The Glory Days, Market Making & Trading Options at the CBOE with Noel Smith of Convex AM

This week, we’re painting the picture of what life on Chicago’s option trading floors was like at the CBOE…but there’s a catch — we put it all on the table and needed two episodes! Today’s guest came into asset management in a round-about way – trading his own money for decades before venturing into the world of other people’s money…We’re talking to the one and only Noel Smith @NoelConvex , Managing Partner and Chief Investment Officer of Convex Asset Management.
In this two-parter, we’re talking everything from the and the Sears option pits to singing Janis Joplin’s Mercedes song to a down and out trader, to steak dinners at Gibson’s and a yacht on Lake Michigan.  Along the way, Noel managed to fund the founding of electronic market maker Getco and create a prop firm spanning dozens of pits with 50 traders under him.  How does market making in options really work, is gamma-driven delta hedging in option flow as important as FinTwit makes it out to be, and where did the floor trading edge go?  It’s all here.

Check out the complete Transcript from this weeks podcast below:

The Glory Days, Market Making & Trading Options at the CBOE with Noel Smith of Convex AM

Jeff Malec  00:07

Welcome to the derivative by our RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Happy Revenge of the fifth to all those who celebrate. It’s a Star Wars thing more than that later. Got a great lineup here in May, with Rodrigo Gore do and Mike Philbrick of resolve asset management on to set the record straight of what is and what isn’t risk parity. Then a super interesting chat with Anthony Zhang, who was paid by Peter Thiel not to go to college. And that’s maybe the least interesting thing about him. Stay tuned for those drop in next two weeks. For today’s pod, we’re joined by Nolan Smith, the managing partner and chief investment officer of convex aim. We had way too good of a time on this one talking through stories of his days trading in Chicago’s auction pits to the founding of electronic market maker Gecko to having 50 traders under him as a partner in a prop trading firm, before we even got to his volatility trading in this current market. So with all that on the table, we’re splitting this into two parts. Part one will be retelling of the glory days on the CBOE floor and what making markets and gaining edge and options was really like. And part two is talking through Nolan’s current strategy with fall ARB dispersion rates fall and more, which is sort of his best ideas after 30 years of trading options. So let’s get on to part one, send it This episode is brought to you by our egg focus podcast. That’s AG is an agriculture podcast is named a hedge edge. We talk a little bit about excellent traders and markets like hogs on this part of know what makes markets like that, like we like cotton, corn and more move. Who are the players? What does the future look like? Go find out over at the hedged edge, find it on Spotify, Apple or wherever you get your podcasts. And now back to the show. Okay, we’re here with Noah Smith coming to us from His somewhat new locale in Lake Tahoe. Welcome. No. Thanks for having me. All right. So excuse the t shirt. We’re doing a bit of a Star Wars Celebration this week. May the fourth you know that Star Wars Day May the Fourth be with you? I do. And so I don’t know if you saw we did a Jedi evolve poster last year for May the fourth and you weren’t on it. I didn’t know you really yet. So apologies for that.


Noel Smith  02:24

I saw it and I was like, alright, okay. A lot of a lot of interesting people on that poster. Who


Jeff Malec  02:29

would you be? Which which Jedi would you want to be?


Noel Smith  02:33

You know, there’s so many I want to say something like, you know, something corny, like Java, I’ll be weirdo. You know, when I was a kid Han Solo I thought was the coolest? So I’ll stick with that I always thought of so first of all, I saw Star Wars in the theater when it came out and my like you know eight nine year old brain or whatever it was just blew apart. I thought it was amazing. And then you know, in the subsequent two movies came out. Same, but a lot of this stuff, you know, and the most recent probably 10 years, I could care less I thought it was just so overdone and even kind of hard to follow.




Jeff Malec  03:06

Yeah, and the new ones are basically just remakes with up upgraded sci fi or Yeah, exactly. Special effects. So I’ll give out our listeners quick PS go to our Twitter and our CMOS read tweet a link to this pod with the hashtag Revenge of the fifth. It actually come out on the fifth of May. So retweet that and we’ll send you one of the posters. So Tahoe let’s talk quickly favorite ski spot there.


