Tom Sosnoff Inside The Mind Of A Trading Legend Zerodha Podcast 01

TITLE: Tom Sosnoff: Inside the Mind of a Trading Legend | In The Money by Zerodha Podcast 01 | Full Episode CHANNEL: In The Money by Zerodha DATE: 2025-11-16 ---TRANSCRIPT--- Nobody could watch more ticks in the S&Ps than I have over the last 40 years. So that should give me an edge, but it doesn’t. There’s no advantage to open interest.

Makes sense. Makes sense completely. I think degrees are invaluable. I have been scalping for 43 years. So what what are you looking at when you when you’re scalping? I mean, there’s no question that AI is going to be an extremely valuable tool in helping traders Thank you so much Tom for taking time out to talk to us and uh you have been an incredible influence to me especially I I know I’m you know I’m here in India but then I’m talking about a decade ago when there was nothing on the internet about probability based options trading and I still remember I was looking for something related to options way back then. And what showed up was an interview with uh where you were talking to uh Sheldon Nathan, I think so. And that was long back. I’m not sure if you still remember that. And that was one of the old uh Tasty videos. And that uh that’s when I was wondering who this person is. And then, you know, it’s been a long time and I’ve been following Tasty content. So, thank you so much for that. So, with that, uh let’s just jump in. For those of you who don’t know Tom, uh Tom is a true trailblazer in uh modern finance. He began his journey as a floor trader on the SIBO floor spending nearly two decades in the OEEX pit. He’s one of the original traders of S&P 100 index options. And from what I know, he is a pure contrarian at heart. Late in the 1990s, he founded Think or Swim, an online options brokerage platform that reshaped retail trading. It was later acquired by TD America Trade for roughly $700 million. He didn’t stop there and uh you know Tom went on to found Tasty Trade, now Tasty Live, a platform built with a simple belief that people are smart. They deserve to be challenged with real math, statistics, and probability and not dumb down content. Tasty was the first brokerage to offer options trading in retirement or IRA accounts in the US or so I understand and then uh the conviction this conviction led Tasty to become one of the world’s largest digital financial networks ultimately getting uh ultimately selling to IG group for 1.1 billion in 2021. Awesome. uh his trading philosophy is grounded in statistics that is law of large numbers encouraging traders to trade small and trade often. Even after decades of success, Tom doesn’t show any sign of slowing down. Having recently stepped away from Tasty Live, he’s now building a new venture called Lost Dog. Um you know Tom, I must tell you this one. So um I had many people in my circle who moved from India to the US for education or work and whenever they they they talk about trading. I ask them to explore Tasty and they’ve always come back to me uh asking me how do you know about Tasty? We we’ve been in the US and we don’t know about it and they’ve they’ve they’ve loved the platform. So so something great that you’ve built I must say. Once again thank you Tom and you know it’s a great honor to have you with us. Let’s get started. I was wondering you would wear your signature beret but looks like you know after uh Think or Swim and Tasty the beret is out. What’s the story? The story is after 25 years of wearing the beret um I decided to go natural um as I as I begin my next venture into building you know Lost Dog. So um uh it’s been a beautiful run. I’ve had a great time. Yes. Um I’ve loved every minute of it but um you know every once in a while you got to change things up. Absolutely. Absolutely lovely. So u so let me get started with you know I I I was just looking up a bit and um I I understand you have you studied political science at Sunni Albany. So what was it at that point of time? What made you choose politics of all the things? I I’m I’m a boomer. So I was born um in an era where in America, you know, it was a lot of a lot of there was a there was a lot of political sensitivity in the early ‘7s, late60s, early ‘7s. Um there was the Vietnam War. There was a lot of protests. um politics and and political activity was um uh was pretty important to us in you know in especially in my youth and and to be fair there really wasn’t such a thing as a business degree back then. Um there was you could take economics but there really wasn’t such a thing called finance or business or entrepreneurship you know back in the 70s. So I I gravitated towards what I thought would be an interesting foundation, you know, political science. Um when I got out of school, there weren’t a lot of jobs and I got an interview on Wall Street and they offered me a job, so I took it. I’ve been here ever since. Lovely. Yeah. U so at at that point of time after you got into this first job, what was your sense of markets? you were new to markets obviously but what was what what what was your initial sense of stock markets what did you know about it at that time when when you joined Drexel um I didn’t know I didn’t know a hell of a lot because you know as a kid growing up um very middle class I I didn’t really you know I never owned any stocks I never had you know I never was participating in the markets that much um but I gravitated towards it pretty quickly because I I liked the action and I liked the the the risk aspect to it. I was always a risk taker. So, I liked the risk part of it. Um, which is why I ended up on the trading floors in Chicago because once I found out that existed, you know, I was I was in Chicago like basically next day. Lovely. So, so as you get to Chicago, was options as a product new to uh you or was it new to America as well at that point of time? Was it an evolving product? It was an evolving product. Options started kind of in the mid70s as an offshoot from the board of trade, the commodity exchange, but they were just starting to take off. And the CVOE, which was kind of a new exchange at the time, um, you know, was the biggest option exchange in America. And it was really busy. It was really active. you know, options were just there was no real indexes, so they were all equity options and options were just starting to take off. And you know, I I had quickly gravitated towards options. I loved it from the loved them from the first time I tried them. So I was I was basically hooked right from the start. But then was you today we have a lot of it on the internet. We understand Greeks how options work, volatility, whatever. Uh but then did people understand all these dynamics even then with with all you know obviously there was limited information out there but what how did people understand this product and uh was it very different from how we understand it today? Oh yeah it was completely different. First of all at the time when options were you know first when they first came out and became you know even started to become popular they were strictly used as a leveraged you know speculative leveraged instrument. Um there wasn’t much spreading. There wasn’t much to options other than people would buy them as a kind of a cheap shot, you