If you have edge and you manage to not

blow yourself up, you will eventually

end up with lots of money. And if you

have negative edge over time, you are

going to lose all your money. That's the

whole basis of every trading business in

the world. If everybody at the table is

equally skilled, the outcome is

determined by luck. You have to be

maximally humble to like be able to do

that because otherwise you're just

walking around being like everyone else

is an idiot. You're not going to last

very long.

>> Chris Abdulazi spent eight years trading

energy derivatives at SIG. I think that

they very much understood that the

amount [music] of edge that was in the

market was abnormal. A lot of those

founders, they had come from the

gambling world. They had done like

[music] sports betting and they poker

and stuff like that. And they understood

that edge in those places was quite

small. The idea that you could trade a

$25 call spread for $2.20 in the options

market when you think it's worth $ 250.

Sig was like, that is a ridiculous

amount of edge. This is way more edge

than you would get if you tried to go

into the world of gambling. and [music]

the risk is the same.

>> After working at SIG, he spent a decade

trading energy commodities in San

Francisco and New York.

>> And after that, you built out your own

group. What was that jump like? I

started the net gas options business for

that. And I had to convince them to let

me do it because it's just a dangerous

product to trade, especially in the

2000s.

>> He's now the founder of Moon Tower, one

of the world's most popular newsletters

on options and volatility [music]

trading. If you were to boil down what

you've learned throughout your career in

the pits at SIG, what would that look

like? The phrase I would use for that is

nobody's bigger than the market.

>> Hey, from doing this podcast weekly,

I've met a lot of hedge managers, a lot

of quants, a lot of traders, and I've

seen a lot of job opportunities that

aren't available publicly. I know that

the people who watch this show are

incredibly driven, intelligent, and want

to become professional risktakers. And

so, if you want to land a job at one of

the firms I've mentioned in these

videos, whether that's a top trading

firm, hedge fund, or even a boutique,

drop your CV in the link below.

Hopefully, I can help.

Chris, thank you so much for doing this,

man. Yeah, of course.

When you look back at your journey, SIG,

Parallax, Moon Tower, trading in the

pits,

what was the earliest moment where this

world of trading, risk, and and edge,

what was the first moment where it

really made sense to you?

>> Oh, it's a good one. Uh so I would say

uh

sort of on an intellectual level it made

on an intellectual level which is the

the lowest level the weakest level I

think uh it made sense pretty much right

away just because uh when you're an

assistant because you would be watching

when you were watching uh your mentors

who were your traders that you were

working for when you were watching them.

Uh they were clearly doing a good job

and you know they was consistently

profitable and you could see what Edge

looks like. You know it's like you know

you you could see that you know they

would buy something and um you know it

would they were pretty much right on

like everything. That's because the

market it was different time back then

where the markets were wider and markets

were wider and the bit you know so you

could the spread with the spreads being

so wide it was like easier in a way to

make money especially when what was

happening like when I got into the

business the spreads were relatively

wide I I I when I started it was just

going from single list to multiple lists

like right now there's like what 18

exchanges or whatever the number is

these days But back then it's like if

you wanted to trade uh you know QQQ

options you had to trade them on the

annex like there was no other place

there was no other place where they

traded. So in any case uh it was a

different time. So what happened is it

made it made the the concept of of

trading really obvious to see like there

was a lot of money in this because you

also have to think about like the the

nature of the business back then was

there was a certain amount of market

making capacity that was built out but

then if you think about like today since

since COVID or 21 especially like we've

had this big boom in retail options

trading

>> so which was similar to how we had big

boom in options trading in the late 90s

during the runup of the dot com. So what

happened is like you have this certain

amount of market making capacity built

up and then you have all this flow all

of a sudden coming into it. So the

competition hadn't like uh emerged fully

yet. You saw those like legacy market

makers and then all this business. So

the edge was just everywhere money

raining from the sky that kind of thing.

So um and I but I was just an assistant

back then so it was easy to see. So in

that case, intellectually I understood

what Edge looked like. I was like,

"Dude, this thing's worth five bucks and

you're buying it for 460." Like

it it looked it looked easy. Actually, I

remember thinking as a as a clerk, I'm

like, "My god, we're going to be so

rich. What business did I get into?"

>> Little little did I know that the

competition hadn't just hadn't caught up

yet? You know, that it was that that was

going to happen. But

besides the intellectual level, like

where did it really click? I don't know

if it that moment ever happens where

you're like, "Oh, I've arrived." That

never I don't think that that ever

happened. Like your confidence is kind

of gross because what you really feel

like as you progress is you look back

and think of how stupid you were.

>> That becomes the marker. that becomes

the way uh you realize oh I've grown

but it's not one moment it's just like

you look back and like you're doing

something you be like man remember when

I used to think that so that that would

uh be evidence that you were growing

that was evidence that that that that

things must have been clicking more for

you than they did at some point in the

past but there's no one moment it's just

this constant I mean this is like true

in life too like I'm always like looking

back and you kind of look back at

yourself and cringe and and all that

that never really goes away. It's like

as long as you're growing that's going

to keep happening.

>> Oh, 100%. Uh I think for everything and

um No, I can imagine trading for sure.

Especially um cuz you started in the

pits, right?

>> Yeah.

>> Okay. Yeah. I mean that sounds like like

a like a different world to to now. Um

and so you started at SIG. I guess I

want to dive a little bit and I know

you've spoken on some podcasts, spoken

about this on some podcasts before, but

um what did SIG teach you? But what are

the core lessons that you got from the

from the program there that still shapes

how you think about edge today? Like

what are those core pillars?

>> Yeah, the the first one is the whole

concept of edge like that is that is a

core pillar. you know, if you uh if just

the simple idea that like if if a if a

game is worth 50 cents and you buy it

for, you know, 48 cents

uh and even though let's say the g let's

say you're flipping a coin, the game

could like the end result is either

going to be zero or a dollar, but so the

game for 50, but you can buy the right

to play the game for 48 cents on any one

trial of the game. Well, the reality is

like you're just gonna lose a dollar or

you're or you're g you're gonna lose

your money or you're gonna make a

dollar, right? So, it's like that's just

one trial, but like if you play this

game many many times, um you should make

two cents every time you trade in

theoretical expectation. that that's

like the very first thing is sort of the

core I think that's that's like the core

lesson like if you have edge and you

manage to not um blow yourself up you

will eventually end up with lots of

money and if you have negative edge

over time you are going to lose all your

money like that's that that's uh and

then there's and then but like the the

truth or like whether you have edge or

not can be quite hidden in the path.

