293 · Rick Bandazian Jr. - The Art of the Wait: Merger-Arbitrage Killer Moves
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I was sitting at the desk. I don't remember the ticker, but the Wall Street Journal broke a story about XYZ being in talks to be bought. Boom, boom, boom. I typed the ticker in and boom, boom, boom. I hit the hotkey. And whether it's in trading or anything else in your life, sometimes you react really quick. And then one second later, you go, oh, shit. Like, what did I just do? So I get out of the trade as fast as I get into it. And I look up at my P&L and I go, oh, my God. Like, I made...

more money than I made as an analyst in about like 20 seconds. Markets, speculation, and risk. This is the Chat with Traders podcast. Chat with Traders is on episode 293. Hey, traders, how's it going? Tessa here. And this just might be our last episode for 2024.

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Well, we also want to take this opportunity to wish you and yours a wonderful holiday season. Merry Christmas for those who will be celebrating. Happy holidays. Happy year end. Happy new year. Happy everything. Now let's get to our interview.

Today, you'll be listening to a wonderful chat that my co-host Ian Cox had with our new guest. His name is Rick Bandazian Jr. I feel like Rick is, you know, just a cool guy. And he's also a dear listener of the podcast, which we really appreciate. So Rick is a seasoned trader with over 15 years of experience in event-driven and merger arbitrage strategies, or merger arb as they would call it.

He transitioned from working as a banking analyst at J.P. Morgan and First New York Securities to then establishing himself as an independent trader trading for a living. Rick has deep expertise in anticipating market moves based on nuanced corporate actions, and he has a very methodical approach to understanding these types of catalysts, such as the merger R type of events.

I could be wrong, but I'm guessing that he was able to leverage some of these skills that could be one of the edges that he gained as an analyst as he crossed over to trading, even though the two roles are completely different.

I mean, I've tried to trade these types of events and let me say that it would be like gambling on my side if I had to trade against other traders like Rick because he's equipped with real strategies and methods with edge for these kinds of very specific plays that he has perfected over time. He's honed his craft and we will get to gain a lot of interesting insights as Ian dives into Rick's thoughts, process and setups. Well, I'm going to leave this fun, entertaining yet also informative and educational chat for you to enjoy.

So without further ado, ladies and gentlemen, we're so pleased to introduce Rick VanDazian Jr., originally from the New Jersey, New York area. Well, Rick, I'd like to welcome you to Chat with Traders. Thanks for having me on. I appreciate it. I'm a longtime listener, and it's always a great forum to hear different perspectives and different people's process, which is always really interesting for me. So I appreciate you having me on.

Yeah, yeah, yeah. Well, tell us a little bit about your kind of where are you now? Where did you grow up early? Sure. You probably never heard this one before, but right now I'm in South Charlotte and I'm in my office on the second floor of an old firehouse that I own. And my tenant has a brewery downstairs on the ground level. So if we hear anybody getting rowdy, just bear with me. But yeah, so I live in South Charlotte. I've been down here for about

six or seven years. Married, I got a couple of kids. We moved down here from North Jersey, Bergen County, New Jersey, which is just outside of Manhattan. So I'm, you know, I guess I consider myself like a New Jersey, New Yorker. And I stayed local for school. I went to Fordham University, which is in the Bronx, New York. And, you know, I played ice hockey in high school. I was an ice hockey player at Fordham. And I was a finance major.

And people always ask me, why was I a finance major? And I don't really have a great answer for that. I guess I just didn't know what I wanted to do and knew that I wanted to make money. And I figured it was just probably a pretty good idea to do that living pretty near Manhattan. There'd be job opportunities or whatever. Yeah, yeah. How did you first become interested in the markets? I didn't have any family, direct family in the business. And

I never traded. You know, I know a lot of your guests, you know, they traded when they were really young or they traded in high school. That really wasn't me. So I guess, you know, maybe it was some of the coursework at Fordham. And, you know, once you hit your junior year, you get to start sniffing around and trying to figure out what you want to do. So being an investment banker was like the sexy job at the time.

And, you know, I don't know how much appetite I guess there's I guess there's still appetite for doing that. But I kind of muscled my way into an investment banking gig. All the bulge bracket firms, they came to Fordham for various jobs, but they didn't come at the time for investment banking jobs. And I.

You know, just old school, you know, pounded the phones and sent resumes out. This is like 2000. So I landed at J.P. Morgan in their investment banking group. I was in the syndicated finance department. And for people who don't know what that is, we basically, you know, it's a sell side gig and we were raising capital for corporates and LBO firms. And it was it was mostly a boring job. But every now and again, we would do financing for an LBO.

which was pretty exciting because I could see like all the work that I did that 90, a hundred hour weeks, um, the deal would hit the tape, right. And there'd be excitement and conference calls and the stock would gap up and all that stuff. And for those that are not familiar with the investment banking thing, you get hired as an analyst, you do two years in the same group. If they like you and you survive, you can get invited back for a third year. Well,

We had some crossover work with the equity capital markets group, and I made an unusual push into that group after a year. And that was closer to the markets because that group also raised capital for corporates, but they were raising capital via secondary offerings and convertibles. And that was even more exciting for me because

Everything I did was on the tape, right? There'd be a convert and the stock would get hit. And it was like, hey, cool. I worked on that. But after doing that for about two years, I realized that that life wasn't really for me. It wasn't the hard work. It was just...