know, a inexpensive an inexpensive leverage play. That’s it. And it took, you know, a couple of decades before um and it took a couple of decades and a lot of really innovative software starting in the early 2000s to change kind of the culture of option trading. But then who would take the other side? Was it was it folks like you on on the floor who would take the other side when many were buying? When I first when I first started it was me, you know, it was people like me. There was a few there was a few thousand people like me and we would take the other side of every trade. There were no high frequency firms. By 2000 um everything was a done starting starting to get done. The other side of every trade is you know pretty much a prop firm or a high frequency firm. And today you know it’s 99% of every trade is interacted with a high frequency firm. Okay. Yeah. Yeah. So uh so there was another question which I had. So floor traders like you or it could be others. How how did you make sense of the markets? Was it some kind of a directional play where how was it discretionary? Was it systematic? If I have to use these words where would your thinking fit in? I mean I’m talking about the days when you were on the floor. Yeah. So I think the the popular misconception is that floor traders have any idea what’s going on. The reality of being a floor trader, a pit trader was that um our job was to take the other side of what anybody else wanted to do because we would get a small amount of edge of theoretical edge to do the other side. So it had no it didn’t matter what we thought like whether we were bullish or bearish or whatever. It made no difference. We just every day came in to work and took the other side of any kind of a customer order. That’s all we cared about. And was there some metric to how much risk you would you would take with you overnight and all of that? Was was there some math to it? I mean, as an exchange member, there there wasn’t, but you had to learn quickly how to manage your risk, otherwise you wouldn’t survive. I mean, in in the world of of floor trading, only about five or 6% of the people survived, and everybody else went out of business. So, you had to learn, you know, I did it for 20 years, so you had to learn pretty quickly how to survive. All right. And and what the people who wouldn’t survive, they don’t learn it. I’m I’m assuming that they don’t learn. They would just go out of business. They they trade too big. They have an opinion. Whatever it is, they don’t just don’t learn it. Okay. And and they would be out of business obviously. Out of business in a short period of time. Yep. [laughter] All right. Okay. So, uh so this is the other thing which comes to my mind. I’m shifting a bit about um u when I read about you one of the things which I see is you you always been about active investing and um I’m not sure if I can call you you were against passive but then I I definitely you know the sense that I get when I read about you is you you were always for active. I I just wanted to understand uh double click on this a bit to understand what exactly do you mean by active and uh you know why is passive u not the best thing if at all that if if that’s your idea. Well first of all I I don’t have any I I’m not opposed to making passive investments by any stretch. I I don’t want to I I I don’t want to I don’t want people to be confused by you know what I preach and and what I talk about and what I teach and all that kind of stuff. I’m never opposed to any kind of passive investment. The problem for me is and the reason I think everybody should try active investing is because passive investing is essentially dead money and it’s brain dead activity. There’s nothing to it. You you buy something and you hold it until you’re right. I mean, basically you’re right, you’re wrong, whatever. You just it’s there’s nothing wrong with it, but to me, you don’t learn anything from it. you don’t gain anything from it. All you’re hoping for is that over time positive drift kicks in and you’ll end up making some money over time. I’m totally fine with that. But to me, that’s not strategic. That doesn’t add real value to all your other skill sets. So, the reason I’m such a proponent of active trading is because I want people to have takeaways from investing. I want you to learn how to be um I want you to learn how the numbers work. I want you to learn how to make decisions. I want you to learn how to speed up the way your brain reacts to risk. And I feel like there’s so many really positive takeaways from active trading that there’s nothing wrong with passive, but everybody should try active. I I I get that completely because the number of decisions that we end up making while being active, that has a massive impact on uh of course we make mistakes when we are active, but then that’s how we learn. instead. I mean, as as you said, there’s definitely an option to be completely passive and not do anything about it. So, makes sense. I I I I see sense in being active, especially when it comes to learning uh how to make better decisions. Yeah. I mean one of the most important you know one of the most important things in life I don’t care where you live I don’t care what you do because you know the way markets work the way capitalism works the way free markets work is he or she who can make the quickest decision understanding the probabilistic outcome of most decisions is the most advantaged or the most successful uccessful long term. Life is about making quick decisions. Life is about making decisions. Those who never make decisions never learn how never learn how important the speed is, never learn how to process things quickly and they kind of spend, you know, much of their life stuck in the same rut. How do you compare that with an idea of thinking through things and then acting? So, doesn’t it go against that idea? Um, you know, that’s an interesting that’s an interesting um I what drives me probably more crazy than anything else is when somebody says I need to think about it. It is the um when when when somebody whether it’s one of my kids, whether it’s somebody in business, whatever it is, whenever somebody says to me, I need some time to think about this, I just want to walk out of the room and say, you know what, we can’t do business together. Because taking time to think about something just drives me out of my mind. You already know what you’re going to do. Everybody already knows what they’re going to do. Nobody ever says, nobody that’s ever a a successful decision maker says, “Let me think about it.” Got it. Got it. Makes sense. Is that how you came up with the names for all the firms that you started, be it Think or Swim or Tasty or Lost Dog? Is that how you know intuitively you you you come up with these names? I have a lot of fun coming up with fun names to build very serious pieces of technology. Um, Thinkorswim was a groundbreaking piece of technology, but it was a silly name that I made up when I was walking, you know, in my house one night. Tasty Trade was a name I made up when we owned Thinkorswim. It’s a name I made up that I had to negotiate when I left um Thinker Swim to keep because because I bought it with the company credit card at the time and I and I wanted it. Um Lost Dog