It's very hard to tell. So, um, that's

like the fir that's like the first

lesson is that's the whole basis of the

business. The whole basis of every

trading business in the world is that

you have an edge and that you're trying

to stay in business so that you can keep

kind of uh capturing the edge. Uh, so

that's that's the that's like the first

that's really the first sort of lesson.

And then um the next lesson

um is that edge is hard to find.

So, um, it's basically the idea that

markets are obviously they're not

perfectly efficient, but they, uh,

they're quite efficient depending on

your vantage point. So, you know, the

the clo like if you're sick, the markets

don't probably look all that efficient

to you in the realm of options trading,

but like they might look efficient to

you in the in the realm of say credit or

venture if that's not your if that's not

your main business. Like, you know, you

you're throwing darts if you go over to

those tables. So, it all depends on your

vantage point, which means that trading

is is ultimately about labor. Like the

that's how I think about trading is like

it's a just a business. It's not really

investing. It's that you have to do a

whole bunch of work to get close enough

to get your vantage point close enough

where it no longer uh looks random to

you and where there's actually edge. So

uh but if you do not do that work that

labor that today capex whatever those

things are if you don't do all those

things the results look kind of random

which is like a paradox of skill thing

like if you if everybody at the table is

equally skilled the outcome is

determined by luck. So the the uh you

need to be able to get past the point

where you are better than the competitor

so that the outcomes are not just luck.

So this is this is kind of and that

that's hard and what what it means is

like until you realize you have an edge

until you know that you you just have to

give all this respect to the market like

people's bids and offers are not random

things like they know they know stuff

and there's information in all their

bids and offers. So the whole idea is

that you're not uh um you you you just

have to be massively humble. So that's

like the first um and as a market maker

that's really true because you know the

the nature of market making is somebody

calls you up and asks you for a price

and that person's been staring at

whatever thing that they're quoted

calling you about. You know they've been

staring that thing for a week, a month,

who knows how long and then they've

chosen the time,

>> right? like they're not

>> order is not coming to you like randomly

like they've picked like this moment

this time

>> I want to go buy this thing and you're

just a sitting duck you get to look at

this thing for you know 30 seconds

maximum you know if like it's a voice

order or something like that and you

have to make a choice so you have to you

have to be maximally humble to like be

able to do that because otherwise you're

just you know if you're just walking

around being like everyone else is an

idiot like you just you're not going to

last very long. So um I think the belief

that the market is mostly mostly

efficient, markets are mostly fair. Uh

that is a a very um that was like a very

formative belief informs everything

about how I think about trading

investing. Um yeah, that's probably like

the number one thing that I probably

believe under all of it is that to get

over the idea that something is uh is

fair takes a lot of work.

Now what you mentioned there about um

markets being mostly efficient and the

inefficiency can only really be seen

from your vantage point I think that

holds true for I mean obviously say

specializing in options market making

but let's say a quant hedge fund that

trades equities I think it it's true in

general for sure and

I guess within that I'd love to hear

about

those early days and because you know

back then there were far more options

and you know much more boutique uh

marketmaking firms that I guess didn't

evolve the way SIG had. What do you

think set SIG apart I guess from being

in the industry at that time and you

know just hearing things on the street

about what people are doing?

Yeah, I think what I think the thing

that se separated um Sig was so we go

back to

um the reput like Sig's reputation back

then was I mean we used to wear so

there's a lot of different trading firms

on the floors and we all wore different

color jackets, right? and Sig wore black

jackets and their nickname on the MX at

least was the evil empire like

[laughter]

and I think uh a lot of that um a lot of

that was that uh

first of all SIG had a lot of capital

even at that time uh relative to

competitors and um they had just like

compounding like they had been very

successful they were very just they were

just very good at what they were doing

and they are constantly expanding and

then the big thing was they had invested

a tremendous amount of in education. So

they were pretty early on the whole uh

you know a lot of other firms might have

been like you know you've got a lot of

firms might have been these kinds of

places where they're almost like family

businesses like you're a specialist on

New York Stock Exchange and you hire

your nephew and then he comes in when

he's he maybe he goes to college maybe

he doesn't he learns the ropes at like

uh at at a pretty young age and then he

gets slotted in there. Whereas like SIG

was, you know, by even the late 90s,

they were recruiting at like the top

colleges already. So it was like more

they were going after they were they

were willing to probably pay more a

little bit. Um

actually not really my if I remember

actually they they they were their pay

was a little bit on the lower end, but

maybe that was at the point where people

knew that it was a really good place to

work and they could kind of get away

with offer a little less. But the the uh

they they uh but they would go out and

they would recruit at the top schools

and they invested a lot in education.

That was I think they had their

reputation then they have they still

have their reputation today about their

training program. Um so that was one was

that they had done that. But the other

thing was they had, you know, I think

that this I guess they had built

probably built some kind of flywheel

there where it's like they're they're

hiring good people and they and they're

doing a good job trading them and

business was generally good. So there

was like you have this pretty good

combination of factors. Some of that's

luck because the business was really

good and um and you were you you were

you did have enough foresight to to

invest in education. You take all that

and they were making a lot of money. So

now you got a lot of capital and then

they understood I think that they very

much understood that the amount of edge

that was in the market was abnormal.

That was the big I think that was the

big insight that they had. It was an

abnormal amount of edge like in in other

words like they had come a lot of those

founders and stuff they had come from

the gambling the gambling world. They

had done like sports betting and they

poker and stuff like that and they

understood that edge in th edge in those

places was quite small. So it's like to

them it's like a bookie, you know, a

bookie is making like five, you know,

they're making 5% edge, you know, or

whatever. You're getting like 105 to 100

on a sports bet, right? And bookies are

making like pretty good living off of a

fairly slim margin.

And I and and the idea that you could be

that you could trade a $2.5 call spread

for $2.20

in the options market when you think

it's worth 250.

Sig was like that is a ridiculous amount

of edge. This is way more edge than you

would get if you tried to go into uh the

world of gambling and the risk is the

same like as far as like the what the

distribution of that thing could be

worth. So I think they understood there

was way more edge than there was in

other lines of business. And so what

they did is they were giant on their

size that they were willing to trade.

