Jon Najarian - The Secret To Trading Options And Why 99% of Traders Get It Wrong

Full transcript: Jon Najarian on London Real

4:01 This is London Real. I am Brian Rose. My guest today is Jon Najarian, the former American football player turned professional investor, money manager and media analyst. You have earned a reputation in the industry as an options trading expert and pioneer, developing patented trading algorithms used to identify unusual activity in stock options and futures markets. You spent 25 years on the Chicago Board Options Exchange as a floor trader before selling your firm to Citadel, one of the world’s largest hedge funds.

4:29 You’ve been on television for 20 years and currently co-host CNBC’s Halftime and Fast Money with your brother Pete. Jon, welcome to London Real. Brian, what a pleasure. Love watching your shows. I love your interview style and I’ve learned so much from the guests that you’ve had on your show, so I am delighted to be here.

4:50 It’s gonna be a fun conversation. Thank you so much, I’m looking forward to this. You know, I spent a couple years in Chicago. I’ve been down in the pits of the Board of Trade and the Mercantile Exchange, and I want to talk all that stuff and options in your life. So I’m super pumped.

5:04 First of all, what’s it like being in London? What does the city mean to you? How does it compare with other cities you travel? Oh, I love London. I mean, every week Brian, I fly back and forth between Chicago, where I live, and New York City to do CNBC programs.

5:19 And I love that, and New York is New York. It’s a very special place, but London is really close to New York as far as the vibe, the energy there’s of course a different feel to it, and I like that difference. If it was just another New York City it wouldn’t be as special as London is. But it’s cool. I look when I come here, I ride the Underground.

5:46 I’m used to calling it a subway in Manhattan, but I do the same thing in Manhattan, I ride the subway. Do I get to get chauffeured around in cars? Yeah, but I know the fastest way around London or New York is underground, and I love going down there, and it’s just like I say, you get the vibe of the place by being with people rather than being in the back of a car by yourself. Yeah, and you like walk in the streets as well? I do, and I like doing it because these old knees need to get a few miles on them every day, so I try to get 10,000 steps or more every day, just because I know it’s good for my heart, good for my mind, and I love sightseeing, so it’s, it’s fun to walk around in London.

6:33 This is a great walking city. Yeah, well, you took the words out of my mouth. I love this town a lot. So look, I want to get into your whole life and your whole story, because it’s fascinating stuff, but before we do that, a lot of people have written to me and said, Brian, I want to know more about Jon’s option strategies, because you really are on the cutting edge and you’ve been doing this for so long to understand how options can tell you so much about what’s going to happen, about what the markets are, and so we’ve just recorded a separate video that goes more into detail about your weekly options profit strategy and your event, America’s first options millionaire summit.

7:05 That link is below, or they can go to London Real TV forward slash options. But for people that don’t know much about that, what kind of makes your system different and your philosophy different? I mean, obviously on television every day talking about this stuff, what makes you the guy? Well, I think there’s just so much information, as you know, from being a derivatives trader in options that isn’t available in stock. So they’re telling you timeframe, because an option has an expiration.

7:35 Which expiration are they trading? That tells you how long perhaps the position should be on for. They tell you strike price. So for instance, Apple might be trading at two hundred and twenty dollars a share. Are they buying those calls, which we’d call at the money, or are they buying a call up here at two twenty five to thirty and so forth?

7:57 So again, timeframe, strike prices, and things. How much leverage do they want in that trade? All that information, Brian, is encapsulated in each contract that we’re tracking. And when I started in nineteen eighty one, New York Stock Exchange, and trade fifty million shares a day. Now we do that in the opening, you know, in the first fifteen minutes fifty million shares go up.

8:21 Now we trade billions of shares a day and options, which are of course a derivative of those very stocks that we’re talking about on the New York or Nasdaq. Options trade with multiple strike prices, like Apple might have three hundred different strike prices, because they’ve got weeklies that go out this week, next week, three weeks out, four weeks out, then you’ve got monthly options, and so forth and multiple strike prices of all these. So there’s so much data out there that it used to be that we’d see about 200,000 quotes per second.

8:57 Now we’re seeing seven and a half to eight million quotes per second, so you can’t do it with the human eye. You have to do it with a computer, but then once you find those patterns, then it makes it a lot easier to coattail on the smart money. Now, a lot of people get scared about options, and it seems complicated for them. And I know it took me a couple years to first have my epiphany, and we can talk about that later. Should people be scared of options, or is it an education process just an education process, and once they understand them, they won’t want to trade any other way, because you can define the amount of risk you want to take.

9:34 If I buy Apple at 220 using that example again and I buy a thousand shares that’s nearly a quarter of a million dollars that I’ve got on the table. I don’t think it’s gonna vaporize because Apple sells a ton of products, but could Apple make a 10% correction, which would mean it drops by twenty dollars? Sure, and we’ve seen it happen a lot. Could it also jump twenty dollars? Yeah, and we’ve seen that happen, but I’d rather trade that option for $1 that could let me ride along with that twenty dollar upside move, and if I’m wrong and it goes the opposite way, I lose a dollar, I don’t lose twenty.

10:11 So I think it’s all about leverage and defining your risk, and if you can do those two things and do them right, I think you can be in this game a long time and make money. Yeah, which you have done with your brother Pete, and one of your mantras is, you know, I think you said, and we’ll talk about later, “any monkey can pick a stock, but cutting your losses and riding your wins is what makes a trader make money in the long run and makes them stick around.” True.

10:36 Yep, it’s all about discipline and, you know, we always say it. Pete really harps on people and says, “discipline dictates action, dee da,” so if you want to make sure that you’re gonna be at the table a long time, if you have this much of an edge in Vegas, if you’re counting cards and they don’t know it, you get this much of an edge. What if you could turn that edge into this much of an edge? Because you can, but you have to be disciplined with options. You have a lot better odds with options than you ever do in blackjack or any other game in Vegas.

11:09 Yeah, it’s a really good analogy. All right, so people want to learn more about that. They can click on the link below that TV forward slash options again. It’s America’s first options millionaire summit, and you’re one of the best in the business. I mean, you really have been there and done that.

11:22 I mean, back in ’81, before anyone really understood the option price in theory, you were doing it then. You saw the theory common. Now you look at those options for real information. It’s great stuff. So Jon, thanks for sitting down with me on that.

11:34 Like, I would love to start with you to find out how does a guy who was playing football for the Chicago Bears end up being an expert in one of the most complicated financial derivative, you know, instruments in the world? It doesn’t seem to fit, so how did that happen? Well, I came to Chicago to play football for the Bears, and there were a lot of great football players, but the Bears were a lousy team. They were just beginning to build the core that was gonna be part of that Super Bowl run that they had, but this is ’81 and that was ’85 when they won the Super Bowl.

12:15 So the issue was that I got to play because Mike Singletary held out on his contract, soon as Mike signed his contract, and the NFL gave him that extension from the time he signed until he’d start counting on the roster. My days were numbered, Brian, but I had a great run. I was, it was a lot of fun. Got to play in four games, and made a lot of good friends. What’s that experience like being in professional football?

12:43 I mean, that’s the peak. Yeah, what’s it like in the locker room? What’s the mentality like? I mean, obviously you played a lot of college ball to even get in that situation? What would people not know about behind the scenes?

12:54 What Jokers. The guys, almost everybody is funny. They’re always spoofing people, or like Walter Payton always called me Elvis, because believe it or not, I had hair up here back then and he’d always want to come over and flip my hair, and he’d say, oh, look, Elvis is in the room, you know, and all that kind of stuff. Walter, one of the greatest guys around, but everybody in that locker room, virtually everybody, there were a couple guys that were you know, really hard and would never smile and things like that, but most of them were jokers and they were great athletes.

13:34 I remember guys like Otis Wilson, who was drafted, I believe, number one the year before I got there, so I think he was their number one draft pick in nineteen and eighty, and I came in ’81. Otis was a beast. Had like a 28 inch waist, you know, 56 inch chest. I remembered going into the gym with him, and he’s got like 120 in each hand, and he’s just, you know, repping out like this with 120s, and I’m going, I mean, some of those guys are just physical beasts, Brian, and you know, just every muscle rippling and things, and you can imagine what it’s like today, because that was ’81.

14:14 I’ve been in locker room since then with friends and things like that that play on teams like Cam Newton down it with the Panthers. My brother Paul, his roommate at Cal, was Ron Rivera, who’s the coach of the Carolina Panthers, so we’d go down and see the Panthers and go into the locker room and things, and those players, they’re extremely lean, you know, except for the linemen, they’re extremely lean, you know. They’re carrying 3/4 percent body fat. They’re not carrying 16 20 percent.

14:46 The linemen, of course, have to be bigger because everybody they’re pushing against is 300 plus pounds, but all the other guys, the tight ends, the running backs, the wide receivers, shredded, just shredded. There’s some of the best athletes on earth, but they’re all funny. I heard a recent American professional player saying that when it comes to Sunday, he gets very quiet in his house, and his doesn’t talk to his wife because he’s about to go to battle, and he’s saying, I’m going into what could actually feel like a car accident.

15:16 Yep, and so he just, she says he doesn’t talk that day because he’s really getting his head in the game. I mean, you know, what’s it like before a game where you’re knowing you’re gonna go in there and get busted up? Probably a lot of guys are working with injuries anyways. I mean, it’s a hard sport, right? I tell people all the time that these guys, when whenever anybody criticizes the pro athletes for making the millions that they make, I say they earn every penny, because at any given moment one of their lives could actually end.

15:46 Now for the most part they don’t, but they take hits and they take injury to a point where their lives are shortened significantly, and luckily for in my case, I only played those four games, and I was playing on every team. I was playing on punt team, punt coverage, punting team, kickoff team, kickoff receiving team, middle linebacker. I was playing on all of that because again, it’s Pro Football. You don’t have a hundred guys like in college or a hundred and twenty guys on the sideline.

16:19 You’ve got forty, and some of them are injured and can’t play and all the rest, and that means that, you know, it’s all the more work for you, and I’d say the biggest thing is they’re a lot faster than anybody can imagine when those collisions happen, especially in kickoffs and punts. I mean, I broke a helmet, my whole face masks shattered in Kansas City, on, and then they had somebody who’s offsides, and they flagged it, and we had to do it again, so I had to go to the sideline grab a helmet from somebody’s snap, it on. It didn’t fit right, and I had to run down again.

16:55 Luckily it the guy ran the other way that time, so I didn’t have a head-to-head combat, but those hits are intense, and you feel them for days afterwards in some cases. Yeah, what did football teach you about life, because you played in high school when you played in college? I remember you told me one time your college team had to go play in a prison, you’re up like, literally you had to go inside the prison and play prisoners that were, you know, ten years older than you yeah, what does that teach you about life?

17:23 The prison part taught me I never want to go to prison, because when those gates shut, that sound, you don’t want to ever want to hear that, even the guards, I’m sure, don’t like it when they’re in there, and I know a few of the prison guards. My brother Pete works out with a lot of them up in Stillwater, Minnesota, which is right next to the Stillwater state prison, and so the worst of the worst are in that prison, sadly I saw a lot of the guys I went to high school with in that prison and but as far as playing football in a prison, you know, dirt field, no grass, just lime on the field outlining, you know, the areas that we’re playing in, and whenever a play went to the sidelines, there were no stands, so the prisoners literally stood on the sidelines watching their team.

18:12 The prison team play us, and the prison team’s only play other prison teams other than us, so there used to play an other big older guys, and here come all these young guys, and we had, you know, knock on wood, we had better skill than they had, but they were big and mean, and but every time you’d go to the sidelines, you’d make a hit on the sideline, the guys would say, watch it, watch it he got a knife, he got a knife, or something like, he’d jump up quicker than you’ve ever jumped up and get back onto the field rather than hanging around the sidelines, but after the game, they were so grateful that we came in and played them. You know, they shook your hand, they looked at you in the eye, and they’d say, you never want to be here, man, you never want to be here, and I’d say, I get it, I get it.

19:03 Wow, real Scared Straight, yeah, but good guys, you know, that made a wrong turn in life, but hopefully they get out and never go back, and your brother Pete played as a pro for six or seven years. He deal Pete played all over. He played for the Seahawks, Vikings, Tampa Bay, and the Raiders, and I know when you were in the pits of Chicago, you liked hiring guys that had been on team sports. Why is that? Discipline, discipline.