is a name that I’ve been sitting on for years because I’ve I it’s got a little personal meaning to me but whatever. And so I don’t actually care like the name of companies doesn’t mean much to me. It just needs to be something that’s fun that I feel I can market. I feel that, you know, I’ve always felt that that we are we do a really good job at organically marketing our products, our technology, and I think having a fun name has a lot to do with that. Absolutely. You sure do, Tom. Uh I I had a thought when I I was thinking when when you decided to move out of pit to uh move out of trading to start a brokerage. Was there any other business idea that you had that you kind of you know compared with should I start thinkers swim or a brokerage or should I maybe start a hedge fund? I don’t know. So was was there some different ideas that you explored? There there were there were a bunch of ideas that we played with but um I I never wanted I I had managed money a little bit in during my trading career and I did not like it. So there was never any intent to go out and manage money. Um there was an idea when we started Thinkorswim that we also wanted to build a derivatives platform that allowed for options on non-traditional things. So basically wanted to create like a swap market for an option swap market for anything that was non-traditional. We built a really cool exchange essentially for options on anything, but we couldn’t get through the regulatory hurdles that um you know, we couldn’t get through the the regulators cuz they thought that if you’re creating an option, it’s like a security and because it’s a security, it needs to be regulated and therefore you can’t do this because it’s not exchange-based. So, we had to kind of drop that idea and we just focused on building a listed option exchange. But we did have some ideas about you know this is 25 years before there was a decentralized world. So yeah. Yes. Got it. Got it. And did you did you try that or you you just explored it with the regulator and you figured out it’s not going to work? No, we we never tried it. We explored it with the regulator. Um you know back then like I said there was no such thing as you know as a decentralized product. You know there was no no such thing as an overthec counter product. Um, so we explored it. We built some really cool technology, but we never launched it. Got it. Got it. Do you think it’s possible today? Um, not in the US. Okay. I think there there are some there are some sites out there that do it in, you know, the digital asset world. Um, that that’s that’s exactly what I meant. Yeah. I mean, but it’s hard because it’s never been something that’s been allowed in the US. And I’m, you know, since I’m based in Chicago, um I, you know, there’s not much I can do. I’m not moving to, you know, Bermuda or or um Cyprus, you know, so it’s hard. It’s hard for me. Got it. Got it. Got it. So, uh so after Think or Swim, um then we had Tasty. And when you started Tasty, was it the financial network first or was it the brokerage first? Was it the financial network first? Um, okay. When when we sold Thinkorswim, I and I loved Thinker Swim, but when we sold Thinker Swim, it was just the it was time, you know, it was just it was we were we were ready to move on. And I wanted to build something that addressed what I felt was a financial media in the US and I’m sure it’s like this all over the world, but financial media in the US to me was um was very disingenuous. What that means is financial media to me didn’t make any sense. I as a viewer, I really don’t care what somebody else’s opinion is of the market or a certain stock. Like I know that they don’t know anything. Like I know that if somebody comes on and says they love, you know, they they love Nvidia here or they love IBM or Microsoft, it doesn’t mean anything. They don’t know anything. They don’t know if that stock like so I don’t really care what their opinion is. I was hoping at some point financial media got got somewhere where they were talking about strategies and numbers and you know and probabilistic analysis and explaining you know hey here’s here’s why this option is priced here. Here’s what the expected move is. Don’t tell me some stock’s going to you think it’s going to go up $100 when the expected move is six, you know. So financial media was kind of driving me crazy. CNBC, Bloomberg, all that stuff. It just didn’t make any sense to me. So, I decided I wanted to build a network that was fun, that was different, that was digital. Remember, we built Tasty Trade before there was such a thing as streaming networks. We were the first streaming network. There was, it didn’t exist. And so, so we built I’m sure even the bandwidths were pretty low at that time. I don’t know how people watched your show, but the bandwidth we we did not have the kind of broadband networks we have today. Um, you could watch it. It It was We didn’t It It worked fine. Um, yeah, it worked. It just It You’re right. We didn’t have the bandwidth we have today, but it did work. And what happened was as soon as we launched it, you know, we we took a different approach. No news, no guess, no technical analysis, no fundamental analysis, just quantitative stuff, just math. And you know, basically hundreds of thousands, if not millions of people gravitated towards it because it was it was something that a lot of people wanted. It’s what I thought, but I didn’t know for sure. And I learned very quickly, hey, you know what? This is really interesting. We have something here. So for the next five years or six years we did just the network and then after after the sixth year we launched the brokerage firm. Lovely. And um when you did the network how how many hours in a day would you be live or how what was the format at that time? [snorts] I did with Tony I did three hours in the morning and a half hour in the afternoon for 15 years. I so I did three and a half hours a day minimum. I did podcasts on things like that. Um I did three and a half hours a day minimum plus nights plus nights we would do lots of special things plus weekends. So I mean it was kind of crazy looking back at it, you know. I mean, we we broadcast over a we’ve had well over a billions, you know, billions of views. It’s insane. It must have been a lot of work because, you know, it’s not easy to be on a live show every day for five hours and then you you said you did something over the weekends as well. Must have been crazy. Um, it was. But you know what? I’ve been working my butt off for 40 years. I am a workaholic. I don’t really care. So, the craziest thing is when I did my last show like a couple weeks ago, I was like, now what am I going to do? You know, like I I didn’t, you know, I’m like, all right, I’m ready. You know, I got to I got to, you know, I don’t like to have nothing on my plate. Are are you at a point where you you’re not going to office? You’re not working. So, how are you how’s your day today? Oh, no, no, no, no, no. I’m I’m I’ve started a new company. Um I didn’t even take a day off. I started a new company the next day. And I mean, we’ve been building it for a while, but I moved over the next day. Took over as CEO. And um and now we have a really cool, you know, um AI slash uh streaming network that