And they also did not like we were not

even instructed to hedge like we

you know like not not only because it

was all they were efficient it was

centralized. So, it's like let's say I'm

trading I used to trade in a Microsoft

options pit for a while. Like if I buy

if I buy like a whole bunch of Microsoft

let's say I buy a bunch of Microsoft

call spreads like some broker comes in

and sells them and you know I don't have

any opinion as to like whether this

broker is smart on direction. They're

just selling these call spreads. Hell,

maybe maybe they're bullish and they

maybe they originally bought some calls

and the stock has run up and now they

are rolling their calls up. So, what's

that going to look like? It's selling a

call spread because they're going to

sell me the near call that they're long

closing and they're going to open by

buying a higher call. So, they're going

to take some profit and they're going to

let they're going to let the bet ride.

In other words, even though this

customer is selling a call spread

because it's a roll, they're actually

still bullish.

They're just taking some delta off, but

they want to maintain length.

>> So there's nothing. There's no this this

is not a customer that's coming in and

selling you a call spread because they

think the they think the market's going

lower in Microsoft. So you buy this call

spread. You don't even hedge. I'm just

going to if you if you're like the these

these guys have been right before, I'm

just going to let it ride and stay with

them. And what'll happen is like SIGs uh

you know central command looks at all

the risk across the firm all the deltas

and be like okay well Chris is long you

know a half a million shares of uh

Microsoft equivalent and this guy over

here is short the Q's and that one over

there is uh you you know I got short IBM

like we net it all out and then we just

trade the diff in the market like we

just trade the the resid like whatever

the residual risk we go out and we trade

NASDAQ futures against that and we're

fine.

And then you have a whole bunch of like

uh you know under the under the uh uh um

the surface correlation risks between

all that. But then those risks are an

order of magnitude smaller than your

outright delta risk.

>> That's just noise to them. And there's

no reason to think that you have any

negative edge in any of that. It's just

it's just uh it's just it's random,

right? So their goal is like they have a

lot of capital. We don't care what the

we don't care about the noise. Hedging

is a cost. Don't hedge. And then just

only hedge when your risk gets to the

point where um where it feels like it's

swamping your edge. You know, if you I'm

just making numbers up. If you if you

make $1,000 a day trading, but your P&L

swings $200,000 a day, that that's

probably like at disproportionate size,

right? So you want to you might want to

cut that risk that you're you're making

a,000 bucks a day but you're only

swinging say 40 grand a day. So you

would cut your risk to be that at that

point. So Sig was willing to trade

massive. So so happens is like if Sig's

willing to trade massive size for these

edge. Now imagine the situation. You had

$2.5 call spread. Somebody comes in says

you know uh they offer the call spread

at 230.

Okay. It's got 20 cents of edge in it

right now, but the market makers are all

bidding 220 and there's a reasonable

chance that the this customer is going

to step down and say, you know, sell the

bid at 220

>> at no, right? So, nobody's going they're

going to come down and sell the bid at

220 and you know SIG will be like uh

either I'll pay 230 or I'll pay you know

maybe they might be like I'll pay two

and a quarter

and I'll do I want to do them all or I

want you know or I want 50% of the trade

rather than trading 220 and splitting

the trade up between a lot of people. So

in other words, like they eventually

they just tightened up the markets

>> because they're willing to trade they

want, in other words, they want to

optimize for size, not for sense of end

because they already knew this was like

way too much edge.

>> So

uh their aggressiveness meant that they

were to make even though they were they

were they were willing to make less edge

per trade, but this flip side of that

was they were just going to make more

money like total profits. So I think

that this is I've never really heard it,

you know, this is not something that

like this is my observation like this

just me noticing that they traded really

big back then. They did not hedge. They

understood that there was there was like

a this was just a lot of dumb random

order flow in the market and you didn't

have to, you know, you had to on if you

figured out you didn't have to be scared

about it. take it down, move on to the

next trade, and just do this as much as

you can, and you're gonna make the most

amount of money. And that was that was

what happened. I They were like the most

profitable options trading firm back in

those days. And uh you know, why they

get the and the the willingness to cut a

market and make it tighter to get more

size was is the kind of behavior that

you know people are going to call you

the evil empire for doing, right? You're

basically undercutting everybody else.

>> Yeah. I mean, tightening the spreads.

I'm sure the competitors weren't the the

happiest with that. Um, and the other

thing you mentioned there towards the

start of of your response was the

investment that SIG placed into creating

education. Um, I had Todd Simkin on my

podcast a couple weeks back.

>> Mhm.

>> And, um, you know, I asked him a lot of

questions about the way um, you know,

they they invest in in the training. And

what struck me is how comprehensive it

was and also just from hearing you on

podcasts talking about the way you

learned um how early they were to to

doing that and really trying to create

the flywheel of of of talent and and and

really being at the forefront of

everything. And it one of the things

that strikes me and I think I heard you

um on a podcast talking about this was

am I correct you work close to Jason

McCarthy of Five Rings?

>> I work for him.

>> What was that like? Cuz that sounds like

a I mean that he's private but yeah.

>> Yeah, he's very private. So it's like I

don't want you know I don't I don't want

to uh I don't want to say too much

because he's private. Um and uh um he is

uh I I I I learned a lot from him. I'll

just say that like I he's uh um look

he's a very he's an incredibly uh so one

of the things I kind of know got saw

from him was so he's an incredibly smart

guy. Um but and I mean Sig had a lot of

incredibly smart people. There's a lot

of now very famous people that are

running trading firms that were at, you

know, that were there when I was there.

I was

surrounded by a lot of smart people and

uh very fortunate for that. But Jason is

also very intense and he was a very hard

worker.

And uh I think that was one of the

things that that I had seen. I had just

seen it was interesting because I what I

saw was this because you're very young

so you have don't have any you don't

have a you may not have like a great

mental models for like what excellence

necessarily looks like and what I saw

was

a lot of the people who ended up

becoming really successful like notably

successful

uh they were they were just they were

very intense they're very competitive

and they worked really really hard and

they they definitely seem different than

a lot of the other people like it's not

it doesn't feel like an accident to me

when I think back about like who ended

up becoming sort of wildly successful

and like they were they were really

different. Jason was Jason was

different. I mean he was just um he was

constantly thinking about about new

stuff and he was he was a just just an

absolutely intense competitor

at work and outside of work. like he was

just he was just kind of an intense

person. So like I I I think uh from a

young age kind of saw what that I got to

see at least what that tier of person

looks like. So I'm not I'm not surprised

at all that he became

uh I would have bet on him becoming

wildly wildly successful, which he did.