Noel Smith  03:34

Really I live right by heavenly. But I like to go to Kirkwood, more so Melrose which nobody really goes to that doesn’t live in either Carson City or Reno is really good. And Kirkwood is probably the best overall. I’ve never ever least probably the Melrose is over by incline village, which is you know, billionaires row so to speak. You know, if you want to spend 6000 bucks a square foot on a house, that’s a great place to do it. And mount Rose is kind of somewhere between Reno and incline village


Jeff Malec  04:02

Nevada. And now they just renamed Squaw Valley, right?


Noel Smith  04:06

Yeah, they change it to palisade style. It’s kind of you know if Tahoe is a circle, kind of a clock. Squaw Valley slash Palisades is at 10 o’clock, incline village is at one o’clock and I live it for roughly six o’clock,


Jeff Malec  04:18

six o’clock. Got it. And so and you’re on the California side or Nevada, so, sadly, the California side. Yeah. And so this is interesting. Me, right. Super smart guy. All you read about if you look too far into Twitter, right of like, no one ever would live in California or Illinois or these tax states. So when you’re right there on the border, what’s the what’s the excuse?


Noel Smith  04:39

Just coming to everything is common sense. So when I first came here, I was actually astounded that California was much more expensive in Nevada. So I’ve really tried to find people to give me a straight answer as to why would California trade over Nevada, you’d think at a minimum it would, are out sort of right. And for longest time it didn’t matter about and now it’s kind of gone the other way, Nevada is more expensive than California. And pretty much people that have the means or the resources. If they have the ability, they do move to Nevada or they just buy a place in Nevada. On my end of things, why I live right by the border, but don’t live in Nevada. It was availability of the house, I have a house I have, you know, ticked a lot of boxes. And it was on the California side. And despite that detriment, it was still a do overall.


Jeff Malec  05:27

Right. Just like there’s limits to we can write textbooks and read blog posts on like, why would you live there, but there’s limits to it, right? There’s only so many houses, there’s only Brett, you want the right view you want the right everything –




Noel Smith  05:38

Right, I live 100 yards from the actual lakefront, which is pretty rare. And you know, there’s, there’s a lot of boxes that are sticking in that regard for me and my family. So my kids want to go to the beach. It’s a 15 second walk.


Jeff Malec  05:51

Now, what better out there Summer, winter? Summer for sure. Yeah, yeah, definitely.


Noel Smith  05:57

You know, the lake, especially where I live is really shallow. So it’s, you know, it’s very swimmable for kids and kayaks and all that kind of stuff. I love the mountain bike. So there’s just, you know, endless trails for that. And it’s just really nice. And it’s, you know, pretty cool summer or summer. Nighttime, even though and this can get pretty hot. There’s just a lot to explore. I mean, the mountain ranges is gigantic. And if you like to explore and you like to be outside, you’d like to go check out waterfalls, all that kind of stuff. It’s here.


Jeff Malec  06:27

Yeah, speaking my language. We did last year, we’re in Colorado and did some of the downhill mountain biking on the ski slopes with the big bikes and the pad looked like a stormtrooper speaking of Star Wars when they have the greens and blues and blacks, right, so we did a green, my son and I did a blue we’re like, check out the black but on the side of it says aerials required, like, alright, we’re not doing the bike. So do you do some of that stuff? Do you do the ones that require the aerials? Yes,


Noel Smith  06:55

I’ve, I spend, usually at least one or two days a week just at jump parks, I’ll go to you know, you see these bike parks. And basically, it’s a bunch of like, you know, 14 year old kids who’ve never been hurt. And I try to do all the same jumps, you know, I try to hit that stuff. And mainly because it’s like the 12 year old me that never was good at it. And I’m like, dammit, I want to finally get good at something that bugged me when I was a kid because I wasn’t that good at it. And so now Yeah, I do the downhill bike park here, which is north star on the north side. And then there’s tons of trails done by me as well that have big, gnarly jumps.


Jeff Malec  07:29

And so that always amazes me like here you are professional risk manager not to belittle it right. But like your all jobs not to blow up and have some left tail event, but it seems jumping the bike some of these big areas is huge left tail risk. How do you? How do you reconcile those?