19:29 Yep, talk about simply discipline, because I know Brian, because the kind of workouts you do that you could do. I already know you know derivatives, but I know you could do it because you’ve got discipline. If you have discipline, you can do my job but if you don’t, like you said, a monkey can pick a stock every once in a while and be right and make a bunch of money, and they always say, don’t confuse a bull market with luck, because you’re just lucky to be in that bull market.

20:01 Everything’s going up, okay? So tough to pick a stock that’s going down in a bull market, but if you don’t have the discipline to take your profit, not just your loss. Cutting losses keeps you alive, but it won’t feed you if you don’t take profits, so you have to be disciplined about pulling some money off the table. If you just let it ride, let it ride. We’ve all seen, you know, Hollywood depictions of people at the slots or people at a crap table, and they’re letting it ride, letting it ride.

20:33 I guarantee how that ends. I know how that ends. You can’t, you can let a lot of it ride, but you have to be pulling some off all the time. If you’re not, you’re not gonna survive. Yeah, that’s one of the first things I learned when I started trading on Wall Street, is the discipline factor and it’s really hard to get it because it’s very emotional trading stocks, and as you said, a lot of times it’s men in these situations trading stocks, and we have big egos.

20:59 Oh yeah, so that gets involved and that always ends in tears. Right, well, and you’re right because I know more women that are really good traders, they just couldn’t be floor traders. Now, some could, obviously. Maybe there were like two or three percent on our floors that were women. Most of them don’t want to be down there because, disgusting guys are spitting on each other, either because they shout too loudly and spit goes flying, or because they’re trying to spit to get you not to stand next to them.

21:33 They wear the same clothes because they made money in that suit, or in that suit, but you know, in, they’re the same shirt. They made money in that shirt. They’re gonna wear it till they lose money. So they see, you can tell how much money the pits are making by the smell, you know. You’d go into the pit if those guys were in the same underwear four days in a row, they’re not changing because they’re making money, and they’re superstitious as hell.

21:59 Traders tend to be superstitious, and discipline, and when you have, though, I had a trader that worked for me once, Brian, that he went home. He was a newlywed. He went home and his wife met him at the door, big kiss. He went into the middle of the living room, took off all his clothes. She figures, oh, honeymoon still on?

22:18 Nope. He took all the clothes, cut him up with scissors, and throw him out the window. Said I’m never wearing that again, and she’s like, what? And he’s like, if you lose money, it’s not your fault, it’s the clothes. But I mean, you hear stories like that all the time about people that you know they want to pin that blame on anything but themselves, and yet there are circumstances, of course, that we all could have if we could have just had that much more air in our tank, we could have made it back to the surface if you had that much more money in your account, you could have made it through Black Friday, or through the worst days of 2008-2009, but if you don’t have discipline, you won’t have that last little bit of air you need to make it through and make the big money.

23:06 Yeah, that’s really well said. All right, how do we get from football into trading in the pits? And then I want to talk about what the pits are and what, you know, explain why they even exist in the first place for people to understand, but how did you make that move? It’s not obvious, right? My agent was a trader, and he was managing money for people, so he said Jon, if you come down to the pits, cuz I didn’t want to go up to Canada and play, and it was too late, the season had started, nobody’s gonna pick me up off the waiver wires, because I wasn’t a superstar, you know.

23:40 If you’re a fading superstar, maybe they’ll pick you up off the waiver wires at the end of training camp, but I wasn’t that guy, so I didn’t want to go up to Canada and make almost nothing, so I said, I’ll work for you. He said, if you work for me down there on the pits, I’ll give you a place to live for free, but I won’t pay you because you’re worthless until you learn it, so I’m not going to pay anything. So I went down there, did that for six months.

24:07 Three months into it, the light went off, and I figured out what was going on, and then I loved it, but I hated the first three months because I didn’t understand what was going on, and why. Take an American football player and stick him in the pit. Why not go to the University of Chicago, just down the south side, and get one of these PhD quants and put him in there that knows economics and finance, right? Why? And you and I both know the sort of that question, because the PhD quant from the University of Chicago is going to stand in that pit, and he or she is going to be looking around at all the screens and trying to figure things out when they’re gonna buy them and sell them.

24:45 Meanwhile, five different guys are gonna elbow them, get the hell out of the way, you know, and push them, shout at them, you know, criticize every single thing they do, get under their skin. I mean, it’s a lot like what I remember your interview with David Goggins, and when, you know, when those drill instructors are drilling down on those guys to break them. Traders on the floor do that too, and every time you lose money, they’ll rub it in. Oh, nice trade.

25:13 Hey Brian, how that one work out? You know, they’re on you, because if you’re standing there, I’m gonna make less money because I need all the money that I can make in this area right here, and all of a sudden Brian is standing right here, and I’m like, well, what if he cuts into how much I’m gonna make? I’m gonna make half as much. Screw that. Hey Brian, nice shoes, you know, whatever, just anything, so that’s why we’d see chess grandmasters come down to the floor.

25:42 We’d see guys that, you know, were backgammon players, pro backgammon players, guys that could count four decks in a game of blackjack, would come down. Some of those guys could make it, but they’d have to have thick skin, and they’d have to be really disciplined and put up with all those other things I mentioned, the smell the physicality, all of that. They’d have to be able to put up with that. That’s why you didn’t see a lot of guys with real thick glasses that were the quant types and the engineers, right?

26:13 So being big, physically big, strong, and not to be intimidated is a big asset back in the day in the pits. True. First of all, what is a pit? Why are there, is everybody in a pit? Why is it happening in Chicago?

26:24 Why isn’t in New York City or LA, and what was actually happening in that pit? Okay, so pits were literally, the first pits were octagon-shaped pits, where it’s a series of steps, higher and higher, and they would trade grains in those pits because that’s really what Chicago is all about, back when it is trading grains. You know, we corn, oats in the pits, then live cattle, and that was over at the Merc, pork bellies over at the Merc. They had prejudice against each other.

27:00 So Board of Trade was mainly Irish, so if you were Armenian like me or Italian or Jewish, it was really hard for you to get onto the Board of Trade. They have a book that goes back to Abraham Lincoln’s days, literally into the 1860s where it’s about that thick, and every page of that book, two people had to sign for Brian Rose to be a member. The two people had to recognize that you were an honest guy and that you would adhere to their rules, and they had to nominate you, just like in a country club, to be a member, and they had to sign their names in that book alongside your name, and so it was very hard to be a member back then.

27:43 So the Mercs sprung up across town. Same idea, though. Those same octagon-shaped pits, and you know, all these guys would stand in there and shout, buy, sold, as far as, took four levels of buying pork bellies, live cattle, corn whatever it might be. And every once in a while, Brian, somebody back in the day would come running onto the floor with a raincoat on, and they’d have their clerk hit him with a bottle of I’m not a bottle of bucket of water, and they’d come and running onto the floor in the midst of a drought, and everybody knew it was a drought, and so the price of corn spikes.

28:21 Why? There’s gonna be less of it because of the drought, and all of a sudden you see a guy running on soaking wet, and he’s selling everything. You think it’s raining out there, even though we don’t grow corn on LaSalle Street. You nonetheless, you’d be shocked, and you say, sell, sell, sell, sell, oh, and then he’s trying to buy them all back. Well, now they have Jumbotrons on all the ends of this of the floor, so you know exactly, you know, what the weather pattern is in Brazil, but not just a bag of that market and play games and things like yep, but that’s, those pits were where all of the firms could meet in one place to set prices for corn, for soybeans, for gold, and they could basically meet there and bids and offers, and that’s the fairest way to decide what the price should be, where B would be all these multiple hundreds and hundreds of guys, and women in some cases.

29:16 Like I say, women are great traders, but they generally aren’t on the floor, they’re upstairs, but it’s not that they can’t be on the floor, it’s just these days, sadly, instead of six thousand traders in Chicago, now there’s about three or four hundred, right? And so Chicago was the center because it was basically all the commerce in America has come in there through a railroad, railroads and everything, so was the place to trade these massive markets, and then later they adopted bond futures and all these financial instruments because they had the know-how, the liquidity of trading they had all the people there, so they started trading instruments that had nothing to do with Chicago, really. I mean, the bond markets weren’t, probably, originally New York and Washington DC, and now they had futures on everything.

29:59 Yep, and it was the spot. And I remember in 1993 I went from MIT to Bankers Trust in New York City. I got on the floor they gave me a big phone with a bunch of buttons, and they’re like, this is the Chicago Mercantile Exchange, this is Chicago Board of Trade, go. And I called up, think I named Dan Sullivan at Bankers Trust futures, and he would be down there, and I could hear everyone yelling in the background, and I’d be like, Dan, where the front for contracts.

30:22 Seems like he’d be yelling at guys. Haha, come on. And he would be signaling in to the pit and the guy’s deep in the pit wouldn’t know where the inside market was, and they would signal to the guys outside the pit. They would go to the phones into me, a trader in New York, and I would be buying and selling because that was the inside market. Now, that was the information on where the real price was, and this is the old-school way that trading was happening in the 90s, right?

30:46 Right, and eighties, where you’re so right, of course you’re right, but where you’re so right is in futures, which you’re talking about with bonds and T-bills and so forth. Only the last price goes on the tape, the last traded price, so what if somebody is willing to sell them at a lower price but they haven’t traded yet? The last price is still for instance 16, but what if they’re offered at 14? You know, the guys out there at 4 Dean at 14 at 14, and nobody’s buying them.

31:17 That’s vital information to you in New York or anybody trading, but the last price they see is 16 going across the tape, so you know if that guy then is selling for you or anybody else. He’s going at 13, at 13, at 12, at 12, and they’re pushing out these prices, and no response. The last traded price is still 16, so now you’d know that on the phone, and you’re going, well, where’s the bid? And the guy’s looking out there, you know, with two phones like this, and he’s looking at, what is the bid, where’s the bid?

31:49 The guy goes, 10, it’s a 10, and he goes, sell them down to 10, you know, or whatever but otherwise you’re just gonna focus on the last traded price, and you miss everything that trades in between. Yeah, you’ll have the wrong information. Yeah, and that’s why a great broker, and I later became a credit derivatives broker and the over-the-counter markets a great broker gives you the exact information you need, that can make or lose you millions of dollars.

32:12 Sure, and so if you’ve got the guys on the inside and gave you the info, that’s why it was such an important piece to have that information, and those market makers down, they’re huge, and later when I moved to Chicago I used to go down and I was being covered by a guy, Salomon Brothers, down to the Board of Trade. I took my mom down there and to go into the Bond future pit, which is probably the most liquid from the Chicago Board of Trade, and there were three or three hundred guys, foreigner guys, in there. Just, it was mayhem, and you know everyone’s probably shocked by listening to Jon’s scream and yell, but that’s what’s going on down there, and guys are doing the, you know, two, three to there, and they’re yelling their quantity, 25, yeah, and then 30, 35, and all these hand signals, so you can’t communicate because there’s no cell phones, nothing was electronic back then.

32:53 Guys are literally buying and selling, they’re writing contracts with each other the whole world is sort of on phone lines, surrounded with everyone around outside the pits, they’re signaling into people, they’re telling the counterparties’ names. I used to work at Bankers Trust, and they would move the tie like this, this meant Bankers Trust. It was a banker, and everyone had little code signals of who’s buying what. It’s crazy. Bear Stearns, Bear Stearns.

33:15 I sit out with a clause, right? And so this was kind of the good old days when you went down there, and that’s where commerce took place, right? Yep, and that is where, and the people inside those pits, all, so provided liquidity and they made markets, and maybe you could explain to people why that’s such an important thing. It’s not, that doesn’t necessarily exist today anymore by those guys, right? It was that all of those bids and offers, so we were the people in the middle, the buyers and sellers were coming in to meet someplace, but they needed somebody to make a market otherwise the buyer and seller would just meet or not meet, because this guy’s willing to sell at 14, this guy’s willing to buy them at 12.

