Tom Sosnoff - Short Vol, Long View | The Outlier Podcast

Added: 2026-05-28

[00:00:02]What's up everyone? Welcome back to the Outlier podcast. We have a familiar face yet again, Tom Sosnoff without the beret, sans beret, Tom, which is still it's a new vibe. You've been in the beret for what? Like 20 years? So it Yeah, so it's the it takes a minute.

[00:00:17]When when you were on the the floor, did you also wear a beret? When did you start wearing the beret?

[00:00:22]When I started thinkorswim.

[00:00:23]So it and it like decisively when you started thinkorswim when you said I'm going to start wearing a beret every day for the next 25 years. Well, I didn't know it at the time, but yes, it worked out that way. I didn't That was not the game plan at the time.

[00:00:36]And how did we arrive at a beret versus any other headwear?

[00:00:40]I I That is a That is a very um fair question. I I don't know. I think it was >> [laughter] >> I I really don't know. You know what we were we were we were we were trying to come up with some giveaways.

[00:00:55]Um Well, back when we started thinkorswim and I think the first thing we did was we we had a book that one of the guys wrote that worked with us. We tried that and that wasn't Nobody wants a book.

[00:01:06]You know, so I mean markets were crashing, nobody wanted a book. So we went to the monkey and everybody wanted the monkey, the stuffed monkey, and so that was we we gave away like I don't know, 50, 100,000 stuffed monkeys and then we um and I also liked the idea of giving away like a a beret or something. So I figured, well, I'll wear this and then maybe people will want it and it turned out nobody wanted it, but uh Sounds right.

[00:01:32]>> But uh but then I kept wearing it cuz my hair was long. I figured, what the hell?

[00:01:35]I don't know, you know, whatever. But it it's like What is a beret supposed to do? I have no idea. Yeah, okay. All right, well, I I thought I didn't even I never even wear I never wore a baseball cap in my whole life. Um I never wore a hat, you know, like I never wore anything. And so um Like I don't wear hair I don't wear any jewelry, I don't wear a watches, I don't I don't even wear a wedding ring, you know.

[00:01:59]I am married, but I don't wear a wedding ring. You know, like it's like >> I don't wear anything. And so the beret was just like so not me. And uh but whatever.

[00:02:09]Yeah, well, it became you. That's the entire generation only knows you with the beret.

[00:02:14]>> I know. I know. It was fun. So it's it's it's cool. It's chill. I I I it worked. Yeah, it did. But now So like what what's is now the the branding just sans beret or do we get Is there an another evolution of this? Do we get another sick hat? Damn good question.

[00:02:31]We're we're we're I'm deciding. I'm deciding and but right now it's sans and then we'll we'll see and you know, you never know.

[00:02:40]Okay. We'll see we'll see where we land.

[00:02:43]And speaking of landing, we're like what? Like over 90% through S&P 500 earnings and they've seemed like pretty strong so far like on general seeing, you know, year-over-year profits up like 20 23%, you know, depending on where you're looking. Tech looks pretty strong and Nvidia literally just reported they're down a percent. They're ticking down just a little bit. I mean stock's down two three bucks. Yeah. Which is expected move was about 12 uh 12 and change. You know, I thought the 12 and change was too low. So two is going to be really too low. Mhm.

[00:03:19]Good day for the premium sellers. Um but you know, again who knows what happens tomorrow. Yeah, yeah, we're we're we're ways off.

[00:03:27]Actually, have you guys done any research prior on the relationship between where something after it reports, especially like an after the close?

[00:03:39]After it reports, the immediate reaction within like that first two-hour window versus like where it opens the next day?

[00:03:46]Um not that specifically. Okay. Not specifically because they they you know, companies report at different times and then they they talk to the analysts at different times. Um You know, it's funny. I've been on I've been on that side running two public companies throughout my career.

[00:04:06]I've been on that those earnings calls for a long time. And for many times. And I I I I swear you have no idea what's happening like during those calls.

[00:04:18]Really?

[00:04:19]>> you can watch a screen if you want to, but you have no idea why something's moving or not. Even if even if you run the company, even if you you pushed out the numbers, even if you create the narrative, you still have no idea why the stock does what it does.

[00:04:36]I mean, you you have to have some idea.

[00:04:39]Unless unless you completely butcher it. I mean, if you have something really bad to say, yes, you know what's going to happen. But if you have something that is um But if you're like right in the middle, like you think you have like Nvidia.

[00:04:54]Hey, you know what? I think these numbers are really good. But you just don't know. You just don't know. You really don't know.

[00:05:01]Interesting. Cuz I I actually feel like especially for companies like Nvidia, it almost it seems like always I guess that's true cuz like their last what?

[00:05:09]Their last earnings in in Feb was a little bit of a bit of a bloodbath.

[00:05:14]So >> Yeah, it was it was lower. I mean, it it opened higher, went lower. Yeah. Yeah.

[00:05:19]Um much more volatile than than this one. I I just wonder if the you know, it feels like and I don't want to get off topic, but There is no topic, so let's go.

[00:05:29]>> Okay, perfect. Cuz it feels like and this is probably something that's just turned over the last maybe two weeks or so. And it especially kind of maybe reached a peak over the last couple of days with the whole Eric Schmidt thing, you know, and getting kind of booed out of the and and I I kind of feel like the stock market is taking this whole AI thing in one direction and and the rest of the world is kind of in a very different direction and I feel like a lot of it falls on the narrative created by these AI companies themselves and I think it's going to be interesting to see how how that dynamic you know, plays out because I feel like there's this you know, something's something's brewing below and I I don't necessarily think it's good but the stock market's up here and public sentiment is down here. You know, I mean, it's rare that a CEO of Google gets booed off stage. You know, and that's pretty rare and I I I can't and and it's all because I don't know if he's tone-deaf or I don't know, you know, how bad the narrative that they created but, you know, these companies blaming their layoffs on AI when they're probably not they're just using it as an easy out and because of that they don't realize what the amount of of kind of animosity, the amount of just pure like hate and disgust that younger generation has for that message and then and then they're realizing oh, maybe we should have just said, hey, you know what, we're just cutting back and not blaming on AI. You know, like You know, and and so I think they're creating their own their their they're kind of building a narrative to that's not very good but yet the stock market doesn't care.