I don't know. You know, you got to play politics. And when you get hired as an analyst, you're going to get, you're going to get paid between X and Y salary and X and Y bonus. And even if you did a two X or three X better job than the guy sitting next to you, you were just going to get paid the upper end of that range. So I wanted more of like,

an immediate report card, so to speak. So I was really learning about what the buy side was versus the sell side. Because when you're a kid and you're putting your head down for a hundred hours a week, you really don't have time to do a lot of that stuff. So, you know, I decided to pass on that third year gig and I wanted to make my own luck. So I basically got hired away to a prop trading firm. You've probably heard of it. First New York Securities.

And Punnett Town came out of that firm and still does. And I was hired not as a trader because that's the typical path there. You get hired as a trader, but you go through. At the time, they had a really incredible trading program. I'm sure they probably still do.

and you get hired as a clerk and you would clerk for somebody for like a year or 18 months or whatever. And when you were ready, when the firm felt that you were ready, you'd go out on your own. They'd give you X million and they'd say, go ahead, fly free, do your thing. And typically those people would, they would trade pretty similar to the person that they clerk for, right? Because that's what they're used to seeing and following. So anyway, but I'm an analyst at this point and the PM that I work for,

traded what's called event-driven. And I didn't even know what the hell that was at the time. Obviously, I do now. And it's exactly what it sounds like. You're trading around some sort of an event, a catalyst. It could be typically like a corporate action. It could be a merger, a spinoff, split off, Dutch tender, anything with an event, an analyst day, could even be an earnings report.

And the trades would be, you know, call it short to intermediate term time frame. And that's really what I wanted because it was, you know, you trade, you get an immediate report card on what you're doing. So that's what I did for a few years. I would generate ideas and the PM that hired me knew that I could, you know, run models and comps and talk to CFOs and, you know, model cash flow statements and all that stuff.

and do idea dinners and all that fun stuff. So I did that for a few years. We ended up spinning out into a long short equity hedge fund, doing the same thing. I had a couple of guys working under me. I was still on an analyst role, not a trader.

A couple of years into that, I got hired away. Just curious. So as an analyst there, like what, what did you do? Like, how did you advise the traders or what did the traders look to you for kinds of information and kinds of analysis?

As an analyst, I guess whether it's event-driven or fundamental or whatever, you're just constantly digging and digging and digging and talking to as many people as you can for ideas and looking at the calendar and, hey, you know, your buddies long XYZ. Well, why are they long? Okay, that's kind of interesting. So you're like an idea factory is really what you are. You're really trying to come up with ideas and

And then you bring them to your portfolio manager, your trader, whether it's a small firm or a large firm, and then they sort of run it through the gamut. OK, that's interesting. Why? What's the setup? What's the timing? What are the events on the calendar? So that's pretty much what we would do. And it was long and short, but we stayed primarily in equity land. We did some fixed income and capital structure arbitrage, but typically it was just a directional equity bet.

Just to circle back here. So I did that for a few years. Then I was hired away to a Canadian, one of the biggest Canadian banks to help run their event-driven and merger art prop book and did that for a few years. And now we're in 08. Just before the crash. That's great timing. Yeah.

So just to be clear, so when you went to the Canadian firm, are you now transitioning from an analyst role into trading or were you doing the same? No, so I was doing the same, but I was at some elevated role or whatever. So I wasn't quite co-portfolio manager, but I was kind of the right hand man to a guy that had done merger arb for a very, very long time.

And this is probably about 05, 06. So we had a really good run. We had a good run for about two to three years until 08 came. And then obviously 08 blew everybody up. It's a really funny story in hindsight. At the time, it wasn't. But I've never been let go of a job in my life. And we were making money. And the bank was unlike most other banks and most other firms. There were just holes in balance sheets everywhere.

So we had a certain amount of capital that we were using to run our strategy. And they just said, look, sorry, game's over. And they said, we need that capital for elsewhere. And like I said, I'd never been let go of a job in my life. And again, funny now, not funny at the time. They bring me in a room and they say,

They tell me what happened and they tell me how, you know, they're letting the whole group go. And I said, all right, great. And he said, I said, when? And the guy goes, right now. I said, oh, great. That's terrific timing. I'm having my first kid in about 10 days from now. Oh, God.

And anybody who has a job where they can like press buttons and trade that can do damage if they go rogue. I mean, I would never dream of doing this, but it's kind of funny. You go back to your desk, your computer's gone, your keyboard's gone. So anyway, our whole group, you know, we go out to the bar, of course, and commiserate.

And I wake up the next day with a really bad hangover. And I end up calling one of the, I'm not going to name him, but I called one of the founding members of First New York. I had a really good rapport with. I told him what happened. And he says, look, there's an event-driven guy here that wants an analyst. And I'm also going to give you a pad. Come on Monday.

I was like, holy shit, that's great. So I'm out of a job for, I didn't know how long, and then I'm really out of a job for like 48 hours, right? So now I'm in this, now I'm like a trader, right? So I'm still doing the analyst work, but now I get a pad at first. So what does that mean? What does that mean? You get a pad? They basically give you, they give you capital to trade.

That's what that means. So, you know, so again, I get invited back and, and I had this pseudo role where I'm an analyst, but, but I get a pad, you know, it's X million dollar pad. And they say, go, cause they know, they know I've done well for them. And I had a good track record in my career, just doing event driven. So this is, this is like the whole story of my transition from analyst to trader. And I told this story to somebody else the other day,

Analysts think they're really smart, right? And the analyst is always very aligned with the portfolio manager, of course. They have the same goals. But I didn't realize at the time, even though I had worked hand in hand with all my PMs as an analyst, man, it is a different job. It's a completely, completely different job because you're an idea guy as an analyst, but the trader or the PM has to think about all these other things that an analyst really doesn't have to think about.

position size, the setup, and we can get into what the setup means in a little bit. I think it's pretty interesting. I think it's actually a very interesting, important part of probably the most important part of trading. And so now I'm sitting in this seat and I'm thinking I'm really smart.