33:59 There’s no trade. There’s no trade there until they either, this guy steps up to 14 if this offer is still there, or this guy steps down to 12, or they meet in the middle at 13. Otherwise these are just sitting there, and it’s silent. You know, all the bids and offers can come in like that, but without the guys in the middle that are making trades, so it became incumbent on us, Brian, the guys in the pits, to know that there’s a big 14 offer over there. It’s Merrill Lynch, or it’s Dean Witter, or it’s E.F.

34:33 Hutton, or it’s Prudential-Bache, or it’s Bear Stearns, or Lehman, or Goldman, or whomever, but it’s over there and the bid is over here, and it’s some one of the other big banks or whatever, and so they’re just trying to buy them and sell them, knowing they can lean on that offer. So if I get short and I need to cover, I can hit that broker. By and by, if I’m Tommy, I’ll take them, and then you buy and cover and cut your loss, or if I’ve sold them and they’re falling, and I think they’re gonna keep falling, I can hit that bid over here.

35:05 So all the traders in the middle are taking risk for moments in time, just knowing that they have all this stuff in their head about there’s a buyer there, a buyer over here, rather, and a seller over there, and if I can scalp in between, I know I have a safety net on either of these two sides, and all of a sudden the market starts moving up and down, and these bids and offers are moving back and forth, and the traders have to read that tape, as they say, and then jump ahead of it, just quicker than the next trade, and to the extent that you could do that, you could make a fortune. They used to always say that you can make or break a fortune in the stock market, but you make or break corporations in the commodities markets, because again, you’re trading a natural gas contract, for instance.

35:57 Natural gas, one contract is a million dollars, one contract, so you can imagine that if somebody says I’ll take a hundred, he’s taking down a hundred million dollars worth of natural gas. That’s a big player, and that’s why it can make or break, and when commodities may make big moves up or down, you know, they just go. There’s air pockets, like happened when those Saudi oil fields were hit by the drones. The crude oil contract, WTI, West Texas Intermediate, jumped 20% as soon as it opened for trading Sunday night.

36:35 Jumped 20%, sold off immediately, but jumped 20%, sold off to only being up 10%, and then fluttered around and finished up 15% on the day over a 12 hour period, but that initial jumped up 20%, that air pocket that happened. I guarantee you broke a lot of people on that and that’s like I say, you can break corporations on those kinds of moves. What kind of money did you see guys make down on that floor? I think good traders would make millions of dollars. Good traders, and on our floor there were about 2,000 traders just on the SIBO, and like I say, the good ones are leaving with 5 million, 10 million in a good year, things like that.

37:25 And I think all the guys upstairs in New York figured out that if those guys are making that, if I can turn this electronic and get rid of all those guys in the middle, that’s my money. Yeah, I can be that guy, and I eliminate 2,000 people, and all of a sudden you know, instead of that being a billion dollars or two billion dollars that’s being made, that drops onto my bottom line. Yeah, well, there’s a great movie called Floored that you were in as well, that talked about kind of this a lot of these traders and then how it kind of disappeared as well, but it was interesting.

38:00 Like, one of the guys is saying, like, I don’t have any health insurance, this is my own money. So if I get stopped out on the West Texas Intermediate. Hmm, that’s it. It’s over, my savings is gone. I go home to nothing.

38:13 I’m not like some corporation is bankrolling you. So when I was in Chicago, I was at First National Bank of Chicago, that big beautiful I.M. Pei building down the Loop, and I was on the sixth floor. We were trading our interest rate derivatives, but we always used to talk about the guys down in the pits with the big balls. They would go in there and make markets in the face of fear, cuz that’s what you do.

38:33 Do not call them, where’s the market? No one knows where the market is, but you guys made the market, and you might get slammed, you might get hit, you might take hits, you might take losses, you might make wins, but that takes a serious amount of discipline of moxie. And that’s why you get to these weird, like you said, you know, superstitious things these guys have. We knew one real big local that said if I had a bad argument with my wife the night before, I wouldn’t even go in, because I’m gonna make bad decisions, cuz I’m gonna be emotional and angry, and I’m gonna lose money, and he would just stay out of the pits.

39:05 I heard all sorts of stories about that. Is this accurate stuff I’m talking? Oh yeah, I knew guys, Brian, that when they got to the elevator to go either up or down to the floor, they’d press a button, and if a down elevator came and they needed the market to go up, they wouldn’t get on, and they wouldn’t even go to trade that day. They’d say, screw it, you know, I need the market to go up today. I’ve got three down elevators in a row.

39:28 I’m out. You know, that kind of stuff. But as strange as that may seem, I think a lot of the, like you said, the guts that it took to stand in there and do it, the reason that they do it, of course, is money, but it’s also the closest thing that I ever found to that sort of applause, or those endorphins going off in your head when you were playing pro football or college football or whatever. It’s so addictive, because when you’re making money, it’s just you know, the greatest feeling you can have is knowing that you were stacked against all of the people and walked out making a bunch of money that day.

40:11 Nothing felt better than that, except I asked, you’re a fan of Billions? There’s this coach, a performance coach on there named Wendy, and she’s the wife of Paul Giamatti, and she works at ax trading and Giamatti is the heir Eliot Spitzer character, of course, in Billions. He’s the Attorney General. So she coaches the guys into getting in there and making the most money. I’ve met a couple Wendy’s in my life, and I’ve always asked him.

40:47 I said, feels so good when you make money, I mean, you know, it’s just the best, but I said, I’ve never understood why losing any amount, if I lose a thousand dollars, doesn’t matter, that I made a hundred thousand, if I lose a thousand, it feels worse than the hundred thousand feels good. I said, why is that, Wendy? And she said, Jon, that’s the easiest question I ever get, and here’s why. She said that’s nature nature is telling you, don’t screw up, don’t up, don’t do that, because when you lose even though you’ve cut your loss, hopefully, and you know you lost the thousand bucks.

41:28 She said, that’s gotta feel bad, and it’s gotta feel worse than this feels good, because if you’re a wolf and you’re out there and you’re the Alpha, and you take down an elk, that means that the whole, you know, your whole herd eats well that day. You eat first, but everybody in there, they’re all sniffing your butt and they’re, you know, rubbing up against you and everything else, and you feel good because you were that Alpha that took down that elk, but now a couple days later you’re out there looking for another elk, and you smell the smell of another pack, and you know, oh, I got to get the hell out of here. I’m by myself.

42:04 I’m the Scout, and I’m out here by myself, and I smell that there’s another pack here. I can’t make that mistake twice, if I do, that other pack will rip me to shreds if they find me. Right? So she said that’s why losing has to feel worse than winning feels great, and that’s something you have to deal with when you’re a trader, and that’s where the discipline also comes in as well, because if you let yourself run by those emotions, then you won’t be a good trader.

42:31 And the discipline on this is, again, hard to explain, but people always heard you should buy low and sell high, but if you’re an untrained trader, you will actually do the opposite. Yep, you’ll buy high and sell low, because when this position starts going down, so say you bought a house for a million dollars and someone tells you it’s only worth a half a million. Most people will say, let’s just hold on and wait, and a lot of people as well will do the opposite.

42:53 If they sell something and it goes up, they’re like, oh, well, then let’s sell more because it now looks more attractive. Both of those things will get you killed in the operating environment, right? You actually have to act the opposite of human nature, which is why you need that discipline, right? That discipline is everything, and it’s similar in Vegas. You know, they call it good money after bad.

43:14 If you’re sitting there at the table and you’re pushing in good money after bad, you got a walk, step, you know, step away from the table, get your mind straight, then you can come back and go at it again. But if you’re betting on, you know, a bad hand, that’s the fastest way, you know, doubling down on a stock is the fastest way to go broke. Yeah, because there’s nothing that says it can’t just keep going, just like nothing that says it can’t keep going up if you’re shorting it.

43:43 Yeah, I’m getting some flashbacks to some Gordon Gekko lines here, so Gordon Gekko once said never get emotional about stock, right? And he also said the most valuable commodity I know of is information. Yes, and that’s why you want to know what’s happening in that pit, and that gives you everything. And when I later worked as an inter-dealer broker, my clients wanted me because I could give him the information, and you couldn’t get it on an exchange or on a ticker.

44:07 You had to know, because I knew what Goldman when doing a Morgan Stanley was doing, and that’s what I could do with a few phones on a floor of a building. It was down to that information, and so that’s super important. Oh yeah, okay, and it still is. Yeah, I mean, just to your point, real quick, the reason when I started trading and I went into the IBM pit, I traded IBM. It was the only place IBM traded in the United States was in Chicago, in the Options Exchange.

44:33 The Chicago Board Options Exchange didn’t trade anywhere else, so I saw everything. I saw Goldman, I saw Morgan, I saw Peru, I saw Bear, I saw Lehman, I saw everybody when they were coming into the pit to buy or sell, so you knew again where that big seller was or where that big buyer was, and that information was invaluable, but we didn’t realize it back then. We just thought we were great traders reading the tape, and we were making, you know, millions of dollars doing that.

45:03 But then the SEC said, you know what, Brian, we think that you’re colluding to keep prices wide. We think that IBM should trade on the Amex in New York, and on the Pacific in San Francisco, and on the Phil X over there in Philly, and if it doesn’t, we’re gonna accuse you guys of rigging markets, and you’re gonna be subject to antitrust and everything else. The exchanges listed everywhere, so IBM trades for different places. Now, how smart are you, as far as me?

45:38 I wasn’t that smart, because now I’m only seeing a quarter at best, or maybe 30% if we’re really competitive in Chicago. I’m seeing 30% of that picture and not seeing Goldman, not seeing Morgan, and all the rest of that, meant I’m not so smart, right? I don’t know where that stock is going the way I used to. The seat prices fell from $700,000 back down to $200,000 in a matter of months, because traders weren’t making the same amount of money. Interesting, and then that’s why we developed that algorithm.

46:11 You weren’t trying to lead me into that, but I’m gonna, you know, tell them that. What? So we built this algorithm that looked for unusual trading patterns in the market, because it would reassemble the data as if IBM was still just trading in one place, so we’d look at the time-sensitive data of every trade that’s happening in San Francisco, Chicago, New York, and Philly, and put it all together into one spot again, except it’s electronic. The algorithm is grabbing it and telling me, a block of stuff just went up over here, Jon, you know, and it went up on the offer, that means they bought it, or traded here on the bid, that means they sold it, so then I could go back to doing what I did, and I started, you know, making money again.

47:00 Yeah, it was a rough six months or a year when you’re not making that money. Yeah, well, they say necessity is the mother of invention, and you’ve done that, and you’re always at the cutting edge of information. I know we were even talking last night, you’re always looking for new information sources. In true, so again, for people, if they want to go deep on your algorithms and your trading methodology, there’s a link below. We talked about it, your weekly options profit strategy, or London Real TV forward slash options.

47:23 Also, you got this event, America’s first options millionaire summit, which is incredible. Talk to me about your experience in the board of exchange. So you go in there, you go into an options pit, you don’t know anything about options, you’re green to this game. How did you figure that out? And for people that don’t know what an option is, maybe you kind of explain what an option is?

47:45 Sure. There’s options in life too. There Zubat there’s optionality everywhere, and I’m guessing man has been trading some types of options with each other for hundreds of years, right? Absolutely. There were futures, and then there were options, and a future is just what the name implies, a future price of something, of a crop.

48:05 You think that corn is going to be going up this year? Why because there’s floods in the Midwest and in the United States, and there were, you know, most of the Midwest was underwater for a good portion of April and May when the crop needs to go in, so they were planted late, which means there’s gonna be less corn. So if somebody wanted to speculate on that, they buy September corn futures, speculating that it’s gonna be higher in price by that time, right?

48:34 So it’s the price of corn in September? Yeah, he’s what you’re buying if you want to speculate it now. If you’re a farmer, or someone who has to buy the corn, say you’re making bread or whatever, a corn bread, you have to buy it and sell it anyways, so you can lock that price in, right? A lot of people that are interested in that future, you bet, and that’s why the government lets us do it, because it’s a hedging tool. If it was just blatant speculation, they’d probably only let us do it in Vegas, right?

48:58 But because yeah, you’re a farmer, you’re planting, you know, 20,000 acres of corn, you’re a big farmer, and you’re gonna make a lot per bushel, even pulling it out at two dollars, two dollars and 25 cents to 50 a bushel, whatever it is. You’re gonna make a lot of money if you get all that out of the ground, but meanwhile you’ve got a big expense to put all that corn in the ground and to pay all the expenses that it takes to run that big operation. So what do you do?

