Ask mrbaseball about trading for a living
 

Okay, you asked for it and I'll try to do my best.

First a little history and a few groundrules. I have been a professional trader for 20 years. By professional I mean I have been employed as a trader during that period other than a few years when I went on my own and formed a partnership. I started in June of 1987 as a market maker in the US T-Bond options pit at the Chicago Board of Trade. After about 7 or 8 years of that I moved to spreading interest rate futures (2yr, 5yr, 10yr, Tbond). Then I moved to the Chicago Mercantile Exchange where I was involved in some arbitrage opportunities as well as spreading back month Eurodollars against 5 year notes. Then I moved off of the floor when electronic trading became more prevalent and traded a variety of speculation and arbitrage opportunities.

Currently I do a lot of different stuff. My main responsibility is managing an in house stock options portfolio. Luckily this isn't real time consuming so I have the opportunity to get involved in some arbitrage as well as speculative programs I have created and I also scalp spreads and outrights in a variety of markets. I am more of a jack of all trades rather than a specialist. I will trade anything that looks like an opportunity however there are some markets I like better than others. Over the years I have traded virtually every commodity and it's accompanying options in some form or another.

I won't speak specifically to many of the arbitrage things that I do and I won't discuss compensation other than to say I do okay.

Re: Ask mrbaseball about trading for a living
 

What is the minimum intelligence level necessary to become a successful trader (assuming you have very good teachers)?

Re: Ask mrbaseball about trading for a living
 

Do you think a prop shop is an ok way to break into trading for a living?

Re: Ask mrbaseball about trading for a living
 

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What is the minimum intelligence level necessary to become a successful trader (assuming you have very good teachers)?



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No idea really? I think anyone who is focused and willing to learn could do it. The main part is understanding the risks involved and being disciplined.

Re: Ask mrbaseball about trading for a living
 

What returns were expected of you in the various assets?

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
Do you think a prop shop is an ok way to break into trading for a living?


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I honestly don't know much about them. From what I understand you get some rudimentary training but are required to put up your own money. Is that right? Depends on what they get I guess? I think most of them basically want to churn you for commissions but I really don't know much about them.

Re: Ask mrbaseball about trading for a living
 

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What returns were expected of you in the various assets?

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Not to lose money! But it depends. As a market maker or spec trader you don't really think in terms of returns. You start each year zeroed out. For certain specific trades (ie arbitrages) you have an idea of what you are shooting for percentagewise but it varies from trade to trade. One trade might have a goal of 10% and another might have a goal of 25%. For example I do one arb where I sell it 10% or more over fair value and buy it back around 4% over fair value. Sometimes it will get as much as 15-20% over fair value where I sell as much as I can. I still don't buy it back until it gets back to around 4% though.

Re: Ask mrbaseball about trading for a living
 

How did you get your first job as a market maker?

Re: Ask mrbaseball about trading for a living
 

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How did you get your first job as a market maker?

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I was just finishing up my MBA in Finance and I really wanted to get into trading and particularly options. Since I am from Chicago I went and dropped off resumes and talked to anyone who would listen to me at the CBOE and CBOT. But that's not how I got it. Actually I answered an ad in the newspaper. My first firm was big at the CBOE and were looking to expand into interest options at the CBOT and targeting fresh MBAs so it was just what the doctor ordered.

Re: Ask mrbaseball about trading for a living
 

Thanks for sharing.

A friend of mine with BS in CS from a top tier school and a MS in CS from U. Wash w/ 5 yrs of experience at MSFT wants to move back to NYC and become a trader. Does he have a realistic shot? Do you recommend him going to get a MBA?

I've been advised that a quant dev is his best shot but he doesn't want to be a quant.

Re: Ask mrbaseball about trading for a living
 

This might be a little off topic but what is your opinion on black box algorithmic funds?

Re: Ask mrbaseball about trading for a living
 

Best Trade? Worst Trade?

Re: Ask mrbaseball about trading for a living
 

Mr. B.

