Sunday, January 10, 2021

What does resilience feel like?

In 2020, I traded every single day of the year.  Not a single day off. That's the first time I ever have done that, for any calendar year. 

That's not like me. There's always a part of me that gets a bit flighty and needs to get away from the screen for a prolonged period. Usually when there's any kind of drawdown or adversity. I was fortunate to have a stellar year for my own standards and I avoided prolonged drawdown all year. I had a handful of deeper red days but each time I managed to claw back to the high watermark within a few days. This is vital, because what a stoic fund manager might consider a normal drawdown (percentage wise) is usually a number that brings my fragile bones into full blown crisis mode.

Those in my inner circle know my dialogue well when I am in crisis mode.

I'm going to retire from trading. I don't know what I am doing anymore so I might as well leave with my dignity intact.

These stocks move differently now, the game has evolved past me. It's all over. They always know when I have size and when to run it the other way. Inexplicable.

I just don't even give a shit anymore. Trading is a treadmill and caring about these numbers going up and down is just stupid.

I now consider the pursuit of money to be a wholly evil endeavor. I don't believe in capitalism anymore. I'm going to donate all my profits to charity and live as a monk.

You get the point. I'm sure they all roll their eyes at this point--"whatever Pete, you're just going be back doing this tomorrow, you know it, I know it, we all know it."

The first week of 2021 did not start off great for me. The weekend was weird. I wanted to do a thorough review of my 2020 and set some goals for the new year, review some of my trading, all that standard self-improvement crap. I ended up doing absolutely nothing. I sat on my chair like a dumpy lump of coal, watching college football games I couldn't give two shits about, falling asleep like an old man. I didn't cook, I didn't do chores, I didn't exercise, didn't want to do anything. I just felt no enthusiasm for the new year. 

Monday came around. I had the familiar morning dreads... I don't want to trade today, I should just go do something else today. I made a note of it in my journal in the pre-market. I was practically sleep walking, opting to look at NBA box scores rather than go through my morning preparation process. Sometimes this actually helps me set the tone for the day... I don't feel like trading so why even hype myself up--at least then I'll trade small size, reduce my holding period, and maybe "let the market come to me". Well..

...that doesn't happen. I punt off $60,000 in ten minutes. I shut off my screen in disgrace and go back to bed. I can't sleep so I just lie there and my brain slowly descends into crisis mode again.

I'm not going to repeat what I made in 2020. It's too much of a burden. Time to accept that reality.

I can't even look at stocks right now, it's too painful to see quotes.

Who does that? Seriously, who does that on the first day of the year like that? What a moron. 

Go ahead and take a long break. The whole world is going to make money off TSLA and bitcoin and all these 10-bagger micro caps, you're going to be left behind. You'll feel worse.

I can't even trade smaller because it's just going to make me feel like a huge asshole for being sized into the loser and having almost no skin if I win. SO STUPID. WHY BOTHER!?

Money doesn't even matter. Nothing matters. Eat Arby's.

Yeah I don't recommend large losses. They suck ass.

What does resilience feel like?

You ever get on your twitter feed and see some 21 year old hot shot trader (usually being liked or RT'd by someone else, hell no am I ever following shit like that) tweet something like... "A set back is just a setup for a comeback!"? Does anyone else just want to punch their screen whenever they read shit like that? Is it just me?

I'm not wired like that. I don't puff out my chest and fake it until I make it. I don't flex to the whole world that I am mentally tough by spewing platitude porn about overcoming adversity. In fact, I'll freely admit this to you right now--I'm fragile. I'm a snowflake. I fold faster than a lawnchair. Dread, crisis, doom--whatever you want to call it--it sticks with me until I somehow find the wits to scramble my way out of it. This idea that you're not supposed to trade emotionally compromised is a fine idea but for me, it can't work because I have these weird mental patterns that I cannot escape. I can't just take a year long sabbatical until I "feel good" again.  I need to write the same story over and over again. I am Sisyphus and I am literally rolling the boulder back down so I can push it up again. 

I take the day off on Tuesday. My first day off in over a year. I still feel like total garbage. I still have to self-flagellate myself for what had happened on Monday. "Every day is a new day" -- YEAH RIGHT, if fucking only it was. Again, I struggle to fall asleep. I have insomnia all week long.

