Brief Summary
This episode features an interview with Tom Sosnoff, founder of Tastytrade and CEO of Tastylive. Tom is a successful entrepreneur with a background in trading and has built two successful trading platforms. He discusses his trading philosophy, which focuses on implied volatility and expected move, and his daily routine, which involves managing a portfolio of 100 positions. He also shares his thoughts on the current market landscape, the impact of crypto on trading, and the importance of understanding market mechanics.
- Tom believes that the market is efficient and that no one has a true edge.
- He emphasizes the importance of risk management and having fun with trading.
- He is excited about the future of finance, particularly the growth of digital assets and event-based markets.
Intro
Anthony Pompliano interviews Tom Sosnoff, a successful entrepreneur and trader, about his career and insights into the financial markets. Tom shares his experience building and selling two successful trading platforms, Thinkorswim and Tastytrade, and discusses his unique approach to trading.
18,000 trades a year?!
Tom reveals that he makes between 13,000 and 18,000 trades per year, averaging around 75 to 100 trades per day. He explains that his trading style is short-term, with an average holding period of 30 to 45 days. He focuses on implied volatility and expected move, rather than fundamental or cyclical analysis.
Day trading mindset
Tom describes his daily routine, which starts at 4:00 AM with emails and market analysis. He emphasizes that his brain works best early in the morning and that he doesn't trade aggressively until after the market opens. He also discusses his approach to setting targets, which he defines as a multiple of risk-free rates. He believes that active traders should aim for a minimum of three times risk-free rates and that a 20% to 30% annual return is a reasonable target.
Building and selling companies
Tom explains that he built Thinkorswim and Tastytrade because he saw a need for better trading interfaces. He emphasizes that he doesn't believe in solving problems but rather in doing things better than everyone else. He shares a story about how he sold Thinkorswim to TD Ameritrade in 2009, during the financial crisis, and how the deal involved a three-way trade with the Ricketts family, who were also buying the Chicago Cubs.
Market data points
Tom challenges the idea that buying at all-time highs is the best strategy. He explains that Tastytrade's think tank, composed of physicists and mathematicians, has studied this data point and found no statistical significance. He believes that the market is completely random and that there is no proof that momentum investing works.
Are bear markets gone?
Tom discusses the impact of central bank intervention on the market. He believes that the speed at which the market moves has changed, and that we may not see another prolonged bear market like the one in the 1970s or the 2008-2009 financial crisis. He argues that the younger generation, accustomed to high volatility in crypto, is less likely to panic sell during a downturn.
Crypto
Tom discusses the impact of crypto on the active trading world. He acknowledges that crypto has increased volatility but argues that it is essentially a tech stock with high volatility. He criticizes the "buy and hold" mentality in crypto, which he believes prevents people from learning about finance and market mechanics. He believes that the financialization of crypto, with the introduction of ETFs and derivatives, will eventually change the "dead money" dynamic.
24/7 stock trading?
Tom discusses the possibility of 24/7 trading in US stocks. He points out that the Futures markets have been 24/5 for years and that crypto trades 24/7. However, he believes that the lack of liquidity in options and other instruments makes it difficult for high-frequency firms to make markets overnight. He criticizes the technology of traditional exchanges and believes that they are heavily reliant on high-frequency firms for market efficiency.
Gambling vs. stock market
Tom refutes the idea that the stock market is a casino. He argues that gambling has an embedded negative edge, while the stock market is closer to a zero-sum game. He explains that the ability to trade small amounts of notional value in the stock market makes it fundamentally different from gambling.
Tom’s trading process
Tom explains that he doesn't rely on mainstream media or other content for his trading decisions. He prefers to fade his own hosts on Tastylive, believing that they are likely to be wrong about macro calls. He relies on his own gut intuition and understanding of price extremes, which he has developed over 40 years of experience. He shares a funny story about how he built Thinkorswim without charts because he had never seen anyone use them on the trading floor.
Best trade
Tom shares a story about his best trade, which involved buying a large number of call options on the S&P 100 index before the start of the Gulf War in 1991. He explains that everyone in the pit was expecting the market to crash, but the market opened lock limit up the next day, making his trade extremely profitable. He emphasizes that the market is unpredictable and that no one can consistently predict its direction.
Worst trade
Tom describes his worst trade, which involved being short both the S&P 500 and bonds in 2014. He explains that both assets moved in the same direction, resulting in significant losses. He emphasizes that size is the biggest risk in trading and that it's important to keep positions small.
Tom's portfolio
Tom reveals that he manages his portfolio of 100 positions himself and that he checks his positions multiple times a day. He shares a story about how he was shocked to discover that his phone was lighting up 750 times a day with notifications, prompting him to turn off most of them. He estimates that he checks his positions every 10 minutes.
Market landscape and outlook
Tom discusses the current market landscape and his outlook for the future. He believes that the US market is the most liquid in the world and that it's important to protect this system from politicians who don't understand how free markets work. He is concerned about regulations that could stifle innovation and growth. He is excited about the potential for digital assets and event-based markets to revolutionize finance. He believes that the future of finance will be more dynamic and unpredictable than ever before.
