Saturday, March 23, 2019

The CETC Situation: A Short Seller's Nightmare

Looks like I am in another unusual situation that is costing me money. I seem to have a knack for finding myself in these spots. And yet again I am the lucky one who gets to be the torchbearer for the cause. Let's get started.

What is the situation with CETC?
Let's first start off with defining the company. Hongli Clean Energy Technology Corp (CETC) is a Chinese reverse-merger companythese are usually pretty sketchy companies at best and outright scams at worst (see the documentary The China Hustle). They used to be known as SinoCoking Coal and Coke Chemical Industires (SCOK). I remember way back in the day SCOK trading from $5 to $45. These companies used to attract all kinds of speculative fervor until they were exposed by Muddy Waters and other short sellers, and then it died down. But I digress.

CETC was experiencing a few problems at the time:

  1. The company was non-compliant with NASDAQ listing regulations
  2. The company hadn't filed its 2016 10-K in a timely fashion
  3. The company had changed its independent auditor
Needless to say, these are not the hallmarks of a well-run, profitable enterprise.

Now let's talk markets. On April 7th 2017, CETC's stock price spiked over 100% intraday without any news. 


Traders, including myself, shorted the stock, betting the price would eventually go back down. Junk stocks that spike for no reason happen all the time and they usually do come back down.

At 12:15:58 Eastern Time, the price stopped moving. The Nasdaq had halted the stock for an "additional information request". These exchange halts are often to a response to unexplained speculative activity in "risky stocks". On the same day, the Nasdaq sent a Determination letter notifying the company of 1) the intent to delist the stock from the Nasdaq Capital Market and 2) the indefinite suspension of the trading of the company's stock due to its failure to comply with Nasdaq Listing Rule 5250cthe requirement to file timely financial reports with the SEC.

On October 6th 2017, CETC's common shares were officially delisted from the Nasdaq. It was removed from Nasdaq's official trade halts page and is no longer considered a halted security.

The stock currently has no market. There is no way to close out a long or short position on the stock. The stock just exists in this weird limbo right now. It's just a piece of paper that cannot be exchanged for anything. 

So what is the problem?
The problem for short sellers is two fold.

1) With no market, there is no way to close out the security. Your money is tied up indefinitely due to the lack of a proper liquidation process.
2) Most (but not all) short sellers are on the hook for the short loan interest on the stock. You're effectively paying interest indefinitely on a security that no longer exists.

I have 6792 shares short of CETC. $33,960 in cash has been held as collateral for the position. I have since withdrawn the rest of the money and shut down all trading activity on the account. I guess the account isn't truly closed as long as this position exists on paper and I am still receiving statements.

I am getting charged almost $700 every single month in interest. 


This situation has existed before and was covered by Bloomberg's Matt Levine in this article:


What broker is my position on?
Centerpoint Securities, clearing via ETC or Electronic Transaction Corporation

Some traders are understandably frustrated with how these two parties have handled the situation. Having been a customer at Centerpoint since 2013, I'd like to think they are making a good faith effort towards rectifying this situation. I had an issue with them when LFIN was halted last year. I was short deep-ITM call options, the position was exercised (and thus my short call turned into a short stock position) without a proper update on my platform blotter, and I was on the hook for a very steep interest rate when the stock was halted. I wrote them a letter and they made good on the interest amount in question, as a gesture of good will. I don't know management well but their support team has always been prompt, professional, and respectful.

However, I cannot vouch for ETC. I don't really know what's going on them or what their internal policy is. Centerpoint has been going back and forth with ETC for me like a game of telephone. Here is what I do know:
  1. They are partnered with brokerages that are popular among retail short sellers, such as Centerpoint, SureTrader and TradeZero. They have often been able to secure near unlimited short borrow on low float  micro-caps stocks such as CETC and numerous others. Larger firms like Interactive Brokers, E*Trade, and Wedbush aren't able (or willing?) to do it as consistently as they do. I don't know what their methods are. 
  2. A couple years ago, Centerpoint enforced a number of trading restrictions on all ETC accountsmost notable being that all positions had to be closed out before the end of the day (no overnight positions). They said that these changes were in response in the firm's troubled balance sheet. You can read the e-mails in question here and here.
Draw your own conclusions.

You said "not all" traders in the same short are being charged interest. Who are these traders?
One trader who is clearing via Goldman Sachs. The prop firm I used to trade for clears through Goldman Sachs and I can confirm that they did not charge any traders for the period in which WINS was halted. How Goldman has the leeway to not charge interest while other firms do not, or whether they have only done this as a courtesy for relationship management purposesI cannot answer.


There is another trader who is short a small position at a different broker that also clears through ETC. I have asked him to show activity statements to corroborate and he has. I don't know if this is a mistake or by design and at the moment I cannot explain this discrepancy. I am currently trying to contact this firm so hopefully I can provide an update here.

I will also add that traders at T3, Vision Financial, and Cobra Trades who are in the same position are also being charged indefinitely.

Who is the money going to?
The money is supposed to go to shareholders who are loaning out the stock. I think some percentage of the interest goes to the clearing firm that cleared the stock borrow, but I'm not 100% sure on that. I'm trying to get more color on this.