I work for the CME... would you think a product that is equivalent to the VIX for grains (soybeans, corn, and wheat) would be worthwhile to develop? Please say yes!

Re: Ask mrbaseball about trading for a living
 

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Do you recommend him going to get a MBA?

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I can't really say? I'm not sure what the environment is right now for getting hired. For me the MBA is basically worthless other than the fact it was a door opener. As far as what you learn as an MBA I feel is pretty meaningless to trading.

Re: Ask mrbaseball about trading for a living
 

What college degree do you need for your job? Is any degree even required or just a 4 year degree? I have a social studies degree, is it possible to get in the door with it?

Thanks

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
This might be a little off topic but what is your opinion on black box algorithmic funds?


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Funds? That's beyond my area of expertise. We do have a few guys who trade black box systems though. I'm not exactly sure what the actual indicators in the box are but I think they do okay. Basically the box trades it but they watch it and overide if the risks get out of line. Basically the black box is a perfectly disciplined but mediocre trader. Perfect discipline is real important though.

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
Best Trade? Worst Trade?



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Hard to say really? I have had so many trades in so many different situations. The one that strikes as the worst was the very first day of a speculative basket of spreads we decided to try. It took me 6+ months of rigorous backtesting and many meetings with the partnership hierarchy before the greenlight. On the very first day we sold 100 cotton spreads and that trade lost 100K by the close. It was part of a bigger basket though and eventually it became a very profitable strategy before the trade eventually dried up.

Best? Not really sure again but probably not a profitable one. Probably covering options shorts before a volatility explosion back in my market making days and staving off armageddon. The best trades are the ones where you dodge bullets and don't get rolled over.

Re: Ask mrbaseball about trading for a living
 

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I work for the CME... would you think a product that is equivalent to the VIX for grains (soybeans, corn, and wheat) would be worthwhile to develop? Please say yes!


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There's no volatily in grains [img]/images/graemlins/smile.gif[/img] Actually I would like to see it. My firm is primarily a grain firm. We have lots of grain traders. But something like this would be right up my alley. I would work with it and figure out a way to use it. I just invented a new VIX strategy and we committed a lot of capital to it and just started trading it this week. So far so good and it looks pretty promising.

A lot of what I do involves new or different types of contracts that are basically niche contracts. My biggest skill is the ability to think outside of the box and invent new strategies. The downside is eventually the big boys catch on and the trade dies or gets arbed out of profitability. The markets constantly evolve and and what used to work will dry up at some point.

Is a contract like this (grain Vix) in the works? Please say yes!

Re: Ask mrbaseball about trading for a living
 

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What college degree do you need for your job? Is any degree even required or just a 4 year degree? I have a social studies degree, is it possible to get in the door with it?


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Again hard to say? No degree is neccessary. Then again you need to get in the door. My old clerk was working on his degree when we hired him. He was a sharp kid and eventually got his chance. He never finished his degree but is one of the best traders I ever met. Way better than me. He was born to it.

Re: Ask mrbaseball about trading for a living
 

I'd like to know a lot about the risks you expose to your trades/portfolio. I'd appreciate it if you could answer some of these questions:

-What is the most you'll risk (% of your a/c) on any given trade?

-And on any given idea?

-Do you use a monthly stop-loss? ie - some traders stop if their a/c drops a certain percentage for the month.

-If for example you are willing to risk 1% on each trade, how many open trades (in different/not so correlated markets) are you willing to be exposed to at any one moment (as a % of your portfolio)? Portfolio heat? I guess this would be similar to your monthly stop-loss if you use one.

-Do you employ stops placed in the market or in your head? (Some larger traders find it a disadvantage to have their stops available for MMs to view).

Cheers me dears.

Re: Ask mrbaseball about trading for a living
 

- How did you learn? How helpful are books? How hard is it to learn trading one your own?

- What are your typical hours? How much study do you do outside of work hours? What is the compensation structure?

- Your most proud of accomplishment? Biggest setback? Biggest obstacle during your career?

Thanks for doing this.