[00:07:21]Well, it's really interesting and could you double click a little bit in terms of like you said something in the beginning that I hadn't thought that much about in terms of where we might view the AI, you know, landscape is here domestically but then like where the globe is because you're right like that there is a massive gap there.

[00:07:44]And there's a huge disconnect right now, but but I think the disconnect has to do with the with the messaging, with the narrative.

[00:07:52]And and the people that are talking about kind of you know, the people that present both the upside and the dangers of AI are all the people that run these AI companies. So when you think about it and you look at Amazon and Meta and not Microsoft so much, but Google for sure and Open AI and and and you listen to Musk, they they they they tell these tales of AI taking over the world and fear. They do they never do one thing which is so critical and it's so easy, which is talk about the opportunities that AI is creating.

[00:08:29]Like, you know, why are you talking about why are you creating the downside and all the fear and not talk about the opportunities? Because to me when I give a talk, I I do this one talk in finance on the advantages of AI for trading, right? And I don't think I'm hard-pressed to find anything negative about AI and the self-directed investor as it relates to trading. I mean, like every single advancement in technology is a benefit.

[00:08:59]Every aspect of AI benefits an individual trader. There's almost no downside.

[00:09:05]And and I feel like it's a really interesting easy story to tell and I love talking about the opportunities created by AI, the leveling of the playing field, just that all the advantages of AI as it relates to trading, do-it-yourself investors, the self-directed investor, whatever you want to say.

[00:09:23]It's huge in their favor.

[00:09:26]Why can't the Eric Schmidts of the world and everybody else, it doesn't matter whether it's Tim Cook or Base, why doesn't anybody else talk about that?

[00:09:35]Why why are we Why aren't we talking about the opportunities being created by AI? And to give to put young people at ease and to basically get them excited about what's ahead of them rather than say, "Hey, you know what? AI is going to take your job. You have no chance at entry-level job anymore." So, you get booed off stage.

[00:09:54]I mean, what kind of idiot I mean, what These people are tone-deaf.

[00:09:58]And it it drives me nuts cuz it's not that hard to think.

[00:10:02]Two thoughts. First one, I can see that perspective and appreciate it for sure.

[00:10:07]I I'm not sure that I see the angle of like they don't talk about it cuz I I actually think they do.

[00:10:15]But, it does seem like the the fear side of the equation tends to pull more attention, but that's also that's standard marketing, right? You I mean, you've done social media for a long time now. You kind of know that. The fear-based stuff tends to do well.

[00:10:30]So, >> I don't I don't do that. So, so my approach is the opposite. I I I only do the opportunity stuff. I don't do the fear stuff. And I'm I I don't I I know where you're coming from, but but, you know, like if you listen to the Sam Altmans speak and you listen to these guys go, you know, through their thing it and and you realize that if Eric Schmidt presented the the upside, nobody's booing you.

[00:10:58]Like that's just not happening, you know, but when you present the other side, I get it. If I was a kid with $100,000 in debt or $150,000 in debt graduating school and you came up there to give the commencement speech and you told me, "Hey, you know what? Sorry, kid, but your entry-level jobs are gone." I'd be effing him all over the place, too. You know, like I don't I don't want to listen to that crap. And I feel like I feel like this is self-inflicted. But, the real question is when does the conflict between stock price and messaging or narrative, when does when's that clash happen?

[00:11:39]So, two other pieces to that same thread. The first one is actually funny when you were talking about how impactful AI is for the private operator. I I actually started a project on Monday that I began documenting. And back in like my my mid-20s, I went through a thing where I wanted to be able to test stuff cuz that was my, you know, background in undergrad and grad is primarily stats.

[00:12:07]And I wanted to test stuff, so I hacked my way through teaching myself how to write terrible code to express ideas and look at stuff. And ultimately that like that changed everything for me in terms of like what I spend my time on.

[00:12:23]And on Monday, I just I don't know why, but I just decided to start a project where I'm calling it project no code, and I'm literally using AI to walk me through from the lens of, you know, a trader but doesn't have any, you know, infrastructure coding background, and walk me through the entire process to ingest, create a database, and then run tests. So, the CliffNotes for this is I am absolutely blown away with how good it is.

[00:12:54]And I'm at the point now where I have data that goes back to 2007, pretty high fidelity options data. The data itself is not cheap as you know, but the fact that somebody with zero coding background can do that with something like AI, I I just I can't I can't even fathom the upside, you know, there for people to be able to like explore and express ideas.

[00:13:17]>> Exactly. Tell that story. Now, that's a story that if I'm sitting there and I'm graduating and I and and listen, there's no kid who's graduating college that doesn't have the same the ability to do this exact same thing that you just did.

[00:13:30]>> Right. Right. So, you tell that story and all of a sudden, you got kids excited.

[00:13:37]Once you tell that story, like that like that's my point. Why aren't Why aren't these guys so-called leaders? They're not leaders.

[00:13:44]This is my biggest issue. They are not leaders. That's a good one.

[00:13:47]Um and >> Agreed. they cannot, for whatever reason, whether it's their ego, their narcissism, I don't know what it is, but they're not capable of telling that story. So, they create these incredibly negative narratives. And you know why they do it? They do it because they know down the line what they're doing is they're setting up the messaging for when they have to do a mass layoff.

[00:14:12]Mhm. That's what they're doing. And they're basically using it as So, so, and I understand what they're like like companies like Meta, what they do is they overhire on purpose. Right. And then, because you cull the herd, you keep the cream of the crop, and you get rid of everybody else. It's a game they play.

[00:14:30]And then you blame it on AI so that you don't have to deal with all the consequences of why you What what Look what Look what you're doing. You're overhiring. You're getting rid of anybody you don't think is can can produce at an incredible level, and then you're blaming it on AI. And you set the narrative up all along at every one of your speaking events. Mhm. That's [clears throat] what the problem is. And nobody addresses that. If we went out there and and and they told the story that you just told, okay? Everybody's excited about AI.

[00:15:02]So, do you think it's like truly just table setting for them just to be able to Cuz like Yes. Yes.

[00:15:12]>> What Why couldn't they just say it anyways? Couldn't they just fire people and just say we're we're cutting head count and like we're there anyways without that, you know?

[00:15:21]>> They could, but it's it's a it's a tougher thing. I mean, you know, if you've ever had to if you've ever had to cut head count, it is a really hard thing to do. It's it's really uncomfortable. And you know, like we were really careful to try to never have to do that. So because so we never we never took the approach of let's over hire and then we'll call the herd and we'll just say, you know, we didn't want to do that. Right.