And there's nothing to do because it's 08. So there's no corporate actions, right? There's no mergers. There's very few. I could probably count on one hand the amount of corporate action or event-driven situations that are out there, but because there's so few, they're routed and they're difficult to make money. So you weren't tempted to try to trade other strategies while you're waiting, either for the firm or maybe did you have your own personal account that you were trading?

I can't even remember. I probably had a PA at the time.

But to your point, that's exactly what I did. I said to myself, all right, I'm a month into this thing. I'm starting to look over my shoulder now, right? Because I'm not making any money. I'm not losing money, but I'm just like up one unit, down one unit, up one unit, down one unit. You know, I was working on a couple things, sort of like side gigs, side projects, like momentum trading and some fundamental stuff. So to your point, you're right. So now I've got like three or four different strategies I'm running.

across the pad that I was given. But same thing, up one, down one, up one, down one with every single strategy. I'm still doing the analyst thing. And this was like the pivotal moment that kind of set me on the stage for probably the next 15 years up until today. I'm sitting at the desk. I don't remember the ticker, but the Wall Street Journal broke a story about XYZ being in talks to be bought.

Boom, boom, boom. I type the ticker in and boom, boom, boom. I hit the hot key. And whether it's in trading or anything else in your life, sometimes you react really quick. And then one second later, you go, oh, shit. Like, what did I just do? So I get out of the trade as fast as I get into it. And I look up at my P&L and I go, oh, my God. Like, I made more money than I made as an analyst at the Canadian bank in about like 20 seconds.

Well, what prompted you to both get in and get out so quickly? What were you looking for? You know, I understand now why I got in it, in and out of it at the time. I don't know. I think I probably just blacked out. You know, I obviously I knew the stock was going to go up. Right. X, Y, Z and talks to be bought. And I just reacted.

So that happens. And I'm like, I get a little bit of breathing room now. I'm like, all right, I don't have to look over my shoulder. I go back to the three or four strategies I'm running. Again, up one, down one, up one, down one. And then like, I don't know, maybe a week or two later, same thing. Now I'm kind of prepared for it. I'm sitting in front of the screen and I'm kind of waiting like a sniper, you know, waiting for something to come. Meanwhile, I'm working on all my other stuff. And then same thing, boom, boom, boom, in and out.

And again, I don't remember what that ticker was either, but strangely, the P&L was the same. I'll never forget the P&L was the same. And right there, I said, I'm just going to do this. What am I wasting my time doing all this other stuff for? And that kind of set the stage for what I do now. I mean, I don't trade that exact way now because a lot has changed. Technology's changed.

You know, these guys have black box API, co-locate front running stuff on all these, you know, headlines that come across the tape. So you're saying the market was less efficient back then? It was much less efficient. Now, you still, I mean, I've always been very, very diligent about case studying every trade that I do, especially when it comes to news. I categorize things, you know.

size, time of day, thoughts at that moment. Was it a fast trade? Was it an idea trade? But back then, again, this is late 2000s, there were no black box machines on the headlines. Now, I wouldn't even try now because you just get whipped. But you had, sounds fast, but you had about two to three seconds to react to stuff on the tape back then.

because they weren't black boxed like they are now. And that lasted a while. And again, there's a lot of nuance to what I do now. And we can get into all that with merger ARV and event driven still. But generally, that's kind of the same thing that I'm doing now, except I'm not trading like those headlines. Just to wrap up the history here. So I do that.

At first, New York, I spent out until like a first New York related family office. I do that for a couple of years. And then I realized, you know, I don't need I don't need twenty five or fifty bucks to do what I do because I'm in and out of stuff so fast. I don't need a huge portfolio. In fact, I typically don't even run positions overnight. And again, we can talk about why I'm not really a believer in doing that or anyway, it's not my style.

And then about 10 years ago, I just decided to go out on my own and keep it all, so to speak. So when you say you're going on your own and keep it all, meaning you're trading just your own account or what? What does that mean? Exactly. Yeah. So, you know, when you when you get hired away at a prop trading firm, they give you the capital and then you have some sort of a payout. Again, I think some of these guys, they either don't want to run their own money because they don't have the confidence to do it.

Or somebody's just not worth $50 million or $100 million and they want to take the firm's capital and then the trade-off to that is you have to give the firm X percent P&O. But for what I do, I can run my business on just a couple of bucks. I don't need that big capital that I would need to go to a first New York or whatever because I'm in it at fast. Chat with Traders is brought to you by TastyTrade.

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But how often do these trades actually show up? How long do you typically have to wait before something pops up on the screen? That's another really good question because I'm in this like, I'm in like this two week lull that we briefly talked about earlier. I don't really experience like a typical drawdown like a lot of traders do, but like a drawdown for me is going like the last two weeks where there's just not a lot to do.

