Market cycles, volatility & black swan events

Transcript

Andrew Swanscott 0:02: Hello, welcome to The Trading Panel, your weekly show where we talk about all things trading. It could be something in the markets. It could be some news. It could be our positions. We could talk about trading techniques. It could be anything. Apologies for the delay today. We had some technical issues, but I think we're on board now. So welcome to the trading panel. And today we've got so far Jason and Pavel.

Jason, you want to and Cash App has joined us too. Excellent. Jason, Nice. How's your week been? Nice. Good, man. It's been a fun week. It's been interesting to watch that

Jason Kurz 0:35: what's his name? The one of the Fed chairmans just came out and said they're gonna lower rates. And, like, every other week, everybody gets kinda stuck on that. Are they lowering rates? Are they raising rates? Is this gonna happen, is that gonna happen? And nobody really knows. You know? Like, once again, it's like they don't sit here and wonder about what we're doing as traders.

Sometimes you gotta, like, not wonder what the Fed is doing and just go on what they're doing. Hey. Rates are pretty high here. Great. Like, let's call it a day. Like like, your your signals are gonna continue to be your signals and so on. So let's just move on from the Fed. But I saw everybody posting that today. That was kind of interesting.

Panelist 1:11: And I think it was few days back when Larry Summers came and said that they are going to hike rates, that the next step is a hike and not a cut, and then everyone went wild for that. It's like markets are just seesawing, right, on all this cut hike. Like, end of the day, unless you're in commercial real estate, it doesn't matter. Right? Or if you need to refinance your debt, it doesn't matter. Right?

I mean, if that's what you're doing, then yes, you're like, you really have to pay attention to that. But if you're focused on other things, then this doesn't really affect, let's say your trades in, I don't know, to pick a random example, uranium, like that thing has no correlation to rates whatsoever. You pick something like that, then yeah, it doesn't really matter. Right? But of course, depends on what you're trading and how we are trading.

Pavel Kýček 2:07: But at the end of the day, it is nice to see that nobody knows anything, because in December, I think there were like seven, I think seven cuts for 2024. And now we are talking about three to four, so it's just simple. You just can't predict anything and that's why, at least in my approach, you shouldn't be trading based on long term predictions because they usually don't work.

This is my simple logic, how I'm approaching trading, but probably a little bit differently compared to cash up. So,

Panelist 2:47: Yeah. Yeah. So, there there was this Peter Lynch quote in one of his books where he said that there was a poll connected in the eighties, and they just randomly asked people what the federal reserve is. And the three top answers they got was a brand of whiskey, Indian reservation, or some wildlife reserve. One knew what the Fed was or what the Fed did. And now it's like every day you just hear something or the other about the Fed.

Like you can't escape it even if you try it. Like completely changed.

Pavel Kýček 3:21: That's right. That's right. And you can also see it. I know when I started trading in discretionary like fifteen years ago, every fundamental news had quite a huge impact to the market. And these days, especially on Forex exchanges, you can see that almost everything and anything that markets are trading are rates basically, cuts, hikes.

And this is the only or the biggest impact that is these days in markets, these expectations and how market will play it out and so on. Still, nobody knows anything.

Andrew Swanscott 4:05: That's an interesting comment, Pavel. Nobody knows anything because I think, I've put a survey up on my Twitter feed. I think it went twelve hours ago or something. And the question is, I might actually just bring it up here. The question is how long did it take you to become a profitable trader? And there's the options are less than two years, two to five, five to ten, and I'm still working on it.

And there's some people here, 8% have said that they became profitable less than two years. And then we've got 30% saying two to five. And I was thinking about my own trading journey. I've been trading maybe about twenty years now. Thinking five years into my trading journey, where was I? And I remember it was like probably about 2008. And I was trading systematic algorithmic mean reversion long only strategies, and the market was going great.

And I thought I'd figured it all out. So was back then I would say, yeah, was a profitable trader. I was making a ton of money, but then the market, shit itself. And my strategies were all trying to buy, go along as the market was falling quite heavily. And, I got a very expensive lesson. So I'm thinking, my expectation about how long it was going to take me to be profitable and how long it did take was very different.

And now, even now I'm thinking the more I learn about trading, the more I realize I don't know. And I think as I go along, there's more realizations and more things that I learn. And I feel like even more of a beginner than anything, when you look at all these other things. So when you said, people don't know anything, think that's really an important point to consider as traders.

When you approach the market with that kind of mentality and you're always trying to learn and you're trying to get better, it really changes the way you work as opposed to when I was, back in 2008, I thought I was the king of the market and I'd figured it all out And I was way off. I had no idea what I was doing. I just didn't realize then. So what about you guys?

What about your journeys to profitable trading, your perceptions or expectations at the beginning? How did that work out?

Jason Kurz 6:37: Man, I absolutely love this conversation. Starting out with, like, we all know nothing. I'm just learning about lights now. I mean, I just had a light fall in my head as we were having a conversation. So all all of these things everything's on a learning curve, though. That's the one thing that's really important is like, if you're I'm fortunate, like video editing isn't that hard for me. I grew up riding BMX bikes. We had to edit stuff.

But stuff like videos and posting on YouTube and these things, there's a learning curve there. Then let's get into something like trading. The most difficult thing on in on the on earth, really. Like, I fully believe trading is one of most difficult things I've ever done. I have done backflips over 30 foot jumps. I have traveled all over the world. I've done very, very insane, crazy things.

Trading is the hardest thing I've ever done my whole life. And it always will be. And I know for me, like the first, like, okay, so it depends, right? If we're talking about somebody just trading, you're buying the S and P 500, you're trying to learn how to be profitable and holding stocks for twenty years. Sure, you could probably learn that pretty quickly.