[00:15:45]>> are plenty of companies where that's, you know, listen, it and and here's the other problem we have today and this is a little hiring today is very different than it was in the past. So if you want to hire a couple of let's say you want to hire 100 people. Let's say you're meta, you want to hire 100 people.

[00:16:05]For the 100 people you're going to get not 200 resumes and choose 100 people.

[00:16:10]You're going to get 50,000 to 100,000 resumes to hire 100 people.

[00:16:15]And because people are going to just sprinkle the infield with everything. So you're going to get 50,000 emails. Now you've got to go through I mean 50,000 resumes. Now you've got to go through 50,000 resumes somehow which is which is impossible to do, you know, for for your HR team. And so you're going to use all this different software that have all these different sets of metrics. They're going to narrow it down to the top, you know, two or 300 people and from there you're going to go through a series of interviews and you're going to end up with 100 people, but that's you're still taking a lot of chances then. So why not hire all those 300 Right.

[00:16:49]>> which 100 of those 300 are the best, gives you the best odds and get rid of the other 200. That's the game they play now. They'll they'll never say it, but that's the game.

[00:16:57]And again, blame it on AI for laying off those 200 people and you're fine.

[00:17:03]Now if you were to do a a version of that commencement speech instead, Yeah.

[00:17:09]what what are you talking about? I'm I'm I'm basically giving a version a version of the story that you told but in my own words and with with respect and with with respect to finance. And in the in the field of finance. So, because I'm not going to go outside of my of my domain of my strength. And so, I'm going to I'm going to give a version of that story um in the world of finance, whether it's on the entrepreneurship side or whether it's on the individual investor side.

[00:17:38]But, I'm going to talk about you know, all the different opportunities, whether it's whether it's uh risk mitigation, whether it's 24/7 monitoring, whether it's um whether it's looking at outlier risk differently, whether it's um whether it's researching ball models. It could be a million different things.

[00:17:59]But, it can also be the type of thing where it just it just helps to keep me to keep my allocations. You know, you can do with AI now, you can do ball adjusted notional allocations that are completely uncorrelated in I don't know, 6 seconds, whereas it would take me a couple of hours to do it on my own, you know, on 30 or 40 positions. So, it's just incredible.

[00:18:24]And you know, and and we're going to 24-hour trading. I mean, there's no doubt we're going 24/7. There's no doubt about that. And it's not possible, you know, for for me to monitor my stuff 24/7.

[00:18:38]So, you want to monitor geopolitical risk, if that's if that's what you're into, you want to monitor your positions. I don't really care about the geopolitical risk. I don't care about the position movement. And with the positions being quoted 24 hours a day, 7 days a week, you know, I need my super genius friend AI tell me with that.

[00:18:57]That's all it is. It's like, instead of Tom individuals d d you know, do-it-yourself investor sitting there on his own trying to trying to manage 50 or 60 positions or 80 positions, now I got like this genius friend with a photographic memory and and a boatload of knowledge and 165 or 168 IQ helping me. It's awesome.

[00:19:21]>> [clears throat] >> How could that be bad?

[00:19:24]And so when are you making the commencement speech video?

[00:19:30]Well, nobody's nobody's asked I did speak at a bunch of institution I mean I gave a bunch of lectures recently and I have been doing a lot of college stuff.

[00:19:40]Um uh last 2 weeks ago we were at uh I was in Champagne at the University of Illinois and it was it was really fun and before that I was doing an entrepreneurial talk at UIC in Chicago.

[00:19:52]I'm doing a med school talk um next week so you know and these are all to like young doctors. They're but they're essentially >> Well, they're essentially entrepreneurs, same thing.

[00:20:04]You know, I talk about you know, um I mean they're all about to go into you know, business for themselves in a certain capacity.

[00:20:13]I see. That's a that's a curious angle.

[00:20:16]Yeah, well, you know, they got to manage their money, too.

[00:20:19]Yeah. Um yeah, 300 300 doctors and interns at um young doctors and interns at uh uh University of Illinois Chicago and at the hospital.

[00:20:31]Well, if I could plant a seed in the meantime, I think maybe on one of your Lost Dog um episodes, you guys you should do a mini AI commencement speech.

[00:20:41]People do a live stream or something.

[00:20:43]That would be super cool. Like Yeah, like you Yeah, you're you're You know, it's funny. I I did a podcast today actually on this on this topic earlier, that's why it's kind of on my mind with uh I do a weekly podcast with Dylan Ratigan. I don't know if you know Dylan. Oh yeah, cool. Yeah, yeah, yeah.

[00:20:57]Dylan and I have been doing a podcast together for since 2014. Yeah, that's awesome.

[00:21:03]But Dylan's a brilliant guy and and and we have fun together and um you know, we talked a little bit about the same topic and you know, we have very different not very different thoughts, but but um we really started talking about data centers and just the whole, you know, the the whole blowback on data centers.

[00:21:19]Yeah. Which to me is another interesting, you know, another interesting topic. I mean, it's it's the the real question is and I'll ask you this, Eric. Do you think that do you think that um AI you know, when when digital assets and Bitcoin were at their peak, right? It's all anybody could talk about.

[00:21:41]And then when the prices sold off um no more there's no more discussion about you know, about mining um the the power it takes to mine Bitcoin, all the all the mining capacity, you know, all the um the non-stop discussions about digital assets and essentially the trading in that space has dried up and the price has dropped.

[00:22:04]You know, so it's so Bitcoin's $50,000 off its high, but it's 40% off its highs, but point being is that that just the space has dried up.

[00:22:13]Um prices have held in okay, but the space has dried up.

[00:22:18]Does the same thing if AI prices were to drop? Like Micron, AMD, Nvidia. If the price was to drop and then you have all this kind of negative pushback on data centers and and young people, you know, jobs and stuff like that. Does does the hype machine die and then we roll to something else?

[00:22:40]I don't know the answer, by the way.

[00:22:42]I mean, I I would absolutely unequivocally say no. I don't think that's the case.

[00:22:47]I think what happened in the example with Bitcoin is largely because like its momentum and its use case in general had been digested, priced in and slowed down. There hasn't been like a a massive new update on Bitcoin and you know, what it's able to do or advancement in it in general. Yep, small things but nothing big. I but I think AI is the complete opposite, but I do think that's what would cause AI to drop. Is if the innovation, business impact, and advancement on it slowed to a point where we go several months and there's no real news, so what?