(Update: my broker has told me none of the money goes to them or the clearing firm)

What's going to happen when your balance goes to zero? Will you still be charged?
To me, this is a scary unknown. My broker has not clarified what exactly will happen when the interest finally drains my account equity to 0. If some party is willing to go after me at that point... well I don't even want to think about it.

Why can't the broker just find a corresponding long position willing to match his position with your short position at a mutually agreed upon price?
This is a common suggestion and one of the first solutions I initially suggested when this happened. Here is the answer from my broker's representative:

You can't cross the position out because since its halted you cant put prints on the tape.

Traders at Interactive Brokers may want to look into the Special Position Liquidation Agreement, as it was explained to me they have a mechanism to match positions in these unique circumstances.


Why won't ETC mark the position to 0 like Goldman did?
Here is the answer from my broker:

It's currently not being marked to 0 because the DTCC has not made it ineligible.

Why can't the DTCC make it ineligible?
Here is the answer from my broker:

FINRA was contacted and indicated we should work with DTCC.  As you can see, DTCC is looking into this. In the past DTCC was not able to deem it worthless since the security has a Transfer Agent.  

Why can't the Transfer Agent simply withdraw his services?
Here is the answer from my broker:

ETC is saying because they also have the longs, the agent has an obligation on that side as well, and long holders still know the last price as 4.64

The Transfer Agent on CETC is Interwest Transfer Company, Inc, who has since been acquired by Issuer Direct

Can you move your position to another firm that doesn't charge interest?
Moving the position is possible. Finding a firm willing to do this out of the kindness of their heart is another issue. Opening an account with Goldman Sachs, if they would even agree to any of this, would likely come with an expectation of future business and a high minimum deposit.

My broker said this has been done before and the trader ended up being charged simultaneously at two firms because the actual borrow could not move over the booksso that's a risk as well.

Are there any legal options?
There is a class action lawsuit spearheaded by Rosen Securities. One trader reached out to them and indicated to me they weren't much help. Unfortunately a lot of these lawsuits are ultimately just for lead generation rather than a serious pursuit.


Some people have suggest some kind of FINRA arbitration. Some have suggested suing one of the regulatory agencies like Nasdaq. I don't know how viable these options are. I plan on speaking to a securities lawyer soon.

Suing management directly would be difficult. To make a claim, you must serve with process, which is close to impossible if they are in another country.

Why can't they just list CETC on the Pink Sheets or Gray Sheets, like they did other worthless fraud Chinese companies?
I think CETC's management has to file the proper paperwork for that to happen and they basically disappeared. They don't seem to care about having an exit for their worthless securities, even if it would end up being pennies on the dollar.

It is possible this is all a nefarious scheme specifically designed to milk short borrow fees in perpetuity but so far I have no evidence to corroborate this theory. The simpler explanation is that weird unintended consequences just happen in our complex world and nobody knows what to do or who is supposed to handle it.

I need more color on this issue and hopefully can find an update soon.

Does the SEC have any role in this?
On September 18th 2018, the SEC issued an Order Instituting Proceedings against CETC and 2 other companies. There is supposed be an imminent update on these proceedings. I don't know if these proceedings will fix this issue, it seems to be a punitive order against the companies themselves.

Why is this allowed to happen?
This seems to be an issue that needs systemic reform. Nobody seems to know what to do or how to implement a fair solution. One party passes the buck to another and we spin in circles. There used to be something called a Worthless Securities Working Group, with the purpose of achieving reform on this issue, but it has since disbanded.

Right now it feels bleak because it's hard to visualize what the actual solution is supposed to be. It will take some patience. But it's somewhat encouraging to see all these traders come out of the woodwork and share whatever they can with me. The first step is putting the problem out there for everyone to see.

Unfortunately that's all I have for now. I will update this when there's new information.

Saturday, February 23, 2019

Confession: I am a fraud

I have a confession to make. I am a fraud.


People talk to me.  Professional traders. Aspiring traders. Hobbyist traders. People just kinda sorta interested in trading. Crypto-fiends asking me about bitcoin. Regular people asking me about where the stock market is going. Analysts pitching me ideas, hoping to get a fee for winning trade ideas. Progammers pitching me their services for automated strategies, with me getting a split of the profits.

Some of these people—
They look up to me.
They respect me.
They ask me for advice.
And I think about that fact and I am in disbelief...oh my god, why me?

I have twitter, a blog, and I was on a podcast once. Here's a clue guys: I don't know anything. These interactions where I am the giver of wisdom and advice... it all makes me feel an actual authority on trading when I am anything but.

If only these people knew what I knew. If only they could witness, live, my complete and utter lack of composure, in real time. That I say one thing and do another. I am not someone to listen to. If only you could see the trade I just made two minutes ago and how absolutely poorly thought out and impulsive it was.

I am a fraud.

Okay, let's take a breath. My mind goes to dark places.

I am a fraud.
I am a very flawed trader...