we’re launching a brand new streaming network on November 10th. That’s two weeks from today. Um, we’re launching a new streaming network called One Lucky Dog and it’s launching on November 10th and then we’re also launching our software uh end of November, early December and it’s it’s just a different business model. It’s a different business altogether. I’m focusing in the US. I’m focusing on the wealth gap and I’m focusing on worker inequity. I feel like there is nobody has really addressed worker fairness in using math and quantitative statistics. So basically what I’m doing is building these crazy option models to solve worker inequity and it’s going to be very interesting to see you know what kind of takeaways what kind of demand we have for it. I don’t know yet. Okay. And and um talking about worker inequity or you know compensation inequities. So do you think the existing market forces won’t solve it and that’s that’s the reason why we need a solution? The traditional way to solve worker inequity is either through social safety nets, through um equal opportunity, you know, um regulations, through minimum wage, things like that. Those address the problem, but they don’t solve the problem. The only way to solve the problem, and this is not US specific, this is global. The only way in every country to solve the problem of worker inequity is through education. And the only way you can empower workers is through education and letting them know kind of what they’re worth so they have context around how to negotiate and you know and and and and how to build the confidence to go after what they’re worth. And and and that’s where Lost Dog comes in. That’s where it comes in. Exactly. That’s the technology we’re building and that is the network that we’re building. Now, this is not something that’s going to be very easy and it’s probably going to be hard to, you know, it’s going to be hard for a lot of people to figure out right first what we’re doing and how we’re doing it. But I am going to go after um CEOs that make way too much money, politicians that make way too much money, and corporations that make way too much money and don’t treat their workers fairly and don’t treat their employees fairly. And I’m going to empower those employees. And it’s going to be one hell of a battle starting in two weeks, I’m sure. But you know this is when you’re going to put your political science degree to work. But we’ll see about that. Okay. So uh so coming back to financial content, how do you uh you know you you’ve been at the forefront of creating online financial content even even when nothing existed. How do you see it evolving today now now that we have YouTube and uh there’s a whole lot of content almost every fintech or you know broking firm is trying to create content to uh as as a means to engage with users. How do you see the space evolving? Well, you’re right and everybody’s trying to kind of copy what we built over the last you know 15 years. The challenge is most of these firms are not that good at creating content and their content is pretty much generic and it’s not interesting and they don’t realize that the reason that Tasty was so successful is because we were different. We created content that was a little bit controversial, that was new, it was innovative. It is hard to do that. And I think they’re going to find out, most firms are going to find out the hard way that it’s not it’s not easy to do. Um, I do think that content can be a differentiator if done right. I just think that it’s a challenge for most of these old brokerage firms to do content right because they’re just not that interesting. So, that’s the dilemma that they’re going to have to face. Um, I also think that there’s a credibility piece. You know, one of the reasons that Tasty worked was because I had a lot of credibility as a trader. I mean, I’ve been it’s all I’ve ever done. And I think that you can’t put somebody up there that’s never traded before and have them talk about trading and people don’t people just don’t care. They’re like, “Okay, this is, you know, what do I care what this person says?” So, I think they have a lot of challenges. I do think though that the true differentiator in a world where commissions are commoditized, in a world where technology has been commoditized, I think that you’re talking about the one thing that you can’t commoditize is truly creative content. I makes sense. Makes sense. Completely. So, in fact, I’ve been watching tra t tasty content for more than a decade now and I I don’t think anyone has been able to do that job yet. So u so I’m I’m sure there is something in the DNA of Tasty that you created that makes it so hard for others to even copy it. Uh leave alone make it better. But even copying it seems to be a difficult task. Sure. I I agree with you that that’s you know people always said to me you know TD just launched a network trader just launched a network. ID just launched a network. And I’m like okay but they don’t have me. You know that was my whole thing. I okay great tell them to do whatever they want to do I don’t really care but they can’t they can’t copy us yeah so the other thought which I had on my mind while we are talking about content was today now what is your uh perspective with with all this content available on um on the internet be it web or YouTube what exactly is the value of university education now with if someone has to go to um a university to learn finance versus learning stuff by themselves on on the internet and we have AI as well to help now. So how do you how do you see this whole space u evolving? Well, I don’t think that you can ever discount the value of a of a un of you know university um degree and undergraduate, graduate, PhD and everything like that. I think degrees are invaluable and for many reasons. Um, first of all, there’s a maturation process that you need to go through. Every every 18year-old, 19year-old needs to learn how to grow up. They need to learn how to mature. They need to learn how to make friends. They need to learn how to network. They need to learn how to, you know, play off one another. I can’t stress how important university um an education is at the university level. It’s not a it’s of course we anybody a 10-year-old can can you know use chat GPT or um or Gemini or whatever you want to it to to to find out everything there is to know like you know on basically anything nowadays but that does not make it actionable that does not make it practical and I feel like although a lot of the curriculums at different universities are outdated or they have had a hard time staying with the times. I I can’t stress enough how important the foundation is, you know, um for PhD students that we hire, for master’s students that we hire and for undergraduate and for people that just have their um their bachelors um of science or their bachelor of arts. They are so much more valuable to us than somebody that just is self-taught. Um, it’s not even close. Like, it’s not I I there’s It drives me crazy when people think, you know what, because of all the information that’s out there today, this university degree doesn’t have the same kind of value. I would argue it probably has more value because on top of the university degree now you can