[00:23:24]But it to me at least it seems in the parabolic growth state to the upside, there is a chance for the tail of that parabolic curve to occur at some point, but I mean, I don't know. What do you think in terms of like the the trajectory and road map for AI? Like how long do you think it would take the technology to reach its, you know, {quote} "terminal level"?

[00:23:49]Well, price will reach price will reach its peak long before the technology does. Yep. So, you know, there's there's That's the That's the thing I think people don't necessarily understand about markets and trading.

[00:24:05]You know, the the price price is is this incredible has this incredible mechanism, this foresight mechanism, that it's it's the most predictive thing in the world because it's it's a it's a it's it's a prediction engine that's based on this massive amount of money flow and emotion that's that's as accurate as anything else in the world. I mean, it's it's the most accurate thing.

[00:24:33]So, price will peak long before you know, long before AI {quote} peaks. Quick question, when you say long in this context, like what is the duration you mean there?

[00:24:47]I don't know because AI has The one thing AI has done and I don't think there's any debate about it.

[00:24:53]Everything happens faster now.

[00:24:55]Everything.

[00:24:57]The the time frames, you know, like I think of things sometimes cuz I'm a little I'm older so I think of things sometimes old school and I get and I I I sometimes get confused because my focus is like, well, you know, this has to you know, this sell off has to last longer or this you know, or or this can't go on for you know, something's going to happen and sometimes my time frames are messed up because I've only experienced I've experienced lots of different time frames throughout my lifetime.

[00:25:25]But I think that I I think it could happen a lot sooner than than people think.

[00:25:31]And and everything happens so fast now, you know, that that I mean you could have one, you know, you could flip the switch in a regulatory environment. You can there's you know, there's a lot of interest rate risk now, too.

[00:25:45]Um and I don't know how that plays out, but bonds are on they're teetering, you know, they got to a level overnight last night where I felt like, you know, they break down here and it's Katie bar the door. Now, they held today. They're up a point today, so they held. But um I am nervous about I think there's a real interest rate risk out there that I don't think is being priced in effectively. I I it feels like it's under being under priced.

[00:26:17]Quick follow up before we go to that.

[00:26:23]You're talking about the market's ability to be a discounting mechanism and you know, forward looking and there's a lot of like normal figures people throw around for that like 6 months, 8 months, whatever.

[00:26:35]What do you think about the actual like discounting horizon now with what you were just talking about that the advancement of just data collection and analysis? Do you think that that discounting window has meaningfully changed?

[00:26:50]Sure.

[00:26:52]I think that every every durational window has changed as as it as as it applies to markets.

[00:27:00]Um I think that's pretty fair to say. I I don't think you know, I don't think you can look at historical durations and say, you know, this is normal. I think that everything is I think everything shortened.

[00:27:15]Um and it's challenging to price all those things that are shortened, but I I think everything short. I think if you look right now at volatility, um and you look at the futures uh this morning, and I I don't know where they closed, but the VIX futures, which are effectively, you know, the spot market in VIX, they closed it closed over 20, right?

[00:27:38]>> [clears throat] >> Um and remember, the the VIX futures VX /VX is that is literally the spot market. That's where volatility's trading today. That's how everything's priced on the daily options in the SPX.

[00:27:50]But if you look at VIX, which is the That settles a month >> That settles a month from now.

[00:27:56]And that's 10% lower. So, what the market's saying is, yeah, there's there's some risk out there today, but the future risk in volatility, the future risk is significantly lower.

[00:28:06]Like you could take 10% of the risk out.

[00:28:09]And I think when people start to look at, you know, um future risk, and they realize that the market prices all this stuff in. So, people will be sitting around going today, "Well, what happens if this war never ends? What happens if this, you know, if whatever. What happens if There could be a thousand other geopolitical risks out there, but the market is telling you something very different.

[00:28:31]I'm listening.

[00:28:32]Oh, the market is the market is just saying, "Hey, you know what? The risk is less."

[00:28:38]And speaking of that in general, and I actually wanted to talk to you a little bit about vol, because it it is like quite interesting to Hey, what kind of what kind of tea you're drinking? I know you're a tea guy. This is T Java. This is the what they sell at um they sell this they sell this at like Trader Joe's and different Okay.

[00:28:58]It's kind of like a heavy black tea. T Java.

[00:29:00]>> Okay. Okay. I did I had it I had to check out cuz I I know that you're a a tea guy. So, it's it's >> lots of different kinds of iced tea. But >> Okay. this is a good bottled one for me.

[00:29:11]I like it.

[00:29:12]Okay. Any flavor or just black?

[00:29:15]>> No, it's black. So, you're soulless.

[00:29:17]Okay, got it. Soulless. I am soulless.

[00:29:19]Yes.

[00:29:19]>> Yeah, yeah, yeah. No, I it's good confirmation. I I I like the I like like there's one actually I think by those guys that I get that's it's like a peach tea or something. That's delicious.

[00:29:29]I If it has sugar in it I don't like it.

[00:29:31]No, it's no sugar. It's just Yeah, it's good then. Yeah. Yeah.

[00:29:35]Um but back to Vol and I I was curious your thoughts on this this general idea. We've seen a a just a record number of ETF creations and a bunch of them are doing like systematic call selling, right? So, JEPI, JEPQ, like all these different kind of funds that are just systematically selling calls.

[00:29:57]Or other versions of selling to to be clear, not limited to calls. And when you look at like where the market sits now, we're you know, hovering near all-time highs and to your point, there's still a war in Ukraine. Well, I'm sorry, that one's still not a {quote} {unquote} war. Whatever the [ __ ] you're supposed to call it, but looks like a war to me. And then the same thing in Iran, we have another conflict that again, we're not calling it a war, but that also looks like a [ __ ] war to me.

[00:30:25]And we are going through like a massive disruptive period. We have interest rate risks. All of that bundled up, the market is like just hanging near all-time highs. And Vol, as you were just talking about, is where it is. So, the first question is, what do you think about general volatility levels given, you know, just the the environment that we're in? That's the first question, and then I'll follow up with another one after that.

[00:30:55]I think they're considering the market is basically at record highs um or one tick off record highs. I think that volatility is is kind of extraordinarily high.