So I could, I could go three days without trading a single share in anything. And, you know, I just have to be, I just have to be ready for these things to come. So, you know, maybe there's a,

I mean, there's a trade every day, of course, right? Sometimes you realize in hindsight what the trade was. When you say there's a trade every day, but is that directly tied to your strategy of event-driven arbitrage type activity or? Yeah, like, you know, like there's always, so just to take a step back real quick, what I do now is sometimes

kind of in the same universe of what I explained before, but merger or arbus deals announced and there's a spread usually relative to the deal price because of various factors or whatever. So at any one moment, there's 75 to 100 announced deals and I keep track of every single one of them. And I know

who the buyer is, what the price is, what antitrust approvals are needed, when the company said they're going to close the deal, where they're incorporated. I mean, there's so much nuance to that. And then secondarily, I also keep track of all of the

I guess you could, these are really considered more event-driven stuff that hasn't come to fruition yet. So a good example of that would be the Wall Street Journal, like I said, breaking a story about XYZ being in talks by private equity. Naturally, that stock is going to gap higher, right, from that time period. But sometimes you get a week, two weeks, two months, even a couple of quarters before a deal is actually announced. So in the meantime, that stock is gyrating around

based on expectations and based on what the fair value is, based on where comps are going. And so there's all this new news coming out on every merger arm deal that's announced and also all the event-driven deals that are announced. So what I do now is I pretty much, I'm like very, very up to speed on all of these situations. I mean, there's probably a couple of hundred of them

but there's probably 30 or 40 that I'm like really dialed into. And as news comes out, I'm able to react because I'm already up to speed.

Right. Can I do, what does that mean? What does that mean to be up to speed? Or do you look at the fundamental analysis of the company that's being bought and their offer price and figure out, okay, well, based on this, it should have a, at least a 10, 20, 30% run at a minimum. And do you, do you shoot for that kind of higher end range? Or are you happy with just scalping a few percentage points here and there in just seconds? Yeah.

I could probably explain it better if I give you an example. So I won't, there's no point in me naming it, naming tickers, but Reuters, for example, broke a story on XYZ a couple of weeks ago about them being in talks with private equity, right? So the stock gap's higher.

And it's been a couple of weeks. The stock's starting to trail off a little bit. I don't believe in, I think it's too difficult to take a position in that stock now. I mean, I have a rough idea. Yeah, it's going to go down, you know, eight to 10% if the new headline that comes out says the talks are off, for example.

Because I don't, there's no edge in that. Everyone has all the information. Everybody's already processed all that information. But I also know that that stock is probably going to go down about 8% or 10% because I'm following it. Because I watch where it came from. I index everything relative to the comps, right? So if the comps are up a lot and this thing is starting to fade off, maybe it's actually trading near fair value.

because you've had that drift higher with all the other comps, if that makes any sense. So if I was an analyst, maybe I'd actually recommend that to a PM, like, hey, there's only three or four or 5% downside in this. And we don't know what the upside is because the deal could be at a 20 or 30% premium to where it is now. That's more of a PM bet. But again, because I'm so up to speed on all the situations, I know that

If XYZ gets some antitrust approval, I have an idea roughly where it's going to gap up, right? If that antitrust approval is not expected. But I also, you know, I know where the deal price is. I know the other antitrust approvals that are coming. Today, in fact, there was a company that received antitrust approval in the EU, some pharma deal that I'm following. And

The stock gapped higher on that headline. I did not short it because it didn't get high enough, but it did gap higher. But I also knew that that was already expected because, I don't know, Wall Street Journal or Bloomberg ran a story two weeks ago that says the EU approval is coming. So what I'll do is if that got too high,

I might fade that stock because I already knew that that was already coming. And I also know that they still need Hart Scott Rodino in the United States. That's the big one that they need. Just as an example, if that makes any sense. But if you're not up to speed on these situations, maybe you've chased that stock higher because all you see is approval. Like, what does that mean? Approval is positive, but how positive? And what's left? And what's needed?

I see. So you're doing a lot of research, right, before these news events are finally released and confirmed. And you have a very good idea on potential upside caveats because you're dialed into the nuances of each deal. Exactly. That's exactly right. Another good example would be if some tier two activists bid for a

you know, some dog shit REIT company that's a billion market cap. Let's just say the press, let's just say on Monday, they raised the bid by a dollar or they raised the bid from, you know, from 14 to 15. I already know that that, first of all, I know that tier two activist firm is a lousy firm that doesn't want to buy the stock anyway. And I also know that the company is incorporated in Maryland.

And, you know, that's just a small nuance. Like a good event driven trader knows that Maryland or Pennsylvania incorporation, just just as an example, means the company, if they bid $100, the company could say go away. And there's like no shareholder rights, not like when they're incorporated in Delaware. So somebody takes that stock too high.

I'll sell to them all day because I know when the dust settles, whether it's in 30 seconds or three minutes or 30 minutes, everyone's going to go, oh crap, why did I buy that thing? You know, because now it takes them like five minutes, 10 minutes, 20 minutes for them to get up to speed to what I'm already up to speed on. Does that make sense? So are you looking at also the technicals or is it strictly you kind of know where your target prices is and you know what prices are considered overbought and

And you make your trades just based on that? Yeah. You know, I've looked at charts for like 20, 25 years and I can't make money looking at charts for the life of me.

The only time I'll look at a chart is intraday. I mean, I do look at all charts, actually, just to kind of see where things are coming from and going. But if I have a chance to buy something because I find a piece of news before everybody else, the most important chart for me is the intraday chart. Like, I want to know if it's moved yet. Because by definition, if somebody sends me

a chat or a, or I see something in Twitter or whatever, by definition to me, it's old. And, you know, sometimes I have a time stop and what I do too, because let's just say I find something buried in a new story or buried in a filing. Actually, this happened a couple of days ago. I was on a conference call and,

And I listen to tons of conference calls every day that are either on the event-driven list or the merger ARB list. Or sometimes I just listen to the conference calls of like the huge OEX, very thick liquid names because there's more liquidity, obviously. So Intel's got some event-driven stuff going on with it right now. CEO changed. There's some activists there. But on the call, they reiterated their guidance that they gave two months ago.