add on you know I think I feel like what we do at Tasty is like a graduate program in itself but you can add that on to your undergrad while you’re doing it and next thing you know you have true differentiators to establish yourself as somebody that knows more than anybody else and that’s what I love about it. So, so it means it’s not just about knowing stuff but it’s also about engaging with others and there’s that human element which um which being at a university teaches is is is that what you’re highlighting? Yeah, of course it’s there’s beyond the education of course it’s the maturation process it’s the networking process 100%. Got it. So um talking about um so one of the things which um I had on my mind was in I’m I’m I’m moving to trading right now in terms of uh specifically talking about markets volatility what uh what exactly uh were some early misconceptions that you had Tom about the markets and which which you kind of overcame over over time where which you learned. What was it that you did not understand in the beginning that you know maybe over years or a few months whenever that was uh it kind of okay this is not how it works. So so what was that? Well it takes a long time to convince to teach yourself a couple things probably most importantly because we all have you know big egos. We all have ideas. It took me a really long time to realize that I really don’t know what’s going to happen next. Like I thought I had some kind of an edge because all I do is sit around and watch markets every day for four and a half decades. And I’m thinking to myself, nobody can nobody could watch more ticks in the S&Ps than I have over the last 40 years. So that should give me an edge. But it doesn’t. And it took me a really long time to appreciate that I don’t have any edge over anybody else in knowing what’s going to happen next. I have a little bit of comfort knowing that I’ve kind of seen everything once or twice, but I don’t have any edge. if not edge Tom but over years you would have developed an intuitive sense of the markets as to u you know what could happen next I’m not saying you know you would know it for sure but you would have a better intuitive sense compared to others having watched the markets you would like to think so I mean I’m a contrarian so I would like to think so but markets Market can be, as you know, markets can be incredibly um difficult, irrational, what what we perceive to be irrational. Um they can be, you know, there’s a lot of people watching the exact same movie. It is very difficult and there’s only one movie playing at a time. It’s it’s it’s difficult to be, you know, to be different. It’s it’s difficult to um uh I’m always ch Let’s put it this way. I’m always challenged. It’s never easy. Interesting. So I I I I did think you you would tell me that you figured out something and some some holy grail kind of stuff that but yeah it’s it’s difficult. I I I agree that uh you know but coming back to uh trading again you you you’ve been a proponent of premium selling but how do you deal with uh or what’s your thought on dealing with uh what we call as tail events something which happened in August 24 and then April 25 again. So how do you what what’s your thought on dealing with risk? I mean, those are tough situations, you know, like any anytime you’re going to have outlier moves, whether it’s once a year, twice a year, once every 3 years, whatever it is, you’re going to have some pretty wild outlier moves. Um, I have learned to deal with things by keeping my position size in check. I don’t think there’s a better way to do it. It’s one of the biggest takeaways of the last, you know, 15 years is learning to keep my position size in check and and go with it. It will happen, you know, that it’ll happen a few times a year and just uh yeah, I mean, I don’t know that there’s I don’t know that there’s another way you can get around um outlier risk other than trade size. Mhm. Got it. Got it. And um if you uh when if you look at a trading strategy or do you are you a systematic trader in that sense? So that that’s my first question. Do you look at or do you create trading strategies by looking at data or do you recommend others do that? What’s your thought on that? um in terms of designing trading strategies or thinking about trading in terms of systematic strategies, I think that uh what I do is I apply different strategies to different levels of implied volatility. Um, so it really depends for me. Um, I mean obviously we want to be capital efficient in everything that we do because I do play kind of a game law of large numbers, but on top of that I I really base a lot of my strategy on different levels of implied volatility. If I think implied volatility is cheap, I will do things that I think are um a little bit better for low implied volatility. And if I think volatility is expensive, I will take on more risk because I feel like there’s more opportunity. And uh would you also uh test it or simulate stuff? Uh that there are tools available. I’m sure Tasty also has those features where you can kind of back test or simulate stuff. I mean, Tasty has all those features for back testing. I personally don’t use them very often because I’ve pretty much seen every scenario. Um, and I can also, you know, my mind works in I I know it’s going to sound weird, but I see things in different levels of st on different standard deviation levels. So when I look at stuff um I built our software so that essentially I can look at everything from a you know with a two standard deviation perspective and I can’t go outside of that because outside of two standard deviations then it’s something that you know it’s pretty hard to quantify. So my whole world is inside of two standard deviations and I’m able to visualize that for really any trade I make. So, so that’s exactly what I meant, Tom, when I said that. Have you developed an intuitive sense? And I guess you have. So, so in your mind, you know what happens within two deviations? Yeah, it it’s pretty easy actually to do in the US markets because most of the brokerage firms require enough capital to carry a two standard deviation move. So, you can look at your buying power reduction as one way of, you know, getting to that number. I get that. I get that. Makes sense. Makes sense. And um are there talking about in the in the in the world of options, are there any other than implied volatility, is there anything else which you look at as a leading indicator of what could happen for a given uh spread or a structure? Do you look at something else beyond implied volatility? I mean, I occasionally will look at um I do look at price because not that I’m I’m only making a subjective opinion on price, but I do look for situations where I think the price is at an extreme. I also will look for extreme situations and skew. Um I don’t I don’t search by skew but I do look at the option pricing skew to see you know how much how much the market is pricing in you know upside or downside pricing skew. Got it. Got it. And here in India one of the things which a lot of traders look at is um open interest across different strikes. Um that’s something which I don’t see much in in the US especially. any any any idea as to whether it has anyformational advantage