49:29 You’re the seller of that futures contract, because you’re saying all I want to do is lock in the contract now. That might sound like, oh, that’s really easy, but what happens if yours is the crop that gets flooded? You’ve sold the future price of it. Your crop is flooded, and you’re only getting half as much corn out of the ground as you thought, and meanwhile since you’ve sold it at 2 dollars and 50 cents a bushel that’s now trading at 3 dollars, you’re losing 50 cents a bushel, and this is a big number on 20,000 acres of corn, even though it seemed like it was just a hedge against what you had in the ground, so weather damage like floods or hail or, you know, droughts and things like that could affect you, so those farmers, they’re the ultimate gamblers, but that’s why farmers make and lose fortunes, some years.

50:24 But as far as options, every options for 100 shares of stock, so Apple, an example that I’ve used a couple of times today, it’s trading at two hundred and twenty dollars a share, so a hundred shares of Apple is $22,000, a thousand shares is two hundred and twenty thousand shares of Apple, so if you want to buy Apple a hundred shares, do you want to put up $20,000 or do you want to buy an option, one option that gives you coverage for one hundred shares of Apple, and maybe that option is trading for a dollar, but since it’s for a hundred shares of stock, it’s actually 100 dollars. So what’s the better investment, Brian, putting up twenty thousand dollars or putting up one dollar, a hundred dollars rather? Yeah, and both control that same hundred shares of stock.

51:18 The difference is you’ve got a limited amount of time for that option, whereas you buy Apple, you own it until Apple’s not there anymore or until you sell it. So options give you a lot of leverage, and then you pick what strike price do I want to buy it at? 220, the at the money option that’s gonna be a lot more expensive than if I say, I think Apple will be 225. That’ll be cheaper. That option will be much cheaper, because the odds of it being 220 are very high.

51:49 The odds of it being 225 are maybe 30%. The odds of it being 230 a share when it’s trading 220, maybe that’s only 20% chance, one in five, and the computer figures all that for you, right? So that, in a nutshell, is options. You get to pick and decide how much leverage and how much time, and most investors lose because they don’t give themselves enough time. They buy the shortest duration possible because they’re cheaper.

52:21 Yeah, at least in their mind they’re cheaper, but if you divided it out by the number of days, might actually be much cheaper to buy that option that’s out there six months into the future, and Apple has a much better shot at going up to 230 within six months than it does in one week going up to 230. Okay, now I studied at MIT and I learned the Black-Scholes options pricing. Okay, then I went to Bankers Trust, where we had 200 quant guys there to give me all these pricing models to price up all these different types of options with different strike prices and Delta hedges.

52:55 How the hell in 1981 do you learn this on your own in a pit full of a bunch of other elements animals. Yeah, animals that don’t want to tell you, because they want to keep it a secret to nobody in that pins gonna help you. You know, so it’s again, to take it back to SEALs, it’s kind of the opposite of SEALs. SEALs are made to be part of a team. Traders on the floor are not part of the team.

53:21 Everybody’s against everybody, and nobody’s there to help you. So what I did was there were these videos videotapes, that if you cleared through this one firm, which ultimately Goldman Sachs ended up buying, if you cleared through that firm you can watch these videotapes. They were one-hour video tapes, and they had like 60 of them, so you could go up there, and during my lunch break I’d go up there and watch a half an hour of it, and then I’d watch another half hour at the end of the day, after the market closed, and they were boring as hell, but you just kept doing it over and over and over again, and finally all of a sudden the light went off, Brian, and then I got it, and I got, okay, now I understand what time decay is.

54:07 The reason the option time decay is greater when there’s only a week in it versus when there’s six months in it is you’ve got only these five days for that option to do something. So that curve is like this, it’s like so steep. The traders on the floor would, when they were trading short-dated options, would make a sound like air escaping a balloon, like whenever they’d sell those, that go because they’re know that the person that’s buying that option has only a few days to be right, and they’re saying, I will take that bet every day of the week.

54:41 I think you’re wrong, you don’t have enough time, but I can’t be sure that, you know, you don’t know anything, so I’m gonna buy some further outdated options out here that aren’t gonna decay very fast. They’re gonna decay, like, not like, you know, they’re much slower decay, and then you start getting it. You start getting time decay, you start getting gamma and Delta and all these other, you know, Delta and gamma and theta. Theta is the amount of time decay.

55:12 Yeah, you know, so that’s that, all these Greek letters for the most part, viewers, listeners don’t need to be aware of these things very much. You need to know what time decay is. You don’t need to know what theta is, same thing, but if you put it into terms of Greeks, then you can just bluff people into thinking, oh, this is way too complicated, I can never get this, ya know? And I had a similar lightbulb moment. I think I was telling you, I was at MIT in one of the classrooms studying at 1:00 in the morning, and like 1991, and my buddy and I with the chalk, and we had the, you know, hockey stick diagram, does this call option work?

55:48 It doesn’t make sense, and then Bing, I finally got it, and I was like, okay, when you’re long a call, you’re kind of like long the stock. If it goes above the strike price you make money. If it goes below, nothing happens, and a put is kind of the opposite, and I clicked, but it was until I got to Bankers Trust and started really trading the options in a Treasury option trading book, where I understood time decay, because every day that we moved the portfolio forward one day, like, where’d the money go?

56:11 Oh, that’s your time decay. So if you’re long options, your money goes down. If you’re short options, your money goes up, and then gamma and Delta and all these things, and it really started to make sense how powerful of an instrument the option is, right, and the computer, having a good computer, yeah, like you had much better computers, Brian, when you were learning options than when I was. Did you have any computers in the early eighties? It was illegal to have them in the pits in the early eighties, illegal, even though they were just coming up with some you know, they called them notebooks, but they really were more like briefcases, you know, a big, a compact, a portable compact was like this big by this.

56:49 There was no way you could bring that in the pit, and they didn’t want you to, so they made it illegal, because they said, look, if all you jerks are in here with these stupid big things, there won’t be room for traders in the pit. So they didn’t let you have handheld computers for quite a long time. It was, it into the late 80s before you could do that, because they were just too cumbersome, too large. But then, when you could, you could model anything.

57:15 You could put this option against this option and no, this one’s time decay is going like this, this one’s time decay is very slight, so if I have a whole bunch of these, verses these, then that means as time goes by I make a lot of money, because these go away and these are still with us. So, you know, calendar spreads, time spreads, things like that, various types of spreads for month-to-month. You could model all that on the computer. You could even do it in 3D eventually and figure out, okay, here’s where I want to sell them and here’s where I want to buy them, based on the decay curves and things like that.

57:53 And so you became one of the most knowledgeable people about these instruments, and you started teaching your own people. That was something made you different, and you really became a force, and you wanted to teach your own people so they would just understand more and make more money. Exactly. We’d sit there, my brother Pete, when he came to work with us, he would, you know, he was the strict disciplinarian. He was the drill instructor.

58:17 Okay, I would teach as best I could, and then Pete would discipline, and it was always funny, because we’d sit around the table in the morning, and we’d be going over every position we had we had 55 traders, so at one point we’d sit there and look at every position the traders had, and say, okay, why are you in this one? We talked about getting out of it yesterday. I couldn’t get out, you know, these calls, you know, blah blah, and I’d say, did they shut down the market, you know?

58:47 So that stock didn’t trade yesterday? Yeah, yeah, of course it traded, Jon, but, and I’m like, but we told you to get out of this thing yesterday. Why are you still in it today? Wow, and I’m, you’re hanging out on the offer, you’re not hitting the bid. We told you to hit the effing bid.

59:04 You should hit the bid and get out, you know. Otherwise you’re gonna burn all of your money, and then you’re gonna get into my money, and I don’t want you getting into my money, so you either do this or you’re gonna be working for somebody else, right? But they’re emotionally invested in the trade yeah, because maybe they don’t want to take a loss, you know, and guys’ emotions and ego are big problems with trading. You don’t want, you need to have an ego, but you need to keep it in check at the same time, so you want that big ego so that you can step up and take down a big trade, because you know in your heart it’s right, but if it starts working against you, you’ve got to let that ego go and cut that loss, and if you can’t do that, you won’t be around a long time.

59:49 Yeah, and that’s the fine art of the whole thing. Yeah, right. So you and your brother do this for 20-some odd years, you end up selling the firm on to Citadel. You started seeing a big transition happening there, right, where there were fewer traders in the pit and more of these institutions getting in and high frequency. Tell me, how did that all change?

1:00:08 Yeah, well, that occurred over a very short period of time, where are all these firms, all of a sudden they had a lot more capital and instead of coming in with millions of dollars or even tens of millions of dollars, they’re hitting the floor with a hundred million dollars, and it wasn’t that they were dwarfing us with size. They were coming in and they were basically backing a whole bunch of quants to come up with algorithms and figure out if I can make this computer go just two ticks faster. I can beat you guys on the floor with this computer, and the more they did that, the more that no matter what price I put up on the screen, I could make money for three weeks straight, and they could take it away from me in one minute, because if during that one minute something was moving fast and I couldn’t stay ahead of it, their computer would just go sold, sold, sold, sold, and just hit me on all of that in one minute, hundreds if not thousands of times, and all the sudden they vaporized three weeks worth of profits.

1:01:14 So we knew we either had to go out and raise a couple hundred million dollars, or decide that, you know, it’s time to sell, go upstairs, and become market takers instead of market makers. So that’s what we did. That was kind of a sad, that transition. Oh yeah, really sad. And, but you know, Citadel was, they were good to us.

1:01:38 They paid a good price, and they took all of our. The only person they didn’t take was a guy who wouldn’t take the drug test. Everybody else, they took one of our guys was, you know, a little too free and easy with various chemicals and refused to take their drug test. They didn’t take him, but they took everybody else. Okay, and so you made that transition from downstairs to upstairs.

1:02:03 Yes, which a lot of guys didn’t. A lot of guys, they rode it high, and in that movie you see their big game hunt, and they got all the money in the world. I mean, I stand the thing is also is you would be done with your job at like 4:00 in the afternoon, right? So you got eight hours to get into trouble with all this money every day. I mean, it’s a weird lifestyle.

1:02:22 It probably breathes addictive personalities and crazy, oh, you’re things, but you made this transition to now be the guy upstairs who is now really thinking about the trades, and that’s what you do even today. You look at the information, you call the shots. How did you do that, well? As we began transitioning, when we were looking to sell it to somebody, it ended up being Citadel, and they called me one day on the way, as I was walking home, and said, okay, we want to buy your firm today.

1:02:53 I’m like, done, but, and that’s a longer story. We’ll do it another time, Brian, but that’s a funny story but as we are transitioning, that’s when we’re developing our own computer algorithms, that Heatseeker that we talked about, and so forth and the machine is not just looking at IBM anymore. Now it’s looking at all markets and sort of like in Terminator, it became aware. It started figuring things out. I’m not saying it was a neural network, but the more that we tweaked it from what it was showing us, the more it could show us any stock anytime here’s where the traffic is, here’s where the buying patterns are, and here are the big chunky institutional trades, because I don’t care what another retail trader is doing.

1:03:46 There could be 200 retail traders all buying, and beyond me or in retail, is like an individual, for people that don’t know, could be your mom or your dad or some retail person. You don’t care about them. I don’t care, but I love them, but I don’t care about them to follow them. Yeah, I want to follow the guys like the Citadels. I want to follow the guys that have 200 person staffs.

1:04:11 They’ve got people going to every analyst conference across the country. They’ve got every new product introduction. They’ve got somebody in the back of the room on a cell phone. You know, I want those guys. I want, I’m not saying it’s insider trading, sometimes what our computer finds is likely insider.

1:04:32 Most of the time it’s people that have the money to spend to send somebody to the Goldman Sachs conference, the Cowen Conference, the bank America Merrill conference, to any of these conferences where, whether it’s health care, whether it’s biotechnology, whether it’s casino gaming, cannabis, whatever it is, somebody is out there at one of these conferences for that firm, and so whether it’s Carl Icahn or whether it’s Warren Buffett himself, they all leave footprints when they’re buying, because their buys aren’t retail size. They’re not the public that you and I are talking about. These are big elephants, and when those guys buy they try to hide it.