If you wanna be a trader, you wanna get in and out of the market, you wanna learn market timing, you wanna learn running systems, being systematized, that's gonna take you so long. I mean, my journey started out with thinking I knew something to and trying something and realizing I knew nothing when my account turned to zero. You know, like that and that happened a couple times to me. It wasn't something where I and was like I don't hide that.

You know, a lot of people, like, they hide those things. They're like, I don't wanna talk about my blowups, know, then people are gonna look at me differently. It's like, I don't know one real trader who's been real with me, who's never had a blowup. Everybody has had a blowup at some point in their trading. I don't know how how exactly it will happen, but it will happen to you at some point if you start doing this with leverage.

Granted, like, without leverage, you might not blow up, but with leverage, you'll blow up. So, my journey literally took, similar to Andrew, we're talking, I started investing earlier. So I guess I can understand the idea of thinking maybe investment isn't the hardest thing to do in the world. In a bull market, sure. If we're talking about trading, that's a different thing.

So early on, putting some money away in the early 2000s when I was young and didn't know anything, yeah, sure, I made a couple bucks on that, but I wasn't trading. That's not really trade. Really trading started around the great financial crisis, someone Andrew, and you start to think you're getting just like people did during COVID, I'm getting a discount. I wanna buy when it crashes. So I started buying things when they were crashing.

I didn't know anything. Andrew sounds like he had a little bit better of a method than I did. I just thought you buy things when they're low and you sell things when they go up. And it's simple. So so I basically got in. I tried that. That was a very stupid idea. I learned that quickly. And then I proceeded to lose money for three or four straight years. You know, it was it was about four years.

And then and I'm talking I went from blowing up to then just losing a little bit year after year. And then, probably let's say 2013, 2014, now you're flat to slightly profitable. And then you're figuring out how to be profitable. And then you have some really good years, but once again, it's like, that's part of the journey. People always talk about paying tuition to the markets. Like, you do, you absolutely pay tuition to the markets.

You will blow up, you will lose money, you will make mistakes that are complete And things will happen sometimes that are completely out of your control. All of these things will cost you money at certain points, but it's until you really realize, like, the risk management, like, of your biases, like, understand, like, the type of trader you are. Are you systematized? Are you discretionary? Well, when do you enter a trade?

Even people who are fully discretionary have some form of system. Meaning, they go, okay. Well, I'm I'm fully discretionary. Meaning, I only buy I buy things okay. So how do you say the difference? So there's systematic trading, you have straightforward criteria. That's it. You have to trades on things like 100 highs and sell things on fifty day lows to make it simple. And then you have discretionary trading.

This is completely up to the trader when they feel like to go in or out of something. So if you're looking at a discretionary trader, some of them will have things like let's say they use seasonality, and they go, okay, this is one piece of my puzzle. Okay, it looks good seasonal for this month or period I'm planning on buying. Okay, that's one thing.

And then they'll go to like a COT report and see, okay, well, the commercials are buying, this could be putting in a bottom. You know, this is also a systematized way of doing things. At the very least, what I call bumpers, like a bumper bowling. Basically, it just makes you so you're not in the gutter.

If you're continuing to try to buy things, when you're in these bad zones, when you're basically like the market's breaking down and everything bad that could possibly happen is happening, you will lose money. Like you will get hit badly.

But if you can create this criteria that at the very least keeps you out of buying things that they're just basically trying to catch a falling knife, things that are just going down quickly, falling day after day after day, that's something that you can do to not do that. Keep yourself out of the gutter.

So I think people in general should, no matter what type of trader there are, create some sort of system or criteria that you use to make you get in or out of trades?

Andrew Swanscott 12:22: Yeah.

Pavel Kýček 12:24: Yeah. I chose, I think, B, two to five years, but it was much closer to five than to two unfortunately because I started, I would say, in my opinion, with the worst possible approach and it is fully discretionary trading when I thought that I can get this feeling for markets. Once you start with these trading courses about trading psychology and how you need to get these feelings.

Guys, I think I got such a good feeling for market and I was still losing so much money. So it wasn't the best way to trade for me for sure because I lost quite a lot and many times because I was still trying to get a feeling and I still didn't get anything. And then I started being profitable trading, through, I would say semi systematic approach.

Like I was trading some kind of mini version trades based on strong supports and going over level two delta on S and P five hundred and NASDAQ and these indices. And it was working pretty nicely, but it was still very demanding psychologically. So that's why I just had to make this shit because this is also what Andrew thought very nicely, I would say. What does it mean to be profitable?

I was consistently profitable, I was making money, but at some point I just knew that I can't continue that way because I would be burnt out trading that way. Once my daughter was born, I knew for sure that this is not the way how to trade at all. So that's why at that time I started making the tweak to systematic trading and for me being profitable, the feeling of being profitable started when I knew that I have to trade as many,

but it is for how I think about it, as many uncorrelated strategies or approaches on one account or with my money with this so called all weather approach.

So I know that if one strategy will stop working or two for me, it doesn't mean much because I want to trade robust approaches like trend trading, of course, mean reversion trading, breakout momentum trading, these kind of approaches and they will be profitable all the time, like I think forever, but it doesn't mean that the strategy that tries to catch the logic will be profitable forever

because the logic can change, there can be some fundamental change on the market. So that's why I don't feel comfortable like trading under seven, eight, nine strategies because the risk per one strategy is then just high and it's not the level of comfortable trading I would like to be on.