And I guess specifically, you know, you

mentioned his competitiveness in not

just in in the office at work, but but

but also with with everything with

regards to life. Um, is that a trait

that you very often see with with, you

know,

people who are obsessed about um about

trading, about doing something about

about being, you know, being super

profitable and whatnot.

I yeah I think I think it's like a you

know I think it's like a person could

maybe it's a personality trait but like

yeah it's it's like a you know they were

they're they're kind of tireless the

people that become that like like said

notable like there's a tirelessness

about them and they uh outside of work

they're you know they might be into some

hardcore physical hobby like whether

it's um MMA or uh you know doing doing

triathlons or like the kind, you know,

just stuff and and and not to just do

it, but it's like

they want to be excellent at it, too.

You know, it's like I worked for a PM

that's like, you know, for his age

group, he's like, you know, was like the

is is like the top, you know, he he does

these like in the row in rowing, he's

like a top 10 rower in the country kind

of thing. or he was like a like, you

know, or like a like uh did did uh Mike,

you know, like one of the one of the

guys that's uh this guy that I worked

for is like used to do the strongman

competitions. We like pull a fire truck

and like all that stuff and it's like

another wildly successful guy, but it's

like just totally intense

uh personality in general. And so uh you

know, I'd kind of seen that. I mean, in

a way, I knew I was not like these

people cuz like I'm not, you know, I'm

not a psycho about about about a lot of

about about a lot of like like things

like that. So, um you know, in a lot of

ways it's like, oh, you you see like,

oh, this p this person is definitely

built different. And like I think it's

it's good to get exposed to that when

you're younger and just kind of see see

what that there's level, you know, what

that quote, right? There's levels to

this game. like there's there's just

levels to this game and like I'm you

know I I I'm self-aware who I am. I'm

not one of those kind of people. So it

was like you know I'm going to figure

out my way but

uh you know just kind of understand

where I just understand where I could

fit into everything.

And so you

you were at SIG for around eight years

if I'm correct.

>> Yeah.

>> Eight nine years. Yeah. Eight years.

>> Eight years.

>> And after that um you built out your own

group was it for a little bit. Yeah.

>> Um what was what was that jump like?

>> Yeah. that. So that was so I when I left

SIG I got I got hired by a uh um so

there's what's common in this and

especially on the floor you have firms

that back traders. So they give traders

capital and then they monitor their risk

and they might you know the firm that I

went to work for was a place called

Prime that was based out of Chicago and

they probably backed

I don't know I'm going to guess they

backed about 100 traders which was a mix

of futures and options so and a mix of

also pit traders but also they had

upstairs traders too that were just

doing they might just have a strategy um

trading trading future spreads uh you

know off the off the floor. So lots of

but I would say most of their risk even

though they might backed 100 traders

like the bulk of their risk probably

came from 10 traders who were and those

were traders that were probably mostly

in the options markets. So, um, I caught

on with some of those options tra like I

knew some of those options traders cuz

they stood next to me on the floor and

those were the guys that sort of vouched

for me and be like, you should you

should hire this guy. And so I ended up

sharing an office with those guys. And

so what happens is you're basically um

you're running your own business.

So in my case, I was running uh I I I

started the NAT gas options business for

that. They didn't have anybody trade net

gas options for them. They actually

never had anybody trade net gas options

for their company until I got there. And

I had to convince them to let me do it

because I mean they didn't have anybody

trading it because they they felt like

uh you know it's just a dangerous

product to trade especially you know in

the 2000s. So they didn't have anybody

trading it. And the thing is I was

coming from SIGs. I had a non-compete. I

couldn't trade anything related to oil.

I was trading gasoline and heating oil

and uh um and crude when I was at city,

but I wasn't allowed to do that because

of my contract. So, but I needed a job.

So, said like, "Hey, let me trade net

gas options for you." So, they let me do

it to their credit. And so, and then I'm

sharing an office with all these other

options traders, all their crude all

their crude oil options uh groups and

whatever. And back then it was they they

had like probably probably if not the

biggest one of the biggest crude oil

options market makers uh you know in the

world at the time was like trading in

for them. So they're not even though

they're backend traders they were not

you know a fly by night shop. I mean

they had capital and they they had

really good traders working for them. So

I share an office with these guys and

this was a different experience because

uh as you can imagine it's like

everybody it's like they don't have this

crazy training program right like

they're basically their business model

is not I'm going to take you out of

college make you a trader or whatever.

Their business model I'm going to hire

experienced traders tell them to run

their own business. I mean they're

they're like a very uh remedial version

of a pod shop really. So I end up going

there and then what the the big

difference is I'm immediately going from

a place where you know you're at SIG for

eight years. You're sort of like a

mid-career

level trader like you're not you know

even though I I did run the business

that I was doing for them. You're not

senior in terms of like at the firm

level or anything like that. you just

you run a group but you're not senior at

the firm level and here I'm going so

there's still sort of like your

mid-career you're there's still tons of

people you can learn from that's was a

big thing like I'd say there's still

tons of people I can learn from here I'm

going to a place where I'm basically

peers with the top people here it felt

different where I'm like oh if I have

questions

but I might not I'm going to have a

conversation with somebody where they're

going to be like my equal in a sense

where like so the answer is like we're

going to be sorting it out but I don't

necessarily have somebody I could go to

that has like the a better answer

necessarily because I don't have

somebody that's uh way above me or

something like that. So that that was

like a visceral feeling where I'm like

oh I have to I am now on the senior part

of the of the situation. Um, I I ended

up getting more into helping them

develop their traders. So, cuz I didn't

have a formal training program and like

I said, I'm sharing an office with a guy

that runs uh uh a big crude oil options

market making group. He's got 20 people

working for him. So, and a lot of them

are young, some of them out of college.

