August 1, 2024 • 46 mins
For August, Wide World of Options is featuring recent conversations with some familiar industry names. In this episode, Arianne Adams of Webull, Lex Luthringshausen of Tradier and JJ Kinahan from IG North America join host Mark Benzaquen for discussions about making the market more accessible to a wider audience of investors, how AI might shape the future of trading, and lessons learned over storied careers in the pits.
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Now here's your host, Mark Benzoquin.
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Hello everyone and welcome to OIC's Wide World of Options.
I'm your host, Mark Benzoquin.
For today's episode, we're continuing to feature conversations that we had with some
of the industry's biggest names at the recent Options Industry Conference in Asheville,
North Carolina.
Today we're featuring Arianne Adams of Webull, who will tell us her views on market accessibility
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and potential for future growth.
We'll also have a visit with Lex Lutheringhousing from Tradier, who gives us his opinion as
to whether or not the market is a level playing field for all investors.
And finally, JJ Kinahan of IG North America, better known to our listeners as TastyTrade,
as JJ talks about the early days of trading and where he sees the market going forward.
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For those interested in our webinar program and what OIC has in store for August, we're
continuing our summer with a deep dive into selling straddles, strangles and ratio spreads
amongst others.
To register, please visit our optionseducation.org website and click on the Events tab.
For our Wide World of Options podcast, however, we're excited to bring you more of our extended
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tales from the road as we've been traveling, meeting new friends and having great conversations
about options.
We should note that as our guests are not directly affiliated with OIC or OCC, the opinions
expressed are their own and not necessarily those of OCC, nor do we endorse, warrant or
guarantee the products, services or information discussed by our guests.
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And with that out of the way, let's go ahead and get started by listening into a conversation
that we had with Arianne Adams, Chief Strategy Officer and Head of Derivatives at Webull.
I had the good fortune to meet Arianne when we caught up with her at the recent OIC Options
Industry Conference in Asheville, North Carolina, where we discussed a variety of topics, including
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market accessibility, popular misconceptions about options and potential opportunities
for growth.
Let's go ahead and listen in now.
All right, everybody, we are sitting down once again at the Options Industry Conference.
I'm very fortunate that Arianne Adams from Webull has joined me.
Arianne has had several positions, many venerable names in the industry, including Vice President
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Rose at Merrill Lynch, Goldman Sachs and CBOE.
Now Arianne is the Chief Strategy Officer and Head of Derivatives at Webull.
Arianne, with all that experience that you have working with investors, let me ask you
this question.
Investors often feel that maybe there's an unlevel playing field in the industry, meaning
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at our investor education desk, we often get emails and live chat with investors thinking
that the big banks have an advantage over the small time investor and it's not entirely
a level playing field.
How would you address that question?
I think it's a great question and to lead off our conversation today, so I'm looking
forward to having this discussion and thanks for having me here today.
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One, we've seen unprecedented growth in the industry.
So with unprecedented growth, there tends to be lags in technology and development to
meet demands of all the customers and all the investors.
I'd say there's been a substantial amount of resource and spend on the technology side
for institutional investors who have historically used this product as a way to diversify their
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investment profile.
What we've seen is a significant growth larger than the institutional investor base from
retail brokerage platforms as well as the retail, i.e., the retail investor.
As a result of this demand increasing, what we've seen is maybe not as many tools or applications
to allow them to transact as easy as maybe an institutional firm who have been granted
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the tools because the resources have been spent over the last 20 years to allow them
to enter orders as easy as possible.
In my current role, we are seeing an evolution of users, not unlike the institutional where
we might have long-only retail and long-only institutional asset managers to the most sophisticated
Vol Arb systematic traders.
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And with those, you can see there's varying degrees of tools that might be needed to be
offered for that investor base, point and click, to algorithmic, to systematic algorithmic,
to API tools that allow them to transact or execute the strategy.
We're seeing that evolution start to emerge not as severe as the institutional space with
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the retail community, meaning the retail community where historically just started to dabble
years and years ago in options and they might have only needed point and click or just easy
access to the marketplace.
Now that user base is getting smarter about the product, about the risks, and they're
asking and needing for more sophisticated tools from all the retail brokerage platforms, i.e.,
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that evolution of that customer is happening very quickly, and we're seeing varying degrees
of demands from our customers.
And I think because the technology has not been spent there, but we're all rapidly trying
to catch up with this increase in volume, you're going to start to see an increase in
tools and applications to be able to make that level playing field look a little bit
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closer to par or on even playing field than what we maybe might be seeing right now.
So in your opinion, one of the differences between a retail investor and, for example,
Wall Street is technology, the access to that technology in terms of information, speed of
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execution, et cetera.
Yeah, that's exactly right.
I like using access a lot, and even in my prior role at SIBO as well as my current role,
we're constantly getting asked on how can I gain access to one of the most liquid markets,
not only the U.S. equity market, but the U.S. listed options market.
And how we could help solve that is not only granting access tools, applications, frontends,
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GUIs, and solutions to allow that order to get to the marketplace, but also getting those
people to those tools to be able to enter that order.
That's problem one, and problem two is then giving them the tools that they need to execute
more effectively.
Interesting.
I like that.
Thank you.
So with this new influx of volume, new influx of trader, a new demographic, I just had Kevin
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Dabit from the NASDAQ speak with me, and we were talking about this new demographic of
trader.
This new demographic, they're not seasoned, obviously.
They don't have a grasp on the ins and outs of options.
They may not fully understand volatility.
They may not fully understand corporate actions and things that affect their trading account.
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At Webull, what is your approach to education, the importance of education to investors as
well as how you approach that?
Yeah, no.
Education is the critical component to the growth and the further growth of this industry
and the ability for us to provide access to education, whether that's our own education
materials for our users, joint partnerships to allow this industry and these users to
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be able to educate themselves prior to entering their first trade.
It's critical that we make those steps or methodical on it and what kind of tools that
we offer to be able to get it as easily as possible.
I think that's why we've seen the growth that we've seen where that material is getting
more readily available.
There's more avenues for people to get educated quicker.
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Actually I do think that we're seeing the turn that they have gotten educated.
I've seen that in the demographics of volume, meaning to start maybe there was a customer
that might have expressed a view in a stock by buying a call or buying a put.
What you're starting to see is that evolution of, "I want to roll that position.
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I want to maybe spread that position or I want to do multiples of those and then I want
to hedge the position with an underlying ETF or an index option."
That's showing me that they're not only getting the grasp of understanding what an option
can do from a diversification of a portfolio standpoint or expressing a view.
They're also using it from a hedging standpoint.
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Then furthermore, they'll be able to spread or use complex instruments to be able to express
more sophisticated opinions by utilizing option spreads.
Shows that the education is working and we're seeing a multiple about people starting to
get educated at a faster pace.
But there's still a lot of work to be done.
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There certainly is.
Part of that work is maybe dispelling some misconceptions about options.
Do you come across any misconceptions that people have about options?
Do you think there's things that particularly new investors misunderstand and that misunderstanding
can lead to an unsatisfactory experience trading options?
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I probably echo those thoughts in terms of the misconceptions I've heard, very similar
headlines that I've heard as well as I think the media also overemphasizes those misconceptions
and risk, which is unfortunate.
I think it's our job as industry leaders to dispel those myths as much as we possibly
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can.
I think there's more people in the industry that are aligned with that because what we
realize is how fantastic this utility and this product is for a person's portfolio when
understanding the demographics of the product, properly getting educated and the risk attributed
to it, just like the risk attributed to trading an equity or an option.
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I think that the ability for us to continue to dispel those myths is the step that we're
at right now, especially when I, in my prior role, there was a tremendous amount of risk
around or headlines around VIX and they would call it the fear factor and how challenging
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or that product can be and hard to understand.
I think that maybe the person who's actually articulating that point is probably the person
that maybe needs also the education to help them understand the value of that product.
Dispelling those myths, understanding the market, those might be some of the key challenges
we have as industry professionals.
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What about opportunities?
What opportunities do you see going forward in the industry?
I think I'll pull up on it.
We've already talked a lot about technology, but I think now next is solving the access
gap problem.
I would say only a percentage of our user base at Webull and even generally in the industry
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trade U.S. equities or a local equity and only a smaller percentage, call it 5, 10, 15, 20
percent, depending on the firm you're at, use options as well.
There's a way to go in terms of opportunities and conversion there.
Sometimes I believe that it's an access problem, so there might be someone who has access to
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equities, but maybe they don't have access to a derivatives product to hedge or properly
hedge their portfolio.