over uh other we we trade mostly liquid underlyings. There’s no advantage to open interest especially if you’re trading indexes or um or liquid underlyings. I think the only time we’ll ever look at open interest is if we’re trading something that’s very illlquid just because we’d like to know, you know, is anybody else trading it? But I stick to mostly 99% of my trades are very liquid underlyings. So open interest is not a factor. Got it. Thanks. So um I I’ll move on to the next one which is you know Tom I’m I’m a trend follower Tom and you you you’ve been the little that I’ve read about you or heard your in your interviews uh I’ve not heard much about trend following from you. So, uh, what’s your honest take on trend following? You know, you can speak your mind. I won’t be I won’t get offended. It’s okay. Well, so I I’m a Curian, so I am not a trend follower. If anything, I fade trends. So, I have made my living fading trends. That’s how that’s who I am. I don’t believe that there’s such a thing as a trend. Um, I mean, obviously, you know, like right now we’re in a crazy bull market and and you know, of course there are stocks that go hyperbolic or they get crushed, things like that. But I I’m not somebody that believes that there’s anything more to it than it’s just a random case of multiple days in a row. Dan, um, how do you make sense of all these CTAs who run managed futures funds and all of that? There’s a whole industry to it, billions of dollars to it. So, how do you make sense of it? Um, I don’t try to I don’t know exactly what those guys do. I don’t know how successful they are. I haven’t seen results of a lot of um commodity trading advisers who have been very successful. I know that there’s a handful that have made money, but I think that’s just actually a statistical exactly what’s supposed to happen statistically. Um my argument would be that in black and white instruments like futures it is very difficult to manage a you know a directional fund based on trends. That’s just my Got it. Got it. So so that brings me to the question what does diversification mean for you? Because if you are going to be a contrarian and if you are especially in the context of let’s say uh if you’re in the business of premium selling how do you diversify there in that context if someone has to? Well the the challenge there is you diversify through um non-correlated underlyings and through strategy. I’m really good at using all the products available to me. So for example, you know, like I’ll trade something that is not correlated to the market like gold or silver or, you know, bonds that are not correlated to stocks. And so I think that that’s a big part of, you know, how do we stay diversified? Got it. So but it’s but the diversification is not in terms of strategy, but more in terms of products and assets is is is how is what you That’s correct. Got it. Got it. So, um I I remember there’s another thing I’m not sure a few years back, it could be five or six years back or more, maybe a decade back, uh Tom and uh you know uh you you did a series on scalping with Tony. Okay. And um I I I remember it was like some five or six videos on scalping and it was something very new and exciting to me at that point of time. So I still remember it that that’s So one of the questions I’m not sure if you would still remember. So one of the questions which I had was was it was sculping something very intuitive to you or was there some method to what you were doing? Uh I’m just curious a lot of people uh asked me that question. Um you know so I I thought I should ask you. Well I have been scalping for 43 years. So when you say is this something that’s intuitive to me or something that I enjoy doing, the answer is yes. Because even today, you know, I’ve been scalping S&P futures this morning. I’ve been, you know, scalping some some stocks um in addition to my position trading. So, you know, I mean, I’ve already made probably 30 scalps this morning. So, the answer to your question is yes. I’ve been doing it my entire life and I’ll continue to do it till the day I die, I’m sure. Um, so yeah, it’s important to me. It’s an engagement tool. It’s fun. It keeps my mind sharp. It keeps me on top of everything that’s going on in the markets. Um, you know, it’s it’s literally part of my being is, you know, is intuitively scalping the markets. I mean, sometime I think I’m good at it, but, you know, again, I’ve been doing a long time, but you know what? Um, I do it more because I love it than, you know, than anything else. Okay. But you also say you’re not a chartist. So, what what are you looking at when you when you’re scalping? Oh, I’ve never looked at a chart in, you know, in four decades. Um, not I’m not looking at anything on charts. I mean, I’m just looking at price. I mean, I I I memorize I mean, I know every single price. I don’t, you know, all I do is watch markets. I don’t need to look at a chart to tell you, you know, where we are or where we’ve been or anything like that. You know, I I promise you, you could not stump me on on where the market is or anything like that. Got it. Got it. Interesting. Interesting. So, uh so yeah, so that that’s something which I had on my mind. I’m so glad I you know I’ve been able to ask you this question. Um there’s another question which comes to my mind talking about strategies. So given that you’ve been in the markets for four decades, are there things that you saw uh are there anomalies which you saw existed at one point of time but today you know it it makes no sense to trade them and what are they if if if you if you remember any of those? I mean there’s some indexes that um I mean there’s always going to be some indexes and some stocks that used to be super liquid and that just you know they’re just not they’re not there anymore, you know. um different indexes that have dried up, different products that have you know I mean there’s always some rotation. Um, so I think yeah, I mean, you know, when I first started trading, the most actively traded equity was IBM. You know, now IBM’s not even in the top 100, you know, so it just depends. When I started trading, the S&P 100, the OEX was the most actively traded index. Today, it doesn’t even trade anymore. So, you know, it really just depends. A lot of things change. I wouldn’t read too much into that because there’s tons there’s tons of new stuff as well. So as a as a trader if if someone is starting right now do you think how do they think about it? So uh how do they kind of factor in um the the changing possibility of products and so what what kind of an edge should one develop if I have to you know if I have to build a career in this area if I have to become a better trader? Well, I I think the key to becoming a better trader is to is to trade. You know, I know that sounds so basic, but I think it’s the kind of um it’s the kind of business where you just you have to you have to get involved in order to really understand, you know, there’s a lot of knowhow. There’s a lot of um experience that you get from just, you know, pushing buttons and doing certain things. And I it’s hard and I think you just need to experience it to see if it’s something that that you like that gets you excited and it’s there I mean I I know it’s related