[00:31:08]And I I'm not letting that freak me out, and I'm not letting I'm not letting that influence my trading decisions. But, I think that in all the years I've been trading, we have never seen um record highs along with 20 VIX.

[00:31:28]And so, you know, we're 10% over the VIX right now is the the fear index is 10% over its mean. And at record highs, it should be 20% under the mean.

[00:31:42]So, there's about a 30% differential in where it I would have guessed it's trading. Now, I think the I think one of the reasons is what you just mentioned.

[00:31:50]I think there's a lot of short vol sellers out there. This is what happens at market highs.

[00:31:56]Um and I think that's that that scares the living crap out of me because if you're short vol right now and you're at record highs and it's not coming in, what do you do? Where do you buy it back?

[00:32:10]So, >> And it concerns me.

[00:32:13]And so, opine on that a little bit more.

[00:32:16]Like, what's the potential impact in that scenario in your mind?

[00:32:19]>> Well, the potential impact is if we do turn around and there is a sell-off, the potential impact is that you're going to see you're going to go from you're going to see a 33% jump in volatility like overnight. You're going to see 20 go to 30. And it's not going to stop at 30.

[00:32:37]So, you there's a lot of vol risk out there. Now, I'm a premium seller, so I'm very conscious of vol risk. I don't sell, you know, I don't sell calls in the VIX and this kind of stuff, but I do sell, you know, strangles and things like that in different stocks.

[00:32:51]Um So, it does concern me and and I'm very conscious of it and I I won't let it get out of hand, that's for sure. But, I think there's a lot of vol risk out there today. Um you know, I I mean, I watch it so close. Go a little deeper in terms of won't let it get out of hand.

[00:33:10]Like, what is what does that structurally look like in terms of trend transactions?

[00:33:15]>> If you're short vol right now, which means you're net short options, which means you have positive theta, which I do every day. If you have positive theta um to complement, you know, you have to have you have to have negative delta to complement it. So, the challenge for volatility sellers, whether it's no matter what it is, unless you're a covered call writer, which doesn't count. But, if you're a volatility seller in any way, strangles, iron condors, whatever it is, um short calls, short puts, anything.

[00:33:44]I think you have to be short delta, which means it's going to take away some of your profits if the market goes higher, but I think that's your natural hedge.

[00:33:53]And I think there's there's also another natural hedge, which is to be long bonds. So, I'm long bond, short delta, and short volatility. And that's kind of my position here.

[00:34:04]And so, when you look at your short vol, long theta, and short deltas, is there some sort of ratio that you try to set up?

[00:34:16]>> I I I do like um uh I I In this kind of market at record highs, I kind of like being for every delta I'm short, I like to have at least a third, a half, or three quarters of the equivalent dollar in in in theta.

[00:34:37]So, so if if my theta, let's say, is short a thousand, my delta could be anywhere from short 500 to short 1,500, depending on how bearish I am. But, I like to have some real delta in there. I don't want like fake deltas that just, you know, that cover me for 1 or 2%. I think you need to have that as protection at record highs. Now, if we were sell off, I don't think you need it anymore. But, if you're at record highs, I think you need it. And how are you getting the short deltas?

[00:35:06]I'm short a combination of short futures and um and and short some, you know, index ETFs.

[00:35:15]Got it. And when you're short the ETFs, are you just outright selling them short, are you going synthetic short, are you selling calls?

[00:35:22]>> if I'm short futures, then I sell a lot of call spreads.

[00:35:26]Um if I'm not short if I'm not short futures, right now I am short futures.

[00:35:31]So, I have pure futures deltas never go away. So, I'm short futures cuz they're more capital efficient than the ETF stock. And then I sell a ton of call spreads and some out-of-the-money premium on top of that. Um if I don't have the short futures, then I get much more aggressive and I mostly just sell calls.

[00:35:49]And for the call spreads, what's the typical construction? I know probably similar to, you know, tasty style, but Yeah, it's tasty style. I like being I like collecting anywhere from 35% of the width of the strikes, and and I like being in the most liquid, you know, ETF. So, I tend to use spy and Qs, but I I I will sell like call spreads in Micron Micron's a little harder Nvidia for sure.

[00:36:15]You know, but but some of the other very actively traded, you know, Nasdaq stocks if I'm bearish on Nasdaq.

[00:36:21]And how do you determine the width that you're using? Well, the wider the better, but I usually use either somewhere between five minimum to 15 maximum. That's kind of my general range.

[00:36:36]And how do you make the decision the decision between selling a fewer number of naked calls against the larger number of the spreads?

[00:36:50]Um well, it depends. Like I said, if I'm short futures, I'll sell the spreads. If I'm not short futures, I will sell mostly the wider spreads. My preference is always widen the spreads before adding contracts.

[00:37:05]Got it.

[00:37:06]And last question on the the general methodology here, what's what's the management life cycle of these are designed to serve a little bit of a hedging activity?

[00:37:19]How does that modify management of them?

[00:37:23]On the defined risk um spreads, I don't really manage those that I don't really adjust those or manage those, but I will take profits. So, I'm a profit taker if I have profits. Sometimes, you know, on this last run-up, I was short some Q um QQQ verticals, I could never get them back. They just blew through my strikes.

[00:37:46]I never got them back. But most of the time, um there's at least a couple of opportunities to get them back. So, I have to use my judgment. I mean, I'm not I don't hold it to anything. Perfect world, 50%, but I'll take 10%, 20%, 30% if I can.

[00:38:01]You know, Got it.

[00:38:02]And for the short futures, kind of like the core position here, how do you how does that operate in the context of a stand-alone position versus It's just delta.

[00:38:14]>> hedging?

[00:38:15]>> It's just It's It's capital efficient delta. So, that's all it is.

[00:38:20]I No, I'm sorry. I I I follow that, but I I guess maybe I'll clarify in my brain if a position is going on for a hedge against something else, the fact that it's serving as a hedge typically means that I have a different management pattern because I have this other thing that's still here.

[00:38:37]>> That's what you Yeah, I understand what you're saying, but I don't I typically don't Those are not I would not call anything I do a hedge. I'm not a hedger.

[00:38:45]>> Understood.

[00:38:46]>> I don't like the term hedge. I In fact, I never teach hedging. I don't believe I don't believe If I was a high-frequency market maker, like when I was a market maker on the floor, I hedged everything.