I come back to my screen Wednesday. Same morning dread. Still in crisis mode. Still feeling that wincing pain when looking at stock quotes. Should I just not trade?

I came to a realization--No. I have to trade, don't I? I just have to trade away out of this. For the millionth fucking time, I have to do this again.

How do I cope with this? Well, I get this one recurring thought: I often run through this dark and sad "proposition" of sorts that maybe if I get crushed again, it's actually a good thing--like a boxer who's finally taken one too many punches. I'll finally quit forever and this miserable joke I call a trading career can finally end. I'll go do something actually productive and interesting instead. And if I don't? Well I get to keep going another day and maybe I made money and money is always fine, I guess. Win-win.

It's 9:30. I start trading. Every feeling in my bones is screaming THIS SUCKS, I HATE IT. Somehow I make some money. I feel numb. I know I'm not out of the woods yet and I have to do this again the next day. I spend all evening doom-scrolling my twitter feed and watching True Detective season 1 clips on Youtube. Time is a flat circle. Maybe I should write something down about what I'm going through, no, nevermind--I don't want to think about myself, it's too scary. Lakers are on at 10, good excuse to stay up late and feel like shit tomorrow.

Thursday. I make a bit more. I'm close to the high watermark again. Now I feel pissed because my brain is running through the mental math of where my PnL could be if I didn't allow that calamitous Monday to happen. Here I am settling for break-even while the whole world continues to crush these easy markets. Chippy/intense/combative/competitive-me is back though. Anger is a step above depression, so I consider this a win.

Friday happens. I am so afraid of losing or taking intraday drawdown. I'm at the brink of another meltdown and I just can't, man. I trade in a very dodgy manner where I am practically pushing buttons in response to my own discomfort rather than any actual price or idea analysis. Somehow this works. I get back to break even and then later, slightly green on the week. I don't even know how I did it. I can't process anything. Deep inward reflection--no, not now please. I can't wait for the weekend so I can turn off my brain and not review any of my mistakes so this can happen a few weeks or a month from now and I'll do this all over again.

Now it's the weekend. I am starting to feel normal again. Let me predict my own future here.... some future week from now, maybe next week, I am going to make $100,000 or more. I'm back baby! Never a doubt!

Thursday, December 24, 2020

The Yips

I started watching sports around 1996. Magic Johnson came out of retirement. Michael Jordan won his first title since his own un-retirement. Brett Favre won the Super Bowl. The Yankees won their first World Series in eighteen years. Oh those damn Yankees.

The Yankees formed a dynasty and won 3 more titles... and I hated them more than any other team*. I fully bought into the Evil Empire narrative. My impression was they just bought all their players because they had the most money. My earliest memory of an elite second baseman was Chuck Knoblauch of the Twins. He could do everything--hit, slug, run, field, and throw. Then the Yankees got him too?! Unbelievable. Who could ever beat them?

*10 year old me would never believe adult me would actually move to live in New York. New Yorkers are loud, obnoxious, arrogant buttheads.

Then strangely, Chuck Knoblauch stop doing everything well. He couldn't throw anymore. He once airmailed a routine throw and it ended up hitting Keith Olbermann's mother on the head. Those rude, obnoxious Yankees fans with their non-stop booing probably ruined his psyche forever, so I gathered.

My understanding of sports evolved as I grew up of course. I later learned that Knoblauch had developed the case of The Yips--something wikipedia defines as "the sudden and unexplained loss of skills in experienced athletes." I saw Rick Ankiel get the yips. I saw Markelle Fultz get it. It fascinated me that these professional athletes could just wake up one day and just... completely lose it. What they worked for and developed their entire lives--gone in a flash. How does that happen?

I live with an irrational fear that one day I will get the yips at something very important to me. I'll hit absolute bottom and no matter what I do, it'll just never get better because something is deeply, deeply broken.

MY OWN YIPS

My primary hobby is shooting pool. A bit of eight-ball, a bit of nine-ball, sometimes even straight pool--you name it, we'll play. I began playing in college and I would practice, practice, practice my ass off to get better. Stop shots, draw shots, and follow shot drills all night long at the rec center, midterm season be damned.

I constantly obsessed over my pool stroke. I practiced using the old coke bottle technique in my spare time away from the table--the goal was to shoot through the small opening without touching any part of the bottle. I developed my stroke to hit power draw, force follow, and clean horizontal English. Pocket billiards is a beautiful game when you can spin the white ball.