1:05:14 They try to hide it by spreading it between now. There’s 23 different options exchanges, right? When I started there were four. Now there’s 23. Most of them are all electronic.

1:05:25 There’s no human being to call and say who did that, but the computer sees it nonetheless, and it reassembles the data, so it lets us know, you know, Jon, 50 trades happens spread across, you know, all 23 exchanges, and somebody looks like they’re trying to hide, you know, the fact that they just bought 5,000 contracts, but they bought it by doing 50 separate trades like this, hoping that you didn’t see it, and I wouldn’t see it, because again, 7 million transactions per second. Spielberg can make you think, Brian, that a dinosaur or that dog is running alongside us at 30 frames a second. Imagine what you could do if you could do 7 million frames a second.

1:06:10 Everything would look real, because you can’t see it. It’s, there’s no flicker. It’s just going by so fast that you can’t see it. It’s like, you know, a light. You’re just staring into a light, you can’t see it.

1:06:22 The computer sees all of it, and so we’ve got co-located servers in each of these data centers pulling this data to us, telling us what’s going on, and in the early days after we sold the Citadel, we used that just for our own trading, and we saw things like, for instance, I’m sure you’ve heard of in 9/11 just before 9/11 there was a whole bunch of put buying in two big companies, American Airlines and United Airlines. We didn’t know what it was. We thought it was probably a downgrade coming from a big broker on Monday, and whoever bought all these calls, because it was like 30 40 times normal activity, so it was a lot, so his blatant something was happening, something going on, and it’s all on puts, and a put is an insurance policy, it makes money as the stock drops, right?

1:07:14 So these people are betting on a big stock drop, on a big stock drop, with nothing out there I know earnings are immediately forthcoming, no big industry conferences, you know, crude oil didn’t just spike. None of those things were happening that would have caused an airline stock to drop so precipitously, but three days later planes fly into the Pentagon and into the World Trade Center and into Shanksville, Pennsylvania. All the planes were United and American.

1:07:42 They didn’t buy Delta puts, they didn’t buy Southwest puts, didn’t buy JetBlue puts didn’t fly, buy air freight, then buy anything but United and American, which struck us as strange, so we called up the FBI and said we think this is really strange, not before it happened, after we think this is really strange, and the FBI got back to us and said, what does your data show you? And we told them what it said, and since then we’ve had a great relationship with the SEC and various folks, because when they think they see something like an insider trading pattern, they’ll call us, okay, and say, can you send us the data? And we’ll send them the data, but we don’t know who bought it, Brian.

1:08:25 Yeah, but they traced who bought those puts, and I’ve seen people decry what I’m telling you right now on the internet. So if you google me and 9/11 and American and United, some people say, all was a hedge fund. It was just a hedge fund, it was, you know, nothing to see here, go away. It wasn’t a hedge fund, it was a retail account in Hamburg, Germany, which is where the terror cells were based. This is according to the FBI, and the retail activity came from there to Deutsche Bank, to Alex Brown, to Chicago Corp, to the pits of the US, and they bought all these puts, and then they were buying him in both companies.

1:09:11 Both stocks were trading right around $30 a share and then the very next day they’re trading 12, because you know, those stocks just fell apart, and people didn’t know when we’d be flying again, and all that, and we didn’t trade for a week. Yeah, so the FBI says, so what are they going to do now? And I said, they don’t need to close these calls. They said, why not? And I said, they’ll just buy the stock because they have the right to sell it at 30.

1:09:40 It’s now trading 12. They’ll just buy stock down here at 12 and exercise these, and they capture that $18 made, about 50, 60 million dollars on the trade and they probably got away with that money, but at least the FBI knew where that cleared, and they can find out whose account it was, right? So then who knows, do they follow that person, knowing that person wasn’t one of the terrorists on the planes, clearly, but could have been somebody that helped finance them, and then helped finance other things, and they kept an eye on who that person was for as long as they let him live.

1:10:19 This is a small glimpse of the type of information you have, and you collect on all of these options. So, yes, sir, getting me excited, Mom, I’m gonna start trading options again. Well, just Rebecca. Yeah, right, so people want to learn more about that, and your Heatseeker strategy. There’s that link below, London Real TV forward slash options.

1:10:35 What goes? How do you evolve from there? So you sell the cell itself to Citadel, then of course you and your brother can’t sit still. No, at all. Well, it’s the story of your lives, right?

1:10:46 So you start Option Monster, right, and then you get on television, right? Yes, we start publishing that very data that we just described, okay? On a daily basis, people start subscribing to it. Why are you so passionate about? Oh, I just like I said the part about those endorphins popping in your head when you make money.

1:11:06 There is nothing like it. There really isn’t. I mean, other than, you know, the smile on your kid face, Brian, or, you know, being out with your wife, which I was fortunate to meet your lovely wife last night. Four stars, great lady. My wife, same thing.

1:11:26 When you see those kinds of things and you can be very happy about that. That’s what it feels like, making money in options or making money trading. Yeah, so I’m going to think, what, why is he here in that they’re gonna think we’re crazy that you can compare your children and your wife to making money, but the feelings are similar yeah, but also you’re teaching people how to do this, because you could just do it alone. You could have your own hedge fund, balance sheet, your corner office, but you like teaching people and talking about it.

1:11:53 I do, I do, and like you said, it’s become a passion. I’ve certainly enjoyed it. I know that, you know, given your face and your exposure in London, that people have to come up to you all the time and say, mind if I get a selfie? And that, that’s like patting you on the back. That’s the same thing for me.

1:12:17 I mean, in New York City I’ll go out and I’ll run into people on the Upper West Side, Upper East Side, you know, down in Tribeca or whatever. I see you, you’re that guy on TV, and I always tell them I’m the handsome one because you’re on there with your brother. Yeah, younger brother, and then they’ll say, which one of you is older, and I said, I love you because I’m six years older than Pete. But whenever they, not so much confuse us, but don’t know which one I am.

1:12:44 It’s just really flattering, and then people will say things like you know, hey, you helped change my life. Again, back to your other big guests when you have them here, and they say something similar. That is an unbelievable statement for somebody to make to you. That just makes you feel good, right, in your core, that they said, you know, hey, I didn’t get it. Now I get it.

1:13:08 I don’t trade as much as you, but I love it. It’s cool, and I know if I had to, I could quit my job and do this, and it’s just, you know, it’s like I say, it’s very satisfying and fulfilling. Could you really empower people? Mm-hmm. And for most people they struggle with their understanding of finances, and most people struggle with money.

1:13:32 We’re going to be in a place where you can not worry about that. Every day is powerful that really does change people’s lives. It does, and it’s a great thing for me. I’ve had my oldest daughter trading since she was 12, and she loves trading. She doesn’t, you know, trade in and out every day, but she has had an account since she was 12.

1:13:55 She makes a lot bigger percentage than I make, but her account is much smaller, but she’s learning it, and it’s a skill. I had her do it, Brian, because she wanted to be an actor, a thespian, and my wife and I told her, look, you want to be an actor, you know what? Most of these waiters and waitresses in this spot are failed actors, or they’re still actors and they’re trying to make it. So I said, if you don’t want to be a waiter or waitress, nothing that, not that there’s a shame in that, but if you don’t want to be a waiter or waitress, you’ve got to be able to earn a living doing something if you want to be an actor, because you know, those calls, you know, it’s like lightning.

1:14:37 Maybe it strikes where you are, maybe it doesn’t, and so she started trading, and then she ended up not wanting to be an actress anymore, and instead now she’s studying math and psychology and trading. Interesting. And so people can start that young? Oh yeah, well, technically you can’t. She has to trade.

1:15:02 She had to trade in my wife’s account because I don’t think you can trade in America anyway until you’re 18. Okay, but you know, if you maneuver things, you can get to a spot where, and you can certainly paper trade, but she’s trading real money. Ya know, it’s powerful stuff. Tell me about television. How have you been able to be on television for 20 years?

1:15:24 I mean, that’s kind of crazy. You’re up there doing shows, just like Jim Cramer, where you’re really getting, gauging with people. It’s live, it’s real-time, and what makes you different than a lot of guys out there is you actually take your own positions. You’re in and out of these stocks. You’re on, your, tell people what you buy and sell, which means you have a track record sometimes you’re right, sometimes you’re not.

1:15:42 You got to own it. True. What’s it like being on TV? I love it. It’s, but it’s similar to this interview right here.

1:15:53 I’m just talking to you. So when, when I’m on TV I’m just talking to the other panelists and the host of the show, and I’m not thinking about how many people are watching it, and there’s just, you know, a few robot TVs and a couple of guys with a Steadicam walking around as we’re doing the show, so it’s really conversational, very easy, and it is fun when we get to highlight a winner. We do try to tell people also about the losers, but every once in a while people will say, well, yeah, but you only tell us about your winners, Jon.

1:16:29 You should highlight your losers more, and I said, I should hire you for marketing. You’d be a great person to market my services. If you’re gonna be out there saying you should do a better job telling me about the losers. I always say cut your losses, let the winners run, but I have a real strict discipline about that, Brian. It’s easy.

1:16:49 So I’ll give it to you right now. An option that’s trading for $1. If it loses half of its value, so now it’s trading for $0.50, I’m out. I’ll cut it. I’m very disciplined about that, and I will move on to the next trade, even if you still think there’s hope.

1:17:05 You believe in this story, all that. You know, and that’s not a discipline? Yep, so it’s an unemotional call, and you make that decision before you put the trade on. Yeah, like it’s nothing. I know when I buy the option without loss.

1:17:18 Yes, sir. So for people who don’t know, before you even make the trade, you already have an agreement with yourself that if this happens, I’m gonna sell, and it doesn’t matter if your heart changes its mind, or that double eclipse happens, or that stuff, because you know that’s your own brain tricking itself into wanting to not take the hit. Yep, and that’s what the discipline is. True, and like Pete always says, he’s married to his wife. I’m not married to this position I’m not, like, you know, the Blue Angels.

1:17:46 Every once in a while, you know, aerobatic Flyers will follow each other into the ground, because I’m staying on my wingman’s tail. He’s going, I’m following him, and I’m not gonna do that. I’m gonna cut that loss as I see the ground approaching. I’m gonna cut that loss at 50 cents, so if it’s a dollar I cut it at 50 cents. If I pay $2, I cut it at $1, so I’m always cutting it at a 50% drawdown from where I get in.

1:18:13 On the other hand, if the option doubles, goes from $1 to $2, big winner. I’m cheering, I’m, you know, dancing on CNBC or whatever, I go and I take off half the position that moment. Now, every once in a while you get lucky, and it gaps up, you know, so it goes from $1 to $3 instead. It, you know, when it opens the next day, the earnings were great, target might be an example. I could give you a host of them, but when the option opens, it’s actually now at 3 dollars instead of closed in a dollar 20.

1:18:50 I bought it at 1. It was up to $1.20, great earnings, they’re trading $3. I’ll still, I’ll take off half now, but instead of taking off half at a double, I’m taking off half at a triple. Okay, and now I’m sitting there, I’m still thinking to myself I’m not playing with the house’s money. This is my money, but I’ll let it keep going and see if it keeps going, and if it does, then I’ll take my profits on the way up at higher prices.

1:19:16 If it fades at that level and starts pulling back, Oleg’s at the whole trade, the rest so that I’m always harvesting cash on the winners and cutting losses on the losers. Right, and even that upside takes discipline because again, if you’ve never had any trading training, when you make your gain you’ll sit there and say, oh, maybe I’ll buy more or let’s stay in it, and then when that starts fading, you stay in it again, and you end up with losses, right, but that takes discipline too, and you probably tell yourself before, when this, like, you already have a rule when this come before you make the trade, right? This goes up, I’m taking half the position off, and then I’m gonna remember it’s still my money, and then maybe take another half off when it goes up, and then watch it on the houses, right?

1:19:57 And that’s how you can limit losses and increase your gains. Correct, powerful stuff, man. Yeah, and that, and that makes it easy to talk about it on TV, right? And I mean the thing is, is, anyone right now, you know, I had a Christmas dinner with my whole team two Christmases ago, and we started talking at the table, and I realized that 3/4 of my team had, were playing in crypto, and I was like, you’re all trading what? Like yeah, I got a big composition, all these random people, like 23-year-olds, on your trading crypto, and I was like I traded for like a long period of my life, and I was like, I know the discipline it takes, and I was like, do you know what, do you have stop losses?