Panelist 15:43: So my answer would be, it's not about the number of years, but about the number of market cycles that you can see. So for me personally, it took me a couple of cycles in crypto before I started being profitable in crypto. And I used to be a gold mining analyst. So I used to focus heavily on the fundamentals and it took me about three gold bull markets before I figure out how to trade that wealth. And with the macro, it takes one cycle.

And it's all about how many cycles you have seen from peak to trough and then still I mean, like, let's say it's very easy. So you're like 2019, almost everyone is profitable. Right? A year, like, 2021, everyone is profitable. Like, it's free money. But at the end of it, how much do you give back? How do you manage in that kind of market environment where everything seems to be going to pieces?

And how do you rebuild and make sure you're still around for the next bull market and whatever you're trading? Right? Like, I think if you manage this entire market cycle, then, it's fine. And maybe that takes about four, five years, or maybe if you're trading a more systematic strategy or, you have the experience, the gut feel of what people learn the hard way, maybe you're able to learn it a little easier, maybe then you can shorten that.

But to me, like, as a fully discretionary trader, it took me about two to three full cycles to get profitable.

Panelist 17:31: Hey. What's up, Kevin? What's going on, guys? Hey. This is my first time doing this, so,

Jason Kurz 17:37: yeah, let me know how this all Well, pivot. Out. Yeah. No. You look looks good, man. This this StreamYard link Andrew kinda showed me the StreamYard recently. It's pretty cool. So, we could even show you. You can even stream to your own channels on here, so it's pretty cool. Nice. Nice. But, yeah, we're so, basically, this is the trading panel.

Every week on Friday, we just meet up and basically talk about trading, what's been going on with the week and so on. So we're streaming to wherever on both of my channels for myself, and Andrew's streaming to his channels. I think Pavel's also streaming. So, it's a Yeah. It's pretty fun thing, man.

We we had this idea a couple months ago, and the idea basically was bring people in here who really know their stuff, know what they're talking about, be on multiple channels, and answer questions, and just talk trading.

Panelist 18:27: Cool.

Jason Kurz 18:28: Cool. Alright. So so Kevin's Kevin's really good at that. So, Kevin, we'll start out with something from Kevin. So, basically, what we're talking about today too, if Kashyap, were you done yet? You stopped talking. Yeah. I was good. So what we're talking about right now is are we how many years do you think it takes people to get into trading?

Like, start to be profitable, make money, and understand this business in a way that, like, really makes sense?

Panelist 19:00: Well, FinTwit tells me it only takes twenty four hours to invest.

Panelist 19:06: I'm even 100% of the getaway. You

Panelist 19:10: know, I think it depends on the amount of time that you really take to study the the markets. Right? So, somebody that's, doing this as kind of a side hobby, it could take a lot longer than somebody that's really dedicating, to the craft here. You know, for me, what I usually have told, some of the previous guys that were on my derivatives team before I took over as a markets correspondent.

I usually told them three to five years to really get your feet set as to which markets you like, because I think that's half the battle. Half the battle is not so much trading. It's what markets really interest you, what industries interest you, or if it's commodities, Jason, like yourself and myself, what what really interests you, and then how can you take it to the next level? Because each market, it trade they they trade different.

So I would say three to five years to really be proficient in a particular segment of the marketplace. And anything out outside of that is basically, I feel more risk management, is kind of the name of the game moving forward as far as trying to enhance profitability and to be very successful. So that's my 2¢, once again, kind of putting your head down and grinding it out.

And I think the biggest misconception that a lot of people have is they say trading, and then they look at all the different markets that are out there, whether it's treasury markets, if you're looking at fixed income, if you're looking at forex and currencies, you're looking at energy markets, grains, equities, all these different buckets

and at first you try to combine all the fundamental knowledge and technical knowledge that you have and try to apply it to every single segment and that's just not gonna work. It's just, it'll break down really quickly. And then it becomes very frustrating, right, for a new trader to see some of that rejection.

Andrew Swanscott 21:00: Jason, you're on mute. Jason's on mute. Good catch. No.

Jason Kurz 21:05: I just said there's a lot to unpack there because it's, it's all that's the thing about all of this is like, you just have to really figure out what you do and what you do well. I think that's really like the name of the game. If you really like and I think that's what takes the time. Like, took me longer not to learn things. Like, it took me a couple years to learn most things.

To, like, let go of biases, understand, like, I didn't have to know everything. Like, that was something that I really struggled with at the beginning. Like, if I was gonna trade palladium, I better know, everything about palladium, where they mine it, every single country, what they're doing at that moment. You know?

And I think a lot of traders, like, what you end up doing in the end is really figuring out, like, well, how do I exactly make money? You know, Kevin and I were on a spaces the other day that were somebody brought up, know, Jason, what do you think about earnings? And I was like, well, I don't think about them. And they were like, people were kinda confused, but at the same time, like, I trade the indexes, I trade futures.

It doesn't really pertain to my trading, in the sense of watching it day to day, maybe the macro of it, maybe if I'm looking at all of the S and P stocks as a whole, maybe something can pertain to my trading, but really how I'm making my decisions to get in and out, it's based on price. So if the price is going up, I'm getting in. If the price is going down, I'm probably gonna get out, and then figuring out systems to do that.

And so it's really like letting go of like, okay, do I need to know everything fundamentally to get into trades if I'm basically entering and exiting them based on technicals? No. And then also going like, from the other side of going, if I'm a fundamental trader and I'm making decisions, like, I'll hear fundamental guys talk to me all the time. They'll be like, oh, I hate technicals. They're stupid.

But at the same time, they're like, well, I'm getting out of this trade. This This stock looks parabolic. You know, like the chart looks parabolic. And you're like, well, really you don't understand charts. And you're kind of looking at something that you don't understand that's coloring your view in a different way. If I look at it, I just see it's just breaking out to a new high.