It's kind of knocking down the barriers, whether it's jurisdictional barriers, it's product
barriers or technology barriers, or areas where we see a strategic growth opportunities that
will allow to enhance or continue to grow this industry.
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I think that opportunities are pretty astounding as you knock down those boundaries, whether
that's in a given industry or excuse me, given region as well as a given offering.
I think the other part, which is interesting, is as we see more and more demand come out
of non-domestic regions, whether that's Europe, whether that's in Asia, or everyone talks
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a lot about India right now, it's the ability for us to provide access overnight.
There's a lot of work to be done.
At SIBO, we obviously do it for a couple proprietary products, not unlike what the CME does for
futures businesses, but the ability for us to start to think about providing access around
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the globe or 24/5, I think unlocks or provides an opportunity for the industry to continue
to grow.
You think that 24-hour option trading is on the horizon?
I do think so.
I think clearly the first step in expanding the U.S. options industry is allowing the
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U.S. equity industry to be able to trade overnight with the proper regulations as well as SIP
being able to be disseminated overnight, which then allows us to have the proper hedge for
a U.S. listed option to have a liquid marketplace, a liquid hedge for us to contemplate listing
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options overnight.
That will take a tremendous amount of time, but I think that is the right foresight to
be able to think about where we might be in five years.
Interesting.
Well, I'm glad that I'm off the trading floor now, so I don't have to worry about trading
24 hours around the clock.
But yeah, very interesting.
Thank you.
Excellent information.
Arianne, thank you so much for sitting down with us.
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I really appreciate it.
Thank you.
Thanks for being here.
And we're back.
Thank you to Arianne Adams of Webull for taking the time to sit down with us and for the great
conversation.
Next up is Lex Lutheringhausen of Tradier, with whom we had an interesting discussion
of emerging technology, especially the role of AI and whether, in his opinion, whether
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the market is a level playing field.
Let's go ahead and listen in now.
Welcome back, everybody.
I am extremely fortunate to be sitting with Lex Lutheringhausen of Tradier, the senior
VP of partner relations and chief content officer.
Lex got his started back on the floor of the CBOE, as did many of my friends here in the
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industry that we've been speaking with.
Back in 1987, Trading Equities, he founded Boda Trading in '92, became involved in trading
software and created Trade Hawk in 2016 before joining Tradier as the senior vice president
in 2020.
Also an alum of Nordredame, so I'm assuming Rudy is probably one of your favorite movies.
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Rudy's one of my favorites.
Yeah, you probably get that.
Ask that a lot, I would expect.
Let me ask you this.
You created software for Trade Hawk back in the day.
Obviously technology and innovation is important too.
How do you assess the role of technology in driving innovation within the markets?
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We started in the technology space, even in our pro days when we were market makers.
We were one of the first to have machines on the trading floor.
That background stuck with me.
I think as I started phasing out of the market maker side of the business and getting into
the retail side of the business, it became even more important.
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We developed a platform as you refer to it, Trade Hawk.
It became a retail sophisticated trading platform, something that has a lot of bells and whistles.
You can go anywhere in it to find your trade idea.
I think from the retail side of the equation, those folks are really looking for a trade
idea generator.
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We try to solve that problem.
We try to give them a lot of data, a lot of volatility data, a lot of charting data, even
strategy type data within the platform.
The other thing that I'm seeing today is the advent of the bot.
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We have several partners who have structured their business around bots.
All that means, it's a fancy word for robot, right?
It means that you're making a workflow that's automated as a retail person.
Once that workflow is automated, it takes that emotion out of the equation.
That's very critical for retail people.
They tend to get engulfed in emotionalism.
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We're seeing that as a really popular technology innovation that's helping those folks out.
Let me transition that into the next question, how is AI going to affect all that?
Well, we're starting to see a little bit of that with AI.
I think it's in its infancy relative to the trading side of it, only because AI still
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can't figure out sell here, buy there kind of thing.
It hasn't done that yet, at least not well as from what I can see.
What it also helps is a little bit of the workflow message as well.
One of the new technology platforms that I'm dealing with, and I can't say any names right
now, they can actually read a chart, whether it's a minute, day, whatever.
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You can spit it through their AI machine, and it'll give you an analysis of chart pattern
or price action and give you a suggested direction.
Interesting.
Okay.
That's all AI-based.
That's kind of cool.
Now, whether it's right or wrong, I'm not sure yet.
It's probably just as accurate as anything else in the world.
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We've got all of our charts.
We've got all of our indicators.
Get in here, get out here.
Sometimes it works, sometimes it doesn't.
Interesting.
Talking about retail, you were mentioning retail versus market makers versus institutional.
Retail, especially newer investors, in my opinion, often feel that they're playing on
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an uneven playing field in terms of Wall Street.
Simply put, do you think that they're right?
Are they correct in that assessment?
What do you think?
Well, I love this question, by the way.
I think it's a two-part answer.
There's a yes and no to the answer to the question.
They can't be in the bid-ask game.
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What I mean by that is that's what market makers do.
They buy their bid, they sell their offer.
I preach this around the country.
Don't get caught up in between that market.
You're never going to buy a bid, you're never going to sell an offer.
You have to have another edge in the marketplace.
I think the ones I talk to understand that.
The first part of the question is that the market-making community definitely has an
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advantage over the retail community because they can buy their bid and sell their offer.
That's their edge proposition.
I said, get that out of your mind.
You have to have a new set of edge.
In terms of the institutional folks, the only edge I see there is that they have a team
of analysts and a team of quants and a team of whatever who can process a trade idea and
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bring it to fruition.
Typical retail person doesn't have that.
He or she has to dig.
They don't have the, for lack of a better word, infrastructure that a professional Wall
Street firm might have.
Probably not, no.
I would say not.
Is that a disadvantage?
I guess it's a little bit.
A retail person has really gotten a great new set of tools and it's democratized the industry.
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They can get into the game with a very inexpensive computer.
You can open a account with very little money now.
Look at it.
I think part of the reason I got into this part of it is because it got to be a little
overwhelming on the professional side.
It got so cheap on the retail side to play this game that I think I liked it better.
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The obvious things that I can't buy my bid and sell my offer, I come from the market
making community.
Also, with the influx of so many bodies now trading, bid-ask markets have become so much
tighter.
If the market's one bid at 102, does it really matter that you're paying 101 or even paying
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the offer?
It doesn't matter.
No, that's a pick 'em.
That's a pick 'em pick 'em.
That's okay.
I think, again, one last point on this is that what the retail person has is he or she has
time.
You have the ability to put something on intelligently and have a little time for it to develop.
Your entry point is probably a little negative edge, but your horizon can make it much more
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positive, especially if you discipline.
Right, certainly.
That was something that I would talk to people when they're asking the difference between
a retail investor versus a market maker, for example.
A market maker doesn't care if your trading calls are puts.
They don't care if they're buying or selling.
All they want is that edge that you had mentioned, whereas the retail investor, they've got their
forecast.
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They want something to happen, whether it's good, bad, or indifferent, but they have a
different objective than the market maker, typically.
Absolutely.
That's right.
Yeah, and then the markets themselves are so much more accessible now.
There's so many people trading.
Education is all over the place.
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Researchers are finally understanding what it is that they're getting themselves into.
Part of that, I think, is due to these advanced trading platforms, the bells and whistles
that you had mentioned.
Why don't we talk about that, discuss the evolution of trading platforms, if you would,
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technology solutions, and how you think that's impacted everything.
Yeah, back to the trade idea generator.
When we first started in the business, we did our deltas and our Greeks on a little
red card, right?
That's come a long way.
I think the trading platform has to be something that opens up the flow of ideas for a retail
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trader.
The retail trader, in my opinion, he blocks the flow.
If we can make the technology piece so efficient and almost so automated, as I mentioned earlier,
it makes that retail person's life so much easier.
You can't imagine the mistakes that our retail person makes.
Look at it.
Some of it's a little inexperienced.
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Some of it's fear.
Some of it's capitalization.
I get that.
But a lot of it's emotion, and they don't have a discipline pattern.
We grew up in the business on the market maker side.
We were taught certain discipline.
Now the trading technology and the platforms have built in discipline to a large degree,
most of them.
Clearly, the very basic ones don't have that, but our platform at Trader's is very sophisticated.
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It can be as intricate or as easy as you want it to be.
That helps that person, I think.
Tell me more, if you would, about these bots that you were talking about, examples of what
it can and cannot do.
I've seen them as sophisticated as natural language learning, where you could type in
something and it'll pull the code out for you.
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That's probably on the higher end.