[00:38:58]And when I became a retail trader, um I don't I hedge nothing. So, if I was a prop trader or market maker or whatever, I would hedge because that's my job to hedge scale.

[00:39:10]As a retail trader, my job is to put on I feel like my job is to put on positions. And if I don't like the position, I'm going to get out of the position. I'm not going to hedge it. I will adjust. I will try to keep in something as long as I can to make money from it, but I don't like hedging stuff.

[00:39:26]To me, hedging is incredibly expensive.

[00:39:30]It's like It's like I don't like buying insurance. Nobody does.

[00:39:34]And I do because I have to sometimes, but and I don't like hedging cuz I feel like it's like buying insurance, but I I I don't have to do that. I can get out of the position. Like in life, things that you insure, like your house or your car or your yourself, you can't get out of, you know. So, you have to buy some insurance. But in the markets, you can The great thing about liquid markets is you can get out.

[00:39:59]So, I don't need to hedge things. I could just get out and move on to the next trade.

[00:40:03]Yeah, got it. So, and it's interesting cuz I at least in in my world, I typically refer to positions like that is I I call them indirect hedges. So, it kind of like complements the portfolio, but it's like a stand-alone thing. Yeah, I follow.

[00:40:16]>> I I I actually And when when I do have to do something, I always when people ask me about hedging, I always talk I use the term under hedge. Like you should never over hedge. You should always under hedge. So, if you're short 100 deltas and you want to hedge 50, go ahead. But, I mean, I don't do that, but but people would would I always talk about under hedging because you don't want to like be wrong both ways. Right.

[00:40:39]And to go back to something earlier before it falls off my list here, we were talking about AI potential impacts of AI.

[00:40:49]One of them I'm curious your perspective on.

[00:40:52]There's a lot of like profit mechanisms or market effects right now that sometimes aren't necessarily super appealing to big money managers because it's kind of expensive for them to get at relative, you know, to their size and time.

[00:41:07]Part of me is curious if AI will allow entities like that to actually start pressing down further into some of the the less traveled areas that we know there's edge, but it might not be large enough of a position relative to the portfolio to make sense, but if one manager can use, you know, AI as it continues to grow and increasing access to markets to build a basket of 500 of them, then all of a sudden that actually could kind of make sense.

[00:41:40]AI is not new to institutions. They've been using it for some time now, but I'm curious if you think that that is a likely progression in the future.

[00:41:49][clears throat] Um I I would I would I would assume yes, but I don't think that that's I would assume that as technology continues to get better and better and at the speed at which it is getting better, I assume that all of it is going to be progressive and all of of is going to be um bet it's going to make things better and it's going to widen the breadth of what people can do. So, sure. I think all that stuff comes into play and I think people will have access to I mean, there's no question people are going to have access to um information and know-how about markets that they never did before. I'm already seeing it with high frequency firms. They're getting into um you know, they're moving into markets in all over the world now.

[00:42:36]India, Brazil, everywhere they can get anywhere where they can set up shop.

[00:42:39]Everybody's going everywhere because, you know, there has been a real commoditization of you know, of this of this advanced technology. And so, yeah, the answer to that is yes.

[00:42:50]Um so, yeah, for sure.

[00:42:51]>> Follow on Follow on then is what do you think the implication is to like retail traders which sometimes right now can kind of find sanctity by going into a place that's less played in by a larger operators that might actually start to compress down?

[00:43:12]Well, I mean I I I think that if something is a road less traveled in the world of finance is usually a road that's a lot less liquid. So, it's bumpy in the in that regard. It's much It's much harder to move in and out The derivatives aren't aren't that aren't that liquid, so it's harder to play. I think the more action um means the more activity which means the more liquidity. So, I think retail investors benefit more from more liquid underlyings than they'll get hurt from, you know, other people participating in those. So, if you want to tell me that there's going to be more players, bigger players that add liquidity to the marketplace in smaller names, I'm all for it.

[00:44:00]Interesting.

[00:44:01]I There's Generally, I I totally understand and follow that. There's like there's certain places that I play that are like specifically illiquid. And I actually think that's why the edge in some of those things is as big as it is.

[00:44:18]But when you're executing it as a smaller size, that illiquidity is definitely inconvenient, but it's palatable.

[00:44:26]That so your perspective is the compression that additional players would bring to that kind of thing would be more than compensated by the improvement in liquidity.

[00:44:40]Sure. Because there's I won't trade names. Me personally, I won't trade names that aren't liquid.

[00:44:46]So >> Sure.

[00:44:47]for me, sure. I'm not using that product now, so the opportunity to use that product I I I would welcome that.

[00:44:53]I see what you mean. Yeah. Now the in that makes that makes logical sense for the perspective. And so before you were talking about um interest rate risk.

[00:45:05]Could you walk through a little bit what you're seeing in terms of interest rate risk and how you think it could potentially reconcile going forward?

[00:45:17]Well, there's no question. There's a mandate from this administration to you know, to lower interest rates. But the market doesn't care what the administration's mandate is. Um and the market doesn't care who the new Fed chair is. The market doesn't care about any of that stuff.

[00:45:32]The market only cares about price. And bonds last night, long bond, the 30-year bond traded at 19-year highs. And when you're trading at 19-year highs, that's yield. That's 19-year lows in price, 19-year highs in yield.

[00:45:45]You you obviously you're in a perfect contradiction with the mandate. Uh the mandate is to lower rates and and obviously you're 19-year highs in yields, you're you have to raise rates. And the only cuz the only way you can turn rates around is by trying to attack inflation by lowering rates. So, you know, you get lucky on a day like today when when crude oil drops and then bonds rally because that's the relationship. Um I think that bonds are tearing on a level where the Fed is going to have to do something that they really don't want to do. Now, can they escape if you get a rally in bonds here? Hell yeah. They can escape and you can get, you know, you get a one or two more point rally in bonds and the Fed buys a little extra time that they don't have to raise rates. But if you if you lost bonds here, and again, they are on that they're on the ledge.

[00:46:34]And they were on the ledge last night.

[00:46:37]And if you lose them here, you have no choice but to raise rates cuz the trader the the market not traders but the marketplace will will destroy, you know, they will destroy those prices until they get to until they get to a certain level till everything lines up.

[00:46:53]Um and and there's a lot of risk there, you know, I mean, why are bonds why is the stock market hanging in here at this levels it is with bonds where they are? That's a great question. Is it Is it because the dollar is so cheap that, you know, that people can't afford not to buy US stocks and US bonds? I don't know.