Fast forward to my years in New York. I'm practicing my draw shot on a communal lounge table. I aim low, take a few warm-up strokes, and let her rip.

The cue ball just stops. No roll back. I stunned it.

Okay, that was a one-off, I let the cue fly up on impact.

I set up the shot and try again. I tell myself to make sure to follow through.

The cue ball meekly draws back maybe an arm's length and fails to hit the rail.

That was pathetic. 

I chalk up the cue a bit extra, set up the shot and try again. I make sure to put some force into it.

CRASH! The cue-ball goes flying off the table and skitters away, hitting a table leg several feet away. I saunter over to pick up the cue-ball and sheepishly apologize to the young lady studying at the table. Sorry, that was just my pride dribbling onto the floor beneath you. 

What happened is that I hit too low and dug under the cue-ball--classic rookie mistake when trying to muscle your way into a draw shot. I get back to the table and I just take a pause to just evaluate where I am. All of a sudden, I can't do this thing that I was once able to do without even thinking about it.

I have to get myself out of this. I can't play well if I can't trust my draw. I imagine myself in a league match botching a draw shot and it brings shivers down my spine. I keep practicing. I adjust and fiddle with just about everything I can think of--elbow hinge, foot positioning, how I bend my waist, shoulder levels, grip, anything. Nothing works. It doesn't make any sense.  Every shot feels like so much effort for so little input as the ball barely goes backwards. I don't dare hit power draw out of fear of embarrassing myself again. Every failure sends me into a state of internal screaming. 

Eventually, rage simmers into sadness. My game has lost its beauty. For the moment I am no longer an artist of the game, but just a caveman hitting a ball with a stick. This sucks man. I pack up and go back to my apartment.

(Eventually I figured out I was doing something to lock up my wrist. My draw shot is fine now but when it gets spotty, I worry...)

There are rare times where I am in a prolonged draw down and I worry it's over. I've completely lost my nerve and there's nothing left to do but retire in shame. There are times when I can't apply certain parts of my total trading playbook. About a year in a half ago, I worried I was too slow at trading. I couldn't scalp anymore. I couldn't make fast lower timeframe entries anymore. Since then, I've not only completely conquered those issues, but have since achieved record level profits on trades that I would label as "fast trades". A few weeks ago I worried I couldn't buy stocks anymore. I had been shorting too many stocks and had developed this tunnel vision where I can no longer buy stocks. I might as well add "short seller!" to my twitter profile and become one of those annoying types that over-identify with their mode of trading. Then I made some great breakout trades that worked out just fine. It's a constant state of worry.

Success can be temporal and delicate. Some people wake up believing they can do anything they put their mind to. I wake up in cold sweat thinking there are so many ways to fail unexpectedly. I hope that if that day comes, I have already made enough to screw off.


Saturday, December 19, 2020

Writing More // Social Aspect of Trading

I have been doing some reflection on why I don't write more. I think about what this blog could have become if I committed to writing daily or weekly to it and I honestly think it would have been one of the most greatest trading blogs (maybe ever?!). Instead, as it exists--it's the one good story (the FNMA loss story), a bunch of interesting niche subjects, and a few blurbs that paint me as a massive emotional monkey (which I won't deny).

The FNMA story was a huge hit for me. It's still by far my most widely read blog post. It got published in a magazine. Since then... blogging has been spotty. Now that story is 5 years old and there is much more awareness about day trading in the online cultural zeitgeist. Trading memes (stonks!) have exploded in the last 2 years. Millionaire sports bloggers will live stream 7 figure gains and losses and nobody will bat an eye. Every few months or so there's a new story on Bloomberg about this guy from WallstreetBets exploiting another glitch on Robin Hood. The same post on FNMA had it been published now would not get the same traction as it did before. I probably blew it. I will likely never achieve my potential as a blogger/writer--it's gone just like that.