Um, so I ended up saying, you know what,

I'll train your guys for you. like

we're, you know, we're always screwing

around around after, you know, the

market closes, we're all in the office,

we're all like in our 20s and stuff like

that. We're screwing our

>> and like you know what I you know, I was

at SIG, we did a lot of training and

stuff like that. Let me train I'll train

your guys for you and like you know just

just as a uh you know make everybody

better. So I came up with curriculum.

I'll give homework. We would do my run

mock trading for them. Um, so it was

just kind of different because you're

taking a more like a I guess a

leadership role or something like that

because you're you're you know in that

in that change and then uh as far as the

trading itself

that was kind of the same similar to

when I was at SIG like it wasn't because

they give you latitude you just run your

own business and if

>> uh you know your risk limits were way

tighter than you know I couldn't trade

as big as I did at SIG but the trade-off

is that you know at SIG your your my

situation there was it varied from year

to year like some years it was like

salary and discretionary bonus some

years um the bonus was formulaic so it

was like like a a very transparent eat

what you kill model um which but like at

the when I was going to the backer I

it's a pure eat what you kill model like

there's no salary as a matter of fact

you have to put money you have to put

money off in escrow with them

>> so the way the way it work I can like

this is like a little bit cuz people

don't talk about this kind of stuff much

so I might as well share it like so the

way the way it worked is I went to go uh

you go there I put up money in escrow

with them and then what happens is the

way it worked my deal was I would get

50% of the profits and

profit being defined as your trading

profit but minus all your expenses so

you can think about it as If you hire

somebody, which I did, like I hired a

couple people, um you're you and your

employer are effectively each paying

half the person's salary if you're on a

50-50 deal. And

>> right, so

you get 50% of the profits. You were

paid quarterly. So I was got a check

four times a year. they you know uh so I

had my quarterly check uh they would

basically be like okay what was the P&L

minus expenses everything just do all

the accounting for the quarter then you

get uh you get your payout but of your

payout there's a hold back because

they're going to keep building your

escro account with the firm so your

escrow account keeps so you know you

start with like you write them a check

in the beginning for the escro account

then over time your esro account is

growing, but it's just coming out of

profits that are being held back. And uh

and then that they had a structure where

it was like,

if I remember correctly, it was I think

it was like once you had made a million

dollars for them,

you you would go to a 60% deal.

>> Okay. And once you hit uh and and there

was no like if you went back on like

let's say you lost money like you you

never were going to go back to 50 like

you were at you were locked in to 60 and

then if you make once you had made $2

million cumulatively for them you were

on a 70% deal. And that's kind of in my

case that's where it topped out. I think

people that had been around longer than

me like older than me they might have

had even better deals. like they

probably they might have had like 80%

deals or whatever, but like mine cap

mine by my generation sort of like

capped out at 70 uh at 70%. So, um and

again after all your profits. So, that's

what I'm saying like the guy you this

guy running this crude oil business like

he had hired 20 people. He's like, you

know, 70% deal at least and he had hired

like 20 people. He's running a big

business and he's got a giant cut of his

P&L. Um, so definitely definitely a

really good if you knew what you were

doing, this was a really good place to

actually make a lot of personal money.

Um, even even though the risk that they

let you overall take was probably a

little smaller. Um, now that said, I'm

going to talk about the escrow idea.

you're putting money up with them in in

at in some cases like it had gotten to

the point like especially people that

had been there for a long time their

escrow account was as big as like their

margin requirement was.

So you I think you could look back and

some people will look at the situation

and be like well I'm giving you I'm

giving my this employer you know 20 to

30% of my profits

>> and then my escro account is enough to

fund my margin. Why don't I just

>> trade for my not have the backer? But

you can think of the backer as being a

tail auction for you and then you can

decide whether or not so that that was

like ultimately the decision. It's like

because let's say something totally

crazy happened. Let's say you were on

the wrong side of the LME thing where

they like cancel all the trades and and

and a and and like um and you were on

the wrong side of that thing like just a

true like a true black swan sort of

event like not a risk event like a black

swan event

>> and you would be if you were trading

your own capital you could have been

wiped out here the the worst thing that

can happen is your escrow account is

wiped out.

>> No. and and and uh so and I think a lot

of people were preferred that where it's

like hey I I I can uh I will not um that

security where like the worst thing that

can happen to me in my life is that my

estro account gets wiped out um was

probably worth it for them to sort of

have a backer. So it was like almost

like the insur the backer is provided

they're almost like a reinsurance

company at that point for you. So

anyway, that was that was that's the way

that's like really the way that kind of

business looked. Um, but in when I

that's when I was also moving around

from pits like natural gas options. I

did that for it was probably about two

years before maybe year and a half

before it got uh the market had changed

got really crappy. um balls kind of came

in with all the shale uh the shale

explosion and so you had all the supply

of gas in the world in the mark in the

US and way too much market making

capacity for the amount of um for the

fall of the product. You know, if if if

uh if uh if something is 80 V and

there's 100 market makers and the V

drops to 40 and there's 100 market

makers like your business just got

terrible. So like your margins are going

to be way smaller. So uh the business

got really bad. So that was where we

start started expanding and that was you

know went into silver, gold, cotton,

coffee. Those were like how I expanded

into those other markets. So um and the

the backer,

you know, these the backer has built

trust with you. They're like, "Okay, I

watched this guy trade gas. He you know,

he was he was clearly not a psychopath.

um he wants to go do the dance, he'll

probably uh you know, not blow me up and

and so uh that trust and relationship

kind of grows over time, too. So that's

how I got was able to do all that stuff.

Chris, I want to ask

more questions about

how you view Edge in life. You know,

we've talked a little bit about your

career. Um, and obviously now you um you

do Moon Tower, you write, you you also

have the analytics thing. Um,

and whenever I read your articles,

because it's a mix, sometimes it's like

it's it's it's some option stuff and

then sometimes about your kids, right?

Or it's about edge and impersonal

decisions. And if you were to boil down

what you've learned throughout your

career in the pits at SIG um you know

the entire journey uh to to lessons that

you've applied to your personal life

about concepts you've learned there.

What would what would that look like?

Uh

it's it's two two things. So one

um

one is like when it comes to succeeding

um there's an element of it that you

have no control over which is the which

is what I like to say the the phrase I

would use for that is nobody's bigger

than the market.