Re: Ask mrbaseball about trading for a living
 

If you had every last cent taken away from you right now, as well as all of your higher education and knowledge you've gained since starting trading, what would you do?

Re: Ask mrbaseball about trading for a living
 

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-What is the most you'll risk (% of your a/c) on any given trade?


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Most of my managed and arb trades have very small or set risks. When scalping very little. I am very risk averse. If a trade looks or feels bad I puke it. Since my goal when scalping is very small I have to set my risks very tight as well.

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-And on any given idea?


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This depends on the trade in question. Most of the managed trades have a set amounts allocated to them. So I have X amount of dollars setting the size of the options portfolio and X amount of dollars set for another managed options trade I do. The general rule of thumb (for short option plays) is 3 times. If it triples against you then you dump it.

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Do you use a monthly stop-loss? ie - some traders stop if their a/c drops a certain percentage for the month.

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No. Just keep churning away trying to get it back. However in some times of frustration the best strategy is to walk away for an hour or a day or 2 or 3.

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If for example you are willing to risk 1% on each trade, how many open trades (in different/not so correlated markets) are you willing to be exposed to at any one moment (as a % of your portfolio)? Portfolio heat? I guess this would be similar to your monthly stop-loss if you use one

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I have a lot of stuff going at the same time just from the nature of the trades. The 2 managed option trades are always there and always going as well as a couple of the arb trades. For daytrading and scalping I generally only do one or two things at a time. Usually I am scalping spreads and usually in stock indexes (ie Midcap/russell or Dow/spu) but also do some interest rate, currency and energy spreading. I usually only watch 1 or 2 spreads at a time. If I take a directional (outright) play I will usually only do 1 or 2 of those at a time but I prefer the spreads.

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Do you employ stops placed in the market or in your head? (Some larger traders find it a disadvantage to have their stops available for MMs to view).


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I use physical stops when I can. I always use them for directional trades but have to use "head" stops for spreading. This is the main disadvantage of spreading for me. The fact that you can't use a physical stop. Sometimes spreads will just bolt away from you which is my main risk and chasing them can be very frustrating at times. As I have become more and more experienced I have gotten pretty good at spotting this and can "usually" get out before it gets too painful.

Re: Ask mrbaseball about trading for a living
 

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How did you learn? How helpful are books? How hard is it to learn trading one your own?

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I learned primarily through the school of hard knocks. My initial training was a series of videos on options trading. Then they gave me a stack of trading cards and sent me into the pit.

Books are very helpful. I read a lot of trading books and have a rather extensive trading library. Some are great and some are useless. I generally find most value in the psychology types of books rather than the nuts and bolts types.

It's hard. Like they say trading is very simple but it aint easy. That said it can be learned if you work hard enough and study hard enough. Some things I think you just have to experience and until you do you won't understand. It's easy to look at a chart and see all the indicators and say you shoulda done this and that this. But when you are over on the righthand side of the chart in a live ticking market with real money in play it is a totally different universe.

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What are your typical hours? How much study do you do outside of work hours? What is the compensation structure?


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My typical hours are 7am to 3pm or 8am to 3pm. If there are early economic numbers (7:30am CST) I go in earlier. If not a little later. A lot of the big numbers (unemployment, CPI, PPI, GDP etc.) are released at 7:30am and I want to be there for that. Although I wish I woulda missed it yesterday [img]/images/graemlins/smile.gif[/img] But I have plenty of flexibility and leave early if it's slow or seemingly unprofitable to be there.

I usually read one or two new trading books a month as well as the magaizines "Technical Analysis of Stocks and Commodities" and "Futures" every month.

I get a salary, bonus and percentage.

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Your most proud of accomplishment? Biggest setback? Biggest obstacle during your career?


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Accomplishment would still being in the game 20 years later. I have seen 'em come and I have seen 'em go. Sometimes they go in spectacular fashion! Setback would be when my first firm closed the doors and I had to scramble to get a chance to stay in the game. The biggest obstacle would be the changing nature of the markets. Sometimes when a very lucrative trade or idea dries up it's like a punch to the gut. Nothing seems last forever and some of the better trades just stop working so you have to scramble to find a replacement. This just happened to me recently as my bread and butter trade of the past few years evaporated last winter. I have high hopes that the new program I just started this week will fill that gap. In the mean time I just keep chugging along with my arb trades and options portfolio while scalping spreads and futures.