Reasons why I don't write more:

  1. I'm a perfectionist. I had a vision for this blog early on that it would include great illustrations and graphs, concise explanations of complex trading topics (beyond your typical market psychology pseudo-babble and platitude porn), and stories with real heartfelt emotion that could connect to every trader. I held myself to high standards--that I had to repeat the same great FNMA post over and over and over again. I would save a draft, edit it for a few hours, and at the last minute before publishing it, reject it entirely. Later I would just reject entire ideas out of hand without even writing a single word. I would just assume nobody cared what I had to say anymore, or that they would laugh at its lack of relevance or importance. Self-sabotage is a bitch.
  2. I worry about what other people think about me. There have been many moments where I wanted to just spill something out for the sake of spilling it out--a tough loss, a tough missed trade, someone I'm mad at, anything. And I'd write and write and write and then after the emotional lows kind of wear off... uh what the hell am I thinking? if I publish this, everyone is going to know what a total headcase I am. Your image as a professional trader will be utterly destroyed and you'll never regain anyone's respect ever again. Ah shit, delete it all.
  3. I'm a private person. I have second thoughts about revealing too much. But I also believe that sharing in vivid detail, even to the point of over sharing, is critical to writing in a way that connects to others. Many traders have reached out to me say "dude, I totally felt the same way in my trading experiences as well." Some I have met in real life to a share a beer with. How much to share, how much to reveal, it's a tougher balance now then when I was just an idiot 20-something who lived in a fake wall bedroom with 2 roommates.
  4. My love and hate relationship with trading. Sometimes, I just absolutely hate trading... and I have learned that, in reality, it's just an extension of the self-loathing I feel about myself. Losses. Drawdowns. Undisciplined trades. Missing out large moves. All common events that happen to every trader... and I have found a way to personalize each and every time that it has happened. That it is a signal of how I'm not good enough. That everyone else is better. And that these are hard, uncomfortable, undeniable facts. And that the best way to cope with these facts is to completely withdraw all thoughts and reflections about trading and markets--go do something else, anything else, watch Netflix, watch football, take long naps, eat lots of junk food. Just be a lazy piece of shit with no ambition. 9:30am on Monday is absolute dread and 4:00pm on a Friday is the great escape. I have lost count of how many times I have fallen into this mental rut. Needless to say, it makes writing about trading much more difficult.

Anyway, that's why I don't write as much as I should. The next paragraph should be this *thing*--perhaps a renewed pledge to write more--some grand *thing* to tell all my readers that I have turned a new leaf and it's a new me, but that would just be a lie. I'll take it a day at a time and we'll see where it goes.

The social aspect of trading
I wanted to write about the social aspect of trading. This might be something I have to break down into multiple posts until I figure out the grander theme of what I want to express. By the way, this is another reason why I have struggled to write--the constant nagging voice telling me to tie every story I write about into this bigger picture message. I blame my 10th grade English teacher Ms. Kim for making me do all those laborious essay re-writes. Sometimes I don't have that bigger message yet, I just need to stream of conscious and put it out there.  Let's just move on.

I'm a lone wolf at heart. I had quite a bit of social anxiety in my childhood. I often think about my experiences in eighth grade when I had no friends to hang out with at lunch time. I had to find ways to kill time without being seen as being totally alone and thus vulnerable. My go-to trick was to line up in the snacks and drinks line over and over again. I'd find the longest line, start at the back, then when I was close to the front...oops I just checked my wallet and realized I don't have any money to pay for anything! How silly of me! Then I would go to the bathroom. Then I would go back to the court yard and find the longest line again. It's likely that no one ever paid attention to me at all anyway. Or maybe one keen-eyed student saw my pattern, notified his group of friends, and they made a recurring joke of me in their snobby little circle--and I'll never know. . It's all so silly when I look back on it. I was a mostly normal, unremarkable child but whatever mechanism in my brain that existed to socially connect with others was kind of broken. I felt completely fine on my own and even a little stand-offish whenever I had to deal with groups or cliques where I was the outsider.

Flash forward to mid 2018. I went back to my old prop desk to have a beer with a friend and just shoot the shit about trading and the markets. We would reminiscence on the struggles both of us endured on the way to becoming successful traders. This is the social aspect of trading I enjoy--connecting to someone I know over shared experiences and the common growing pains of this incredibly difficult industry. He then invited over some of the junior traders to form a larger free-for-all group conversation. This is the social aspect of trading I do NOT enjoy.