And I kind of wasn't looking for that news, but I heard it on the conference, on the webcast. And I quickly pulled up the quote. It hadn't moved yet. So I bought a bunch thinking, and maybe I could scalp a little bit here, or maybe it just runs because maybe everyone is expecting them to guide down. I wasn't really up to speed on the situation as much as I am on the event driven merger arm stuff.

But what's the downside buying this thing on the offer? Literally, it hadn't moved. Now, Bloomberg ran that story probably a minute later because somebody at Bloomberg was on the call also. The stock ticked up like a nickel or a dime or something like that. And it didn't go anywhere. So I got out of it. I probably scratched on the trade. The reason I bring that up is because once the world... Information's free and it's so ubiquitous, right?

I mean, I pay a fortune for my Bloomberg and all this other stuff, but if you're following the right, I don't know, Twitter handles or whatever, you can pretty much have the same information. Like my grandmother has the same information 30 seconds after I do. And my opinion is once it's on the tape and you give it a few seconds or a few minutes, it's priced in, right? Maybe you get a big shareholder that's off the desk and changes his mind on some piece of news, but again,

It's almost as if I flip an hourglass over once a couple of minutes goes by on event driven news that hits the tape. There's nothing to do. Like now there's no more edge. Does that make sense?

Yeah. Yeah. So how do you know, like for event driven situations that are not directly tied to say a buyout offer with a specific price, say all other events, how do you know what, how much upside the stock would have to like, say the CEO changes? I mean, how do you know the stock would necessarily move anyway? And do you have a target or do you have, is it based on hunch?

That's a great question because if I'm not up to speed on something, I think it's really hard to trade. I actually saved two examples from today, just in case you asked me that question. There was a headline that came out. It says, Apple prepares three-year modem rollout in a bid to outdo Qualcomm. So obviously negative for Qualcomm, right? Now, a machine...

sold that instantaneously because there's some, you know, there's probably like some negative tag on, there's like a negative tag on Bloomberg. So I'm not going to beat the machines. I didn't trade that because number one, I'm not up to speed. Qualcomm gapped down maybe a percent and a half, 2%, which is pretty big for a mega cap company. Right. But I wouldn't dare buy, I wouldn't dare try to catch that and buy it because, you know, there are guys that understand the,

Qualcomm or Corvo, whatever the other ticker that was in that, they really understand. Typically what I'll do is I'll go to the Bloomberg and I'll say, oh, what's the percentage revenue from Corvo from Apple? And let's just say it's 10%. It would take me like an hour to get up to speed versus the guys that know the space cold, like I know Event Driven and MergerArb. So it's kind of a lesson learned.

whether it's a new trader listening to this, a medium time trader that's listening to this, you got to figure out where you have an edge because I'm so out-edged trading something like that, that for me, like if I tried to catch that stock, Qualcomm or Corvo,

and lost money on it, I wouldn't forgive myself all weekend because I'm like, what the hell was I doing trading that stock? I had no edge. So that's the hard part with what I do because sometimes I have to go days, like I said, days without trading. But I think Qualcomm actually rebounded. But I wouldn't even consider it a miss because, again, Qualcomm could have tanked 10% on that.

If that was some new piece of news that it would have taken me so long to get up to speed on, and maybe somebody really, really knows the situation and is just selling it all day to all the suckers that are like, oh, this is probably not a big deal. You see what I'm saying? Yeah, yeah. So do you concentrate on a certain basket of stocks or sectors that you get to know really well? And then if you see an event-driven news release on a stock or company that you're not so accustomed to, do you just...

pretty much ignored or do you try to learn from the event and eventually incorporate it into your other group of stocks that you know? The latter. That's a good question. The latter. Yeah. Like, you know, again, if there's a Wall Street Journal headline and a stock gaps up from the machines on a new situation, you know, XYZ and talks with private equity, just for example, I'm not going to chase that because it's going to go up

12%, 8%, 4%. I have no idea. But what that will do is now that'll go on my list and then I'll now start keeping track of it. Now I'll do like a little bit of reading on it. I'll try to understand the setup and where what's priced in, what people are expecting.

I never pay attention to what analysts say because I think they're worthless. But if there's a couple of analysts out there that make some interesting point, like, oh, they've got all this real estate that's worth some big percentage of the market cap, I'll kind of note that. But I'll never. I mean, every day, you know, there's a there's a buyout story and then the analyst all opine. And I think it could be taken out for X.

But why is that? You used to be an analyst yourself. Wouldn't you want to trust your fellow analysts' opinions? That's an excellent question. I'll get back to what I said before. Analysts, I'll get back to that Michael Platt quote from Market Wizards. He says, analysts only think about how smart they are. And it's so true. I don't know. Analysts have a role with getting people up to speed on what a company does. But when it comes to

price targets and picking direction, it's just not what they do. They think they can do it, but I will never ever... Because I've watched for 15, 20 years, those guys say, I think it could be taken out at 25 and then they take out 17. Or they say, I think it could be taken out 25 and you're shorting it and then it gets taken out at 40. There's just...

And I've and I've put all this into zeros and ones. You know, I wasted my time a couple of years ago doing this. And there's just no statistical significance to what they say that, again, it would have to be like a unique like them pointing out like, oh, by the way, there's an FDA thing coming out in 30 days on this biotech deal, for example. That's that's something for me to note.