1:20:32 Have you read about this stuff? Have you read Market Wizards? Have you done it? No, no, no, no, no. And I’m like, this is gonna end in tears.

1:20:38 So whoever’s listening out there, if you’ve ever traded and there, you have any position on, you’ve got to learn these techniques, either from Jon or someone else, or in a long enough timeline you’ll be losing money right now. Yep, absolutely. That it’s vital that they pull some of that money off the table, and everybody who did, when Bitcoin went to 19,000, even if they sold it at 15 or at 16 or wherever, on the way up to there, they’re a happy person today because it’s half of that.

1:21:07 Now, yeah, because they averaged out. Tell me about the future of information for you, because I think I know you, you’re always looking for these new sources of information new edges. You’re always watching, scan in the market. What is the future of trading and options trading right now? Brian, the biggest thing, and it’s what, other than coming here and meeting you, one of the reasons that I came to London was Battlefin.

1:21:33 It’s this alternative data conference, and you want to see the biggest bunch of quants and geeks that you’ve ever seen in finance. Go to Battlefin. They do it in New York, in London, and Hong Kong, and Miami, and they’re all about three months apart. Fabulous events, but most public customers, most retail, it’s too much for them, but it’s, they would love to get it, but number one, the data is very expensive. It’s like $25,000 per each one of these vendors, but it’s this kind of data they can scrape email receipts, so they know exactly how much was spent and what it was spent on, from Amazon to Walmart to Target to Tesco to whatever.

1:22:27 They can scrape my email wrist, a can scrape people from all over the world, and they combine these billions of data points, and they can start telling you trends. Yep, and tell you, okay, the street is looking for X out of Walmart, but it looks like, based on our scrapes, that it’s going to be ten percent better than X, and here’s why, and they can show you the data and say, here’s what it was last quarter, a year ago, two years ago, three years ago. Here’s where it is now, and the street is looking for this so then that’s giving you, and it’s not insider information, because that’s not from the company.

1:23:03 This is from what they’ve been able to do. There were companies there that we’re watching social media posts, and they put it out on a bell-shaped curve, and they said, here’s one standard deviation, here’s two standard deviations, bullish bearish, and here’s three standard deviations. And right now we’re seeing a skew of all this bullish posting on social media about this particular stock, and they ticker eyes all of it, meaning that they know that the stock ticker for Apple is a APL, and so forth, and they are seeing that on social media and saying, boy, people thought that this wasn’t as popular.

1:23:45 Turns out that this new iPhone 11 Pro with the three cameras is hugely popular, and everybody’s talking about it, and they can’t get it. I’m not saying that’s what they’re saying, but that would be an example, right? And that would let you get ahead of that, and from that to geolocation, to you know, from people walking in, somebody just bought $200 worth of something in a Neiman Marcus, and now they just walked into a Victoria’s Secret. It’s probably a woman, and then they start doing patterns of, okay, probably a woman of this specific age and blah blah blah.

1:24:23 They feed it into their matrix, and they say, okay, here’s what people her age are buying right now based on this pattern. So these data scientists, Brian, are wild, and as a data geek I mean, yes, I like big chunky data for stocks, but I also like this because I think it’s the next leg up and it’ll be a while before other folks are exploiting this the way that we hope to exploit this. When did you become a data geek? With that stock, because you had to get faster and faster with how you ingested this data, and so I’m sure you knew about this, but in high-frequency trading in the United States, they did it at first, you know, just on regular copper wire, and then they did it on fiber-optic and then it turned out that, well, you can drill through this mountain in Pennsylvania from Chicago to New York, and if you drill through the mountain instead of running up and down, you can get two or three milliseconds faster transmission to New York, so then, and we could charge a fortune for you riding on that rail.

1:25:36 This is in that book Flash Boys by Michael Lewis. Wow. So then that worked until it didn’t work, and then they’re using microwave transmission and all the rest. They’re doing anything to get a couple milliseconds right down to nanosecond faster, and as you get all that, there’s a lot of data, and you can get ahead of a lot of things. You can see things almost like you’re out there in space looking at the earth, and you’re seeing dinosaurs walking around, because you know, by the time that light traveled all the way to whatever planet you’re on, you know, there were dinosaurs, even though in that same moment there are humans and there’s subways and Tesla’s driving around on this planet right now, but from several miles out in space, for that light to go all the way that far, it’s gonna be a different picture for you.

1:26:29 So if you can get that picture faster, you can see what’s really going on. It’s fascinating. Yeah, that’s why I became a geek. This is a data geek, this is exciting stuff. How do you feel about crypto?

1:26:40 I like it. I’ve traded it. I didn’t get rich on it. I should have, because I got into crypto when it was three hundred and forty dollars per Bitcoin. Bitcoin, yes, and then I began traveling and helping people promote various exchanges and things like that.

1:27:03 But I never committed as much capital to it. I’m very jealous of the Winklevoss twins, and what a great insight they had when they figured it out, and figured it out when it was ten bucks a coin and bought million, committed millions of dollars to it at ten bucks a coin. Commit is the word there. I mean, that really went in all in. Yeah, they did.

1:27:26 Yeah, and that’ll be a huge score for them. Already has been, they’re billionaires a couple times over from those trades alone, and now they’ve got Gemini coming. But do I like it? And I love your discussions with Tika about this, and you know there are a lot of people that I really respect, Charlie Shrem and others in the crypto space Tone Vays. It’s this very wild YouTuber that’s out there always talking about crypto, and I met with him in New York and I’ve met with several of those folks who are completely different from the world you and I are in.

1:28:09 They’re completely different, but they’re how? So explain that, because they grew up in a different world, of a different trading instrument that is crypto, right? Yeah, that’s what you mean? Yeah, it’s what I mean, and they They have a usually, they’re one of two flavours, either they’re totally decentralized, and they think anything else is crap, because they don’t trust banks. They don’t trust central planning authorities like the Fed or the ECB and things like that, and they love the freedom of these coins and these currencies, and I get that, but I also think it can’t be big until they can have some of that brought in to a centralized world.

1:28:58 So the Bitcoin maximal, we’ll say, no. I mean, you know, there will be some that wouldn’t even talk to me then, because I would bring something like that up, but they are completely different, and they’re not traders there, or whatever the next iteration of trading is, but they’re not traders, and most of them are holders, meaning, of course, that they just hold it, right? And so they’ve written it up and down, and they’re saying, yeah, but it’s gonna go to a million, so I’m gonna hold a lit because I’ve got, you know, all these coins that I’ve got, and when they go to here, then, although in the world total, it’s, yeah, yeah.

1:29:36 So the difference, not really a trader, it’s no different thing, and I can’t hold anything, right? my wife and you’re trading every day, you’re up early, you’re in the gym, and you’re putting on trades before you’re getting in the office, right? Yeah, well, usually I’m putting on trades, so I’ll typical day. I’ll get up at 5:30. I’ll, if I’m in Chicago, I’ll drive in to the gym where I’m gonna work out and while I’m on the elliptical I’ll start seeing trades setting up, and I’ll trade those in the pre-market, but these are stocks.

1:30:12 I’m only trading stock at that time. Options only trade during the regular hours, but you know, you see somebody who disappointed, but maybe the disappointment wasn’t as bad as people thought, but the stock’s down 18 percent, and I’m buying it in the pre-market, so I’ll set up a number of trades like that, like you say, before I get into the office, and then once I get into the office, about a half an hour before trading starts, then I’ll really already be in some interesting stock trades, maybe even already trading out of some of those, and I’m now looking for options to start trading, but they need, I need about half an hour or worth of data before I have enough to make calls on directions, because the first half hour, we always call it amateur hour, the first half hour because people that were on the wrong side are getting out, people that read news in the morning, you know, that I’ve already traded on, are now getting in, and I’m probably getting out while those people are getting in, so that’s why we call it amateur, or that first half-hour, but then from then on I usually have enough data that I can, we’re like surfers for the most part, Brian, so we wait for that wave, and I could be out there paddling a long time, but all the sudden I can feel that way of starting to lift me up, and then I start paddling hard, and I started buying all these calls or all these puts come and start trying to ride that wave, catch that momentum.

1:31:39 Interesting, and otherwise you just let the little ones go past. Yep, just let the little ripples go, and I’m just kind of like, okay, that’s not for me, that one’s not for me, this one’s starting to pick up, and now it’s really lifting me up out of my seat, and I’m going, okay, I’m in, right? And that’s the discipline, as opposed to just trying to catch every wave, hoping it’ll be the big one. True, I don’t have a gun to my head to trade. I don’t have to make a trade that day, but most days I’ll probably be in and out of twelve to fifteen different equities that day.

1:32:08 Okay. Wow, busy. Yeah, Chicago, tell people what is that town like? I moved there in 95 from New York City, and it was very different than New York. A lot of wonderful things in that city.

1:32:20 I remember big stakes mm-hmm, a lot of drinking, you know, a lot of people having fun, friendly people into their sports, great in the summer, cold and windy in the winter. Yep, that’s what I remember. All you, well, you pretty much covered all of it. There it’s Chicago’s great. It’s like a clean version of New York.

1:32:41 New York is so filthy, it’s great, but it’s filthy because they don’t have alleys. There’s nowhere to put the trash, so any Londoner who went to New York would just be looking around going, why are all these plastic bags out here every single day? They’re stacked up on the street. Why? Because there’s no alleys, so all the trash goes onto the street, and then they pick it up at night, so depending on your neighborhood, you’re gonna hear that truck, you know, that beep all night long, so that’s why you don’t want to live in those neighborhoods, but it’s a Chicago’s easy.

1:33:18 It’s so much easier than New York, and that’s another reason I love it. I love the lake and the lakefront, great place to walk, run, take my dogs out. I’ve got two big Bernese Mountain Dogs. They love, they love the winter when the winter comes, because then they can run in the snow, and that’s what those dogs are made for okay, but you’re right, big stakes, lots of bars. There’s a bar on every corner in Chicago, every single corner there’s a bar, and it’s just like Cheers, like Norm.

1:33:52 Those bars, they know you when you come in. Now that doesn’t mean you can’t go to a bar that you don’t usually go to, but if you go to your usual bar, I guarantee those bartenders and the other patrons know you there. Yeah, I get fond memories of Chicago, so it was, why it was, when I first started making some money as a trader and I moved down there and I got a really nice apartment on the 40th floor of the Eugenie Terrace, and oh, I used to just really I had a good time there, man, really good people, and yeah, I’m really glad Evans, it’s such a magnet.

1:34:25 Chicago is lucky, because it’s got so many jobs, and now we’ve got Google and all the big firms that have moved into Chicago. The Google complex is amazing. All these kids, young kids, that have moved in there, and the West Loop is all young kids now, and we draw from University of Michigan, Iowa, Wisconsin, Indiana, Minnesota. We are the hub in the Midwest, and we draw the best talent from all those places, so if you were a young person in the United States, few better places to be than Chicago, case the future is bright.

1:35:04 Yeah, even though some of those trading floors have closed down, future’s bright, so yeah, from my side of it that’s bad, but with all these other businesses that have sprung up, Chicago is still very, very vibrant. Okay, I just wish would have funded the pensions when we had the chance in the ’80s, but the mayor and the state legislature didn’t, and so that’s why Illinois has bad credit rating, but Chicago is killing it. Okay, cranes everywhere. A lot of people are hearing some clinking and clacking going on, and those are your rings.

1:35:41 Yeah, so I don’t look like the rings I would see on a Wall Street banker. What are they? Can you show them to us, and what are they about? Sure. Well, I probably have 20 of these now, and the first one I ever got, Brian, was this one, and it’s one of those Keith Richards kind of skulls with skeletons on the side and things like that, and I got that one.