Somewhere along the line, the conversation devolved into trading size. Everyone wanted to talk about size.  How they can push each other to be bigger in every single position. Oh you have 10,000 shares? Ok for that reason, I have to buy up to 20,000 because I can't stand the thought of a pussy like you being bigger than me! HaHa holy shit I am so big in this position HaHa! HaHa It's NoT mY mOnEy!!!

Ugh.

One trader (an actual good trader most of the time, to be fair to him) ended up explaining to me about he how was down beyond his intraday risk limit and that his "ingenious" trade idea to make it back on the day was to sell a gigantic amount of expiring out-of-the-money TSLA weekly options and collect the premiums. He rationalized to me that he just needed to be green so badly and that he knew he was exploiting a known weakness in the firm's risk management of options positioning (nobody was allowed to have such a large naked short position). He's literally one ill-fated Elon Musk tweet away from blowing up the firm. He said he felt absolutely sick with his risk and that he could barely process his thoughts while sitting there waiting for his options to expire--and that weirdly, he LOVED this feeling!

I felt disgusted. I found myself experiencing a familiar feeling. This ugly feeling in the pit of my stomach that hearkened back memories of my childhood.

I don't belong here.
I don't fit in here.
I don't *like* anyone here.

My discomfort was palpable. These kids are just only talking about how much size they could push like it's end all, be all purpose of living life. Not to mention the very audacity of it all! Did they even make money consistently? Do they even have an edge, or care? I know full well the low success rate of prop trading. My own training class had 12 traders and only 2 of us experienced any sustained success--and a prop manager would say that's pretty good! These knuckleheads, likely unprofitable to this point, are clearly skipping steps. You need to actually make money before you discuss the practice of "making more". I'd rather bore myself to death around a dozen trading nerd-bots spouting Steve Burns market psychology platitude porn than continue to listen to these hyper-macho posturing shitheads yuk it up any longer.

But I also had this devil's advocate voice to my initial reaction. Maybe I'm of touch. Maybe I lost it. Maybe I'm the old guy now. Maybe the market has worn me down to a shell of my former self and these are the young, hungry upstarts who are going to make the profits that I lack the will and resolve to take. I don't know. Maybe the "size is everything" mindset hack is what I have always needed but was too scared to embrace. It's a nightmarish thought. 

I congratulated my friend on his recent successes and wished all the young traders good luck while making sure to maintain a warm smile to none the wiser, and then I exited stage left. Once I knew I was alone, I let out a huge sigh of relief. Thank God I got out of there. 

Then on the subway ride home, I had another thought. You better trade more size  now because if the day ever comes where these assholes make more money than you, YOU WILL NOT LIKE IT.

I'm not sure if that makes me a hypocrite or some other bad label. "Something something" about the duality of man.

Like I said, I am just writing and figuring out the message later. Adios.

Friday, July 3, 2020

False Inspiration


I am currently reading the Jim Simons book, "The Man Who Solved the Markets". It's very good, I suggest you check it out.

There's this throwaway line in there that stuck with me.

"On Wall Street, traders often are most miserable after terrific years, not terrible ones, as resentments emerge—yes, I made a ton, but someone wholly undeserving got more!"


Let me give you some context. I had a not-so-great 2019. I was marginally profitable but miserable. I kept thinking about quitting and telling everyone I know about it kinda like how people want to everyone to know they're quitting Facebook. It was more an expression of my exasperation than an actual serious consideration. Trading sucks. It stopped being fulfilling a long time ago. That young kid in his 20s who was the first to show up to work wasn't there any more.

I had dinner with an old trading mentor in December to talk freely about my future. Eventually the conversation spilled over into me having left prop trading many years ago. I get the sense he thinks I've underachieved. He referenced a few colleagues who were at my experience level, that were making huge numbers, and he said he never knew anyone who left and made more. He said I was just as talented as they were. Maybe he's right but it depressed me further to hear that. In the end, I decided to press on. I had to keep trading and just do better. I had the freedom and financial means to do anything else but there just wasn't this deeply inhibited life long dream to pursue, like starting my own restaurant or writing a screen play. I didn't have other skills. The road led back to markets.