But I won't, but I won't trade it. But yeah, to your point, I just try to get up to speed as much as I, as much as I can. And if not, then it might go on my list to get up to speed for the next headline or the next approval or for the next, whatever it is. Cause then I feel like I have an edge because trading obviously. Do you have any hard rules to keep you from getting into trouble?

Yeah. Somebody asked me that question. They said, well, they said, what's your risk management? The trading so fast like this. And we could talk about this macro thing. That's sort of a side gig. That's very different because that's more intermediate terms. So you have to think about position sizing and volatility and how much you're going to risk. But I mean, I have like a, I have like a dollar amount P and L, but these things happen so fast.

That I don't have, I don't even have the chance to like say, all right, I'm going to risk, you know, 1% of my equity and I'm going to size it according to this. For me, it's like, I'm either early or I'm not, or I have an edge or I'm not, or I don't rather. But yeah, there's, there's like a rough P&L thing that I have in my head where if I hit that, I just got to get out because I've seen too many times I get to that level and

and I'll give it like a little bit more room. And then, you know, then it's three X that it'll never blow me up, but it won't feel good. Let's talk about your intermediate strategy that you said you're working on. Yeah. So I think I just started this thing out of curiosity. Maybe it's because I'm getting older and maybe because I realized that the fast stuff's just getting harder, even though I still think that I have an edge doing that. I think, um,

I don't think a machine or a black box can, not yet anyway, can get up to speed on the setup and the dynamics of all the stuff that's in my head. Eventually it will happen. Maybe 18 months ago, I said, why don't I try to come up with an intermediate term strategy that's very scalable? Maybe something I could do as a side gig for my retirement account, maybe for...

Maybe I can go to a place and get capital one day or whatever, but it's in macro. What's interesting is it's like a totally new world for me. I almost feel like I'm 22 years old again because it's just so different than the way I trade now. I don't have to think about position sizing now. I don't have to think about volatility now. I don't have to think about all these things that you have to do when you're going to trade intermediate term. So what I do is I look at just kind of inspired by...

Maybe you had him on as a guest, Jason Shapiro. Yes. And he, you know, I listened to a podcast, maybe it was on your podcast, and he just started talking about positioning and the setup. And I thought about all the things that blew up all the people around me over the course of 15, 20 years. And it was pretty much because they either didn't have good risk management or they didn't really understand the setup. And what I mean by the setup is,

what's expected, like what's priced in kind of like what I do with the event driven stuff. Right. So I went down that rabbit hole looking at the CFTC positioning data that comes out weekly. And I'm trying to develop this system that looks at that to try to figure out basically where people are offsides. And I look at the equity markets, the treasury markets, FX, metals, energy grains, like, you know, the softs, all that stuff. And I

It's a totally different exercise for me because it's like I got to think like a PM, not a trader. How much am I going to risk? What's the volatility? What's the setup? How am I going to get in? Why am I going to get in? When am I going to get out? Why am I going to get out? That's been, I guess, like an obsession the last 18 months for me. I've really been trying to get that down, but it's very hard because

What is offsides trading? Could you go into detail? What do you look for to find a trade? Yeah, so the thing that Jason said to me, or not to me, he said on your podcast was, it's so obvious, but I don't think a lot of people look at it.

He tries to identify if people are very long something or very short something. So you could listen to people talk about what they think about gold, but what matters more? Like it matters more where people are actually positioned. And it's hard to get that information with stocks, but you can get that information with futures data.

through the CFTC data that comes out on a weekly basis. So again, I kind of went down this rabbit hole and I started looking at the data and I created basically like a, it's like a histogram with an oscillator to determine over some look back period, how full somebody is long or how short they are, you know, relative to the last look back period.

And I'm trying to incorporate that with some technicals and with some discretion. So we can talk about like a quick example. Like if you go back a handful of months, everybody knows about the yen on wine trade, right? Back last August. Yeah, exactly. So the yen was just down, down, down, down, down forever. And if you started looking at the CFTC positioning data,

It got to these short levels that we hadn't seen in a very, very long time. So it was almost like it was very wound up, right? So all you needed was, I mean, every time there'd be a whiff of intervention, the market would rally and then they would sell it right away. But you knew there was going to be that level. It's like GameStop, right? Everybody's just short it.

It doesn't matter what the fundamentals are. It's a bullshit stock like it went to the moon, right? And why is that? Because it was just short, shorting it, covering it higher, shorting it, covering it higher, short it. So the same thing happened to the yen and the same thing can happen across all of these other markets. And I try to identify setups where people are, just like I said, I consider them to be offsides long or offsides short.

So yes, I've really been like, I've been obsessing about that for the last 18 months. And I feel like I'm back in my first New York days, up one unit, down one unit, up one unit. But a good friend of mine says, yes, you have to stay curious about not only your bread and butter, what you're doing, because if you don't adapt, you'll die, right? You know, you have to always be thinking about, you know, maybe one or two other strategies. In fact, the dude that you had on a couple of days ago,

What is he around like 55 strategies or something crazy? Yeah, exactly. So he's doing pretty much what the pot shops have figured out about doing, right? You do a bunch of non-correlated stuff and compound some extra turn.

over time but yeah that's kind of the gist of the positioning so how do you determine when i mean because because uh these being offsides uh being overly long or overly short can last for a very long time what kind of catalyst do you look for uh for the trigger point that causes a reversal and then do you wait for that to take a position or like yeah that's

That's a good question because you're right. Things can stay offsides for a long time. Nvidia can stay offsides long for, you know, or GameStop can be offsides for some extended period of time.