Somebody who doesn't really know charts is seeing, it's just parabolic. So they need to get out. So it's just figuring out like, you What do you do well? Like, know people who've done a lot of different things well and made money a lot of different ways. I don't hate on any of them because I've seen most people do it. I even have a friend who makes money using moon patterns.

I have no idea how that I'm totally confused and dumbfounded most of the time. I do understand some things about it, but like, just trading based on things like that, I have no idea. But, he's a person like, who shops another person, like, I we share accounts. Like, we show each other accounts. I know this guy actually makes money.

So it's mind blowing, but I'm just saying that's the most extreme example, but I'm saying everybody should just figure out how they trade for themselves. I think that's what makes the most sense. Yeah.

Pavel Kýček 23:56: And getting rid of false beliefs. I think this is the biggest pain point because everybody, as Kashyap said very well, would say everybody can see those perfect charts on crypto Twitter or financial Twitter, there are nothing but profitable trades, nothing but 45 degrees equity curves. And those beliefs, then if you have dealt really deeply these beliefs under your skin

then it is very hard to start building on those beliefs and start building profitable strategies or profitable approaches because you basically expect that those should be these outputs but those outputs will be always very different to these perfect 45 degrees or exponential line equity curves. And this is a big problem, I would say. These expectations are really very, very, very big problem in trading, especially with novices.

Panelist 25:04: Yeah. And if you see those 45 degree curves, right, there's a good chance if they are real, there's a good chance they're just selling volatility. They are just writing options, and one day this is gonna blow up. Like, that's the only way you get that kind of 45 degree line. Right?

Jason Kurz 25:22: Is it possible what's You funny is we were talking recently about optionsellers.com guy. You know, that keeps coming up. I think that came up on here last week and people were kinda, like, cracking up. But, like, that guy is the epitome of that. You know? Like, hey. Yeah. He's figured out a way to make money all the time. He's he's selling naked calls on natural gas, and he's selling naked puts on oil.

And this guy just continues to trend, that direction all those years. It was it was basically 2016. Oil just moved up off that major bottom, and then you have natural gas in a downtrend. And then 2018 happens, and oil crashes, and then natural gas explodes higher both at the same time, and they wiped him out in minutes. So it's like figuring out exactly like, they're they're like like a shop said, that is a strategy to blow up.

And I think we've all seen it many times. You know? Like, I've seen friends not to mention, like, I if funds do this all the time. Like, the people don't like to talk about funds. They talk about funds like they're the smart money. Really, I've been I've been around plenty of hedge funds. There's plenty of dumb money in those too. I promise. And and a lot of the time, the owners I'm sure I should be saying this shit, but I'll be honest.

The the owners are also the ones who are are the ones doing these things. Like, sometimes the owners are people that kind of, like, don't really know how to trade, and they start these funds. They make some money doing something, and next thing they're running a fund. I've seen it a couple times. And then they're, doing strategies like that. And they're just seeing the dollars going forward, and they're not understanding that you can blow up.

The huge one in the hedge fund space right now is the basis point trade. Basically, taking the spread between cash bonds and selling bond futures and trying to make the middle. So, basically, this this ends up turning out terribly all the time. And and I and I got sent this from another fund, they were like, hey, can you back test this? And I was like, okay. So I back tested and I sent it to him. And I'm like, dude, this blows up every time.

And he said, well, you gotta predict recessions. So it's like, if you just predict recessions, you'll be fine. You know, like, so it's like That's so Yeah. Yeah. You you hear things like that in the in the trading space, and then you go out to be an actual trader, like, in the world, like, it's your first time trading. You're just getting started to do this, and you think these are normal strategies.

However, it's like, the slow grind and understand that volatility is gonna be part of your portfolio if you wanna make money. Like, if you if you really wanna have, like, let's say 50% returns, 100% returns, something crazy like that, you're going to have a ton of volatility in your portfolio. Like, you're looking for 50%? Okay. Well, then you better be ready for 25% to 30 drawdowns. Like, that can happen too. So, everything goes both ways,

Panelist 28:22: and it's always important to understand, like, your risk above everything else. You know, I'm I'm a little bit concerned about the carry trade that's that's happening with yen US dollar. Right? Like, eventually, that unwind, I feel like it's gonna be very messy because that's been a trade that people have been utilizing for the last twenty years. I mean, it's been a profitable one to say the least.

And if we do see this, reduction or removal of this yield curve control policy, there's not gonna be any alpha there. And then where does that money go? And then how do you unwind that trade as well? And I think that's one that is definitely under the surface. More hedge funds are utilizing that type of strategy. Right? Trying to it's a very small spread, but if you put enough dollars to something, you can make nominal money on it, right?

If you leverage up enough, you can do a lot of things. I mean, that's like Warren Buffett and Berkshire Hathaway. They have a whole bunch of cash right now sitting on the sidelines. They have so much cash that they're making 2,000,003 million dollars a day. That's some that's some nice cheddar to say the least here, so I think that's another one, in the currency markets that's kind of under the radar

and I think that's kind of reason why we're starting to see the yen lose ground again, because, the economic data has been lackluster to say the least but the equity market's been doing decent. So you would think that they would have a little bit more strength within the yen as the equity markets start to recover, and it's not. You're seeing kind of that exact opposite.

So I think there's a lot of pressure that's being put on from institutions to kind of keep that spread where it's at right now. And I'm kind of right there with you, Jason. You're you're kind of talking about the cash and and futures, spread when you're looking at treasuries. There's pairs like that all over the place.