Re: Ask mrbaseball about trading for a living
 

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If you had every last cent taken away from you right now, as well as all of your higher education and knowledge you've gained since starting trading, what would you do?


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Cry? I don't expect to become pennyless or uneducated anytime soon so I don't have an answer. A person my age with no money or education would have few options other than "bum".

Re: Ask mrbaseball about trading for a living
 

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I started in June of 1987 as a market maker in the US T-Bond options pit at the Chicago Board of Trade.

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Can you tell me a little of your personal experience of October 1987. It must have been a very educational month for a newb.

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
Can you tell me a little of your personal experience of October 1987. It must have been a very educational month for a newb

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It was quite terrifying. I was new and very inexperienced. The bonds were in full bear market mode and crashing hard that morning. I was short a little too much premium and taking some major heat. More heat than ever before. So I bought some in. I was also long calendar spreads (long back months and short front months) and these work real well in and environment of rising volatility. And boy was volatility rising.

As the stock market continued to break bonds started to reverse and we had a major flight to quality. Bonds had touched limit down (3 full points) and the reversal got them lock limit up. They would lock limit up for the next 2 trading days. Everyone was in shock and panic and option volatilities went through the roof. 10 handle out of the money puts were rising in value despite the market locking limit up.

Our orders were to liquidate. So the next day we had to clear all positions. We had about 12 guys in the TBond options at my firm. Bonds were locked up again and not trading but options had no such limitations. Basically everyone was just trying to get flat or out. I got out of everything and had survived. Didn't make any money but didn't lose much either. The long back month options I held were my savior. The mega volatility spike effected the back months more than the front months because that's the way impled volatilities work. I have always had a soft spot in my heart for long calandar spreads ever since [img]/images/graemlins/smile.gif[/img]

Anyway of the 12 guys we had in the pit, 2 of us survived. It was a tremendous lesson in what can happen and just how devastating it can be when it does. It has effected the way I look at risk ever since. A lot of real big shooters went down extremely hard and were forever done. Having gone through that experience helped me a great deal.

Re: Ask mrbaseball about trading for a living
 

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I got out of everything and had survived. Didn't make any money but didn't lose much either.......Anyway of the 12 guys we had in the pit, 2 of us survived.

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nh

Thanks for an interesting thread mrbb

So, I assume you have some form of contingency plan for when something nasty happens again, as it maybe did for you again during the Asian economic collapse and bond defaults of the late 90s.

Re: Ask mrbaseball about trading for a living
 

First off, thanks for the time.

I'm an active grains trader and also own farmland in Iowa.

My question to you is what is the sentiment surrounding the sugar market, beings that it will eventually overtake corn as the main commodity(imo) for ethanol usage.

Also, do you hear many individuals in your line of work involving farmland in their investment portfolios........guessing you have a very good sense with this being so involved in the grain markets.

Thanks,
-FH-

Re: Ask mrbaseball about trading for a living
 

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I'm an active grains trader and also own farmland in Iowa.


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We've been waiting for your segue [img]/images/graemlins/smile.gif[/img]

Re: Ask mrbaseball about trading for a living
 

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Asian economic collapse and bond defaults of the late 90s.

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Interestingly and luckily I dodged that bullet. I had been trading Eurodollars versus 5 Year notes just before that happened. But a new opportunity had arisen (the forementioned basket of commodities spreads) so I switched from the euro/5yr spread to the basket trade just before that calamity. I'm quite sure I would have been mowed over as some guys I knew doing the same thing did get roughed up real bad.