I never wanted this blog to sound like an early 2000 junior high student's xanga. You ever read someones blog and feel utter disgust at all the raw emotion being vomited out onto the page? Privileged person has first world problems, big deal. Too much emotion can be cringe worthy. You know how many times I've written something hyper emotional after the lousiest trading day ever just to delete it because I think about people reading it and thinking about what a crazy mess I am? Many, many times. I wanted my blog to be so much moreweb comics, fun listicles about famous traders,  stories about prop trading. A place where traders could learn and laugh. But I just can't get them done because I'm a fraud flawed writer. I can't execute to my standards. My FNMA post got 100k pageviews and I have all but squandered that momentum. But now it's time to face reality -- I am a hyper emotional trader and this blog is now about to be hijacked by my irrational internal drama.

I am in the worst 12 month emotional cycle of my trading career. If you want a snapshot, it's below.


Keep in mind this isn't a profit chart.

14 out of my 30 largest losses in my entire career have occurred during the last 12 months. I wish I could say these losses were just a byproduct of taking increased risk on great trading ideas that were unfortunately proven wrong but I don't a single one falls in that category. It's almost entirely a calamity of errors and emotional trading. Since the two huge home runs in Feb/March, my highest winners haven't exceed my largest losers. Since September when my confidence completely fell apart, what I label as "large winners" have almost completely dried up. Since the start of 2019, my 5 largest losses are larger than my largest gain. It didn't use to be like this at all. I am still profitable month to month and mostly week-to-week and that's my only saving grace.

I have gone from thinking I made a huge leap in my trading to this sad, depressing purgatory where I'm not quite losing money but if I try too hard—which I inevitably will—I get absolutely put in my place by the market. If I put my head down and don't try too hard, I can grind it out.

There's so much drama and self-loathing in my trading. And I think it's just a phase. It's always been just a phase, an outlier, and then things get back to normal. Winners stay larger than losers. Large losers are rare. Sanity stays in tact. Then it does get back to normal... for a few days, maybe even weeks... until it doesn't.

So now I'm starting to think—this might be the new normal. 

Maybe this has always been me. 
Impulsive. 
Dramatic.
Angry.
Self-centered.
Egotistical.
Unbalanced.
Off-kilter.
Flawed.
Broken.

Here's a sad truth. I don't work hard anymore. I haven't worked hard since like... 2015? I am describing all my mistakes and you know what I want to do about it? NOTHING. I want to ignore it and pray that sane me shows up for the trading day. I used to look at my end of day results religiously and now I'd rather jam a screwdriver in my eye. What used to be an every day habit is something I actively dread. It's like looking into a mirror to see how ugly you truly are. 



You chased that far? SHAMEFUL.
You got in an out of that trade in 49 seconds. WHAT WAS THE POINT?
LOL at being that slow to cover against a squeeze. Embarrassing. 

Why even bother working hard? Nothing will ever change. 

Growth mindset... Pfffft
Getting better every day. Psh.
Healthy habits and best practices... fuck that noise.

You're the same guy you were 10 years ago when you started. Same idiot who rage quit DOTA matches in college, screamed at bad beats in home poker games, and threw nintendo controllers at TV screns. You love this shit. You love the self-loathing and the wallowing in self-pity. You want to be angry. 

New trading day. You do something dumb. You swear to yourself NEVER AGAIN and then two weeks later you forget "never again" and surprise, surprise, you do it again.  

Hey, buddy, let's not fuck around next time with the "never again" ok? It's kind of insulting to keep deluding yourself with this totally hollow bullshit. Just fucking do it again already and feel like an asshole because in some sick way, maybe this is what you want. You want to bring yourself to the brink, over and over and over.

Risk it all already. Blow it all up. You've never done it, don't you want to know how it feels? All the Market Wizards say it's supposed to happen at the start. Maybe I'm a screwup because I skipped this necessary baptism. Whatever happens, you're going to getting something out of it.

  1. You finally have your much needed "Come to Jesus" moment, get your act together, and maybe make the elusive leap that you've always wanted.
  2. You quit trading for good because the loss was too traumatic. You know what?! Good. This shit makes me so unhappy, maybe I should just quit for good. I'll start a chatroom to pay the bills.
  3. Maybe you get lucky on a ton of risk and make a lot of money?

That's extreme. I'm not actually deliberating this. It's one of those perverse "lingering thoughts" like what happens if I jump off this tall building? I'm not going to do that.

The reality is far less dramatic. Negative thoughts make me depressed. How do I trade when I feel depressed? I actively try to sabotage any attempt at "trying too hard". Stay up as late as possible. Wake up maybe 10-20 minutes before the opening bell. Watch NBA highlights until 9:30. Don't go over any charts. Don't look at the news. Be ok with not trading at all because it sucks and it makes me sad. Find some stupid layup trade with small risk, take it with no expectations, walk into easy money, feel a vague pang of dissatisfaction maybe you could've made more, and then repress it by watching more YouTube or Netflix.

That's how easy it can be. I have been doing this for awhile. And that's why, despite all of this melodramatic writing that would make a casual reader think I lost all my money in some massive catastrophe, I still make money. I wish I could be this person all the time. I wish I could teach this person to actually be positive and grow and learn to love this job again.