It's the same thing actually right now going on with the equity market itself, even the S and P five hundreds, and everybody's kind of like, oh, look at how much people are short. Look at the institutions are short. They're they're getting ripped. No. They're not. They're they're trying to literally make a spread off of this right now. They're short in the futures contracts.

They're going out, getting into a little bit more high beta, and they're trying to capture that alpha. But once again, that's gonna be a that's something that could, that could burn them, and that could destroy a fund if it goes the wrong way quick enough in that spread where that arb gets taken out of the marketplace.

Panelist 30:42: There was a time where I forget which year, but so the Swiss National Bank had the Swiss franc pegged to the euro And all these people in Poland and Hungary had taken mortgages in the franc because they were about to join the EU and their currency was more or less pegged to the euro and interest rates were dirt cheap in Switzerland. Right? So they're like, let's take mortgages in Swiss francs, denominated in Swiss francs, and just pay the EMI.

What could go wrong? And then one fine day, the Swiss National Bank is like, we are not going to maintain this peg anymore. And a few forex brokers went under. It was all within a matter of four, five hours, and then the whole space just

Panelist 31:30: crashed. It was FXCM. Right? They were one of the big I think they got hit by, like, 80% of their market cap got wiped down on that track. I remember I was actually working a futures test that night that it happened. And, man, you do not wanna hear clients, large institutions getting blown up. I mean, that was that was a horrible night, to say the least. And, actually, that was probably, like, the last day that I wasn't in that pair.

But that was, like, the last day I was like, you know what? I'm good on the currencies. I wanna stay in my I'm gonna stay in the commodity lane, not have to really worry about the, these reserve banks going out there and just being like, you know what? No. We're not doing this anymore. Dump it.

Panelist 32:15: I it was kind of obvious. Right? I mean, like, you have a trade like that where there is so much pressure on the currency. One day or the other, the peg has to give. Because the Swiss National Bank is not gonna keep buying euros forever. It just doesn't work that way. Right? Like, it was obvious, but then, if you don't do the trade, you're down. Right? Because the other people are doing the trade, and they are making the free money.

So if you don't go pick up those pennies in front of the steamroller, then you're the dumb person. It's like the Credit Suisse had this ETN, the XIV ETN, which blew up in 2018. They were, like, selling wall, and they were the ETF was practically going up in a straight line. And right towards the end of it, I think they decided they wanted to get in on the game, and they took a 20% position in their own EDN.

And then they blew up along with the rest of the note holders. Right? Like, like, that's just how the thinking works. It's like, it's free money. Everyone's picking it up. Why shouldn't I? And then it's like, something else to give.

Pavel Kýček 33:25: Okay. Just quick note to the case with Swiss franc, because I'm from the Czech Republic next to Poland. It was the last time when citizens of Europe could basically get loans in another currency than their domicile one. If they don't have the income in this currency, want to be loaned in. So this is really this this that was the last time when Swiss franc basically exploded.

Jason Kurz 34:05: This is such a fundamental conversation.

Panelist 34:08: Yeah. Well, mean, you're talking about selling premium. Right? I mean, like, that if if you look at each and every example we just talked about, it's all premium scalping one way, shape or form, right? Even if you're trying to get a mortgage and you're trying to get in another country because of the currency pair, you're trying to scalp premium. That's all that is.

And it's cool for, it's cool until it's not anymore, until something fundamentally changes. So when you're looking at, what was it, XIV, right? Their problem, and a lot of people didn't understand this, because they were an ETN, and if you actually read in their prospectus, they were not required to cover that position. There was a risk, so they were like, everybody kept like freaking out, oh, what are they gonna do? What are they gonna do?

In XIV, they had two things that they could have done. They could have went out into the VIX futures and covered risk, which if they're buying VIX contracts, what's gonna also happen. Right? Domino effect. Gamma squeeze it even more than that. They would literally just break the market. They would break that fixed contract as a whole. Or they could have done nothing. And they decided, look, we can't do anything. We blew up.

Because they were trying to scalp premium. And that's kind of like with a lot of these hedge funds, you go from selling credit spreads where you might, let's just talk about options, right? You can sell credit spreads all day. You're still maximizing your risk, or you're still minimizing your risk selling credit spreads until one day you get the bright idea, I could just sell naked

and I don't have to get the other side of this trade because it's eating into my alpha. You know? Right? And then you keep and then you're like, alright. Well, I'm just gonna go sell short, or sell, call short. Boom. Boom. Boom. I'm getting a nice amount of premium here until something happens, and then you're you're uncovered. So the moral of the story is make sure that you protect your protect risk that's out there.

Don't take any excessive risk. Because as soon as you get a taste of taking a short position that has unlimited risk to the upside, and you get a little bit of a taste of that premium, and you're like, oh, this is great. I didn't have to actually like chop down my return by 25% because I had to take this other leg. I could just do it. That's when people get burned. That's when accounts get burned.

Panelist 36:32: I can understand ETN holders doing it. I can understand the ETN itself doing it, but what would prompt the sponsor to say this product is so cool. Let me own it on my own account. Like, that's really dumb. Right?

Panelist 36:49: Well, I don't even think that should even be allowed. I mean, that's just my I won't get into the policy of it. I don't think that stuff should be allowed, honestly. I mean, you're kinda seeing it right now in Bitcoin, right, in certain respects. There's certain fund managers that are buying their own Bitcoin fund, right? And it just seems like that circle could be something that could create some problems down the road.