[00:47:10]But it it is it is an interesting contradiction here. Stocks are doing this on their own.

[00:47:16]They're not They have no support.

[00:47:19]I mean, the the only thing that's supporting stocks is just this enormous amount of money and maybe a lower dollar. But if you lose bonds, you lose that $50 trillion asset class, you can't keep stocks up here.

[00:47:31]Mhm.

[00:47:34]Talking a little bit more about just advancement of stuff, we you already hinted at like 24/7 trading. I think that's that's been talked about pretty broadly. So, I I imagine, you know, most people be familiar with what that world would look like, but in, you know, a elevator pitch context, like what do you think 24/7 trading will look like? Like how do we get there?

[00:48:00]And then in terms of actual like market operation, because right now, normally through a regular trading day, you could see like very clear instances, right?

[00:48:08]Like volume spikes as soon as the market opens, kind of trials, and then spikes again. Like so what is stuff like that look like?

[00:48:15]>> of all, I I don't think it will mean much. I I know people think it's some big thing. Right now, we have Remember, we have 24/5 trading right now.

[00:48:26]So, from Sunday night at 5:00 till Friday night at 5:00 Central Time, the markets are open. I mean, the option markets aren't, but the stock market is, the futures markets are, futures options are. Crypto trades 24/7, spot forex trades 24/7, CFDs trade around the world 24/7. I mean, we have 24/7 markets already. Um and so, this is not going to be that big a change to go an extra two days, you know, over the weekend or something, for stocks and for to make futures, you know, still trade. And I think that if you're talking about, you know, what about options, I think those are probably a little bit further behind, but we're basically we're 24/5 now. So, 24/7's not that big a jump. Um and I don't think that it's going to dramatically change anything just for the reasons you said. I don't think there'll be a lot of activity. It'll be isolated to patches. You'll have these crazy times at 2:00 in the morning on a, you know, on a Monday night or on a on a Saturday night or something, and like you'll have those little those those mini crypto crashes and stuff will happen in the stock market, but I I wouldn't I wouldn't overthink this. It's not going to make that big a difference.

[00:49:37]It's just going to make the US markets that much that much more valuable because we already own all the liquidity in the world, and then we're just going to then we're going to own all the liquidity twice over cuz there's no reason to play anywhere else.

[00:49:52]And for stuff like um zero DTEs, right now zero DTEs in SPX is over half the volume that you see there.

[00:50:02]What kind of impact to stuff like that?

[00:50:04]Do you think that that expands further?

[00:50:06]Do you think that >> No, that will be I think that will be relatively small. I mean, remember that the SPX already trades pretty much overnight, but nobody nobody supports it. There's no market maker support.

[00:50:17]It's only pure electronic book. I don't think you're going to see and there's not much pressure to to to change that right now. So, I don't think you're going to see much change there. It may include some stuff, but if you're thinking like this is going to be, you know, sitting down at Caesar's Palace at 1:00 in the morning and it's crowded, you know, like something like that, that's not what it's going to be.

[00:50:35]Damn.

[00:50:35]>> [clears throat] >> Well, onto my next dream, we have seen a meteoric rise in prediction markets.

[00:50:45]And there's a massive debate, gambling, not gambling, is this, you know, just like what is the phenomenon?

[00:50:54]And I know you've talked a little bit about it before. We've actually chatted a little bit about it, but based on, you know, the the last conversations that we've had, like how how has the prediction market itself evolved, right?

[00:51:10]In terms of like its branding, utilization, stuff like that. Just what do you think of it?

[00:51:16]It's come a lot further than I thought it would.

[00:51:18]I've always been intrigued by the prediction markets. Um you know, I tried to start an exchange myself and I I owned two different exchanges and both times we ended up selling them because we didn't have a clearing firm for the exchanges.

[00:51:32]I I have been intrigued from the start of Kalshi and Polymarket, things like that. Uh what where they've gone in a very short period of time has been, you know, amazing.

[00:51:43]I'll say that. Blew my mind. But, there's a few issues.

[00:51:51]Issue number one is that they they're exchanges, but they're not really exchanges, if you know what I mean.

[00:51:57]Right. So, they take customers direct. I don't like that. I like exchanges that are act as exchanges. They're facilitators, not they don't do customer acquisition.

[00:52:07]That's number one. Why do you like that?

[00:52:09]Well, because I don't If I own a brokerage firm, I don't want to compete with an exchange or high-frequency firm.

[00:52:14]I I want I Everybody's got a job to do.

[00:52:16]Exchanges Exchanges should be focused on making markets and providing great facilitation, not worried about taking customers. Got it.

[00:52:25]So, I don't love their model at all in that regard. Number two, their fee structure is ridiculous. It's way too high. And somebody's going to come in and disrupt it. It has to happen. The The prediction marketplace fee structure is is anywhere between 20 and 100 times more expensive than a listed marketplace.

[00:52:44]So, their fee structure is off the charts, and it's going to be disrupted, and it's going to hurt them a lot. The next thing is um because of that high fee structure, firms you know, let's face it. The The prediction marketplace, specifically Kalshi, is is pretty much, you know, all Robinhood, Interactive Brokers. There's just a couple of firms. As soon as those firms decide, you know, we can do this on our own better, um which they will because it's just the same market makers, you know, I don't know how they're going to keep keep these valuations, but maybe they do. I don't know.

[00:53:16]Um I also think that they're not strategic. So, you have a problem in the sense that they're they're they charge a lot fees, I don't love the model, and these are not strategic investments. These are These are what we call dead money investments, you know, like either you're right or you're wrong. That's it.

[00:53:33]I mean, you could you can trade out of them, but there's nothing else There's nothing strategic to do about this.

[00:53:38]So, they're they're not long-lasting. If you had Think about Think about the problems they have in Vegas, you know, like people lose their money.

[00:53:47]That's it. Like it's mathematically not possible over time for the the majority of people to win.

[00:53:54]So, they lose. And when they lose, they lose a significant amount of edge because the fees are so high. So, the marketplace is not sustainable as a as a dead money instrument. And so, I think they have a lot of challenges ahead of them um on the prediction markets. Do I like them? 100% yes. I'm all in favor.

[00:54:13]Um do I consider gambling? Yeah, sure.

[00:54:15]It's gambling. It's not that strategic.