My mental game is completely toxic right now and I don't know what to do to fix it. This is not a solicitation for your advice. Ask me what else is going on in my life—almost everything else besides trading is great and brings me joy and fulfillment but that doesn't make for fun writing does it? 

This is not a post to suggest "this will happen to you too" post if you decide to trade for a living. I know plenty of level headed traders and they make me so jealous. I often have to reign in the urge to punch their stupid, happy faces.

I don't know how to neatly end this post. I'll write more tomorrow.

Saturday, January 12, 2019

This is what you get when you act like assholes.

You ever been in a sorta-hostile situation where someone was throwing shade in a public setting but not quite crossing the line, so you couldn't quite escalate it? Maybe you just had to play along with it and  parry away with words to stand your ground. But you couldn't make it too serious otherwise you look like the asshole or you risk getting your ass kicked.

Well, I was playing poker on a cruise last week. $1/2 No-Limit $200 max at one of those electronic tables. Rake was ridiculously high (15% capped at $25) but the game was soft as a pillow factory to compensate.

Four Chicago guys sat at the table. They had Bears hats and shirts on, one was even wearing a Khalil Mack #52 road jersey. The Bears were playing the Eagles in the playoffs that evening. One guy was a newlywed and this family cruise get together was either the wedding or post-wedding celebration.

Immediately they just started firing chips away without ration or reason. We're talking...

  • Open-shoving 50+ BB's preflop with trash hands
  • Call these open-shoves with as little as any Ace
  • Over-betting the flop with a 5x pot bet with weak hands like middle pair and pot committing themselves to showdown
  • Donating to each other simply because another family member was in the hand. "Okay, you're in the hand so whatever, I'll call it!"

Just all kinds of donk behavior--you name it, it happened. I think Newlywed Guy had to reload at least 9 times. Newlywed Guy runs a dessert chain in the Midwest so maybe he's loaded. He didn't seem to care about money. So my mouth is just watering at this action. I don't even want to take smaller edges like calling an all-in with an AJ pre-flop. The throttle is firmly on fit-or-fold ABC mode. I'm not in the mood to lose any money trying to outmaneuver anyone. I'll let these guys blow up a pot with garbage while I got the goods. 

So these guys are having a good time. I don't really care. If others want to gamble, I don't look down on that. Some people win by losing. It's not my job to tell them that they are losers. You won't catch me being *that guy* at the table--the tight nit telling everyone how they're playing bad. I am happy to watch the football game, sip on my free cocktails, sneak under the radar and play on auto-pilot. 

Eventually I get to shove Ace-Queen against Ace-Ten on an ace-flop against Fourth Guy. I call him Fourth Guy because he is the most non-descript guy in this story and I don't think he's close family like the other three but conversation leads me to believe he's somehow connected to their party. Fourth Guy might be the worst player of the four, along with Newlywed Guy. He's the guy over betting on every flop.  But he has been on a heater from the reckless all-in action and he's up nearly $800 (400 BB's).

So Fourth Guy picks up a straight draw on the turn and he needs one of my Queens on the river to win. There's a Jack and a King on the board. I say "low card please". The river is a Ten to improve him to two pair but to also improve me to straight, so I scoop it.

"Wow look at that, he didn't want a ten but didn't realize it would help him." -- remarked the bozo in the Khalil Mack jersey. Let's call him Khalil Quack.

I just had to make the mistake of correcting him.

"Nah man, I said low card. I didn't say anything about a ten."

"Don't tell me what you said. I heard what you said."

Woah, okay guy. This is the first sign of tension all night. The comment raised my eyebrow a bit but I chose not to respond to it. I'm still barely ahead of my first buy-in at this point. He's been drinking, drunk people say drunk things--so I figured.

I take a few more large pots against Newlywed Guy and Fourth Guy. My night is starting to go on a roll. Fit or fold poker is working just fine, hands are playing themselves, no thinking required. 

And then things get more tense.

"I want a piece of this guy." -- Khalil Quack, giving me some side-eye after I scoop another pot.

"Look at him, he is so serious. If he bets it he has it. That's all he does" -- this is Daddy's Boy. He's a skinny 20-something with a peach fuzz, son of Newlywed Guy from a prior marriage. He could very well be straight out of college. He's a little ahead of breakeven and the only reason is because his dad calls his shoves with trash because "it's all my money anyway, so I'll gamble!" Khalil Quack is a slightly older, slightly bulkier cousin. They sit next to each other and seem tight.

Okay, I'm starting to feel uncomfortable. Let me add this: I make a deliberate effort not to have a serious table image. I grew up playing poker (and video games, sports, etc) with everyone knowing that I was the intense, competitive type. Later on, I understood that this wasn't a good thing in terms of keeping the table playing loose and fast. So when I play poker, I try to do the following things:
  1. Watch whatever game is on and try to make it look like I care about more about that. "What a dime that was! Terrible call! How is that a penalty?! Let's see what the replay shows. How can you not use your timeout there?!" I'll be verbal about it. I think I paid more attention to the game than they did, despite them being such "huge fans"
  2. I try to Ooh and Awe over bad beats, big pots, and crazy river cards--even though I've seen it all at this point and am largely unmoved by it.
  3. Smile more
  4. Chat with people
And I think I was doing all that. There wasn't any need to go into the tank and stare anyone down--every hand plays itself when your opponents are that level of bad. So why are these guys talking about me?