And I think you're kind of alluding to that as well. I think that I don't even understand how that's even legit in a sense, but that's just me. Unless you had, a third party servicer actually managing, which some funds actually do. Right? I might have a fund at, let's say, PowerShares or whatever, but I have x y z custodian actually managing. And and then I can understand you have a little bit of a wall there, but

Panelist 37:45: there's a lot of stuff that can create bubbles in this market. Yeah. You know, like, PIMCO got into trouble for doing exactly this. Like, what they would do is they would take a security from one mutual fund and plop it into another, and they didn't have to do the mark to market or assessment. They could just take whatever is the book value or the balance sheet value and just put it onto the other funds.

So when that security goes bad, the main fund which they want to pump up, the returns don't terrible returns don't show up in that. And they got they did so much of this that eventually they got into trouble. I mean, I'm not sure if that's why Belgras left or it was other reasons. But, I remember this being a big issue, especially with debt, because the bonds, you can't really value it the way you value stocks, right?

Moment a big seller tries to sell a block, the price just drops because it's a market where everyone can see the flows.

Panelist 38:49: Yeah, hard to mark sometimes,

Panelist 38:51: Right? And this is Bitcoin, right? If you know that a fund is selling and like right now it's Friday after the close, but the crypto market is still trading. There's so many things you can do and make the fund powerless, like, over the weekend. Like, I didn't even know how this whole ETF concept works, to be frank.

Like, it doesn't make sense to take an asset that trades twenty four seven and put it into a brokerage account along with other things that trade, just nine to five or nine to four, 09:30 to four. Like

Panelist 39:24: yeah. You you can find somebody. If you're a large institution, you could find somebody to trade the other side of your trade. Just it doesn't, you you call somebody up and say, hey. Let's I got a trade that we need to we need to do. And if they're interested enough, they'll get on a Bloomberg and send over, the other side of that. I'm I'm right there with you as far as the ETF.

You know, I like seeing the fact that the crypto ETF or when you're looking at Bitcoin ETFs, I like the fact that it's providing some institutional opportunities. And for right now, it doesn't seem like it's getting crazy. I don't know about you guys, but it doesn't seem like it's getting, like, too crazy yet. I mean, when when they started doing vol funds, everybody had their own vol fund. Right?

And then it was two x funds, and then they got three x funds and all of this stuff until somebody blew up. Right? But it seemed like everybody and their mother had one of those, and they were trying to add these new nuances to it, and it seems like this one's kinda taking its time, to say the least. Yeah. And I'll I'll stop hogging here.

The one the one the one ETFs that ETNs that I don't and I'm not a fan of are the two x, three x single stock ones. I feel like there's a lot of risk that is there. Now not a lot of people use them, but that's an, again, a situation where, all you need is somebody all you need is, like, one of those stocks to pop 80% in a day.

Pavel Kýček 40:57: And Yeah. But on the other side, we are all I would say we are all all traders. You know? So we we are still managing risks. And if someone wants to take these risks of double, triple, triple ETFs or so, why not on the other I like them. I like them to tell you through. I'm using them for these, I'm calling them opportunity trades, like for example, these days, like twenty year bonds also are pretty low.

So I'm just taking some kind of money and I'm buying three times leverage TMF, for example, and I'm saying goodbye those money. I'm hoping you will come back like 3x, but if not, I don't care. You know, this is some type of gambling in which my I love, And I'm using these 3x ETFs, for example. This is not, of course, not my core business trading, but on the other side,

Panelist 42:02: for these cases are very, very good in my opinion. So Yeah. No. I I meant to say, like, I mean, the individuals actually running those funds. Right? I'm talking about institutional blowups. Not I mean, yeah, the product there and utilizing them in a portfolio, I get them. It's just the scarring of XIV.

It just makes me kinda think of each and every other scenario where there's excessive leverage and the liquidity of the person that's managing the fund. And if they can deliver, that's my that's my These

Pavel Kýček 42:37: these VIX products are very interesting. I have to say that I went over them so many times and I try to make something that would at least somehow cover some risks because these are really tempting, know. I love them but I don't trade them at all. But yeah, it's something like, I don't know, 3x ETF or natural gas or so, you can play this game of shorting it.

So, yeah, there is some something that is tempting for us traders, would say, because, yeah, there are risks, of course, but on the other side, we are paid for taking some kind of risks. So this is then about proper management.

Panelist 43:28: Great. So the USO ETF, the crude oil futures ETF, back when back when the contract went negative. So USO wasn't in those front month contracts, luckily, but they got pretty got pretty badly hit on their other near month expiries and that's when they actually did a policy change saying that they are going to do a role much sooner

and they are going to add the further month contracts as well into the ETF so that they don't get hit when something like this like completely out of the blue. Like, we had never seen features go negative. Right? But I mean, if things like this are gonna happen, then you should have a policy in place and they did have a policy in place, thankfully. Otherwise the product wouldn't have survived to this day, right?

Jason Kurz 44:18: I mean, and something that you brought up, which is important, which some of the traders on here might wanna know, which is like about futures contracts and when do you roll in stuff? And so something that I used to do, and honestly, I didn't switch until not too long ago, and it was I was fortunate to be in the front month contract when we were shorting the crude oil futures in 2020. So Keshop remembers like, I literally got into that trade.

Not it did it sounds cooler than it was. Interactive Brokers really just canceled out your your trade. You didn't make any more money because you were in that trade. So that kinda sucked. But once again, it's a I will never ever the fear also the fear of that happening to the other side of the trade, whether you're on the right side or not, also will scare you straight too. So basically, I'm I'm never close to expiration.

Even like the very some of the thinnest contracts, have to be closer, something like lumber, yes. Palladium even, yes. But still, if it even gets into thirty days, there's no way I'm gonna stay in that contract. Even though futures, yes, you don't have the theta, the k, and all these things you'd have in a rolling options per se, but at the same time, there are risks there just like that. Or a product can become incredibly illiquid.