I've also seen something that has a library of commands, if-then statements and/or that
sort of thing.
You can build your own bot by dragging those commands into condition one, condition two,
condition three, condition four.
Then once you have that condition, the machine will make sure the logic is correct, so that
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if there's a loop or any sort of illogical expression, it'll tell you that.
You can test that.
Then once you have it right, give it a name, save it, and you can use that particular workflow
about over and over again.
They're pretty amazing.
We have several now that we're in partner with.
Let me take that a step further.
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Do you think that we're going to get to the point?
You had mentioned something about this a little earlier.
Do you think we're going to get to a point where the bots or AI specifically will make
trading decisions for us at some point?
I don't know.
I'm not sure about that.
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Here's why.
Take airline travel.
Very automated.
They have pretty much robots that can take that plane off and land it without the need
of a pilot.
Don't forget what the pilot does.
He inputs the coordinates.
He's putting in the dials and making sure it's at the right level and all the wings
are set.
I think the AI part of trading, I think you're still going to need to have a human mind behind
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it to build that workflow.
I could be wrong.
Maybe 15 years from now, that workflow is built before you say, "Hey, I want to be a
swing trader and I want to make 40 cents on every trade I make.
Figure it out."
That would be wonderful.
I'm not sure we're there yet.
I think even though there's a lot of AI there, I still think the human has to make sure the
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flow of ideas works well.
Yeah.
Lex, this was wonderful.
I really appreciate you stopping by.
This was a good time.
Awesome.
Thanks for having me, Mark.
Appreciate it.
You're welcome.
Thank you.
Thank you, Lex, for that terrific discussion and for your insight into the future of trading.
Now to close things out, let's go ahead and listen into our talk with JJ Kinahan of IG
North America.
(28:16):
Again, better known as Tasty Trade to most of our listeners.
Let's go ahead and listen in what JJ has to say.
Welcome back, everybody.
I have the extreme fortune of sitting with JJ Kinahan, CEO of IG North America.
JJ began his career back on the CBOE as a market maker back in 1985, worked his way
(28:38):
up through the industry, including a 16-year stop at TD Ameritrade where he was the managing
director of trader services before joining Tasty Trade in 2022.
Along the way, JJ was invited to be a board member of OCC and CBOE's advisory board.
He's also a frequent contributor to Forbes, CNBC, acclaimed author of Essential Options
(29:01):
Strategies.
A very busy, busy man.
With all that said, JJ, thank you so much for joining us.
My pleasure.
Thanks for having me.
Let me ask you this.
You've had a long, illustrious career in options.
You've learned a lot, made a lot of mistakes along the way, I would expect, just like everybody
else.
Is there something that sticks out to you now with a top of mind where you're like,
(29:24):
"Boy, if I only knew that going in, things would have been so much different"?
Well, there's a lot.
And to your point, Mark, I've made so many mistakes along the way.
And one of the things I enjoy is always been teaching people.
I've always really, really liked that part of my job.
I don't get to do it as much anymore.
But I would say the biggest thing I've learned, and I think this is youth as well as experience,
(29:46):
is not to get too high or too low.
And I think when you first start out, every loss is just such a punch in the gut.
Not that, "If I lose $5, I'm still pissed."
When you have good days to be like, "All right, that's fantastic, but tomorrow's a new day."
That's the old Marine thing, the only easy day was yesterday.
(30:10):
And so I really think that learning how to...
People say, "Control your emotions."
It's money.
So you're always going to be emotional about it.
But I think the biggest thing that I learned, and I hope that the retail traders listening
to this learn, is to really start small.
Because when you do that, the first few trades that $80 or $100, you'll have enough pain and
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suffering, but most importantly, you'll have learning in there.
The easiest thing in the world to do is to become a bigger trader.
The hardest thing to do is to lose capital early and try and make it up.
Yeah.
I remember, obviously, a distinct difference between an investor and a market maker.
I remember starting out in the business, I was clerking for somebody in the OEX who I'm
(30:59):
sure you know, but I won't mention.
I was in there for a lot of years.
And I remember there was a big, I don't know if it was an unexpected Fed announcement,
either a rate cut or a rise, but one of the guys that I was clerking with, I was looking
at his P&L the next day, like as a clerk, I always do set everything up for him.
And he lost, I don't know, like $225,000 overnight unexpectedly.
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And as a clerk who started out on the floor making $18,000 a year, I approached him and
said, how do you come back to work knowing that you just lost more money than the average
American family makes in four or five years?
And he had said that if there was a stack of cash next to me and it got bigger or smaller
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with each trade that I did, I would trade one lot all day long.
Right.
And it's an interesting story because actually you made 18th.
Wow.
I made $150 a month as a clerk.
But I used to bounce at a bar every Friday, Saturday, Sunday night to make extra money.
But that all said, I actually remember the day it was a Fed rate cut.
The markets in Chicago closed at 3 o'clock.
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The Fed News came out surprise rate cut at $225 in the afternoon.
I remember the day like it was yesterday.
It's interesting how these really good or really bad days leave such an impression in your
mind.
And again, things to be learned on that day in terms of keeping your positions in control
(32:28):
and really understanding your risk.
Yeah, absolutely.
Let me ask you this.
Let me shift gears for a second.
Where do you see the market going?
And not bullish bearish, but what trends do you see in the industry?
Technology wise, access to the market wise, et cetera.
What significant trends do you see coming up?
(32:50):
Well I think one of the biggest thing has been the short dated options.
Some call them zero day options, et cetera.
They're not zero day options.
It's just that we have an expiration every single day.
Those options are at least been on the board for a week.
But all that being said, they have been very popular.
There's no question about it.
But I think people are losing sight of one of the reasons they're so popular.
(33:10):
There's two things going on about them.
People's average attention span is so much shorter.
When I started out on the retail side of the business, we were flying around the country
doing seminars for hopefully two, three hundred people.
Now you do only a few of those a year and you're aiming for 800 or a thousand people
on a Saturday.
And the other thing is you have to use social media in short hits to get people interested
(33:33):
in the longer bits where they can learn.
Now all that said, let's take that so people's attention spans are shorter.
They want more media gratification.
I think that plays into it.
But what's also playing into it, and this is not being publicized, is think about the
environment right now.
We have been talking about Fed rate heights or Fed rate cuts.
There were expected Fed rate cuts coming into this year.
Now as we speak, Chairman Powell spoke yesterday saying, "We may not get one this year."
(33:59):
So it's really interesting to me.
So what does that mean for the average retail trader?
It means that they're a little more afraid to put money out on a directional move in
time.
They have more confidence in the short term.
What we're starting to see more is an adjustment of directional type plays, be they vertical
spreads, et cetera, to a more compressed time period.
(34:23):
And what you're starting to see on the longer time periods is what I would call more investment
or additional return type of strategy.
The covered call, the cash covered put where people are just enhancing their returns or
a stock substitute.
Sell your stock, buy a deep in the money call and sell another call against it type thing.
Those are the longer term plays you're seeing.
(34:45):
And that is being under publicized as to why people are doing that.
And I would expect that trend to continue at least through the new year as we come into
this election.
And I don't think the interest rate picture is going to get settled any time throughout
the year, partly because of that.
And when we do and we see who's in what seats, maybe you start to get a little bit of a settlement
(35:05):
from that point of view.
Yeah, it was interesting that you bring up the election.
I had the fortune of catching a panel just a little bit ago where they were talking about
market volatility in an election year.
And what was interesting is that when Trump was president, everyone expected the world
to end and the market survived.
The market did very, very well.
(35:27):
When Biden was elected, everybody expected the world to end and the market to crash and
the market survived and record highs.
The point being is that regardless of who's sitting in the Oval Office, the market's doing
pretty well.
I thought that was kind of interesting that we may not necessarily get the volatility
from who is elected president, but we may get that volatility from maybe contesting
(35:53):
the election, something like that.
Well, I think one of the things you have to do as a trader is put your emotions again
as much as possible aside.
You may feel more loyalty to one presidential candidate or the other, one side of the House
or the other, be it Democrat, Republican, whatever it may be.
How you feel personally is not what's necessarily happening in the market.
(36:16):
And it's a bit of a skill to do that.
And you can have your opinions and you're going to have bad trades.
That's part of life.
And that's why we always talk about defining your risk upfront.
But you really have to say, well, oh my God, as an example, I support Republicans so if
a Democrat in the world's going to hell or I support Democrats so the Republicans get
(36:38):
in the world's going to hell.
Forget that.
The market doesn't care.
The market cares about what do we think the policies are going to be.