Skip forward to 2020. I refocused myself and am now having a record personal year and we're only halfway through. But I kept feeling this nagging sense that "everyone else" is doing better. Whether it's just a hot market after covid-induced volatility or whether it's all the new stay-at-home retail money flooding the market, it just seemed like anyone can make money. I couldn't feel any pride in my work. I'm making the same levels of PnL I made 3-4 years ago on my best trades, it just happens more frequently. Maybe that's a sign of stagnant growth the past several years—and I'm criticizing myself for it like it's this indictment on my overall self-worth and character. Every day is a challenge to put the blinders on and try to trade with minimum levels of toxicity and hyper-negative self talk. Just do the best I can, pay the bills. Not much passion. Whatever.

Last week I had a "social interaction", and I can't elaborate more than that, that all but confirmed my worst insecurities. It shook me to my core. My so-called "best year ever" is nothing. It's chump change. I felt small, resentful, and pathetic.

I try to be ignorant of others' PnL. Unfortunately this "social interaction" occurred unintentionally. I hate thinking about money and letting it dominate my thoughts. The meta thought here--maybe I should "let myself" be motivated by money. Maybe the best ones are motivated by seeing that big green number get bigger and greener. It's not like I can pretend I am this virtuous being by not caring—it's not as if I am spending my spare time rescuing kittens and donating my money to orphanages. Maybe I just resist because I'm not good enough to play the bigger game—and it's just that painful to think about it.

That evening, I started writing down all these goals to trade more size and reach these arbitrary PnL goals by years end, 2 years, and 5 years.  All the emotions I had tried to bottle up since my soft reboot in January, they spilled over like the Exxon Valdez. I'm going to use this anger as motivation, I told myself. I'm going to make myself uncomfortable. I'm going to dare to dream. I'm going to... blah blah blah, you know what I'm talking about.

So predictably, I traded like a total asshole for the next two days. I pushed more size and tried to prove a point.  I snapped a 16 day win streak and tallied one of my worst red days of the year. My only dominant thought was "how can I have x amount of size" on this trade, little else. I had zero feel for the market and let most of my positions hit their max pain point. To my credit, Friday I did better and achieved a green day that would be top-5 for me in 2020. To give myself a fair grade outside of PnL though, it was a mixed bag. The day was a calamity of emotion and errors but the trade I was most heavy on, I was on the correct side (which can cure all ills). 

On that day (the "good" one), I actually broke down into full meltdown. I had caught a good move on the insane-O size I was gunning for but the fast move missed most of my bids to cover by just a small margin and I saw my PnL levels quickly evaporating as the stock reverted back to my entry (in retrospect, a very normal pullback that just triggered me at the wrong time, as the stock would later continue in its trend). I screamed as loud as I could at the top of my lungs, slammed my desk, and chucked an array of small objects at the wall. I acted like a child, not getting what he wanted right away and thereby throwing a tantrum about it.  


My wife rushed over to ask what's wrong and tried to console me. In that moment, it was impossible to put my feelings into audible words. I just felt numb and empty, ready to topple over and collapse. You win, world. When the day ended, I was very profitable but I felt zero sense of achievement or inner character. I had enough of myself and the toxicity and the feeling that I am just this puppet to the gods of money who are demanding that I make as much money as possible otherwise I'm a piece of shit.

As I reflect on my behavior and my mindset, I see what had happened. I had created this fork in the road where there's no winning in either scenarioeither I go back to trading normal size and label myself as mediocre, or I continue to push for the wrong reasons and stay in a mental space of maximum volatility. How can you win playing this game? 

The week after (this current week), I experienced a bit of an emotional hangover. I stopped looking at the note cards where I had scribbled down all this huffy-puffy nonsense about achieving my dreams and trading bigger size.  They didn't push me anymore. The anger was gone. Whatever grievances I had from said "social interaction", they just stopped matteringI guess that's the stage of acceptance. I just traded like normal. The results were good. They were fine. I still didn't feel much joy from trading but I didn't feel like total shit either.

I'm not sure what the lesson is. Thanks for reading.

Ok I shouldn't end the post there. That's too bleak. I have started some reading about transcendent experiences and how they can lead to true change. You can find it in monetary achievements but you can also find it connecting with people, connecting with nature, or finding growth in purely intellectual pursuits like philosophy. I'm not sure what the answer is or where I should go next. The next step in trading, if I ever get there (or even want to) isn't going to come from the ego and false inspirations. I have to really dig into how I felt connected to the pursuit of solving markets earlier in my career and find out what exactly gave me joy. If I can't find it again, then trading is just a job and that's that. Thanks for reading.

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.