I've seen that happen before where you're trying to get out and you just can't, and you gotta take a bid that you didn't want just because you have to get out of the trade. So, thinking about it as in, like, I don't wanna be in anything when it's close to thirty days to expiry, expiration is a great idea. So just look at it like that. That's some way of looking at it.

I get that question a lot about trading futures, like when you roll, because some people like they're looking for that front month risk. And for me and my long term time frame, it doesn't make sense. You know, Kevin talked about it the other the other week, and it also happened recently. You have natural gas give this huge bump the other what was that? A month ago, Kevin? I guess, a month ago that Yeah. Yeah. In January for the Arctic blast. Yep.

Yeah. It had it had a 20% move in, a day. It was insane. Kevin talked about it, being just in that front month contract and how that move probably wouldn't last. And he was right. So you really have to understand, like, what you're getting into. So if you want that crazy move and you're looking for really tight risk and you're you're a day trader or you're only swing trading a few days, maybe you're gonna be in a closer contract.

For me and my timeframe, I could be in a trade for, six months to a year. I'm not gonna be that close to expiration.

Panelist 47:02: Yeah. Let's say for futures, so and I think you're kind of alluding to the physically delivered contracts too. Right? Like, that's where the risk is at. So for futures, usually, you wanna roll out, like, three or four days before first notice day. So first notice day is the first day that a seller can inform a buyer that they would like delivery. So for futures, it's different than options.

Futures, the seller has the right to take action, not the buyer or not the person that's long. The person that's short has the right, person that long does not. So the first notice day is the first day that the sellers can go out and say, hey, I want you to I'm I'm gonna be delivering this contract to you. And then that's where there could be some risk of assignment.

And then no brokerage house that any retail traders that's actually dealing with, for the May most part is gonna take delivery of any of those physicals. Outside of gold. There are a couple that will take gold because they'll put them in a depository location. Right?

So three days before and it's it's really important because a lot of the institutions get out two to three days before that first notice day too because they don't want any of that risk, and then they'll roll. And then depending on the contract that you're trading, you wanna roll into the right contract. So for crude, you can basically roll into the next front month. There's enough liquidity there.

But if you're looking at, let's say, corn, there's certain months in corn where you don't wanna be in at all because there's no real use for producers to use it to be able to hedge. And then you have the last trading day, obviously. So if you're short a contract and it's past first notice day, you really don't have to take action. The problem that you have is that you're already gonna have liquidity drying up any anyway.

So you the spreads are gonna get wider even though you don't have theoretical assignment risk that is out there. So really good call out for that. And then usually when you're trading the e mini S and Ps, a lot of people will roll those contracts. You know, some people don't, but a lot of people will roll those contracts, like, a week before, like, the Friday before the quarterly expiry expiration is usually when you'll start seeing those rolls.

And it's, for the most part, fairly cheap. Right? I mean, what, a buck, maybe a point and a half, to do those rolls. So it's not that expensive. You're talking about $75, maybe $50. It's 1 tick.

Jason Kurz 49:24: Yep. No. I mean, if it's it's generally, like, if you're in the last within the last three days, like you said, the problem isn't even the like, you won't get liquidated, but the problem with getting liquidated is you're not gonna get very good fills getting liquidated most of the time, especially if it's a product that's a little bit illiquid.

Like, if you get liquidated on palladium, which happened to me before, I remember losing, like, couple thousand dollars in a minute and just being like, what the what the hell? You know, like, you basically can get liquidated, whatever whatever they have to do at that time. It's an incredibly liquid product. They need to get out. They need to sell it. They're gonna sell it any way they can.

So, most of the time, like Kevin said, you're not gonna run into those issues with most products and most market makers, they're going to liquidate you way beforehand, but it's something to also keep in mind and make sure you understand because you're not just gonna end up walking outside and seeing a bunch of barrels of oil out front. You

Panelist 50:25: know, like, there's people who ask me that. Like, oh, am I gonna get a bunch of barrels of I'm like, no. No. No. They're just Can I tell you guys a quick story? Because I do got a jet. I know I've been hugging the mic here. So No. You're good. Please. So I managed a derivatives team. Right? So during the negative oil going negative, which was actually very stressful to say the least. Right? Like, we kinda laugh about it now.

Like, yo, it's a crazy event. But at that time when crude was literally trading at, $12 or, like, $10, every single brokerage house was like, what are we gonna do? Because the CME didn't even know. The CME had no formal policy. They never informed anybody. Like, they did inform somebody literally, like, two days before the contract went negative when we knew, okay. And then somebody was like, alright. Tank this thing.

But no one knew what to actually do. And then the CME came out, gave gave their guidance, then some, a couple of goofballs, went in there and, thought that they were going to be mighty heroes and be in there, and they didn't roll their contracts. That's actually what happened. It was people that were they were managing money. They were institutional traders with no intention to actually offset the contract.

And they got stuck because they had way too many contracts. And unfortunately, once it got to negative, the problem that we had at that point in time that there was not enough, There wasn't any invent there wasn't any free space in the inventory anywhere. No one was gonna be able to take delivery. That was the first problem, which is why that contract went negative.

But the second problem that we actually saw from the brokerage houses is that it actually would mess up your risk algorithms Because now you had a product that was a positively priced product, then all your risk algorithms out there could obviously assign that risk, right because it was a positive.

Once it went into the negatives, there were risk algos out there that would actually provide free cash to traders in their account because, you add a negative to a negative, what's gonna happen? So it was crazy. It was a crazy event to say the least. I would talk to customers and I am not even joking. Customers would be like, So I wanna do this. I wanna take delivery. How do I do that? It's like, that's not how any of this works.