They're going to help drive earnings, because at the end of the day, earnings drive the
market.
And so that's what you really have to look at, separate who you're voting for, for what
the market's telling you is going on at that moment.
And again, that pile of cash next to you, if it were real, it got bigger with every
(36:59):
trader smaller, leaving that emotion out.
I want to visit that for a second, because I think one of the greatest things that retail
traders are really good at and never give in credit for is how fantastic they are at
managing their capital.
When I was trading in the pit, I never thought to myself, I can't make this trade because
I don't have enough money in my account.
It's too big.
(37:19):
You manage your risk, of course.
But retail traders have to do, because by and large, they have a limited amount of capital.
Maybe they have $50,000 in their account, $100,000, $1 million, whatever it may be.
They're like, OK, I can put this much money at risk to that trade because I have to manage
the rest of my capital.
And retail traders are really, really smart, really, really good at that.
(37:41):
And it's one of the reasons when we educate, we talk about doing smaller trades and waiting
maybe for some movement to do another trade, because you want to manage that capital in
the best way possible.
And it's what Options allows you to do, is to really manage that capital efficiently.
And as I said, as people become more educated and start to understand the products a little
(38:01):
better, they do such a good job of it.
I never hear people give retail traders credit for it.
They're absolutely awesome.
I like that.
Thank you.
And you're right.
Retail traders really don't get the credit.
We speak to many, many of them on the investor education desk.
And what I've noticed is, number one, they're educated more than they used to be.
(38:23):
They know more about the industry.
They know more about strategies.
They go into trading with their eyes wide open more so than they used to in the past.
There's no question about it.
Again, I've spent a lot of my career educating people.
And I really feel good when people come back and you see them.
Maybe you saw somebody at some event five, 10 years ago and they're like, oh my god, here's
(38:44):
what's happened to my life.
And it's been very positive.
You helped in some of the education.
You can't help but feel great about that.
I encourage everybody at our firm to go to the events, meet the clients.
People are really happy to talk to someone who's trying to help them.
And that's our responsibility as an industry, not just our firm, not any one firm, not just
(39:04):
the exchange, not just you guys.
We owe it to people.
That's how you grow an industry is helping people understand how great it is and how
their quality of life would be their goal, something small, their kid going to college
or wedding, whatever it is, their quality of life can improve once they start to understand
this stuff.
Yeah.
(39:25):
And you guys are out meeting the investor where they are.
I know Tasty travels the country having these seminars.
You know, I certainly follow you on social media.
Jermaul is a good friend of OIC.
When you meet these investors, what opportunities do you see for them in the future?
Or on the other side, what key challenges are you seeing?
(39:46):
Well, I think the key challenge for everybody is having a failure and being like, oh my
God, I'm not smart enough for this.
They screwed me, whatever it may be.
And so again, I hammer the same themes a lot.
Stay small.
So one setback, okay, what did I learn from it?
And it didn't cost me a ton of money to learn that.
(40:07):
Now here's how I'll adjust that until you get the hang of it.
And just like everything else.
So when you and I were in the pits, when I started trading, I'll never forget my first
day I'm going down to the pit.
You're so nervous, right?
Yeah.
And at the time, the OEX was the biggest pit in the world and I was going to be the youngest
person to step in there.
I was 22 years old.
And I will never forget as I'm going down, the guys who started me in the business said,
(40:30):
oh, by the way, in six months after expenses, if you're back to zero, welcome aboard.
We're so happy to have you.
If you're not, it's been great knowing you and thanks.
When you hear that, you know, as you're walking down the first time, it makes you a little
scared.
Yeah.
But the point being, and it's certainly hard to keep the emotion out of trading.
It's impossible.
(40:50):
You know, you're shaking my job.
I'm alive the first time.
Well, I mean, luckily I had nothing.
So I lived in a, you know, 500 square foot apartment and a studio.
And, you know, as I said, I was bouncing on weekends still.
But what it did do is it's like, okay, once you figure it out, once you get over being
frightened, what they're basically saying is you're not going to be very good at the
(41:11):
beginning.
So learn, keep your trading and your losses small so that as you start to learn, all of
a sudden it'll click.
And as I tell people who, you know, I've ever done any education with teach people how to
break even because once you learn how to break even over time, making money sort of takes
care of itself because you don't have those giant losses anymore.
(41:34):
And I think it's a really important message for particularly those just starting out to
understand.
Nobody became great at this right away.
And again, when we were doing it, what it was probably about a 25% survival rate after
one year of new people stepped into the pit.
And again, it's not pit trading anymore, but some of the concepts certainly go a long way.
(41:55):
So if you are newer and you're getting a little discouraged, go back to one lots if you have
to.
That's fine.
Learn from those one contract in just after six months, if you're breaking even, all of
a sudden you got it.
You'll start to see the money coming slowly but surely.
Right.
No, I like that.
And it's interesting what you just mentioned.
(42:16):
While I'm here at the conference, I ran into somebody that I clerked with way back in the
day.
And out of our clerking class, if you will, of maybe about 15 or so, there's only four
of us left in the business.
I mean, everybody else is off doing something else.
So yeah, it's interesting how it's almost like restaurants, for example, so many fail
(42:37):
within the first number of years.
But yeah, I like the idea of maybe going back to the basics.
If things aren't working out for you, relearn.
And I think there comes a time, if you've been doing this a long time, it's just like
almost playing.
I played baseball high school and college, and I see a lot of analogies to baseball about
(42:59):
doing it every single day.
And there's going to be times where you just, for whatever reason, are in a bit of a slump.
You just don't have the right instincts.
And it's going to happen to everybody at some point.
And you're like, man, I couldn't hit the water if I fell out of the boat right now.
And so you go back to, OK, I'm going to go to really small trades again.
I'm going to get my feel back.
(43:19):
I'm going to get my basics back.
A lot of times, I think what happens, quite honestly, is you become a little bit undisciplined.
And you have to go back to say, OK, well, what am I doing wrong?
Let's go back to the discipline of trading.
Let's go back to making sure I understand my risk in every trade.
And you get yourself back in the groove.
But once every few years, everybody I've talked to who's done this for a long time comes into
(43:41):
that same sort of little short period where, for whatever reason, you just get out of sync.
JJ, thank you so much.
Really appreciate your time.
Always great to see you.
Thanks for having me.
A lot of fun.
All right, take care.
That's going to do it for today's episode of Wide World of Options.
Special thanks to our guests, Ariane Adams, Lex Lutheran Housing, and JJ Kinahan for sitting
(44:03):
down with us on the road.
And be sure to visit the events section of optionseducation.org to register for the continuation
of our Summer of Selling webinars.
Thanks again to all of our listeners and supporters out there.
And as always, please feel free to send us your questions via email at options@theocc.com
or live chat with us on our website as we love hearing from our listeners.
(44:26):
Take care, everyone, and we'll be talking with you again very soon.
You've been listening to the Options Industry Council's Wide World of Options.
If you have questions about anything you've heard on today's show, email options@theocc.com
or visit www.optionseducation.org and chat with OIC's investor education team.
(44:50):
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Subscribe to the OIC YouTube channel, like them on Facebook, follow them on Twitter at
options.edu, and follow their page on LinkedIn.
Thanks for listening, and be sure to tune in to the next episode of Wide World of Options.
You're listening to the Options Insider Radio Network, the home of the Options podcast.
(45:16):
For more quality options programs, visit theoptionsinsider.com or search for Options Insider
Radio Network in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
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Most programs are also available via livestream at mixler.com/options-insider.
(45:41):
That's mixlr.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the host set twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
(46:02):
at theoptionsinsider.com.
You're listening to the Options Insider Radio Network, the home of the Options Podcast.
For more quality options programs, visit theoptionsinsider.com or search for Options Insider Radio Network
in your podcast provider of choice.
Listeners can also access all of our programming through our mobile app available on the iTunes
(00:22):
and Google Play stores.
Options programs are also available via livestream at mixler.com/options-insider.
That's mixlr.com/options-insider.
Don't forget to follow along with your favorite programs and submit your own questions for
the host set twitter.com/options, stocktwits.com/options, facebook.com/theoptionsinsider, or via questions
(00:52):
at theoptionsinsider.com.
This is the Options Industry Council's Wide World of Options.
Before we start today's show, listeners should know that options involve risk and are not
suitable for all investors.
(01:14):
Individuals should not enter into an options transaction until they have read and understood
the disclosure document, characteristics and risks of standardized options, available by
visiting theocc.com or by contacting your broker, any exchange on which options are traded,
or the Options Clearing Corporation at 125 South Franklin Street, No. 1200, Chicago,
(01:34):
Illinois 60606.