>> What what does that mean? It means that

uh it's the idea that if you are uh the

best operator possible

in a market that is a just a melting ice

cube,

right? Um you're you're probably going

to do worse than a crappy performer

that's in the best business that exists.

So what this is is like the beta of

whatever it is that you're doing

um has a tyrannical effect on your

outcome. So there's an element here of

um you can look at it in two ways. You

can maybe there's an element of

acceptance. Like if you're pot committed

to the thing that you're doing like that

operator who's fantastic at what they do

in a declining market, there might be

they might feel they might not want to

change what they're doing and they're

great at that, but at the end of the

day, they're going to have to accept

that

this is just not where it's at as far as

like um they might be able to eek out a

living. They might do fine, but they're

never going to be they're probably going

to uh they're probably they might not

get to their ultimate goals because this

is out of their hands. You just can't

make this thing any better. Okay, so

this is the market is is is um bigger

than any individual. That's one that's

one aspect of it. So it's kind of like

you have to look at what you're doing

and be like in other words like what are

the returns

to be to skill here in this thing? you

know, is this super commoditized?

Um, is there room for um a unique point

of view in this thing or are we just

literally selling a widget where we're

competing purely on price and it's just

it's just a a an optimization game of

sorts. So, that's that's one is like you

have to first understand if what you're

doing uh how much beta there is to the

thing that you're doing.

The other thing I would say is that you

probably just want I and I think this is

this is this is goes kind of deep in the

sense that like you have to double down

on your uniqueness

effective. I just think it's like

you have to double down on your

uniqueness. Like this this means like

you need to understand

what you're good at, what your strengths

are, what your weaknesses are. And you

need to not only uh keep pulling on the

strings of like where where you're good,

but also have that inform what you do.

Like you should uh

I think um when you come out of college,

a lot of people, this is like sort of

directed at somebody, you you don't

really know what any job is like, right?

It's like you've read on the internet,

you listen to this podcast,

hear these words, you don't really know

what the thing is like. We don't really

know what anything is like until we've

like learned from experience from doing

from doing the thing. And while you're

going through things and learning from

experience, I think it's important to re

to to tune in to how does doing this

feel? What does the cadence of this like

feel like? Does this feel aligned with

um not just who I my my value system,

but is this aligned with what I'm good

at? First of all, I think doing work is

good, but you have to do work. It's like

accepting that like this is necessary.

So then it's a given that you're going

to have to do work and make a living and

all that. You got to think about where

in other words, don't underest Sorry,

I'm like talking her like all ways. It's

basically don't underestimate somebody

who

is loves what they're doing and is good

at what they're doing.

You can really go far, I believe, if you

care that much about if you're really

enjoying it. I just think that you don't

know what that is when you're 22 years

old.

>> Statistics.

>> So,

it requires as you're as you're

progressing. So, what does that mean in

practice as you're progressing to pay

attention to that? It's really to turn

down the dial on what other people think

about you. It's this is um it's so easy

to you know, you join a company and

you're doing well.

Maybe you're doing well. So what happens

is like your status is increasing

because everybody around you is singing

your praises or you know your mom your

mom is proud of you and your friends are

like he always buys the drinks cuz he's

killing it mom all the he's like you

might feel good about all that but if

but but you know what your job your your

work what you're doing every day with

your hands in mind you know what that

feels like and if you're not if you're

doing it because you like all this

external validation,

but you you kind you feel a bit uh you

know um you're not turned on by what it

is that you're doing. I think you really

need to pay attention to that because

it's going to catch up with you. It

eventually because eventually what

you're doing is going to get hard and

you will be doing something that you

were not really doing for you. you were

doing it for the compliments and

I I just think of this eventually

catches up with everybody. So,

uh that's the way and so the way I think

about edge is understanding that

accepting that there are some things

that are beyond my control because the

market is bigger than me. But but in so

far as things are in in my control, I

need to align myself with what um what I

am good at and intersects with my value

system like that is um I I think that's

basically the formula

and then the edge with like I I just

think from that like where's the edge?

It's like you're the edge is that you

are unique and that you are going to

work really hard at this thing that you

are good at that that you want to think

about that when other people want to

punch out, you're kind of still obsessed

with it. And your edge shows up over

time because like you keep, you know,

you're doing an extra hour, two hours a

day thinking about this thing over the

replacement player and whatever you're

doing. like all that compounds and so it

pays to get on to match to that track as

early as you can if you want to maximize

sort of the compounding over time. So,

uh but to do that you have to turn down

the volume on what everybody else is

saying about you and tune in to how you

feel about what you're doing. And that's

I don't know that's edge to me of

uniqueness.

>> Absolutely.

and what you've spoken about there I

find it fascinating how you know people

from different domains whether that's in

your case trading or uh let's say it's a

private equity guy or a small business

guy you know people who've done

exceptionally well exceptionally well

all realize that but it's so interesting

how the logical principles or the you

know the way they arrive there is

different so for you it's you know

thinking about beta and then that's like

picking the the domain that let's say is

profitable

right? Picking the right market and then

you know the intersection of let's say

passions and skills, right? That that's

edge. And so running as fast as you can

and as far as you can within that

domain. Um whereas for a small business

guy, he'd think about you maybe he maybe

he'll read a book and he'll see this

Japanese concept guy where it's like you

know the intersection of all those three

things goes ah that's it. And I find

that, you know, really interesting how

people who are obsessed about something

um and win, they all kind of arrive at

the same conclusion even though they

they they came from different domains of

knowledge

and

I guess

to your point about people who optimize

for status. Um,

yeah, I I just started a masters at

Colombia and before that I was doing my

undergrad at UCL in in London and I

think I've seen a lot more of this at

Colombia than at UCL. But I feel I do

feel like a lot of um of smart people

who go to good schools um they they can

be strivvers. They you know very often

they do optimize for the status game. um

you know talking to a friend and she's

you know she's you going to work in

investment banking and she was telling

me about all the people who ask her

about investment banking um who in her

words she doesn't think should go into

it at all. It's just a a whole status

game and it's pro it's it's the same for

I think any any like career that that's

high status and I think it's becoming

the same within quantitative trading.

we're seeing the the salaries of Jane

Street or all these or Sig or or or

Citadel and you're seeing these these

these super high salaries and people are

going ah I want to be that type of guy

and I guess how do you like how would

you as a young person tune out from the

noise because I feel like it's such a

such a strong pull and maybe it can make

you convince yourself that this is what

you want to be doing if that makes

sense.