So, I'm trying to develop a couple of technical algorithms to wake me up to get into these things. But I think the best thing is kind of what Jason does. He waits for some sort of market confirmation. He calls it a news failure. I guess it's when... I don't remember what the catalyst for the yen thing was, but if everybody's offside, sure.

and you get bad news and again, tanks, but then rallies and closes on change or closes higher on the day, you can pretty much be like, all right, everybody's dead. Everybody's going to have to start to cover. So the problem with the market news confirmation thing is you don't get as many reps as I'd like. And I really want to get enough zeros and ones in a spreadsheet to be able to really

live test this thing to figure it out. So I'm kind of leaning towards a couple of technical things that I've built, but yes, long way to answer your question. You absolutely need some other form of go signal because you could have been short gold as it goes higher and higher and higher because it was off sides long, long, long, long, long for a really long time.

So since your trades don't come by very often, do you put on a big size, big position size to make up for that? It always depends, right? Like if, you know, there's a couple of deals I'm waiting for like a final antitrust approval. And, you know, if I can dig that out of the filing or dig that out from a story, or even if the headline hits, but the stock is, you know, not trading at the price yet,

I pretty much go until my machine stops because I have, you know, a 98% confidence level that from experience and from the models and everything that I built, I kind of have a very strong opinion on where that's going to trade. So yeah, if I get a chance to do, to get really big in something, I will. Yeah. Or if I, you know, again, if, if something hasn't moved like Intel, you know, it's a super liquid stock. I mean, I could get it, I could get out,

you know, down a penny or down two pennies through the bid. Right. So again, the decision that's made is usually a very quick one, but if it's like a really thin stock, you know, I'll try to go, I'll try to be careful, but, but again, it could be thin. It could be a thin stock trading at 10 that, you know, I have high confidence is going to go to 14. I'll get really big at 12.

You know, if I think it's even if it's even if it's thin, because I know when the dust when the dust settles in 30 seconds, three minutes, 30 minutes, I know the arms are going to come in and supersize. I have a good example for you, if you want, from the other day. Yes, please. So it was early in the morning. Wall Street Journal broke a story on XYZ. It is some dog shit. Three hundred million market cap company closed at dollar sixty cents.

And the company, the Wall Street Journal said that they're going to get bought for $3.15. Naturally, it's going to trade higher, right? I missed that the first, you know, blade because it was early in the morning and maybe I'm drinking my coffee or whatever. I know that the Wall Street Journal is really good at what they do. It's not one of these other trade rags that's going to be like, maybe it's iffy. And the story pretty much says that the press release is coming, right? So...

All the guys that were sitting with their fingers on the keyboard, they're buying stock at 170, 180, 190. This happens like in a couple seconds. Then the press release hit. And I start buying stock at probably 220, 230, 240. Now, all the guys that bought 160, 70, 80, they're not merger ARB guys. Maybe they are, but usually they're probably not. They're probably just some home gamer sitting around. Or maybe it's an event-driven guy. Or maybe it's a guy that

I don't know if it trades NVIDIA, but he's in front of the screen for that headline. I'm able to very quickly determine with pretty high confidence where something is going to trade when there's a merger or a deal announced. Now, there's so much nuance. It's not like every deal trades at the same spread and the same annualized spread and the same implied probability because, again, there's nuance to it. But the guys that bought all that $170, $180, they're happy to sell it to me for $240, $250, $260 because they just made X percent.

in a minute but i know that that stock's going to be 301 bid for half a million shares in about 10 minutes because the real arbs uh are going to take that thing to something in the low threes because they're just going to buy it because of the annualized spread right i see why would the why would the real arbs wait uh that amount of time to get in why did they come in after everyone else so so that's a good question too they won't wait but

you know, if you run a billion dollar art book or half a million dollars or half a billion dollar art book, you're not trying to scalp around making 10 or 20 grand like I am. Right. They want to really, you know, they might act fast, but they're going to,

you know, look at the press release, read it in full, understand what their business is, understand if there's antitrust. Now I'm doing all that stuff very quickly. I'm getting up to speed very quickly, but you know, it takes, it takes some time for them to lean over to their trader and say like, all right, we're going to put some of this on. We're going to buy a million at three, you know, three or better. So when you're so big, it takes time to

make that decision to commit, well, this would only be a $3 million position, but you get what I'm saying. Like if a merger art fund is going to put 25 or 50 or a hundred bucks into some deal, they got to, they're not going to just hot key it. You know what I mean? You know, there was another one a couple of days ago that I missed and, you know, I tried to buy it at some price and, you know, the, the art guys, like the big art guys, um,

They just didn't move faster than I thought they would. So I missed the trade, but back to the original example, you know, I'm buying anything I can at two 60, two 70, two 75, because again, I know, no in air quotes, but like, I know this thing's going to be three, whatever bid for size and about 10, 15 minutes. I caution anybody doing this because there's so much nuance in

I've done this before when I'm not up to speed enough on something or maybe a page when shareholders like, oh, there's big antitrust stuff here and they've got some FDA thing coming out before the deal closes. So there's big gap risk.

So again, it's not like all these things traded like the same spread, right? But this just comes from experience. I mean, I've been doing it, you know, I've been really looking at adventure, you know, over 15 years. I've been trading this for over a decade. And I'm not always right, you know, but I try to move fast. The only rub with what I do is it's not very scalable, right? What does that mean?