The Options Industry Council is an industry resource provided by the Options Clearing
Corporation, collectively OCC.
Any strategies discussed are strictly for illustrative and educational purposes only,
and are not to be construed as an endorsement or solicitation to buy or sell securities.
Commissions, fees, margins, interest and taxes have not been included in any of the examples
(01:58):
used in this show.
These costs impact the outcome of all stock and options transactions.
Consult your tax advisor about any potential consequences.
OIC was created in 1992 to educate investors and their financial advisors about the benefits
and risks of exchange traded equity options, and the Wide World of Options radio show is
(02:18):
one of several resources investors can utilize to learn more about options.
Other resources OIC offers include webinars, articles and self-guided options related coursework.
For more information, check out www.optionseducation.org.
Now here's your host, Mark Benzoquin.
(02:42):
Hello everyone and welcome to OIC's Wide World of Options.
I'm your host, Mark Benzoquin.
For today's episode, we're continuing to feature conversations that we had with some
of the industry's biggest names at the recent Options Industry Conference in Asheville,
North Carolina.
Today we're featuring Arianne Adams of Webull, who will tell us her views on market accessibility
(03:04):
and potential for future growth.
We'll also have a visit with Lex Lutheringhousing from Tradier, who gives us his opinion as
to whether or not the market is a level playing field for all investors.
And finally, JJ Kinahan of IG North America, better known to our listeners as TastyTrade,
as JJ talks about the early days of trading and where he sees the market going forward.
(03:28):
For those interested in our webinar program and what OIC has in store for August, we're
continuing our summer with a deep dive into selling straddles, strangles and ratio spreads
amongst others.
To register, please visit our optionseducation.org website and click on the Events tab.
For our Wide World of Options podcast, however, we're excited to bring you more of our extended
(03:52):
tales from the road as we've been traveling, meeting new friends and having great conversations
about options.
We should note that as our guests are not directly affiliated with OIC or OCC, the opinions
expressed are their own and not necessarily those of OCC, nor do we endorse, warrant or
guarantee the products, services or information discussed by our guests.
(04:16):
And with that out of the way, let's go ahead and get started by listening into a conversation
that we had with Arianne Adams, Chief Strategy Officer and Head of Derivatives at Webull.
I had the good fortune to meet Arianne when we caught up with her at the recent OIC Options
Industry Conference in Asheville, North Carolina, where we discussed a variety of topics, including
(04:37):
market accessibility, popular misconceptions about options and potential opportunities
for growth.
Let's go ahead and listen in now.
All right, everybody, we are sitting down once again at the Options Industry Conference.
I'm very fortunate that Arianne Adams from Webull has joined me.
Arianne has had several positions, many venerable names in the industry, including Vice President
(05:01):
Rose at Merrill Lynch, Goldman Sachs and CBOE.
Now Arianne is the Chief Strategy Officer and Head of Derivatives at Webull.
Arianne, with all that experience that you have working with investors, let me ask you
this question.
Investors often feel that maybe there's an unlevel playing field in the industry, meaning
(05:26):
at our investor education desk, we often get emails and live chat with investors thinking
that the big banks have an advantage over the small time investor and it's not entirely
a level playing field.
How would you address that question?
I think it's a great question and to lead off our conversation today, so I'm looking
forward to having this discussion and thanks for having me here today.
(05:48):
One, we've seen unprecedented growth in the industry.
So with unprecedented growth, there tends to be lags in technology and development to
meet demands of all the customers and all the investors.
I'd say there's been a substantial amount of resource and spend on the technology side
for institutional investors who have historically used this product as a way to diversify their
(06:12):
investment profile.
What we've seen is a significant growth larger than the institutional investor base from
retail brokerage platforms as well as the retail, i.e., the retail investor.
As a result of this demand increasing, what we've seen is maybe not as many tools or applications
to allow them to transact as easy as maybe an institutional firm who have been granted
(06:38):
the tools because the resources have been spent over the last 20 years to allow them
to enter orders as easy as possible.
In my current role, we are seeing an evolution of users, not unlike the institutional where
we might have long-only retail and long-only institutional asset managers to the most sophisticated
Vol Arb systematic traders.
(07:02):
And with those, you can see there's varying degrees of tools that might be needed to be
offered for that investor base, point and click, to algorithmic, to systematic algorithmic,
to API tools that allow them to transact or execute the strategy.
We're seeing that evolution start to emerge not as severe as the institutional space with
(07:23):
the retail community, meaning the retail community where historically just started to dabble
years and years ago in options and they might have only needed point and click or just easy
access to the marketplace.
Now that user base is getting smarter about the product, about the risks, and they're
asking and needing for more sophisticated tools from all the retail brokerage platforms, i.e.,
(07:45):
that evolution of that customer is happening very quickly, and we're seeing varying degrees
of demands from our customers.
And I think because the technology has not been spent there, but we're all rapidly trying
to catch up with this increase in volume, you're going to start to see an increase in
tools and applications to be able to make that level playing field look a little bit
(08:07):
closer to par or on even playing field than what we maybe might be seeing right now.
So in your opinion, one of the differences between a retail investor and, for example,
Wall Street is technology, the access to that technology in terms of information, speed of
(08:30):
execution, et cetera.
Yeah, that's exactly right.
I like using access a lot, and even in my prior role at SIBO as well as my current role,
we're constantly getting asked on how can I gain access to one of the most liquid markets,
not only the U.S. equity market, but the U.S. listed options market.
And how we could help solve that is not only granting access tools, applications, frontends,
(08:54):
GUIs, and solutions to allow that order to get to the marketplace, but also getting those
people to those tools to be able to enter that order.
That's problem one, and problem two is then giving them the tools that they need to execute
more effectively.
Interesting.
I like that.
Thank you.
So with this new influx of volume, new influx of trader, a new demographic, I just had Kevin
(09:19):
Dabit from the NASDAQ speak with me, and we were talking about this new demographic of
trader.
This new demographic, they're not seasoned, obviously.
They don't have a grasp on the ins and outs of options.
They may not fully understand volatility.
They may not fully understand corporate actions and things that affect their trading account.
(09:42):
At Webull, what is your approach to education, the importance of education to investors as
well as how you approach that?
Yeah, no.
Education is the critical component to the growth and the further growth of this industry
and the ability for us to provide access to education, whether that's our own education
materials for our users, joint partnerships to allow this industry and these users to
(10:08):
be able to educate themselves prior to entering their first trade.
It's critical that we make those steps or methodical on it and what kind of tools that
we offer to be able to get it as easily as possible.
I think that's why we've seen the growth that we've seen where that material is getting
more readily available.
There's more avenues for people to get educated quicker.
(10:30):
Actually I do think that we're seeing the turn that they have gotten educated.
I've seen that in the demographics of volume, meaning to start maybe there was a customer
that might have expressed a view in a stock by buying a call or buying a put.
What you're starting to see is that evolution of, "I want to roll that position.
(10:51):
I want to maybe spread that position or I want to do multiples of those and then I want
to hedge the position with an underlying ETF or an index option."
That's showing me that they're not only getting the grasp of understanding what an option
can do from a diversification of a portfolio standpoint or expressing a view.
They're also using it from a hedging standpoint.
(11:12):
Then furthermore, they'll be able to spread or use complex instruments to be able to express
more sophisticated opinions by utilizing option spreads.
Shows that the education is working and we're seeing a multiple about people starting to
get educated at a faster pace.
But there's still a lot of work to be done.
(11:33):
There certainly is.
Part of that work is maybe dispelling some misconceptions about options.
Do you come across any misconceptions that people have about options?
Do you think there's things that particularly new investors misunderstand and that misunderstanding
can lead to an unsatisfactory experience trading options?
(11:57):
I probably echo those thoughts in terms of the misconceptions I've heard, very similar
headlines that I've heard as well as I think the media also overemphasizes those misconceptions
and risk, which is unfortunate.
I think it's our job as industry leaders to dispel those myths as much as we possibly
(12:23):
can.
I think there's more people in the industry that are aligned with that because what we
realize is how fantastic this utility and this product is for a person's portfolio when
understanding the demographics of the product, properly getting educated and the risk attributed
to it, just like the risk attributed to trading an equity or an option.
(12:47):
I think that the ability for us to continue to dispel those myths is the step that we're
at right now, especially when I, in my prior role, there was a tremendous amount of risk
around or headlines around VIX and they would call it the fear factor and how challenging
(13:11):
or that product can be and hard to understand.