Re: Ask mrbaseball about trading for a living
 

[img]/images/graemlins/heart.gif[/img] [img]/images/graemlins/spade.gif[/img] [img]/images/graemlins/diamond.gif[/img] [img]/images/graemlins/club.gif[/img]

Re: Ask mrbaseball about trading for a living
 

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My question to you is what is the sentiment surrounding the sugar market, beings that it will eventually overtake corn as the main commodity(imo) for ethanol usage.


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No idea? I used to trade sugar spreads and some sugar options in the late 90's but haven't followed it at all since then. That market can rock the casbah though. I haven't really kept up on much news about ethanol.

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do you hear many individuals in your line of work involving farmland in their investment portfolios........guessing you have a very good sense with this being so involved in the grain markets.


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Not really? Although I do know a couple of very large and successful grain traders who actually own farms. As for myself even though I have traded grains in the past I've always been more of a financial markets guy.

Re: Ask mrbaseball about trading for a living
 

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Books are very helpful. I read a lot of trading books and have a rather extensive trading library. Some are great and some are useless. I generally find most value in the psychology types of books rather than the nuts and bolts types.



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Can you please advise regarding the best books either psychology or general trading?

is any of the following amongst your reading - Lars Tvede, Oberlechner, Steenbarger, Douglas, Kiev?

thanks for the great thread!

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
Can you please advise regarding the best books either psychology or general trading?

is any of the following amongst your reading - Lars Tvede, Oberlechner, Steenbarger, Douglas, Kiev?


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Douglas is the only guy among those I have read and I consider him the best for psychology stuff. One I just finished (The Way of the Turtle by Curtis Faith) is very good too in a general trading and pyschology kind of way.

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]


Douglas is the only guy among those I have read and I consider him the best for psychology stuff. One I just finished (The Way of the Turtle by Curtis Faith) is very good too in a general trading and pyschology kind of way.

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Can you please share your list of the most important/"must read" books for a trader to read? Thanks!

Re: Ask mrbaseball about trading for a living
 

OT: Have you been handicapping any baseball this year?
We've missed you over in the Sports Betting forum.

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
Can you please share your list of the most important/"must read" books for a trader to read? Thanks!

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For psychology I like Trading in the Zone by Douglas. His first book is good too but I liked Zone better.

For technical trading ideas I like High Probability Trading by Marcell Link. If you have a rudimentary knowledge of technical analysis this book shows a lot of good ways and methods to use various indicators.

For a little bit of both I like Mastering the Trade by John Carter even though parts of it piss me off since he intentionally leaves out parts of some of the systems he talks about and tries to sell them on his websight. For his insights into trading mentality and a great treatise on pivot points it's worth a read

If you use Bollinger Bands (or even if you don't) Bollinger on Bollinger Bands by John Bollinger is very good and is good at tieing different strategies together. The bands are a wonderful tool with lots of uses and he describes them well.

If I had to throw away all of my trading books and only keep 4 these are the ones I would keep. There are a zillion trading books on the market and a lot of them are pure crap or just rehashes of other works. But these are the ones I think that have helped me the most.

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
OT: Have you been handicapping any baseball this year?
We've missed you over in the Sports Betting forum.


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Yes I have but not as much. Mainly on weekends. The way I do it is fairly time consuming and it can be a grind after a while and I like my hobbies to be fun. The Sports betting forum just got a little too big and smacktalky for me. I liked it much better when it was smaller and friendlier. I haven't read it in a while so maybe it isn't as immature as when I left? If I have time maybe I'll write up a game or two before the season ends.

Re: Ask mrbaseball about trading for a living
 

[ QUOTE ]
[ QUOTE ]
OT: Have you been handicapping any baseball this year?
We've missed you over in the Sports Betting forum.


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Yes I have but not as much. Mainly on weekends. The way I do it is fairly time consuming and it can be a grind after a while and I like my hobbies to be fun. The Sports betting forum just got a little too big and smacktalky for me. I liked it much better when it was smaller and friendlier. I haven't read it in a while so maybe it isn't as immature as when I left? If I have time maybe I'll write up a game or two before the season ends.

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Meh. I still post, so no guarantees. Though I have been interested in what you have been upto. Will likely lurk your threads here as well.