"I'm just playing poker. My lucky night I guess." -- as I guffaw and try to diffuse this nonsense. It didn't work. 

The next hour would unfold like this:
  1. "Cmon man, show your hand, let's see what you got for once! Don't be scared!" anytime I had a chance to show vs. muck.
  2. More accusing looks and proclamations that I'm "such a serious guy"
  3. I bet $5 on the flop with a middle pair, ace kicker. "Oh man, is he trying to bluff?"  says Daddy's Boy, who then raises $30 against a $15 pot. I fold and Khalil Quack says "You're too cute to bluff." Wow.
  4. I tell them my team plays next week (the LA Rams, though I didn't specify), to which Daddy's Boy replies "I don't give a shit about soccer." (IMO, it says a lot about someone's beliefs when they go out of their way to bash soccer)
  5. "Look at him take another sip of Shirley Temple." (in reference to a pink "unmanly" cocktail I was drinking). Said maybe four or five times.
  6. I get out of my seat and Daddy's Boy asks where I'm going. Then he sneers "He's so nervous, he has to get up and stand." I can't even stand up and stretch without disrespect.
  7. I try to act unaffected and I say "Hate away guys, I have all the money at the table." Khalil Quack repeats what I said in a more feminine voice and Daddy's Boy, with his douchey shit-eating grin, says "Oh my god, you got his voice down, so funny."
At this point I'm fuming.  It's just constant disrespect over and over. Little barbs all over, and now starting to get personal. Happening to no one else but me. They're trying to emasculate me, bully me, goad me. Completely uncalled for and for no real tangible reason. We haven't even played that many pots together, as I have mostly taken my money from the other two guys (who, to their credit, weren't really participating in this nonsense).

My heart starts to beating a little faster. I'm ready for them to cross the line and am rehearsing what to say in my head. Should I be witty? Should I try to look like a bad-ass? Should I be icy-calm and poised or just let it all out? Deep down I want to throw down the gauntlet and just shout:

WHAT THE FUCK IS YOUR PROBLEM?

But I don't because then I'll look like the asshole, because I know they'll just laugh and say I'm taking things too seriously. Or maybe they'll get physical. So I can't quite go there. It's such bullshit. 

So we play on. They stare me down, I stare right back at them. They say something, I say something back. They challenge me, I tell them I'll take them on all night. We go back and forth and they keep making it seem like harmless locker room talk. I know what it is and it's not that. Such bullshit.

MEANWHILE...


There's a game going on and it's a good one. The Bears are up 15-10 on the Eagles in the fourth quarter with a minute to go. It's 4th and Goal, Eagles Ball on the Chicago 2 yard line.

"Big Dick" Nick Foles conjures up his Playoff Black Magic and hits Golden Tate for a touchdown.

"NO. FUCK!" 

Khalil Quack and Daddy's Boy are in shambles. 

SO GOOD, BABY. Fuck you. Fuck you. Fuck you. Fuck you.  Fuck you a billion times.

But then Tarik Cohen has a great kick return and the Bears are already in striking position. They get a couple first downs to lock down field goal range. Cody Parkey comes out and lines it up. The two idiots at the table watch in great anticipation. 

"Timeout" I say, and then Parkey kicks it through the uprights. Coaches always try to freeze the kicker in these situations. C'mon dude, every real fan knows this.

Khalil Quack, who can barely pay attention even though it's his team in a must-win playoff game, fist pumps and shouts thinking they've won it. Nope.

"Oh fuck they called a timeout?" Yes they did, moron.

No timeouts left for Philly and here comes the real kick.

I'm begging the football Gods. Telepathically speaking to the television. I want PAIN. I want THEIR PAIN on a PLATTER.

Fucking do it. Crush their hearts RIGHT FUCKING NOW.


DOINK.

AHAHAHAHAHHAHAHA... 

HAHAHAHAHAHAHA!!!! 

Satisfaction at last. 

Danilo L and Anthony L--the pain on both of your faces... PRICELESS. You two are complete trash.

Monday, December 24, 2018

I'll Have One Dip Buy, Please.

Greetings everyone. I hope you're all having a fabulous holiday week.

As I'm sure you are aware of, the S&P 500 is currently down 600 handles from the all time highs and this will very likely be the first year we close red since 2008.



Gulp. That's a pretty bad candle.

This is the daily chart:


I hope this is not ruining the holiday cheer for anyone, but if it is, here's the good news: 

There's a big opportunity here.

I know what play I want to make on the market. I want to buy into an extreme move and then sell it higher.  I specialize in short-term trading. Whatever money I missed out on not going all-in long indices or FANG 3 or 5 or 10 years ago, is the money I want to make in a few days or even a few hours. I may or may not actually execute a winning trade, because trading is difficult and you don't always get what you want nor do you always end up following your plan to a tee. I have no position at the moment.