I think that maybe the person who's actually articulating that point is probably the person
that maybe needs also the education to help them understand the value of that product.
Dispelling those myths, understanding the market, those might be some of the key challenges
we have as industry professionals.
(13:35):
What about opportunities?
What opportunities do you see going forward in the industry?
I think I'll pull up on it.
We've already talked a lot about technology, but I think now next is solving the access
gap problem.
I would say only a percentage of our user base at Webull and even generally in the industry
(13:56):
trade U.S. equities or a local equity and only a smaller percentage, call it 5, 10, 15, 20
percent, depending on the firm you're at, use options as well.
There's a way to go in terms of opportunities and conversion there.
Sometimes I believe that it's an access problem, so there might be someone who has access to
(14:17):
equities, but maybe they don't have access to a derivatives product to hedge or properly
hedge their portfolio.
It's kind of knocking down the barriers, whether it's jurisdictional barriers, it's product
barriers or technology barriers, or areas where we see a strategic growth opportunities that
will allow to enhance or continue to grow this industry.
(14:41):
I think that opportunities are pretty astounding as you knock down those boundaries, whether
that's in a given industry or excuse me, given region as well as a given offering.
I think the other part, which is interesting, is as we see more and more demand come out
of non-domestic regions, whether that's Europe, whether that's in Asia, or everyone talks
(15:04):
a lot about India right now, it's the ability for us to provide access overnight.
There's a lot of work to be done.
At SIBO, we obviously do it for a couple proprietary products, not unlike what the CME does for
futures businesses, but the ability for us to start to think about providing access around
(15:26):
the globe or 24/5, I think unlocks or provides an opportunity for the industry to continue
to grow.
You think that 24-hour option trading is on the horizon?
I do think so.
I think clearly the first step in expanding the U.S. options industry is allowing the
(15:46):
U.S. equity industry to be able to trade overnight with the proper regulations as well as SIP
being able to be disseminated overnight, which then allows us to have the proper hedge for
a U.S. listed option to have a liquid marketplace, a liquid hedge for us to contemplate listing
(16:08):
options overnight.
That will take a tremendous amount of time, but I think that is the right foresight to
be able to think about where we might be in five years.
Interesting.
Well, I'm glad that I'm off the trading floor now, so I don't have to worry about trading
24 hours around the clock.
But yeah, very interesting.
Thank you.
Excellent information.
Arianne, thank you so much for sitting down with us.
(16:30):
I really appreciate it.
Thank you.
Thanks for being here.
And we're back.
Thank you to Arianne Adams of Webull for taking the time to sit down with us and for the great
conversation.
Next up is Lex Lutheringhausen of Tradier, with whom we had an interesting discussion
of emerging technology, especially the role of AI and whether, in his opinion, whether
(16:53):
the market is a level playing field.
Let's go ahead and listen in now.
Welcome back, everybody.
I am extremely fortunate to be sitting with Lex Lutheringhausen of Tradier, the senior
VP of partner relations and chief content officer.
Lex got his started back on the floor of the CBOE, as did many of my friends here in the
(17:16):
industry that we've been speaking with.
Back in 1987, Trading Equities, he founded Boda Trading in '92, became involved in trading
software and created Trade Hawk in 2016 before joining Tradier as the senior vice president
in 2020.
Also an alum of Nordredame, so I'm assuming Rudy is probably one of your favorite movies.
(17:37):
Rudy's one of my favorites.
Yeah, you probably get that.
Ask that a lot, I would expect.
Let me ask you this.
You created software for Trade Hawk back in the day.
Obviously technology and innovation is important too.
How do you assess the role of technology in driving innovation within the markets?
(17:57):
We started in the technology space, even in our pro days when we were market makers.
We were one of the first to have machines on the trading floor.
That background stuck with me.
I think as I started phasing out of the market maker side of the business and getting into
the retail side of the business, it became even more important.
(18:17):
We developed a platform as you refer to it, Trade Hawk.
It became a retail sophisticated trading platform, something that has a lot of bells and whistles.
You can go anywhere in it to find your trade idea.
I think from the retail side of the equation, those folks are really looking for a trade
idea generator.
(18:38):
We try to solve that problem.
We try to give them a lot of data, a lot of volatility data, a lot of charting data, even
strategy type data within the platform.
The other thing that I'm seeing today is the advent of the bot.
(18:58):
We have several partners who have structured their business around bots.
All that means, it's a fancy word for robot, right?
It means that you're making a workflow that's automated as a retail person.
Once that workflow is automated, it takes that emotion out of the equation.
That's very critical for retail people.
They tend to get engulfed in emotionalism.
(19:22):
We're seeing that as a really popular technology innovation that's helping those folks out.
Let me transition that into the next question, how is AI going to affect all that?
Well, we're starting to see a little bit of that with AI.
I think it's in its infancy relative to the trading side of it, only because AI still
(19:45):
can't figure out sell here, buy there kind of thing.
It hasn't done that yet, at least not well as from what I can see.
What it also helps is a little bit of the workflow message as well.
One of the new technology platforms that I'm dealing with, and I can't say any names right
now, they can actually read a chart, whether it's a minute, day, whatever.
(20:08):
You can spit it through their AI machine, and it'll give you an analysis of chart pattern
or price action and give you a suggested direction.
Interesting.
Okay.
That's all AI-based.
That's kind of cool.
Now, whether it's right or wrong, I'm not sure yet.
It's probably just as accurate as anything else in the world.
(20:28):
We've got all of our charts.
We've got all of our indicators.
Get in here, get out here.
Sometimes it works, sometimes it doesn't.
Interesting.
Talking about retail, you were mentioning retail versus market makers versus institutional.
Retail, especially newer investors, in my opinion, often feel that they're playing on
(20:51):
an uneven playing field in terms of Wall Street.
Simply put, do you think that they're right?
Are they correct in that assessment?
What do you think?
Well, I love this question, by the way.
I think it's a two-part answer.
There's a yes and no to the answer to the question.
They can't be in the bid-ask game.
(21:13):
What I mean by that is that's what market makers do.
They buy their bid, they sell their offer.
I preach this around the country.
Don't get caught up in between that market.
You're never going to buy a bid, you're never going to sell an offer.
You have to have another edge in the marketplace.
I think the ones I talk to understand that.
The first part of the question is that the market-making community definitely has an
(21:37):
advantage over the retail community because they can buy their bid and sell their offer.
That's their edge proposition.
I said, get that out of your mind.
You have to have a new set of edge.
In terms of the institutional folks, the only edge I see there is that they have a team
of analysts and a team of quants and a team of whatever who can process a trade idea and
(22:00):
bring it to fruition.
Typical retail person doesn't have that.
He or she has to dig.
They don't have the, for lack of a better word, infrastructure that a professional Wall
Street firm might have.
Probably not, no.
I would say not.
Is that a disadvantage?
I guess it's a little bit.
A retail person has really gotten a great new set of tools and it's democratized the industry.
(22:22):
They can get into the game with a very inexpensive computer.
You can open a account with very little money now.
Look at it.
I think part of the reason I got into this part of it is because it got to be a little
overwhelming on the professional side.
It got so cheap on the retail side to play this game that I think I liked it better.
(22:44):
The obvious things that I can't buy my bid and sell my offer, I come from the market
making community.
Also, with the influx of so many bodies now trading, bid-ask markets have become so much
tighter.
If the market's one bid at 102, does it really matter that you're paying 101 or even paying
(23:06):
the offer?
It doesn't matter.
No, that's a pick 'em.
That's a pick 'em pick 'em.
That's okay.
I think, again, one last point on this is that what the retail person has is he or she has
time.
You have the ability to put something on intelligently and have a little time for it to develop.
Your entry point is probably a little negative edge, but your horizon can make it much more
(23:27):
positive, especially if you discipline.
Right, certainly.
That was something that I would talk to people when they're asking the difference between
a retail investor versus a market maker, for example.
A market maker doesn't care if your trading calls are puts.
They don't care if they're buying or selling.
All they want is that edge that you had mentioned, whereas the retail investor, they've got their
forecast.
(23:48):
They want something to happen, whether it's good, bad, or indifferent, but they have a
different objective than the market maker, typically.
Absolutely.
That's right.
Yeah, and then the markets themselves are so much more accessible now.
There's so many people trading.
Education is all over the place.
(24:08):
Researchers are finally understanding what it is that they're getting themselves into.
Part of that, I think, is due to these advanced trading platforms, the bells and whistles
that you had mentioned.
Why don't we talk about that, discuss the evolution of trading platforms, if you would,
(24:29):
technology solutions, and how you think that's impacted everything.