>> That's a that's such a it's a great

question. So, first of all, I want to

give some grace to all the people that

we're calling strivvers.

It's not your fault. It's like your life

has trained you to be a Striber actually

because the the rat race of getting into

college, the whole the the the

you know it's captured in that like you

know if you ever heard that expression

like kindergarten is the first step to

the Ivy League or whatever. You know

what I mean point of view where it's

like your childhood is to prep you for

striving effectively. It's a

>> it's not your it's not it's not I don't

you know it's not like

it's not somebody's fault. It's actually

so these things striving is a byproduct

of risk management actually. So what

you're doing it's your parents risk

management. It's like your parent your

parent

think of your your parents primary

concern

is that you are going to leave the nest.

Okay. Like that is, you know, they're

like, I am, you know, I got this person

under my roof for 17, 18 years,

whatever, and then they're going to live

their whole life, and I really want them

to be okay. And so, as a parent, you're

kind of like, what's the only way I know

for you to be okay? It's probably you

need to be able to like make a living

and support yourself and and all that.

And so, they look at the landscape and

they and and it's basically just push

them right to striving, right? It's like

because it's not the risk management

like the parents primary hedge that they

have is for you to go to a good college

or that that's been the script for for a

long time. So, uh

that's and so uh the the child and

adolescent internalizes all this and so

they learn that the thing that they

should try to do should be this thing

that everybody's trying to do, right?

because it's just like completely fallen

out of this uh their parents risk

management strategy. So

uh so the the question is is like how do

you sort of I don't know if it's like

undo that? How do you how do you uh

learn to not chase the the status chase

the thing that everybody else is

chasing? And

I don't I don't have an answer so much

as like a hunch. And my the hunch is

it would probably help to discover

if you had gotten obsessed about doing

something when you were sort of younger

and saw that the rewards

both the perhaps there were external

rewards, but that to do something

intrinsically rewarding that to to have

like a leveled up through some skill

tree

and to have done that because it

mattered to you to get better at the

thing. In other words, like again, it's

like the uniqueness like what did you

get obsessed with and do and and that

you didn't do it just to pad your

college resume, but you were genuinely

cared about doing this thing. Um,

I think that if that happens to you,

that would probably be the best training

for following your own compass.

But again, that's just it's just a

hunch. I also have no idea how, you

know, one of the things I noticed is

like I have a 12-year-old and and or uh

my eldest is 12 and so just

[clears throat] mingling with other

parents, talk about our kids and all

that. And I think everybody every

parent's wish that I've noticed is that

their kids become obsessed with

something that are like they're really

into this into whatever and they don't

want to just come home and you know play

steal a brain rot on Roblox or whatever

like that is in other words like they

they whatever it is all parents are like

man if I just want my kid to be switched

on I it's interesting because I don't

see

the striving thing is interesting

because cuz it that the reason I say

it's risk management is because it feels

like the fallback because when you talk

to parents

>> it's not like parents

are vocally talking about the striving

stuff they're not

nobody's saying like I'm trying to prep

my kid to go to Princeton like like it's

not parents all understand that it's a

crapshoot and that you could be the top

of your class and Do you still uh you

know just last night a buddy of mine

texted me

um a girl that he knew, the colleges she

got into, the colleges that she got

weight listed at, and the colleges she

got rejected from. And I'll just say

that there's no coherence to it. Like

some of the colleges she didn't get

into, I would have been like, "What? How

did you not get into there?" But you got

into there, you got weight listed there.

Like there's no the order is like

totally not preserved. like it just

looks insane. Which then this is she's a

she's a kind of a she's a top kind of

student. What that the parent takes away

from that is this is a this is a

crapshoot.

So nobody wants to

lean into their kid to be like kill

yourself for some whimsical choice that

an admissions director makes. Nobody's

sacrificing their kid wants to sacrifice

their kid to this. Like there are some

who I I've heard horror story my I have

a friend who's a college consultant like

that and h he's got some horror stories

about uh so I'm not saying that there

aren't horror stories about like the way

certain par parents are but by and large

it's not normal for parents to um this

is the parents don't feel that way. What

it is is just risk management. It's

like, uh, if you're not going to care

about anything and you're just going to

want to steal a brain rot, then

you should really try to do good in

school and try to like get into this

status game thing,

>> be the best thing in future. But nobody

actually actively wants that. It's just

a fallback. So,

uh

I don't I don't have an answer other

than your job maybe as a parent is to

try to expose your kids to things and u

maybe in exposing them to things that

also means you have to tell them to not

you have to put put restrictions on you

know at least that's what I think it's

like I don't let my kids play video

games during a week cuz

it's not so much that first First of

all, I think the video games have to

play are terrible. If they're playing

some of these like fancy RPGs that exist

today, I might be thinking about that

because those are works of art. But the

games that they're playing are just

dopamine loops. What they're doing is

they're just prepping you to be a

gambler one day.

>> So, uh uh the the when I look at that,

the games themselves are trash. What but

fundamentally it's not the issue to me

isn't the game

uh wrecking their mind. It's the

opportunity cost of the time spent

playing on the game. That's the real

cost where it's like you could have been

moving up some skill tree and something

that

gave you self-confidence in the world

gave you a better sense of what you're

good at, who you are, what you like. You

could have spent all that time doing

that. And you will not you'll have a lot

less of that time when you're older. You

know, you know, it's like, you know,

youth is wasted on the young and all

that. So the the child doesn't

understand that. So your job is to

basically be like, "Well, you don't know

what's good for you because you don't

know that all this time that you have is

a is is is the gift of gold and you're

wasting it by playing this game. So I

need to be I I need to intervene here

and tell you you you can't play that

game on during the week, whatever." Or

this is like my best guess. I mean,

we're all trying just figuring it out.

But like this. So I think my whole thing

is like I want my kid to get on to some

path where they're really into something

so that they do

naturally cultivate and are familiar

with the feeling of an internal locus of

control and not some external validation

model. And it's not a foolproof cuz like

they might end up getting really good at

something and they get a bunch of

external validation and that ends up

sort of taking place of the internal

reward system. But uh it is it is my

best guess. I just don't think I don't

think there's an easy answer to it.

