Feb 17, 2022

Many Ways to Skin a Cat

I shouldn’t say that. I have six cats.

I was in Miami over the weekend, hoping to get some R&R, but I ended up spending quite a few hours in my hotel room working. At least I was working someplace warm.

A couple of days prior to my trip, I spied a Facebook post from an old Lehman pal of mine. He said he was living on Collins in Miami Beach and gave everyone an open invitation to visit. By pure coincidence, he was living two blocks from my hotel. So, I hit him up, and we met for drinks on Friday night.

Now, keep in mind I had not seen this guy since the day I walked out the door in 2008, so I had no idea what he was up to. He worked at Barclays for a couple more years—then quit to trade for himself.

Now, if I have thought about that once, I have thought about it a million times. In fact, I very seriously entertained the idea of running money back in 2016. I was thinking about starting a commodity trading advisor. I talked to several people about it, and I got the impression it would involve a lot of stress and heartache, and I liked my relatively simple life writing newsletters. But I have the trading bug, big time, and while I get to trade a little now, it would be very different if I were trading full-time.

Anyway, I asked my man what kind of strategies he was doing. He specialized in financials at Lehman, and he said, yes, he was trading financials, but also energy. And he said he traded a lot of options. While I don’t know for sure, I get the impression he was selling a lot of options, collecting premium. He said things got pretty exciting for him in March 2020.

Well, that is one way to skin a cat, but certainly not the way I would skin the cat. I don’t like selling options. If you make a career out of selling options, your payoff profile looks like this: make a little, make a little, make a little, lose a lot.

I like to do it the other way around. I like to lose a little and make a lot. So, a lot of my trading is chopping around in stocks and losing a little money most of the time, but when a big opportunity comes along, I shove all-in and supersize that position. I have done that 3–4 times over the last 10 years, and that is where all of my profits have come from.

So, I have a very lumpy P&L, which is how I like it. In Nassim Taleb’s first book, he basically calls option sellers idiots—really makes a moral judgment about it. But I have also known several people who have done it successfully.

There are as many different trading styles as there are traders. Some traders are cautious. Some traders are fearless. Some traders will do the Martingale. Some traders cut their losses. I try not to do anything that will end my career. I like to stay out of trouble. If that means I make less money, so be it. I didn’t get the impression my pal was killing it, but he was certainly doing well enough to buy a nice condo in Miami Beach.

Not Sure I’d Want to Do It

I don’t think I’d find trading full-time very emotionally fulfilling. One of the nice things about writing newsletters is that it connects me to thousands upon thousands of people. I get to email with hundreds of people every single day. And it’s the best part of my job. I learn so many things from my subscribers.

But trading on your own can be stressful and lonely. Sure, you can be in a Slack channel and chat with other people, but it’s not the same. By the way, I don’t use Slack or any other chats, because I need peace and quiet to focus on writing. I don’t like to be disturbed, especially in the morning. I can’t imagine being locked in a room with nothing but Interactive Brokers and my own neurotic fears about the market. Sounds like hell.

But if this is your chosen profession, I tip my cap to you. Money won is a million times more satisfying than money earned. It can be very satisfying. It can also occasionally be terrifying. My Lehman friend said he made lots of mistakes at the beginning, but makes fewer and fewer over time. I know the feeling. But a bad day for me is when someone unsubscribes to my newsletter. A bad day for my friend is when he gets multiple margin calls. You have to get to a place where it doesn’t ruin your day, because there is always tomorrow.

Jared Dillian

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