1:36:07 I always say, rather than getting a neck tattoo, because my brother Paul died of ALS, so my brother Pete and I have tried to raise money, and have successfully raised money for ALS research and so forth, but to remember him. I got that, and then all my friends would say, what’s with the, you know, what’s with the skull ring, Jon? And I’d tell them the story, and then they’d say, oh, you’ve got to check out this one, skull ring down in Mexico, and that’s this little one right here, or you’ve got to check this one out, this from New Orleans, from the Great Frog, which is a London-based company, but it’s, I got this one in New Orleans, or this one, which I did get from over here, and I just began gravitating towards them, and then it became my thing, and for a while I would take all of them off except the this one when I’d ride the subway in New York, so I’m like, I don’t know if I want to mess with somebody if they try to rob me on the train, or whatever, and then I realized these are an awful lot like brass knuckles, so maybe I could use this as defense just in case I needed to, and I’ve never had a problem, and can you tell me about your brother and ALS, and what we wouldn’t know, and it sounds like a difficult thing to have to go through?

1:37:32 Yeah, he had, and luckily it’s not in his genes. He was tested. It was football, most probably, just like military guys, and women that go through PTSD, that kind of, you know, battlefield explosions or hits to the head, whether you’re a boxer you know, who gets in an awful lot. You’ll be probably surprised, soccer players, and because the raw edit of head and that ball, you know, your brain smashes in, and that ball is pretty hard, even though it’s, of course, inflated.

1:38:08 It’s pretty hard when these guys hit it, especially with the skill that they do at this level in the Premier League and so forth, and they get a lot of concussions, mild concussions, and the more of that kind of trauma you get, either from bomb blasts, football, hockey, soccer, whatever, it can lead to things like MS and ALS, and in my brother’s case, Paul’s case, it led to ALS and took about two years to kill him. But it’s a miserable disease because you lose motor function, and then you lose kind of a internal organ function, and right, it’s always terminal. Yes.

1:38:50 Now there’s the mildest case I ever heard of was Stephen Hawking, even though, of course, he was all, you know, bound up, all of his muscles and so forth were bound up by it, and he couldn’t control him, and even his head mostly. If you get it late in life, like my brother was 50 when he got it, he was dead at 52, so it took him pretty fast. He lost his tongue, you know, his, stop being able to swallow, had to have a feeding tube and so forth. Luckily that was at the very end.

1:39:26 Okay, but yeah, it’s just a horrible disease, and anything you can do to avoid it, I’m very grateful that for the football players now they have much better protection for their heads than my brother had. So now when you see these guys with that football helmet, at it, so it got a little movable part in the middle. It’s made by a company called Vicis, but it’s a much better helmet. It much better spreads the hit, and doesn’t just send shockwaves through your head.

1:40:01 And so I don’t know if I ever had a concussion playing football, but my brother Pete said he’s had it 20. He thought he’d be dead by now, but luckily he has avoided that fate. Yeah, it’s something serious. What I know, everyone’s looking into it, from fighting in the UFC, and right, I mean even things like, you know, shooting guns, you know, if you’re in the army, those kind of repeated kind of micro concussions and shocks. Yeah, I’ll add up as well, and we keep hearing about, you know, these football players that commit suicide, you know, from what is it, the brain is another thing like CT, CTE, yeah, which is like an another, I guess another disease that’s kind of from those shocks.

1:40:42 Exactly right. It’s something we definitely need to learn a lot more about. Yeah, well, what, what’s next for you? Well, what are the next 10 years hold? What do you want to be?

1:40:50 What do you want to do? I’d like to finally get a screenplay written and out there, not about my life, but about other interesting things and twists that I could put on it by being somebody who’s been on the inside so I’d love to do that, Brian. I’d like to continue to build things. I don’t, ever, really. I’m not the kind of guy that could sit around in a chair on the beach.

1:41:19 I would like to continue to travel, and my passions now are skiing and just traveling and seeing different places and going back to the same places. Italy is a favourite of mine. Why? Oh, just the food, the cuisine, you know, the people. I think Italy is pretty special.

1:41:43 Same thing with Greece, the Mediterranean is so beautiful there, and the tomatoes. If you haven’t been to Greece, folks, you need to go. It is life-changing when you see how beautiful it is, and because they’ve had such problems, it’s very cheap as well, so Greece is a great vacation spot. This year, I guess it was packed, because of that, but that’s one of the dangerous things about being in the Euro, though, even though it’s helped them in terms of getting bailed out, they also weren’t able to print more currency and, you know, get themselves out of it quicker.

1:42:22 Instead they had to take loans from the ECB, because they’re in a currency that’s a lot stronger than their economy. Yeah, no, that’s true. And what about you? Does you still motivated by money? Is that a big thing for you?

1:42:36 Yes. Okay, I mean, I still like it. I still like earning money, and I, so it’s not like I crave it. I don’t live extraordinarily rich lifestyle. I do what I want, which is I’m blessed to be able to do that, as I’m sure you are, but I don’t.

1:43:03 I’m sure people, if I was a rapper, these wouldn’t be silver and gold, this would be all diamonds, but I’m not a rapper. I enjoy things without having to spend the extraordinary amounts of money that other people need to show that they’re so wealthy and that they’ve done so well. I’m happy just in my own skin, being out there enjoying meeting people, and all the rests. So I, for me, I think when you say, what would I do, the next step will probably be something more like, we’re gonna build up a brokerage again.

1:43:40 You talked about, we were lucky enough to make a nice exit to E*Trade, and now we’re gonna build up another brokerage and, you know, just trying to stay ahead of the curve and beyond that bleeding edge. I think that’s exciting, right? So be in the game on television, ahead of the curve and just be moving and shaking, and that’s like, you’re gonna do that until the day you go, right? I really do think so. I can’t really see you putting me in a box, because I was just, you know, sitting there looking at the ocean and sipping a mai tai.

1:44:16 I would rather be working, because I really enjoy it, and again, I know from watching all of your London Realers that you’re passionate about what you do, that this isn’t money that’s driving you. It’s a bite product, and it’s great, and you’re not dismissing it, saying, I’m not apologizing for making money here, nor am I, but it isn’t my motivating factor. I go to work because I like to work and true to that old adage, you know, if you love what you do, you never really go to work.

1:44:53 You’re doing what you love, and I’d get to do what I love and do you impede have plans for future shows? Are you gonna keep crushing at what you’re doing? You guys didn’t make a movie hitched CNBC and others on several shows. One of these days somebody will take us up on it, so I’d love to do that as long as Pete wants to do it. I’d love to do that.

1:45:18 We also tried to buy very minor minority stakes in various NFL teams, because we want to be involved in that space, and it would be a small piece, because these days, as you know, these are billions of dollars. They’re not in the hundreds of millions anymore. I think they’re crazy, but I like being involved with people like that, still, all these talented young athletes, as well as the marketing side of that business, and I still can’t believe people spend as much money as they do to go to these games, but they do, they do.

1:45:53 That’s a good business model. Yeah, tell me about you. What’s something for you that’s non-negotiable every single day, that even if you’re traveling or if you’re not, you’re getting it done. Working out. Working out every five days a week.

1:46:08 I don’t work out seven days a week, but five days a week, I’m gonna get up even if I drank too much the night before or had too much fun with my friends. I’m getting up. And for me, I know you said you work out in the afternoon, between some of the other things that you’re doing in your day. I got a workout in the morning because a, it wakes me up, burns off not only calories, but I don’t want to say anger, but gets me through what would otherwise be. I think I wouldn’t be as pleasant a person if I didn’t do that.

1:46:45 Yeah, it puts me in a good mindset, and so I, that something passionately I do, and again I like it, and I always feel so good once I accomplish that, and I get in there and do it rather than making up an excuse not to do it. Right, that’s why I start the day with it. Right, and you don’t get up Jocko early, but sometimes you send him a message, and I, yeah, and you met Jocko, and you, what was your experience with Jocko? Oh I thought he was great. I was a big fan, and I love hearing him read his stories from the jungle.

1:47:22 It was hot that day he goes up back to the book, but he is, he inspires me, because, you know, of that good, you know, that part that he always says, that Jack always says, oh, the rations didn’t arrive, good, it’ll make you work harder today for this, that the plane that you were supposed to catch to New York today engine problem, you’re gonna have to jump off and run down the hall and jump on another one. Good, it’ll make you stronger. You know, it’ll make you more grateful.

1:47:58 You were just sitting there ready to go, and then all of a sudden this changed, and you had to adopt and adapt to that. Good, you know, I like that part of what Jocko does a lot, and so for me, we always tell our daughters, you got to have a plan B you dream as big as you want, but have a plan B. Doesn’t mean you’re planning for failure. In my mind, I’ve heard some people say, well, if you have a plan B, you’re planning for fit. Nope, I don’t plan my plan B’s and I bet you don’t either, but if all of a sudden something happens, I’m willing to make that move right now, and I think if you are, you’ll be less angry and less dissatisfied with your life, because other people will just sit there and say, well, I don’t know what I’m gonna do now.

1:48:50 You know, this is screwed up, and now I don’t know how I’m gonna catch this plane, or I’m gonna, you know, make money today, or whatever, just make it happen. You know, find a way. It’s not that nothing in this life is over until we’re dead, and then maybe not even then, burn. But because I’ve seen people, you know, Michael Milken. I’ve seen him turn himself around from a pariah, where people just, you know, thought he was the lowest life form.

1:49:21 Now people spend twenty, forty thousand dollars to go to the Milken Conference and just applaud him for the work that he’s done, and things like that. I mean nothing’s over until you’re in a box and gone, and like I say, maybe not even that. What happens when you die? you go to heaven. I believe that.

1:49:41 Okay, all right, that’s where you’re going. Yep, that’s where I’m going, unless I screw up real bad between now and then. But I live my life that way, that I, that there’s something else there for me. It helps me get over things like my mother and my brother passing and I’m very grateful for that, and so that optimism of something else out there, something bigger than you. I’ve heard Charlie Shrem refer to it as “sky people,” Charlie calls it because he doesn’t believe in that at all, and that’s fine, and I don’t need to rain on Charlie’s parade or anything like that, but for me, believing in heaven and a god and a plan helps me.

1:50:29 Yeah. If I were to ask five your best friends, what is Jon’s superpower? How are you able to do all the things that you do? What would they say? It is, what would they list out as some of the optimism?

1:50:40 Yeah, that I am a perpetual optimist and that I don’t know if mercurial is the right word, Brian, but I am able to adapt, so in my life already I had to go from being a briefly pro football player to doing something I never did before, going down to that trading floor, and then when that began to change and computers began to come in, I adapted with, and then his computers took over, I left the floor and went upstairs and adapted to that. And I would like to say that optimistic and adaptable, I think those are two of the things that, and hopefully they’d say I’m a good friend. Okay, what was the best day of your life and the worst day?

1:51:36 Hmm best day. I’m not sure about the best day. Hopefully it hasn’t come yet. Okay, good days that could, again, lots of really good days. So I don’t want to get emotional, but my wife making it through cancer.

1:51:58 Wow, big big day. It’s big, it’s big was that before, before your brother passed? I ran after, before before. Okay, touch-and-go there for a little while. Yep, okay, that’s a big one.

1:52:18 Let’s see, worst day? Hmm, several bad days, but other than that day, which was best and worst, probably I think on my 29th birthday, my golden birthday. I’m born on September 29th, on that day we lost millions of dollars on a single trade, and it was totally wrong. We shouldn’t have lost, but our guys kept piling into a trade that they shouldn’t have done, and that ended up being something that we turned into lemons, into lemonade, because we lost millions.

1:53:06 There’s no doubt about that, but we lost because a firm that I won’t name kept coming into the stock at the very end of the day, buying, buying, buying, buying puts. Stock came out with earnings after the bell, and it blew out their earnings, so it was going up. Those puts that we sold, we’re gonna be worthless, which is a win, but then they warned going forward that they were gonna cut one of their major businesses because of lawsuits, and the stock fell like 30 percent, and that’s why we lost millions.

1:53:41 So I asked the guys, I said, why were we law so many puts? Why did we sell so much? And they said, well, they kept buying them. And I said, so you wanted to come in really long synthetically, or in other words, you were betting against the smart money? And they said yeah, and I’m like, never do that again.

1:54:03 Come in because you want to be long, or because you want to be short, not because somebody else comes in and makes you short. Because that’s why you know, those desks like the ones you were on, you always knew there was somebody there you didn’t want to take the call from, because maybe they were a little too close to insider information. Maybe they were always right, and we both know firms like them, that, you know, people don’t, they will trade with those firms, but in particular not at the end of the day.