At least it's not scalable at good prices is what I mean. So I could run a Merge to our book and buy a million shares of that at three. But what good does that get me if I think it's going to trade at three? But if I can buy X shares all the way up to three, because I'm just me, I'm a little guy and I'm keeping all the P&L, then that works. I can make a living doing it.

Excuse the last interruption here. This is Tessa. We hope you're enjoying this episode so far. If you love the podcast, please give Chat with Traders the best review you can on whatever platform you're listening from. This will help us to keep the episodes coming. Also, if you haven't subscribed to our email list, please hop on to chatwithtraders.com and click on subscribe so we can keep you posted of information that may be of importance. Thank you. Now back to the chat with our guest.

Throughout your years doing this, was it possible for you to develop like consistency over time or is there such variability in these different events with so many different factors? Was it?

challenging or were you able to achieve a consistency over time? Yeah, you know, knock wood, I've always been really consistent at what I'm doing. And like I said, my quote unquote drawdowns are really like lack of quantity of stuff to do. So like I'm in one of those right now, it's December 6th, kind of since Thanksgiving, there really hasn't been a whole lot to do for me.

So it's tough to like sit in front of the screen and not start trading spiders because it's two o'clock and I haven't done anything. You know, that's always, that's always a recipe for disaster. But yeah, overall, I've been very fortunate. I mean, I work my ass off. I'm up 345 every morning, you know, preparing and watching the tape and doing all that stuff. But yeah, it's been a pretty smooth ride. I mean, the only time I start looking over my shoulder, so to speak, I'm kind of looking at myself, but

is just, you know, if I go through these periods where there's just not a whole lot to do, those can get difficult mentally. You know what I mean? Kind of like when somebody just has a drawdown, like a vanilla guy that's, you know, up five units, down four units, up five units, down seven units, down eight units, you know, that's kind of my drawdown. Are there any types of markets which are super offsides short or super offsides long at this time?

Yeah, there's always stuff offside. Anything I say won't age well at all. Let's say in an extreme fashion, sort of like a Japanese. Are there any Japanese yen equivalents? Yeah, so I won't even talk about the equities because the equities have just shown offsides long for a really long time. So forget that. But like right now on December 6th, 2024,

Some of these G10 currencies are really offside short. The euro, the pound, the New Zealand dollar are really offside short. Mexican peso, not a G10, but that's been very offside short. We have a lot of these Trump tariff headlines going on, and there's going to be a lot of movement from now until the inauguration. Some of the metals, believe it or not, are actually offside short, silver and copper. What else here?

And nobody's going to trade live cattle and lean hogs, even though I do. But they're all right long at this moment. But I do like a free, you know, I was doing like a weekly deck for myself a few months back. And I was sending it to a couple of guys that I know trade macro and they really liked it. So it was kind of annoying to have 50 Excel PowerPoint cards.

files on my desktop so i ended up doing like a free sub stack thing just i didn't think anybody was going to read it but me um but there's a couple of guys on there now so i do like a weekly it's not event driven at all but it's it's all on macro and positioning but uh yeah i usually do it like on sundays i'll fire that out for the week and and again everyone has to have like their own process right if you learn anything from the market wizards books you know it's not

You know, you got to have something that fits your personality because you can never trade like anybody else. You know, I just figured if, you know, there's a couple of macro guys out there that value looking at positioning. So if they can use it to their process, great. And I'm still trying to work on figuring out how to turn this into some green. Yeah, yeah. Well, great. So to wrap things up, what do you struggle with most as a trader?

It's these lull periods, like I said before, of not having anything to do because, you know, this happens a lot. And I try to remind myself that it happens a lot. But, you know, if I go another week or two without trading anything, I start to doubt, oh, man, maybe it's over. You know, I'll complain to my wife and she says, yeah, that's the 497th time you've said that.

That's the thing that I struggle with the most. And then this positioning thing is driving me crazy because it's, I'm so used to having an edge in what I trade event driven. And I've, you know, and I like, I have the P&L to support that. But with this macro thing, it's hard because you're, you know, the typical holding period on my system is one, two to three weeks.

And everybody's got the data, right? Everybody has the data on the Euro and wheat and soybeans and the 10-year treasury. So it's really, really hard. So I'm really struggling with that right now. But it's all good. You got to stay curious, right? Yeah, yeah, yeah. So I understand you also on the side are a volunteer firefighter. I am, yeah. It's...

It's something I started when I was in my mid-30s, when I lived in New Jersey. And I kind of feel like I maybe missed my calling joining the military. And I'm driving past a firehouse that I drove past my entire life. And I turned to my wife and I said, should I join the fire department? She says, yeah, why wouldn't you? So pretty cool journey there. Yet, you know, it took me like nine months to go through the training. You do the same training that a career fireman would have to go through.

I just met so many great people along the way. And luckily, all my search transferred down to South Charlotte. So I'm a volunteer fireman also in South Charlotte. But they're just great, great people. And I always think it's important to do something to give back to the community. Yeah, well, thank you for your service. Well, Rick, I want to thank you for coming on Chat with Traders. I had a lot of fun. I appreciate you. Yeah, fantastic. And how can our listeners reach you?

Oh, sure. So I've alluded to the tape quite a bit when talking about this. I started a substack called Off the Tape. It's got underscores, off underscore the underscore tape.

And my email is on there, like all over the place. So if anybody wants to reach out and I encourage people to reach out to me too, because it's been fun. I've had people brand new to the business reach out. I've had people been in the business even longer than I have reach out. So I always like hearing about people's process and what they do. And it's a lot of fun.

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