you
[30:15] guessing yourself you know leveling down all all the mistakes that so you going to expand outside of oil I have to get something that I'm really comfortable with I I I think my takeaways are that you know that that you found something
[30:34] that you feel is is tradable because it's range bound it's tradable because it's liquid and you've simplified it to to make the fewest amount of adjustments
[30:48] that you can and so far by staying small enough it's worth yeah yeah and it's fun Jim thanks so much that was great thank you F of year thank you my
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