1:54:33 No way, somebody is picking up the phone from certain firms, and I can’t say their names, but you don’t want to pick up that phone at the end of the day and have that guy saying, I need to move 10 million right now, and you’re like, nope, you instead wouldn’t even pick it up if you saw it was that exchange. Okay, so anyway, that helped lead us to the heat seekers and to telling our traders all the time, look, do not come in long or short unless you want it to be long or short. You’d you made the choice not, you made the choice to sell to somebody who came in to make you that, you came in knowing you wanted that position.

1:55:14 I trust you, but I don’t trust the person that’s coming in that’s making you long. I don’t want that to be the case, so I want you to, you know, step away from that, and so that has served us well, still serves us well, and like I say, it was more or less the foundation for the Heatseeker, because we knew we needed to find who were these guys that came in late in the day buying and almost every time, Brian, it’s somebody who’s right. Yeah, if you’re coming in in that final 15 minutes you’re probably right.

1:55:48 There are exceptions. If the market’s down 400 points, the person coming in at the end of the day might just be the cleanup crew doing the margins, selling or margin buying, depending if the market was up or down big. Right, but other than that, it’s somebody who knows. Yeah, yeah, and so take ownership of those positions. Don’t just have them forced on you because you’re the market maker.

1:56:09 Make the call and then own the position. Yeah, the next day, if you have a loss, than being like, okay, I knew I would, because I believed in this. True, that’s powerful, and that’s all incorporated now into your whole option strategy. So true, powerful stuff. What scares you?

1:56:30 Carnival people, isn’t that what Austin Powers said? I think I might have actually carnival people with these little teeth. What scares me? Not a lot. If something like, for instance, my daughter went back down to school this year at Tulane University.

1:56:54 Okay, yeah, I’m lucky, blessed. She’s a great girl, but she went down to Tulane, and that very night she apparently went out and had a good time, and the next morning we got a call that this lady found her shoe and a phone in her backyard in New Orleans. Now New Orleans is a great place, but it’s also a really dangerous place, especially if a young girl is maybe a little too tipsy, and is so the fact and the fact that if they would have just found her phone wouldn’t have been a big deal, but they found a shoe and her phone, which tells us, you know, that maybe she got dragged away.

1:57:38 Who knows? So that scared me, but luckily she was fine. She was probably a little inebriated, and she was taking a shortcut through a neighbor’s yard to get to the house that she’s renting down there, but we told her, do that, yeah, don’t do that. You know, you’re not superwoman, and there are big bad people down here that would love to catch you behind somebody’s fence and do bad things to you. So that would scare me, and, but that’s probably the last time I’ve been scared.

1:58:12 Okay, yeah, kids always will make you vulnerable. That’s just the thing. Yeah, and good at that. Yeah, they’re good. That’s the choice you make when you bring them in.

1:58:20 Yeah, so much love and joy but they’re the one thing that can just make you world, you know, intense. What would we be surprised to learn about Jon Najarian? Something you do that I’m not wearing underwear? See, I’ve got a job in stand-up, you know? I don’t.

1:58:38 That’s a lousy joke. What would surprise you about me? Um, you do in your spare time, or I, I think maybe my wife would say that were very generous with charities, and I don’t even know it for the most part, because she’s the one right in the chest, but we do like that. We like, you know, my wife makes, she disciplines me not to just do that, but she keeps me focused and on a straight and narrow, and I think that I’ve never ever complained to her about any check she’s ever written for us to charities, but she would say that you’d probably be surprised, because people think, because I have a lot of conservative leanings, as weird as all of this is to think that I’m a conservative guy.

1:59:41 I have conservative leanings, but I really want to help people, and so whether it is through charity or whether it’s through work, you know, working with people and things like that, I’m a guy that wants to give people a hand up and teach you how to fish, and I don’t mean trading options. I mean, if that’s a byproduct, great, but I mean I like to teach people that they can be better, and so she and I are very active in this one charity called Jobs for Youth in the United States, and she was the chairman of one called I See Stars, which gave inner-city kids, primarily African-American and Hispanic kids, training in tech stocks, not stocks but tech, so that they can work for tech companies like Microsoft, like Google, would teach them coding and all kinds of things, and it would be an intensive class for thirteen weeks, and then they could come out and have a great job.

2:00:43 So I think that might be something, Brian, that people might say, boy, I would have never thought that about Jon, not because if you’re conservative, you can’t be, you can’t have a heart, but I think too many people look at conservative people and think, all you got yours, you just, you know, screw everybody else, and I’m not that guy at all. Okay, what keeps you awake at night? Huh. Things I got to do tomorrow. Yeah, things I have to do tomorrow because I’ll be thinking, as I was prior to coming here today with you, last night.

2:01:22 I sleep pretty well, but when I do wake up during the night, if I toss for a little bit, I’ll think about all the correspondence I’ve got to do, all of the things that I still haven’t finished for this week, and here it is Friday, and I gotta get them done. So whatever day of the week it is, if I’m awake in the middle of the night, that’s what I’m thinking about, that keeps me up, and, but things like politics or other things that other people are focused on, I pay attention to all that, but that’s not going to keep me up at night. I’m gonna view that as just, you know, the rivers flowing, and I just have to paddle.

2:02:08 Do you think everything’s gonna be okay in this world, like you watch all the news all the time? Do you think we’re gonna be alright? Oh yes, yes. I don’t think the Russians want to kill us. I don’t think China wants to.

2:02:23 I think they want to win, but I don’t think China wants to kill us. I don’t even think Iran wants to kill us, but you know, I think a lot of these leaders, including perhaps ours in the United States, you know, they like being the strong person a strong man in the most of these cases, and they really love the limelight, and so whether it’s Rouhani and Iran, or Xi Jinping in China, or Putin, or Trump or Boris, here, you know, they love the limelight. They love being there, and I know a lot of guys on our shows on CNBC that love being on television, and I don’t dislike it, but I don’t love being on television.

2:03:12 I view it as a means to an end. It helps me connect with people. It helps me sell our products and so forth. It’s an end to a means, mean to an ends rather, and, but I don’t love, and I never watch video of myself on TV if I happen to see it because somebody tweeted it or because our staff tweeted something that I did on TV. I might see it in that context, but other than that, I’m not in love with being on TV.

2:03:48 It’s not my thing. I tolerate it, and I’m glad they tolerate me, but like I say, it’s a means to an end, right? That actually probably makes it more effective in the long run. I think so, because too many of the folks just fall in love with being famous or being on TV, and I could name a host of them, but I won’t, and that’s problematic for them and their relationships. I’m sure.

2:04:15 Yeah, Jon is you probably know, I asked a few questions at the end of. Ok, you, if I could give you a magic phone and you could ring up twenty-year-old Jon Najarian and give him some advice. First stayed in a situation like that. I didn’t go to Harvard. I didn’t go to Cornell, but I, when I left Cal, ended up going to a great school in Minnesota but if I could make that call to 20-year-old Jon I would have said stick it out.

2:05:16 Okay, see what happens, because it was a great school. I’m sure that I not only let the coaches down and things like that, I probably let myself down, but I just was so focused on saying, I got a start, I gotta be there, or you know, I know I have 16 games left, or whatever, 20 games left as a college student, and I gotta do well if I’m gonna make it to the pros, and that was my focus. That’s all I cared about, right? And so I would have told myself to stick it out.

2:05:48 Okay, all right, that’s good. Second part of that question, best advice you’ve ever received. Could it come from a parent or one of your brothers or a trader? But something that sticks out in your mind we’ve talked about it already, and it’s still the best advice I’ve ever received, and it was, do what you love. My dad, who’s 92, God bless him, you know, knock on wood, still around with us.

2:06:12 He said, and he was a transplant surgeon, highest level. He was, you know, won a number of prizes, probably close to a Nobel, several times, created great medicines for anti-rejection of an organ when you get a transplant, and all that sort of thing, and he said, look, Jon, I don’t care if you’re a trash collector, if that’s what you want to do, but do what you love. That was probably the best advice, and, and I’ve been lucky to do what I love, although for three months I hated it.

2:06:46 But just like I said about, what, what, up, what advice would I have given 20-year-old Jon be more patient. Stick it out. Don’t think you have to, you know, don’t think you have to make that snap decision every time. Sometimes it’s good, but you gotta know when to be patient. Yeah, last part of that.

2:07:05 The 20-year-old is watching us, listening to us from anywhere in the world. Advice you give to them, maybe about planning for that financial future, or maybe not, but as a 20-year-old, what would you say you know, in this new world that they’re in, what should they focus on? Put the phone down. Put the computer away for a while. When you find what you really want to do, go knock on doors and do it.

2:07:31 I have had three nieces stay with us in Chicago. They came out of three disparate schools: one Kenyon, grade school in Ohio, another Trinity out in Texas, and other Santa Clara in California. They were all from St. Louis. They stayed with us separately as they graduated from college, because they couldn’t get jobs back in St. Louis. Like I say, Chicago is a hub for jobs.

2:08:00 All their classmates emailing, going through LinkedIn, texting, all the rest, nothing. All three of these got six-figure jobs, and they got it because they went and knocked on doors, and they put themselves out to the people. They gave them a resume, looked in their eyes, and I think that as much as I love Steve Jobs, one of the big negatives of all the tech we’ve got, and I’m not blaming Jobs, but one of the big negatives of all the tech is that people spend their whole day looking, you know, nose into that device, and I think that’s a problem because they don’t do enough interaction with people, except, you know, maybe they’re out drinking or they’re out with their boyfriend/girlfriend, but they don’t do enough interaction with human beings, and it’s still about interacting with human beings.

2:08:56 Yeah, that’ll get them where they want to be, whatever it is. If you want to work at London Real, knock on the door here, freaking, hand somebody the resumes. How many emails do you get a week from people that say, I’m really passionate about, I want to work at London Real? Okay, this one goes into this pile. I guarantee, if that kid knocked on your door, and it would go into a different pile or go to the top of that pile.

2:09:20 Yeah, great. Now I’m gonna have everybody knocking at my door. Thanks, Jon. No, but you’re right. There’s nothing like that old-school contact, and show people that you’re not willing to go into a little bit of fear and show some hustle.

2:09:30 Yeah, that’s what, that’s what you want to see these days. That’s what people want to see. So it’s great advice, John. I think you got me reignited into my passion for options. I want all these flashbacks, and I remember in the crazy things we used to trade at Bankers Trust.

2:09:44 We used to trade these crazy digital options and all this stuff, and binaries. Yeah, binaries, oh my gosh, I remember running the deltas and gammas on those binaries, and they’re crazy things, but yeah, I mean that was a big part of my life for many years, and I think I’m gonna get back into it. Your strategies are top of the line, top of the game. So thank you so much for that. People that want to learn more about it, again, there’s a link below, under London Real TV forward slash options.

2:10:09 They can learn all about your Heatseeker, the way you look at information, all that stuff. I just want to say I’m a huge fan of you, Jon. I love your personality, everything you do. Likewise, you and your brother are great on camera, and you just got a great story that just shows a lot of perseverance, and you know what I like about you is you’re not afraid to put yourself in uncomfortable situations and not become the stereotype. You know, a lot of people would say, oh, well, this guy can’t do that.

2:10:35 A football player can’t do that. A guy in the pits could never be in the top of the floors, a guy that could never understand the information or be on television, and you constantly, you know, improve that, wrong, and it’s, oh, well, I’m flattered. It’s inspirational, you know, and I, it shows, and I think anyone can reinvent themselves. They just have to go in, that there’s so much knowledge out there. Go learn it, go try something new, go become a new version of yourself, and I think you really embody that.

2:11:00 Thank you, ma’am, really appreciate, John. Yeah, that’s good stuff. I gotta get some of those rings. They’re bad. Maybe that’s what I gotta get, you is one of these rings, you know, that would be cool.

2:11:10 I think my wife would just really like, she’d freak. Yeah, she’d freak. So we’re gonna come visit you in Chicago. Please do, and I just wishing you all the ball in New York. Boy, New York, you’ve got a standing invitation.

2:11:19 All right, thanks so much, Jon.