Here is a list of things I don't care about as far as forming my trade thesis or constructing my entries and exits:

1. Trump's tweets
2. What the Fed is doing
3. Whether it's still a bull market with all-time highs ahead in the near future
4. Whether it's now a bear market and there are lower prices ahead in the near future
5. Whether everyone on Twitter is bullish and thus we "have to go lower"
6. Whether everyone on Twitter is bearish and thus "the bottom is in"
7. #4/5 except replace Twitter with CNBC or Retail Investors or Dennis Gartman, or anyone
8. Death crosses
9. Macro-economic data
10. Historical ratios like P/E or yield
11. Analyst price targets
12. Trade war or Tarifffs
13. Politics
14. "Why" we went up the last 9 years, whether because of QE manipulation or "real buying" or whatever popular narrative that's out there

There are some things on that list, namely #3 and #4, that I have some opinions about that might guide me in a different context but doesn't matter yet.

There is one thing I care about and it affects my risk tolerance and conviction level. It belies why I am interested in this trade at all.

U.S. equities have been in a centuries long uptrend and buying the dip is basically an undefeated trade. It has survived multiple World Wars, The Great Depression, The Cold War, Watergate, 9/11, 2008, and whatever else you can name. While most citizens of other countries view their stock market as gambling, buy and hold has become an American cultural phenomenon. There are "bigger forces" at play here that are not to be easily dismissed.

For the average investor, it will probably work out to buy at these levels. That being said, I don't want to be too early because I lack the patience to endure the potential years of drawdown in order to let this trade work out. Entries and exits will matter. Leverage and timing are either going to be my best friends or my worst enemies on this trade.

I see it like this. I see a rubber band. It's stretching a too far to the downside. At some point, it will release and go the other way just as violently, regardless of anything above. What happens after that--when the rubber band snaps back and then loses it stretch in either direction--is not something I need to know.

Merry Christmas and happy trading to all in 2019. One goal for 2019 will be to write more frequently.

December 26th Addendum:


I made one trade so far. A very modest day trade on a 3x ETF, far cry from the potential profit one could infer I wanted from the above post. Equivalent move on SPY was 236 to 240.


4:00pm update: ..well those exits were quite bad.

I might post other charts, I might not.

Thursday, December 13, 2018

The "Should Have" Trade That I Will Regret Forever

You ever think about the one that got away from you?

It could be anything.

An amazing business opportunity. 
The partnership stake in a unicorn startup, that you sold for pennies on the dollar to fund a steady career in advertising.
An amazing partner.
The perfect college sweetheart you broke up with to "find yourself" on a year long trip to Europe.
A grand achievement at the highest level.
The final hurdle to win a gold medal but you tripped over, seeing your dreams slip away in your short and finite athletic prime.

So for us traders, there was that trade that you missed. And you will experience severe regret as you see an explosive moves away from the entry level that you considered and decided to passed on, you IDIOT.



But here's the good news: the longer you trade (and the better you become as a trader), the longer the list grows of all your missed trades. Your trading memory will start to eat up a lot of free space. These missed trades will become a big jumble of charts in your head and few, if any, will stand out. It won't sting so much as time passes.

Here's another thought as well: anything can be a "legendary trade" if you put enough capital or leverage behind it. Every week there are options going up 500-1000%. Every week there's some dumb low float trash going up 100% or more. Every quarter, there's an explosive breakout from earnings. Someone out there must have had the risk appetite and conviction (or just dumb luck) to have made money on one of these moves. It doesn't feel like a rare event if it keeps occurring so often.

Nonetheless, I do think we all have some missed opportunities and regrets that stand out, even after all these years.

But Peter, I have no regrets. Life is a learning opportunity and all my mistakes have contributed to who I am today and thus I have no true regrets--yeah shut up. I hate you people and your positive, resilient attitudes. I have regrets and I want to whine about it, like a normal person, okay?

There is one missed trade that will stay with me for a long time. It made the headlines last year:

Ethereum flash crashes to $0.10 on GDAX


So for the unfamiliar, here's a short recap of what happened:
1. Someone entered a fat-finger "multi-million dollar market sell" order
2. There was not enough liquidity on the market depth to absorb this move
3. Stop loss orders and margin call liquidations caused another chain reaction of sell orders, exacerbating liquidity issues
4. The price cleared all the bids on the order book all the way down to $0.10.

And I was fortunate to be at my computer to watch it unravel in real time. Behold...



I stared at it.

Shit. That was my moment!

I started entering in orders to try to take advantage of any subsequent mini-crashes on what was, at the moment, a super thin bid. I did catch some decent scalps but within an hour, the market started to stabilize. I knew that the moment for an all time stroke of genius had come and gone in the blink of an eye.

Coinbase would later rule for all trades to stand and would reimburse all losses caused by the flash crash. They would also remove the margin trading feature, which has since yet to return.

I had a lot more than $350 in my GDAX account and I was mostly a scalper during the time so I held a lot of cash rather than crypto. I don't know if it would have been a trade I could retire on but it would've been pretty damn cool to blog about it after the fact.