but then is is that how you think one can develop an intuitive sense of what’s going to work and what’sn’t or you know are there things that you would see in a in a winning strategy or something uh if you look at a strategy you say Okay, how do you develop that sense that hey, you know, this this approach to markets is not going to work. How do you uh I I think it’s really important that you figure that out. I think different people have different risk tolerances. Like, for example, some people are very comfortable with undefined risk. Other people are very uncomfortable with undefined risk. And I think it’s impossible to bucket everything, you know, to blanket everything and and generalize. I think you have to let people experiment for themselves. Some people like equities. Some people only like indexes. Some people only like define risk. Some people only like credit spreads. Other people only like naked strangles, you know, or naked options. Some people only like to be long options. Some people only like to be short options, you know. Some people only like to sell naked puts. It really depends. I I’m not gonna I’m not going to guess on this one. I just think you need to play around and experiment. All right. I think it makes sense. You find out in each one of us would figure out our own sweet spot over time. I think that is the case truly. Okay. So uh so other thought which you you said you should punch in orders and all that that goes uh so there’s a lot of talk about automation and using APIs to punch orders all of that even even here in India uh you know brokers are giving out APIs which which can be used to automate trades. What’s your thought on that? Is that the future? Is that how a [snorts] lot of retail I’m I’m I’m talking more about retail here. Is that how retail is going to trade? I doubt it. I I don’t believe so. I believe that it’s very difficult to um to code and to program um a trading bot to do to think for you. Um I’m a brains over bots guy. I don’t see myself I think that there’s certain pieces of technology that can help you in lots of different ways. I mean, there’s no question, no question that AI is going to be an extremely valuable tool in helping traders. It’s going to accelerate the learning process. It’s going to help you look at your um multiple layers of outlier risk. It’s going to help explain to you things like, you know, um uh position risk and trade risk and and it’s going to help you to quantify things that normally you wouldn’t even even thought about. So I think AI is going to be a very positive and valuable tool for traders. I think trading bots on the other hand are going to be pretty mixed. Um I don’t see the the I don’t see them as being the future. Let’s put it that way. But how about third party tools which would help you let’s say you don’t no code solutions as they call it. So you you kind of configure something and it’ll execute trades for you rather than you doing it for yourself. Um, I find it incredibly hard. So, the way I’ll say it is that most of the high frequency and prop firms that automate trading um, find it almost impossible to automate opening trades like that. Almost impossible. and their their technology is and their data feed their data feeds are faster, their technologies faster, and their technology is much much better than retail technology as far as execution goes. If it doesn’t work for them, I don’t know how it could possibly work for a retail investor. So, you mean a lot of trading is will for for for the foreseeable future is going to be manual. Is that I mean is there a number to it? I’m I’m sure you would know as uh in tasty the number of users or subscribers um you know or customers who use um the API to kind of punch in their orders. Do you see a trend there? Um I mean it’s a growing number of users we but it’s a very small percentage of the order flow. So when you’re talking about percentage of order flow it’s less than 2% of all the order flow. There’s definitely a growing number of users who are experimenting but again the order flow percentage is really small. Got it. Got it. I’m quite bullish the way I see it here. uh but it depends as I said the in I think the story is similar in India as well where the number of as a percentage of the order flow it’ll be very small but then if you if you look at it among traders a lot of them are excited about using technology I I I understand the excitement piece to it I get it but I just think that most people don’t realize what you’re up against so if you are doing something on your own you can make a lot of subjective decisions, which is good. If you’re trying to run a bot, your bot is going up against the best bots in the world. You’re you’re And now you’re going to say, “Well, so are you if you’re putting in your own orders.” And the answer is, yeah, of course. But it’s a little bit different when you’re trying to run your bot to go up against, for example, Citadel’s bot or Jane Street’s bot or everybody else. Their their their bots are better than your bot. That’s my point. Your bot is a leased, you know, couple of dollars a month, couple hundred dollars a month. You’re leasing a bot from some third-party developer who cannot compete with a hundred million dollar platform that runs in six milliseconds or a billion dollar platform that runs in six milliseconds that with better markets and better theoreticals than everything you have. And so my issue with it is you are totally disadvantaged right out of the shoot. Got it. So, so you you spoke about Jane Street and I’m not sure if you uh followed the story in India where um the regulator in India went against Jane Street because they they claimed that Jane Street was manipulating the markets. I’m not sure if you heard about that. I followed it. Okay. So, what what do you have to say about that? Uh just curious what what’s your thought. Was it market manipulation or was it a bad uh index in terms of how the index was structured? What what’s your thought? So again, we’re going to get back to you know um the the Indian regulators cuz I I have spent a lot of time with Indian regulators trying to accomplish certain things. I was not able to accomplish. The regulatory environment in India is a little bit antiquated. Um it’s it’s very protective. I’ll leave it there. And it hasn’t evolved to where it needs to be to build any very efficient and growing you know marketplace. The Indian markets are very limited to a few products and to a certain type of product. Um the technology, the front-end technology has gotten significantly better in India, but the exchange technology and the regulatory environment has not kept up with the front-end technology. So in India right now you can get a really decent piece of front-end technology as a consumer but the exchange technology and what you’re allowed to do and the way the capital requirements work on exchange level especially for derivatives has not kept pace with the front-end technology. This is a very kind of almost a normal situation as there’s growth in the system. I’m sure Jane Street here. Jane Street is not they’re not alter boys. Okay. It’s not they’re they’re they’re they’re a very competitive firm. My experience with them is their technology is really good. And my guess is that