[00:54:18]Uh and the fees are too high. But, you know what? These guys are disruptors. I love disruptors. I like people that come in and change the world, change the world of finance. People that were um let's give them credit for challenging the SEC, for challenging the CFTC, for getting pushing stuff through that, you know, that honestly nobody thought they were going to get pushed through. And so, I give them a freaking shitload of credit. They They deserve it. They changed the world of finance. And they changed the exchange world, and everybody else is playing catch-up. So, listen, is it good for me as a consumer? Hell yeah.

[00:54:55]That's all I care, right? I'm not sitting here trying to protect the CME or the Cboe or any one of these other 50 exchanges. All I care about is is it good for Is it good for Tom? Is it good for Eric? And the answer is yeah, of course.

[00:55:07]You don't have to trade if you don't want to, but if you want to, it's there.

[00:55:10]How could it not be good?

[00:55:12]There's a We We There was a whirlwind on X, formerly Twitter, not that long ago about prediction markets and whether or not it was good. A A lot of A lot of the European crowd, they don't They seem to not like it necessarily too much, and they want to regulate it cuz Yeah, but have you ever been around the European I I mean I was just going to say it's We were bought out by a stock that on the FTSE 100. I mean, the the There's a reason that they have no business. There's a reason they don't trade any options, any futures, any stocks, and have no and have no market cap. I mean, it's nobody cares. Like what they say is freaking irrelevant.

[00:55:49]Nobody cares what they think.

[00:55:51]Cuz they've missed everything. So, the idea that the European regulators don't like it, that means jack [ __ ] to me because they're [laughter] so far behind. Listen, regulators everywhere don't like it. Regulators in India don't don't allow for prediction markets. And regulators in other places don't They I mean, who cares? They're They're 20, 30 years behind. Like why do we care what they think?

[00:56:15]That's exactly the sentiment I expected. So, glad glad to hear it. Okay.

[00:56:20]>> Last thing um last thing before we wrap up, what's the latest in Lost Dog?

[00:56:27]I just got my email that I got some I got some free money, which is >> Free money? Free money's always sick.

[00:56:34]And thank you for the free money.

[00:56:36]And so, talk to me about the the latest and greatest there. Well, we're redoing We're We threw a lot of stuff at the platform. Now, I'm going to redesign the user interface. And so, cuz I purposely wanted to bloat it. Like I have this other I don't hire people and then fire them to get the best. What I But I But I do with technology is I do throw all the technology we have at something and then I cut it back and make it really clean and and special looking. And that's what we're doing now.

[00:57:02]Um Lost Dog is going to be a really special platform. It's not there yet. It's getting there.

[00:57:08]Um Our our data is, you know, it's it's it's most It's an AI / software platform that is really going to help a lot of people in in the world of careers and finance. It's going to help you optimize a lot of things about your life to to to give you context and perspective that you've never had before. And I feel like, "Hey, we're doing something really good. We're not charging for it. We're giving away stuff." And I again, it's a really cool piece of technology. It doesn't cost you anything. There's no you know, there's no downside to it. I mean, eventually, at some point, sometime in the future, I'm going to ask you for something.

[00:57:46]I don't know when it's going to be. I don't know what it's going to be. But uh you know, it's funny. I I did a deal once.

[00:57:53]Um I'm not going to tell you the firm.

[00:57:55]But they cuz I I don't want to throw them under the bus. Sure. But they asked me to sit on their board, right?

[00:58:02]For um their board. It's real simple.

[00:58:05]And I'm like, "Why do you want me to sit on your board?" And they're like, "Cuz, you know, you've got a big name and blah blah blah. It looks good for us, you know, it would really help us out."

[00:58:14]And they go, "We'll pay you."

[00:58:16]Okay? And I'm like, they gave me the number, right? It's like It wasn't a lot of money. I'm not being I'm not pooh-poohing it, but it wasn't very much money.

[00:58:25]And I'm like, I I don't want your money, you know, cuz I don't want anybody ever come back. I don't want your money. They go, "Well, you have to take the money."

[00:58:31]I go, "I'm not taking your money." But they go, "Then what do you want?"

[00:58:35]I go, "Someday I don't know when this is going to be.

[00:58:39]But I'm in the business. I'm building stuff. Someday I'm going to ask you for something."

[00:58:46]This is almost like You saw The Godfather, right?

[00:58:48]>> This is straight out of The Godfather.

[00:58:49]What are you talking about almost? This is what Someday I'm going to ask you for something. And when I ask you, I want you to accommodate. And they're like, "Oh man, I'd rather pay you." Yeah. And I'm And then I'm like, "I don't want it.

[00:59:03]I don't want your money. I just want someday I'm going to come back to you."

[00:59:06]Cuz they're a huge firm, like, you know, 25, 50 billion dollar firm. I don't even know what they are.

[00:59:11]And I go, "I'm going to ask you for something. And And I want you to consider it and be fair with me." And they go, "Fine."

[00:59:19]And they have no idea what it's I don't know what it's going to be yet. But but that's that's kind of what we do with Lost Dogs. Someday I'm going to ask you for something. I don't know what it's going to be, but when it is, you know, that's that's my That's how I do business. It's goodwill.

[00:59:33]It is goodwill and it's it's a I'm still just fascinated by it. It's such a cool idea. You talk about disruptors and it's always fun to see what you're working on because you always know it's going to be unique and disruptive. So, I'm really excited. Is there anything you can share about, you know, the the road map, what like the next >> the next time we talk, I will share something very special.

[00:59:59]Okay. Well, that's a perfect place >> But but it's I'm not ready to share it yet, but in about two and a half or three months, I will be ready to share it.

[01:00:08]It's going to blow your mind.

[01:00:09]Perfect.

[01:00:10]>> It's it's fintech.

[01:00:11]It's cool stuff. But I'm building it now and it's it it's it's a compliment to Lost Dog, but it's cool.

[01:00:18]I'm excited to see it and um Tom, always awesome to hang out and pick your brain a little bit. Thank you for spending the time. I'll throw links to all your stuff for people to check out below. Anything else that uh that you want to leave everybody with?

[01:00:31]>> that's that that's that's great. Um I don't have anything else on my I'm trying to think if there's anything else on my calendar, but not not really.

[01:00:40]Beautiful.

[01:00:41]All right, then. We'll leave you to it.

[01:00:43]Everybody, thanks for hanging out till the end and we'll see you on the next one.