Look, I know what you're thinking. This is the type of trade where every Joe Schmo is thinking after the fact, "oh man, why didn't I think of that?" Well, the reason this specific trade resonates with me the most is because once upon a time...


I was that guy buying flash crash prices on wild west crypto exchanges



screenshot saved from 2013

That was me buying at $20 on Bitfinex, $80 below the actual trading price. I saved that picture.

Oh my God, did I really get printed there!? THAT'S FREE MONEY BABY!

It was April 12th 2013 and the bitcoin bubble had burst. (Where have you heard that one before?)



Bitcoin is trading around $55-120, depending on what exchange you looked at, after a massive crash from $260. The biggest exchange, Mt. Gox, had been halted for several days, passing on the process of price discovery onto fragmented, inefficient and thinly traded exchanges.



My primary exchange was bitfinex since they had leverage and shorting. They were not that popular yet though so it was trading with low volume and large spreads. 10-20% bid-ask spreads were not unusual at the time.  Typically, that's a sign for an active trader to stay away. But I didn't care for conventional wisdom. I didn't care for safety. To my startling observation, other traders were frequently paying through the spread with market orders and spraying way past the best bid and best ask. It was total amateur hour.

So, there I am with my small cash deposit and nothing to execute trades rapidly except my own hands, stepping in to make markets of this thing people called a "crypto currency"--the existence of which I didn't even fully comprehend quite yet. I would place multiple orders on both sides of the book and pray that the market didn't rip against me too much and margin call my ass.

I had no method, no pricing model, no process. It was all guessing--just try to turn over my money as many times as possible and catch spreads. 80x90, I'll step in at 83 since I need to buy, sure. If the market moved away from me, I'd scale into more of my net position (could be long or short) and raise the other side to try to reduce my exposure. I figured market making is just about reducing directional risk over time. Don't let an adverse move eat you up.

Part of my routine was having to constantly refresh the Bitfinex trading log (time and sales) to see how trades printed because many of the real time chart API's were temporarily down. That's what trading crypto was like back in 2013--primitive, unreliable, broken.

After what might've been my 893th refresh of the night, I saw the magic happen. That was me sitting at $20, getting printed for 38.9 bitcoins. BOOM.

I sold them all near $100 within minutes and realized about $3000 in the profits on that one round-trip alone.

All in all, I made about $5000 in a few hours of trading, which was incredible at the time because at that time, $5000 was a good month in stock trading for me. This wasn't a great time for me personally. I had thought about quitting this whole trading thing and moving back to California and it was killing me inside. This night alone lifted me out of depression.

For the next months, if I ever had spare capital, I made it a purposeful habit to always have low bids entered into bitcoin... because you never know when she might say YES.


Seeds of the Idea


Unfortunately the magic print never happened again. I made decent money with more conventional trading on the run to $1200 and then I stopped trading crypto altogether in 2014. It was a bear market and I had lost interest. Then I came back to crypto in May 2017, a little late but not too late. That's probably a post for another time.

But man. Think about it!

It's not just hindsight. The seeds of knowledge and experience were there for me to place an extremely low "just in case" bid and capitalize on that opportunity. Imagine reveling in your genius of being able to put it all together and just do something so simple, something that takes zero work and zero risk... and then the impossible happens and you take a small fortune out of it. And I couldn't do it! For whatever reason, I just stopped doing what I used to do. I stopped believing it was possible. But in a young, disorganized, chaotic, inefficient market--anything is possible.

This is why I will always take the chance on new frontiers of market opportunity. You just never know how you can make money. It isn't always a matter of needing a bias that something will go up meaningfully higher or meaningfully lower. There might be these unknown inefficiencies that you can brainlessly exploit with close to no risk at all. That's also why I took the risk on the overseas broker that shall not be named, for those of you who were fortunate enough to read my last blog post (now deleted).

A lot of traders love that feeling of being right.

They made the right call.
They told everyone on twitter that that piece of shit stock was going to 0 and it did.
They screamed at the top of their lungs on CNBC that this stock would go to the moon and it did.
I was a bull and I beat those idiot bears. I was a bear and I beat those stupid bulls.
I was a contrarian and told the crowd to go suck it and they did.

We all want to be George Soros, breaking the Bank of England on a generational macro call. Hey I won't lie, I like that feeling too. I just think it's overrated. I like another feeling a lot of better.

"That was too easy. I feel like a bank robber". -- this is something I say to my trader friends when the trade is a little too easy.

I like that feeling after a trade where I feel I just got away with a heist for a $100 million diamond and no one was the wiser. I'm taking off my ski mask and high fiving my entire crew for a job well done. It was THAT EASY. I didn't need to pontificate upon the wisdom of the crowd or prognosticate the future. I didn't have to be Soros or Livermore. I didn't need to lay out the risk. I didn't need to worry about some bullshit squeeze or shakeout or stop out. I just took the sack of money off the ground and ran as fast as I could. I love that feeling more than any other feeling. There should be a German word for it.

That should have been me as I hurried to transfer all my stolen ten cent ethereum off GDax and sell it on another exchange. Should have. Now it's just a missed trade that I'm blogging about like a loser.