Do you have any contrarian takes or

contrarian practices as a parent that

you don't see other parents doing and

you that you found great value in for,

you know, in in in raising your

children?

>> Um,

good good question. Contrarian sort of

takes. Uh,

I mean, I'm pretty typical as far as

like trying to restrict the kids from

doing things that I think are bad and

pushing them towards things that are

good and that I think are are good or

trying to expose them to things that are

interesting and good and, you know, uh,

>> maybe particular activities that that

you that you push in a different way to

other parents. I guess maybe that would

be more interesting.

I would I would say one thing that um my

kids are intimately aware of is

I both my wife and I um try to talk a

lot about scenarios that we deal with to

expose them to that. Like she works in a

very corporate job. I have this uh you

know sort of um entrepreneur kind of

kind of life and

I'm always trying to bring we always try

to bring them in on like what are the

things that we don't uh we don't uh

obviously we shelter them from things

that are really bad like we don't you

know I'm not trying to create a bunch of

anxiety in my kids but we'll take

interesting you know could be like a a

challenging situation and present it to

them and be like, "How would you think

about this?" And and so I don't know if

that's contrarian so much as we just try

to be really conscious about exposing

like giving them credit. I actually

think I think that's probably it is like

I just give them credit in the sense of

um you know being capable of thinking

through things like their kids are kids

are smart. You can you can expose them

to things. One thing we don't like uh I

have I we have really close friends that

when their kids ask them something what

they will do is especially as as they

get older and older you know their

eldest is the same as my 12-year-old

they'll ask them uh do you want the

child answer do you want the adult

answer and they'll give the child the

answer and it's like they're really

transparent with their kids but they

sort of have developed this thing where

they will give they'll sort of let the

child choose

And I think even the act of letting the

child choose is this act of like

>> and them a bunch of credit for being

like I'm going to the fact that I'll let

you choose is a an acknowledgment that

you are a person and um you know and you

obviously you have to ease into that

like you know it's not something you're

going to do with a four-year-old but uh

overall I like with my kids, I try to

show them like, hey, what I'm working

on, can you help me with this? I'm

literally last night I'm I'm currently

trying to figure out a card game that is

option about options trading

and uh so I have my so I have both of

the kids are sort of involved with it.

So like the older the older kid had to

like come up with what some of the cards

would be and he was he's been using the

LLMs to kind of help him with this. And

so he helps me he's been helping me on

uh the conceptual part of it. And then

the younger guy who is

>> he's 12. He understands options market

making at 12. He doesn't he does I would

not say he understands options marketing

but he he he he

knows a little bit like he calls and

puts work and uh

>> uh he but but he's but he's played a lot

of games because we play a lot of games

around here. So he's

>> so he understands how like the abstract

idea of a game loop and a turn structure

and there's a phase and like he does

understand all that just just

organically from like the fact that

we've played you know various like uh

the deck builder games or whatever. So

uh so he he he understands the problem

which is like we're trying to we're

trying to create this fun loop for

somebody to war and he also understands

open outcry because we have done open

outcry games. So and he this game has

that aspect to it. So he under he

actually does understand all that stuff

but he doesn't understand like what a

call spread is like

>> okay here. Uh so uh so he's helping me

with the so I bring him in. So part of

it is like you know he might come up

with a hundred dings and like one of

them is like hey that's pretty that's

pretty decent idea or whatever. But so

part of it is like it's obviously like

I'm not having him do it because I think

his output is going to be massively

important. But I want him to be involved

with this process because I want him to

be familiar that like hey these things

that exist in the world they didn't just

magically land here like they were at a

seed of an idea at one point

>> in many rooms

>> right like there was a thought you had

in a room one day it didn't exist in the

world and like that whole idea itself is

super important so we we did so he's

helped me with that the younger guy I

have helping me with um okay, we're

going to go on the computer. We need

every card that my younger guy's nine. I

need every card to be 2 and 1/2 in by

1.9 in. Um I need a template sheet of

paper. We're going to write all the card

um qualities on the on it. You need to

print it out. We need to either figure

out I need them to be so they don't

bend. So he's like okay. He's like maybe

we can laminate them, whatever. Like

he's he's like intimately involved in

like the physical part of the process.

So that's what the nine-year-olds do

because that's where he is. That's where

he can do he he I help with the

conceptual part, but he could help with

that. So I bring them in on this. So

last night before we go to bed, like the

younger ones got all the cards cut out

and they're like scattered all over like

my bedroom floor and I tell them I look

at them and I just look guy you see this

one day this is going to be a game. It's

going to exist and you'll remember that

this was just a pile of paper on our

floor.

I really want them to understand this

that uh all these things that you've

seen in the world were whimsical

thoughts

at some point

and that work is the bridging of the

whimsical thought to something that is

finished and the iteration and like I I

even tell them like guys this is just a

prototype. This is going to stink. We're

going to try to play it. We're going to

find all the things that like why this

doesn't even work. But we're gonna

we're gonna come back and we're gonna

we're gonna make it better and we're

gonna just keep we're step by step and I

don't know how long this is going to

take. But hey, this is pretty fun while

we're doing it, right? You guys having

fun, right? Like

that's

So I don't know if that's that's not

contrarian in my mind or anything like

that. It's just to me looks like living.

So

>> yeah.

>> Uh so this is and I I so I want them to

be involved in the things that I'm

doing. Um I don't treat them like a

separate species. in a sense like when

they're younger you kind of have to but

at this as they're getting older I try

to give them uh lots of credit and then

what happens is like they screw up

because you give them a lot of credit

>> but they're still kids and they screw up

and then you have to like rein them in

again or punish them or whatever

>> but then you know you open the you open

the chance again for them to to to to

express themselves and and and you see

if like hey if I give you a little bit

more freedom are you going to you know,

are you going to thrive with it? And if

you screw up, I'll have to dial it back.

Whatever. It's just like this constant

thermostat. But the the uh I just try to

keep them involved in whatever we're

into.

No, I think that's great. I think you're

raising them to to think independently

uh and to and to you know see as you

said um see that that work is required

to to build something and and especially

to build something good something great.

Um I think that's a that's a great place

to end this episode. Thank you so much

Chris. Uh that was wonderful.

>> My pleasure man. Thanks for having me

on.