Yeah, back to the trade idea generator.
When we first started in the business, we did our deltas and our Greeks on a little
red card, right?
That's come a long way.
I think the trading platform has to be something that opens up the flow of ideas for a retail
(24:52):
trader.
The retail trader, in my opinion, he blocks the flow.
If we can make the technology piece so efficient and almost so automated, as I mentioned earlier,
it makes that retail person's life so much easier.
You can't imagine the mistakes that our retail person makes.
Look at it.
Some of it's a little inexperienced.
(25:14):
Some of it's fear.
Some of it's capitalization.
I get that.
But a lot of it's emotion, and they don't have a discipline pattern.
We grew up in the business on the market maker side.
We were taught certain discipline.
Now the trading technology and the platforms have built in discipline to a large degree,
most of them.
Clearly, the very basic ones don't have that, but our platform at Trader's is very sophisticated.
(25:40):
It can be as intricate or as easy as you want it to be.
That helps that person, I think.
Tell me more, if you would, about these bots that you were talking about, examples of what
it can and cannot do.
I've seen them as sophisticated as natural language learning, where you could type in
something and it'll pull the code out for you.
(26:02):
That's probably on the higher end.
I've also seen something that has a library of commands, if-then statements and/or that
sort of thing.
You can build your own bot by dragging those commands into condition one, condition two,
condition three, condition four.
Then once you have that condition, the machine will make sure the logic is correct, so that
(26:25):
if there's a loop or any sort of illogical expression, it'll tell you that.
You can test that.
Then once you have it right, give it a name, save it, and you can use that particular workflow
about over and over again.
They're pretty amazing.
We have several now that we're in partner with.
Let me take that a step further.
(26:48):
Do you think that we're going to get to the point?
You had mentioned something about this a little earlier.
Do you think we're going to get to a point where the bots or AI specifically will make
trading decisions for us at some point?
I don't know.
I'm not sure about that.
(27:09):
Here's why.
Take airline travel.
Very automated.
They have pretty much robots that can take that plane off and land it without the need
of a pilot.
Don't forget what the pilot does.
He inputs the coordinates.
He's putting in the dials and making sure it's at the right level and all the wings
are set.
I think the AI part of trading, I think you're still going to need to have a human mind behind
(27:34):
it to build that workflow.
I could be wrong.
Maybe 15 years from now, that workflow is built before you say, "Hey, I want to be a
swing trader and I want to make 40 cents on every trade I make.
Figure it out."
That would be wonderful.
I'm not sure we're there yet.
I think even though there's a lot of AI there, I still think the human has to make sure the
(27:56):
flow of ideas works well.
Yeah.
Lex, this was wonderful.
I really appreciate you stopping by.
This was a good time.
Awesome.
Thanks for having me, Mark.
Appreciate it.
You're welcome.
Thank you.
Thank you, Lex, for that terrific discussion and for your insight into the future of trading.
Now to close things out, let's go ahead and listen into our talk with JJ Kinahan of IG
North America.
(28:16):
Again, better known as Tasty Trade to most of our listeners.
Let's go ahead and listen in what JJ has to say.
Welcome back, everybody.
I have the extreme fortune of sitting with JJ Kinahan, CEO of IG North America.
JJ began his career back on the CBOE as a market maker back in 1985, worked his way
(28:38):
up through the industry, including a 16-year stop at TD Ameritrade where he was the managing
director of trader services before joining Tasty Trade in 2022.
Along the way, JJ was invited to be a board member of OCC and CBOE's advisory board.
He's also a frequent contributor to Forbes, CNBC, acclaimed author of Essential Options
(29:01):
Strategies.
A very busy, busy man.
With all that said, JJ, thank you so much for joining us.
My pleasure.
Thanks for having me.
Let me ask you this.
You've had a long, illustrious career in options.
You've learned a lot, made a lot of mistakes along the way, I would expect, just like everybody
else.
Is there something that sticks out to you now with a top of mind where you're like,
(29:24):
"Boy, if I only knew that going in, things would have been so much different"?
Well, there's a lot.
And to your point, Mark, I've made so many mistakes along the way.
And one of the things I enjoy is always been teaching people.
I've always really, really liked that part of my job.
I don't get to do it as much anymore.
But I would say the biggest thing I've learned, and I think this is youth as well as experience,
(29:46):
is not to get too high or too low.
And I think when you first start out, every loss is just such a punch in the gut.
Not that, "If I lose $5, I'm still pissed."
When you have good days to be like, "All right, that's fantastic, but tomorrow's a new day."
That's the old Marine thing, the only easy day was yesterday.
(30:10):
And so I really think that learning how to...
People say, "Control your emotions."
It's money.
So you're always going to be emotional about it.
But I think the biggest thing that I learned, and I hope that the retail traders listening
to this learn, is to really start small.
Because when you do that, the first few trades that $80 or $100, you'll have enough pain and
(30:37):
suffering, but most importantly, you'll have learning in there.
The easiest thing in the world to do is to become a bigger trader.
The hardest thing to do is to lose capital early and try and make it up.
Yeah.
I remember, obviously, a distinct difference between an investor and a market maker.
I remember starting out in the business, I was clerking for somebody in the OEX who I'm
(30:59):
sure you know, but I won't mention.
I was in there for a lot of years.
And I remember there was a big, I don't know if it was an unexpected Fed announcement,
either a rate cut or a rise, but one of the guys that I was clerking with, I was looking
at his P&L the next day, like as a clerk, I always do set everything up for him.
And he lost, I don't know, like $225,000 overnight unexpectedly.
(31:24):
And as a clerk who started out on the floor making $18,000 a year, I approached him and
said, how do you come back to work knowing that you just lost more money than the average
American family makes in four or five years?
And he had said that if there was a stack of cash next to me and it got bigger or smaller
(31:46):
with each trade that I did, I would trade one lot all day long.
Right.
And it's an interesting story because actually you made 18th.
Wow.
I made $150 a month as a clerk.
But I used to bounce at a bar every Friday, Saturday, Sunday night to make extra money.
But that all said, I actually remember the day it was a Fed rate cut.
The markets in Chicago closed at 3 o'clock.
(32:08):
The Fed News came out surprise rate cut at $225 in the afternoon.
I remember the day like it was yesterday.
It's interesting how these really good or really bad days leave such an impression in your
mind.
And again, things to be learned on that day in terms of keeping your positions in control
(32:28):
and really understanding your risk.
Yeah, absolutely.
Let me ask you this.
Let me shift gears for a second.
Where do you see the market going?
And not bullish bearish, but what trends do you see in the industry?
Technology wise, access to the market wise, et cetera.
What significant trends do you see coming up?
(32:50):
Well I think one of the biggest thing has been the short dated options.
Some call them zero day options, et cetera.
They're not zero day options.
It's just that we have an expiration every single day.
Those options are at least been on the board for a week.
But all that being said, they have been very popular.
There's no question about it.
But I think people are losing sight of one of the reasons they're so popular.
(33:10):
There's two things going on about them.
People's average attention span is so much shorter.
When I started out on the retail side of the business, we were flying around the country
doing seminars for hopefully two, three hundred people.
Now you do only a few of those a year and you're aiming for 800 or a thousand people
on a Saturday.
And the other thing is you have to use social media in short hits to get people interested
(33:33):
in the longer bits where they can learn.
Now all that said, let's take that so people's attention spans are shorter.
They want more media gratification.
I think that plays into it.
But what's also playing into it, and this is not being publicized, is think about the
environment right now.
We have been talking about Fed rate heights or Fed rate cuts.
There were expected Fed rate cuts coming into this year.
Now as we speak, Chairman Powell spoke yesterday saying, "We may not get one this year."
(33:59):
So it's really interesting to me.
So what does that mean for the average retail trader?
It means that they're a little more afraid to put money out on a directional move in
time.
They have more confidence in the short term.
What we're starting to see more is an adjustment of directional type plays, be they vertical
spreads, et cetera, to a more compressed time period.
(34:23):
And what you're starting to see on the longer time periods is what I would call more investment
or additional return type of strategy.
The covered call, the cash covered put where people are just enhancing their returns or
a stock substitute.
Sell your stock, buy a deep in the money call and sell another call against it type thing.
Those are the longer term plays you're seeing.
(34:45):
And that is being under publicized as to why people are doing that.
And I would expect that trend to continue at least through the new year as we come into
this election.
And I don't think the interest rate picture is going to get settled any time throughout
the year, partly because of that.
And when we do and we see who's in what seats, maybe you start to get a little bit of a settlement
(35:05):
from that point of view.