I don't regret not buying bitcoin at $30.

I don't regret not buying ethereum at $10.

I do regret not buying ethereum... at $0.10.

Wednesday, November 21, 2018

Resolution

To everyone,

I am happy to say that I am moving forward. I had a productive conversation with a Tradenet representative, who explained why my TEFS sub-account was charged with $58,820 in routing fees--this was due to the broker’s costs of hedging unexpected high volume trades (2.1 million shares traded in a few hours). I was fairly compensated by TEFS for my extra costs and I now consider the matter resolved. I enjoyed trading with Tradenet and have thus far been paid on schedule by TEFS. It was never my intention to damage anyone's business, but only to share my experience as a customer so that positive changes could arrive—I now feel this has been accomplished. I wish them the best of luck.

Thank you to all my readers for their support.
-Peter

Thursday, September 6, 2018

Different Type of Edge

I have a bit of an edge to me--an angry edge. Had it ever since I was a little boy.

If I were writing a screenplay lionizing my entire life, I would cast it in a positive light. It's the chip on my shoulder. It's the drive to be great. It's the fire within. 

There was that time in 6th grade playing pickup basketball during lunch. Sean McFarland was throwing elbows while posting up and giving me not-so-subtle two handed shoves to grab the rebound. He only did this to me, I swear. Mr. Little League All-Star Athlete with all his trophies playing dirty like he's Bill Laimbeer. That piece of shit. He's been picking on me for years now--not just physically on the court, but taking jabs at me. Asking me why I didn't participate in PE--maybe I was just faking it. Asking me if I need to wear that brace for my medical condition. Just these little things he'd say because he thought I was a weakling. I had enough.

I charged at him and forearm-shoved him to the ground. Asked him what's up.

What's your problem dude?!

I still remember his face. He was shocked. He reacted like a whiny little bitch.

Nothing! Fuck you!

Returned a little bitch shove that knocked me back a half step. Nothing else. Pfffft. That's all you got?

When lunch ended we shook hands and that was that-we never had a beef again.

I stood up to a bully. Knocked him on his ass, demanded respect, and was given respect. 

That's a good story. That's a narrative that can sell.

But I'm not writing that screenplay. I'm not that cool. This is a blog where my most popular post was about me losing 6 figures in a trade in the dumbest way possible. It's about me being an idiot.

There's an ugly side to this edge.

There's the time I rage-reset the Super Nintendo and said some not-so-nice things to my sister because she was obliterating me in Mario Kart over and over. I was 7 years old.

There's the time I threw the remote at my cousin because the Blazers were beating the Lakers and he was rooting for the Blazers (traitor!) and smiling at every basket made. Rasheed Wallace would have been proud.

There's the time a classmate from high school hit a runner-runner straight to bust me in a home poker game and I threw such a nasty tantrum that they didn't want to invite me over anymore.

There's the dent in a waste basket that I kicked over and over again at the prop trading desk.

There's the hole in the wall at my old apartment in FiDi.

Spoiled, entitled brat all pouty because he doesn't get what he wants. That's the picture being painted there.

I really hate losing.

I hate it.

It just wrecks me on the inside.

No one is supposed to like it but I wish it didn't wreck me to the core like it so often does--to the point where I stay up all night until I exhaust myself because I don't want to go to bed and I don't want to go to bed because I don't want to think about the next day and what the next day is going to do to me (hint: it's gonna wreck me because I'm a loser and I'm going to lose).

Among my many flaws, my shakiness with handling loss is maybe the worst. Oh I'll take a loss. I'll be disciplined. But then I'll pout. You watch.

The Next Day

Why am I even writing all this? The same reason so many traders blog about stupid personal shit--because they took a big loss. Except in my case it's more like a large "giveback"--a larger than normal profit turned into fairy dust. I am literally the day's top tick to cover. And then the stock trades back to the lows. It certainly feels like a loss to me.

Now here's where stupid twitter traders with their motivation memes say "oh gee golly I messed up but  tomorrow is a new day hooray I love my job #trading $AAPL $TWTR $DRYS".

Fuck that shit, I am going to take this very personally.

The market gets to live rent free in my mind.

I'm the little bitch who moved his stop to break even and got ticked out.

I'm the idiot who didn't take any profits on a big move

I'm the little bitch who swung for the fences but didn't have the heart to stay with the conviction and sit through the swings

I'm the idiot who said he wouldn't trade these nasty "hero setups" anymore but didn't have the character to stay true to his word

NINE YEARS YOU'VE BEEN DOING THIS AND THAT'S THE BEST YOU CAN DO? ARE YOU KIDDING ME? YOU'RE A JOKE. YOU'RE A WORTHLESS FRAUD.

stick figure obama GIF

Ugh.

There are 6am next days, 8am next days, and 9:29 next days.

6am.  I can't have ENOUGH of this market! I LOVE IT!!!
8am. Clock in, check the news, do your thing. All professional.
9:29am. I hate trading.

Tomorrow is gonna be a 9:29 day.

I hate losing.

I hate the next day.