It's like, what, 10%? I think it's like 8% or 10% of the contracts get actually physically delivered in the futures market. A lot of those contracts do not even get delivered, they just get offset. But people will call and like, Oh, I know there's a place down the street that and it's like, no, you're not that's not how this works at all. Like, we're not gonna be able to do this.

So usually what would happen if you were unable to take delivery of a product, you would get a call from the CME, you get a call from your brokerage house, CME is gonna hit you up with a whole bunch of penalties. You're gonna pay up the wazoo and you're gonna be pretty much in litigation with whoever's taking the other side, or you pay the cash settled value, which could be the result of that.

So but is you joke about people trying to put oil in their pools. People literally wanted to put oil in like storages that they had, like on their farms and all of this crazy stuff during this time is, the preppers definitely came out to play that day.

Jason Kurz 53:42: That is wild. I yeah. Oh, man. I couldn't imagine. I mean, I can't imagine because I've seen things like that, but I've never I didn't hear that story before. That's super interesting. Yeah. That's the one that did. But fellas, was great, being on here.

Panelist 53:59: Appreciate Thanks the time.

Jason Kurz 54:00: And, yeah, looking forward to joining you guys again sometime. Sounds good, man. We're we're Thanks, Kevin. Hop out around now anyway. So, man, good to good to see you, Kevin. You take it easy. Yeah. You as well. You go Kevin, before you go, how can people get in touch with you or or,

Andrew Swanscott 54:15: get more from you? Do you wanna shout out Twitter?

Panelist 54:17: Or Yeah. So you can, follow me on Twitter at k g bull and bear. I'll put it in the I can put it in the chat. And then I'm on the Schwab Network, which is a financial news organization. So I'm a senior markets correspondent there. I've been in the industry for thirteen years. I've managed derivative teams, commodities, options trading, flex options, structured products, financial advising, you name it, done it.

So KGBull and Bear on Twitter or an x, whatever you wanna call that, and that's how they can get in contact with me. So I appreciate that. Awesome. Thank you very much, Kevin. Thanks, Kevin. Enjoy the rest of your day. Have a good one. Cheers.

Andrew Swanscott 54:59: And, we're right at time now, I think. So should we start wrapping this thing up, or do you guys wanna continue? I'm gonna take the boy to soccer soon, so I have to go. But

Jason Kurz 55:11: Yeah. Yeah. Well, that's I'm good with me. It's beautiful outside. I'm gonna get outside for a little bit. Thanks for coming, everybody. You guys can follow me at a o research on Twitter or a o research on YouTube. I changed that recently because Andrew said it was hard to find my page. Yeah. So I think that should be better, actually, hopefully. So thanks for shouting that out, Andrew.

And then my sub stack, if you go to my Twitter page, everything's on there, my link tree, so you can find everything. Thank you guys so much for coming on again. This is a blast, and it seems to be building in a very fun direction. So I've got some more, I got some big names in order for next week, so we'll see if they can make This week, there was the Vegas, event, so some people couldn't show up because of that.

And then there was, some trip for another company. So next week should be good. So look forward to that if you guys are watching. Yep.

Andrew Swanscott 56:05: Yep. Kashyap, do you want to how can people get in touch with you? Yeah. So the best is my Twitter. It's Kashyap two eight six. It's

Panelist 56:14: same as my name with the numerals two eight six. And it's myfullname.com. That's my website. So kashevshiram.com. So you can reach me there.

Andrew Swanscott 56:25: Excellent. Thank you. Pavel?

Pavel Kýček 56:27: Okay. Just follow me on Twitter probably at pkycek and Robaxi or robaxi.com. And hopefully see you again. Nice chat. We are moving forward. I like it. I like these conversations, I have to say. Yeah. It was a great great

Andrew Swanscott 56:47: discussion today. Yeah. Yeah. Sorry, Keshav.

Panelist 56:50: Yeah. No. I was just saying it was, like, so quick. Like, didn't feel like a whole heart had just gone by.

Jason Kurz 56:56: Yeah. I was I actually wrote up an idea. I'll send it to you, Andrew, but I had a structure idea. When I when I'm done with it, I'll send it your way, but it might be a way to structure this a little bit better. Just an idea.

Andrew Swanscott 57:08: Yeah. Sure. Happy to look at that. So I like to everyone for conversation now. I like when it runs into wherever anybody's taking it, So who knows? Yeah. Yeah. We covered a lot of good topics. I've been taking notes. So, I think it was a great discussion today. Thanks to everyone for joining us. We're here every week, 4PM ES Eastern Standard Time. That's right. Isn't it, Jason? Yep. Said the wrong time last week. Got it right. Good job, Andrew.

Andrew is on Australia.

Jason Kurz 57:37: And and Kashab is also overseas too. Know, we I gave you guys credit because honestly, I'm I get my times mixed up, and Andrew knows this because I messed up too many times. I get my times mixed up, and I'm actually in the time zone that everybody pays attention to. I'm on the East Coast Of The United States. So yeah.

Andrew Swanscott 57:55: Yeah. So, yeah, 4PM eastern every Friday. Come and join us here and you can catch me on Better System Trader channels on YouTube, Twitter, X, maybe probably Facebook as well. So oh, and by the way, Pavel's going to be a special guest on Better System Trader next week on, oh my goodness, Monday, I think it's 3PM Eastern. Yeah. That So looking forward that. To be talking about Algo crypto trading and strategy. Looking forward to that.

I'm just me and Pavel, so come and join us. And we'll see you all next week, hopefully. Thanks for joining us. All right, guys. Great to see you. Cheers. See you.