Yeah, it was interesting that you bring up the election.
I had the fortune of catching a panel just a little bit ago where they were talking about
market volatility in an election year.
And what was interesting is that when Trump was president, everyone expected the world
to end and the market survived.
The market did very, very well.
(35:27):
When Biden was elected, everybody expected the world to end and the market to crash and
the market survived and record highs.
The point being is that regardless of who's sitting in the Oval Office, the market's doing
pretty well.
I thought that was kind of interesting that we may not necessarily get the volatility
from who is elected president, but we may get that volatility from maybe contesting
(35:53):
the election, something like that.
Well, I think one of the things you have to do as a trader is put your emotions again
as much as possible aside.
You may feel more loyalty to one presidential candidate or the other, one side of the House
or the other, be it Democrat, Republican, whatever it may be.
How you feel personally is not what's necessarily happening in the market.
(36:16):
And it's a bit of a skill to do that.
And you can have your opinions and you're going to have bad trades.
That's part of life.
And that's why we always talk about defining your risk upfront.
But you really have to say, well, oh my God, as an example, I support Republicans so if
a Democrat in the world's going to hell or I support Democrats so the Republicans get
(36:38):
in the world's going to hell.
Forget that.
The market doesn't care.
The market cares about what do we think the policies are going to be.
They're going to help drive earnings, because at the end of the day, earnings drive the
market.
And so that's what you really have to look at, separate who you're voting for, for what
the market's telling you is going on at that moment.
And again, that pile of cash next to you, if it were real, it got bigger with every
(36:59):
trader smaller, leaving that emotion out.
I want to visit that for a second, because I think one of the greatest things that retail
traders are really good at and never give in credit for is how fantastic they are at
managing their capital.
When I was trading in the pit, I never thought to myself, I can't make this trade because
I don't have enough money in my account.
It's too big.
(37:19):
You manage your risk, of course.
But retail traders have to do, because by and large, they have a limited amount of capital.
Maybe they have $50,000 in their account, $100,000, $1 million, whatever it may be.
They're like, OK, I can put this much money at risk to that trade because I have to manage
the rest of my capital.
And retail traders are really, really smart, really, really good at that.
(37:41):
And it's one of the reasons when we educate, we talk about doing smaller trades and waiting
maybe for some movement to do another trade, because you want to manage that capital in
the best way possible.
And it's what Options allows you to do, is to really manage that capital efficiently.
And as I said, as people become more educated and start to understand the products a little
(38:01):
better, they do such a good job of it.
I never hear people give retail traders credit for it.
They're absolutely awesome.
I like that.
Thank you.
And you're right.
Retail traders really don't get the credit.
We speak to many, many of them on the investor education desk.
And what I've noticed is, number one, they're educated more than they used to be.
(38:23):
They know more about the industry.
They know more about strategies.
They go into trading with their eyes wide open more so than they used to in the past.
There's no question about it.
Again, I've spent a lot of my career educating people.
And I really feel good when people come back and you see them.
Maybe you saw somebody at some event five, 10 years ago and they're like, oh my god, here's
(38:44):
what's happened to my life.
And it's been very positive.
You helped in some of the education.
You can't help but feel great about that.
I encourage everybody at our firm to go to the events, meet the clients.
People are really happy to talk to someone who's trying to help them.
And that's our responsibility as an industry, not just our firm, not any one firm, not just
(39:04):
the exchange, not just you guys.
We owe it to people.
That's how you grow an industry is helping people understand how great it is and how
their quality of life would be their goal, something small, their kid going to college
or wedding, whatever it is, their quality of life can improve once they start to understand
this stuff.
Yeah.
(39:25):
And you guys are out meeting the investor where they are.
I know Tasty travels the country having these seminars.
You know, I certainly follow you on social media.
Jermaul is a good friend of OIC.
When you meet these investors, what opportunities do you see for them in the future?
Or on the other side, what key challenges are you seeing?
(39:46):
Well, I think the key challenge for everybody is having a failure and being like, oh my
God, I'm not smart enough for this.
They screwed me, whatever it may be.
And so again, I hammer the same themes a lot.
Stay small.
So one setback, okay, what did I learn from it?
And it didn't cost me a ton of money to learn that.
(40:07):
Now here's how I'll adjust that until you get the hang of it.
And just like everything else.
So when you and I were in the pits, when I started trading, I'll never forget my first
day I'm going down to the pit.
You're so nervous, right?
Yeah.
And at the time, the OEX was the biggest pit in the world and I was going to be the youngest
person to step in there.
I was 22 years old.
And I will never forget as I'm going down, the guys who started me in the business said,
(40:30):
oh, by the way, in six months after expenses, if you're back to zero, welcome aboard.
We're so happy to have you.
If you're not, it's been great knowing you and thanks.
When you hear that, you know, as you're walking down the first time, it makes you a little
scared.
Yeah.
But the point being, and it's certainly hard to keep the emotion out of trading.
It's impossible.
(40:50):
You know, you're shaking my job.
I'm alive the first time.
Well, I mean, luckily I had nothing.
So I lived in a, you know, 500 square foot apartment and a studio.
And, you know, as I said, I was bouncing on weekends still.
But what it did do is it's like, okay, once you figure it out, once you get over being
frightened, what they're basically saying is you're not going to be very good at the
(41:11):
beginning.
So learn, keep your trading and your losses small so that as you start to learn, all of
a sudden it'll click.
And as I tell people who, you know, I've ever done any education with teach people how to
break even because once you learn how to break even over time, making money sort of takes
care of itself because you don't have those giant losses anymore.
(41:34):
And I think it's a really important message for particularly those just starting out to
understand.
Nobody became great at this right away.
And again, when we were doing it, what it was probably about a 25% survival rate after
one year of new people stepped into the pit.
And again, it's not pit trading anymore, but some of the concepts certainly go a long way.
(41:55):
So if you are newer and you're getting a little discouraged, go back to one lots if you have
to.
That's fine.
Learn from those one contract in just after six months, if you're breaking even, all of
a sudden you got it.
You'll start to see the money coming slowly but surely.
Right.
No, I like that.
And it's interesting what you just mentioned.
(42:16):
While I'm here at the conference, I ran into somebody that I clerked with way back in the
day.
And out of our clerking class, if you will, of maybe about 15 or so, there's only four
of us left in the business.
I mean, everybody else is off doing something else.
So yeah, it's interesting how it's almost like restaurants, for example, so many fail
(42:37):
within the first number of years.
But yeah, I like the idea of maybe going back to the basics.
If things aren't working out for you, relearn.
And I think there comes a time, if you've been doing this a long time, it's just like
almost playing.
I played baseball high school and college, and I see a lot of analogies to baseball about
(42:59):
doing it every single day.
And there's going to be times where you just, for whatever reason, are in a bit of a slump.
You just don't have the right instincts.
And it's going to happen to everybody at some point.
And you're like, man, I couldn't hit the water if I fell out of the boat right now.
And so you go back to, OK, I'm going to go to really small trades again.
I'm going to get my feel back.
(43:19):
I'm going to get my basics back.
A lot of times, I think what happens, quite honestly, is you become a little bit undisciplined.
And you have to go back to say, OK, well, what am I doing wrong?
Let's go back to the discipline of trading.
Let's go back to making sure I understand my risk in every trade.
And you get yourself back in the groove.
But once every few years, everybody I've talked to who's done this for a long time comes into
(43:41):
that same sort of little short period where, for whatever reason, you just get out of sync.
JJ, thank you so much.
Really appreciate your time.
Always great to see you.
Thanks for having me.
A lot of fun.
All right, take care.
That's going to do it for today's episode of Wide World of Options.
Special thanks to our guests, Ariane Adams, Lex Lutheran Housing, and JJ Kinahan for sitting
(44:03):
down with us on the road.
And be sure to visit the events section of optionseducation.org to register for the continuation
of our Summer of Selling webinars.
Thanks again to all of our listeners and supporters out there.
And as always, please feel free to send us your questions via email at options@theocc.com
or live chat with us on our website as we love hearing from our listeners.
(44:26):
Take care, everyone, and we'll be talking with you again very soon.
You've been listening to the Options Industry Council's Wide World of Options.
If you have questions about anything you've heard on today's show, email options@theocc.com
or visit www.optionseducation.org and chat with OIC's investor education team.
(44:50):
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Subscribe to the OIC YouTube channel, like them on Facebook, follow them on Twitter at
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Thanks for listening, and be sure to tune in to the next episode of Wide World of Options.
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(45:16):
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(45:41):
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(46:02):
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