they took advantage of really bad exchange technology and really bad exchange routing rules and things like that. And my guess is that they didn’t do anything that would be even remotely considered illegal in the US. But in India they disrupted the marketplace and it was like as we say shooting fish in a barrel type thing. Yeah. And and so I guess I guess the bottom line for me is that I feel like this is this is kind of a blessing what happened was kind of a blessing for the Indian markets markets because now they are going to accelerate um regulatory changes and exchange changes to focus on real highfrequency market making which is necessary in India. um the high frequency firms in India, you know, are not as good as Jane Street yet. And now that those firms are getting in there, there’s going to be a completely the marketplace is going to completely change and you’re going to get better markets, fairer markets, more products, more capital efficiency, and better exchange technology. So the bottom line of this whole James Street thing is that it’s going to benefit the entire listed marketplace in India in a big way. Um that’s how change happens. I I I really hope it does Tom. Um that reminds me about another thing. I’m not sure uh if you followed this one. Now in India post 2020 we had uh like like it happened in the US we had a boom in terms of uh trading as such not just you know in options as a segment but across so the the number of accounts which uh which got open all of that shot up that is one side the other side of it was we we had a whole lot of um you know traders who came into the market postco and exchanges came up with different products and um there were multiple indexes on which options were uh options were launched and each product had a expiry on a different day. So 5 days a week we would have some zerod expiry. So this is not exactly the zero DTE u uh what you have but then this is a new uh a different product expiring each day of the week and obviously it you know there were a lot of u traders who took to it and somehow you know the volumes of those options were too high. So I was saying we we had this and then the regulator came in because there were there was a lot of speculation a lot of volume u which was going into these activities and there were reports of people losing money which which happens obviously. So so they kind of shut it down. They they kind of sunset three or four indexes and decided that there’s only going to be two indexes on which we would have weekly options. The rest of them would not have weekly expiration. we’ll have only monthly expiration on the rest of the indexes. That’s how they solved it. But then I’m not sure um you know if if that’s the best way to deal with it. Uh do you have any thoughts on that? Well, it’s not the best way to deal with it because I mean you know the last thing you want is the regulators quote trying to protect you. Um that’s you know they make things worse not better. Um I’m all for you know as many products as possible. I I just think the challenge there’s there’s my experience in India because I can’t trade the markets there. So I don’t have like hands-on experience with the markets but from what I I have you know given um a lecture at the Mumb Mumbai uh stock exchange and um also you know I’ve met with the the head of the exchange and and a couple of the regulators there before um and my my gut instinct says that that you know the the exchange is trying to play you What they’re saying is they’re trying to protect the individuals, but the reality is they’re making it worse, not better. And I I just don’t think you can’t if you want to protect everybody and not let them trade. If that’s what you think protection is, then that’s fine. But don’t throw out like, you know, partial products. It doesn’t make any sense to me. I wish I wish there there are more voices like you, Tom. Okay. So, so that uh you know how did US take to zero DT talking about zero because we’re talking about zerodt uh there were questions about market stability and there could be you know some kind of systematic or systemic risk that could come in because of zerod and uh how did that play out in the US? Well, I mean take a look at it. It hasn’t had any impact at all. The market’s at record highs and there has been no systemic risk that I can tell from zero GTE. So to this point it has not been a problem. All right. Well, but what what were there voices which said that you know this is not a good thing. You know zero DD doesn’t add any value to to the market or the ecosystem. Well that’s you know I I understand that but that assumes that you believe that the only value to the ecosystem is that you know is what people can take out of that one specific trade. You know, my argument to that would be that the value to the ecosystem is that it’s brought um a record amount of volume to the um listed exchanges in the US which is you know is which is why we’re the center of liquidity for the entire world. So I would argue that the exact opposite in that zerod and other trading instruments like that have kept the US as the true um largest pool of liquidity anywhere in the world 10 times over which helps to fuel all the innovation and things like that. So I I think it’s it’s very shortsighted to think that okay you know the product doesn’t bring any um doesn’t doesn’t serve any purpose. I completely disagree. Got it. Okay. So, uh uh you know, that brings us to the end, uh Tom, and I have a few questions. Now, you know, you you were telling me in your initial days, you would shoot, uh 5 days a week or all of that and you continue to do that. Is there a specific routine that you follow to keep you going? U you know, how do you do that? That that’s that’s the question. I don’t have any hobbies. [laughter] But then but is there a schedule that you follow in in in in terms of you know to make sure that you are right there uh just to keep you mentally uh going every day and that’s not easy I’m sure um you know it’s it’s I think that’s personal in the sense that it has never been it has never been a problem for me to motivate myself and to get myself you know to want to work. So no that’s not an issue for me. I I enjoy working. It keeps me alive. It keeps me, you know, young. It keeps me vibrant. I I It’s important to me. I wish we all could have something like that. So, u So, I I wish more more of that for you. So, so what what comes to my mind is I I’m I’m really happy that you took time out to talk to us and uh I really wish you you continue with the same energy uh as you go on to build Lost Dog. uh and uh I would I I we would love to host you here in India whenever you are here next. I know uh I’m not sure if you uh you like this market but then uh you know we happy to have you here and uh I would I would love to connect with you if I’m in Chicago. I would love to I would love to take you out for an an amazing dinner in Chicago and if I get to India I will um for sure let you know if if I get back and I I assume I will at some point. I just don’t have it in my immediate plans. Lovely. Thank you so much Tom. Thank you for taking time out and uh you know I hope to have you back again sometime on the show. Thanks. Thanks Andy. Appreciate it. Thank you. Thank you Tom.