Noel Smith  07:47

So my wife asked me this all the time, my business partner asked for this all the time. It is one of those things where it’s like, you know, it is one of the most fun things that I’ve done. And I’ve done a lot of crazy stuff. And it’s just, it’s your outside. It’s like imagine hiking, but you know, so you’re outside enjoying nature and all this stuff. But then just you’re just you know, a giant cloud of meth is thrown over your head and everything is more exciting and more coming at you 1000 times faster. It’s kind of like that, you know, you get some of the outside peacefulness, but yet you get a lot of the rowdiness, and excitement that you can only get by bombing down a mountain by yourself most of the time. And if you crash, you’re making up on the back end of a bear. That’s it.


Jeff Malec  08:30

Yeah, you need the Apple Watch. Right? That commercial is like the guy crashed in the woods. No, I get it. That’s why I go 65 miles an hour down a mountain on skis. Right, you get that adrenaline rush. But something in my brain is like, well, it’s not that dangerous. Not that big of a left tail. But you know, one one in a million chance you break something important like your neck broken.


Noel Smith  08:52

I broken bones broke, but this time last year, I crashed I


Jeff Malec  08:57

broke broke several bones in your one arm,


Noel Smith  09:01

my scapula and my ribs and I got knocked out.


Jeff Malec  09:05

Out. But you woke up?


Noel Smith  09:07

Did I get here I am.


Jeff Malec  09:14

So let’s move into your background a little bit. So you’ve come to asset management in sort of a roundabout way. Trading your own money. First couple decades was it before venturing into the world of other people’s money? So let’s Yeah, let’s start with the trading floor. How’d you end up standing in a circle with a bunch of guys yelling at the top of your lungs.


Noel Smith  09:34

So, um, a couple guys that I knew that that came out of Susquehanna wanting to start a company and they asked me if I would join them. And we started trading at the CBOE and our initial backer was a guy by the name of Stafford and he’s, you know, kind of an old school options guy, not the younger staffer that was involved with running but his dad and we just took a very small amount of money by today’s standards like 150,000 dollars of our own money plus a little bit of backing from them, and decided to go for it that was really at. So when I first started, I know what everybody knows the beginning, which is nothing, and just did my best. I mean, my main job was getting tacos and things like that.


Jeff Malec  10:14

And but where do you come out of you were straight out of school or you were doing something else.




Noel Smith  10:18

So I was a biochemistry major with focus on neuroscience and physics. And my attention at the time was to become a surgeon. So what I did is I worked in surgical wards, I knew several surgeons for, you know, for many years at that point, even already, I worked in neuroscience at spice called Beckman Institute at University of Illinois in Champaign Urbana. And that was the plan and then I, for logical reasons, had to to sidetrack got a little bit involved in finance with the intention of continuing down my physician path, and then was just so successful. With more fast than I anticipated, that it really just made me challenged the math of the situation, you know, I figured, okay, but I go to medical school, it’s going to cost me a couple 100 grand at the time, plus, you know, eight years of residency wouldn’t make any money. So I’m like, late 30s. And I was already situation where I could make money from that, you know, accelerated period in the present, and it’s not that it’s all about money, but I also didn’t come from any money. So the idea of having any discretionary money was just like, outrageous, to me, the idea that I could afford to buy something that I didn’t immediately need was crazy. So it really just made me, you know, think it through. And so I decided to pursue a career in finance and stuff. And options. Options is the world where you can, if you’re good at it, you can do really well. And you also don’t need to work, you know, 95 hours a week, like a venture capital guy from Goldman or something like that,


Jeff Malec  11:44

not to mention a surgeon or as their training way, but so you were making money trading off the floor, where were you trading before he went.


Noel Smith  11:53

So my first job was as a stockbroker. And I did it out, just out of school. And it was one of those things where a stockbroker is very linear, your income to your effort. So you pay, you’re basically a salesperson, and you try to convince people to do what you tell them to do. And I was good enough at that to make better money than really any of my peers. Which, you know, I cracked six figures in 1995. And relative to my peer group, you know, guys that were graduating, you know, from very good schools making 35 grand a year, and that was big money. You know, I just was able to do something that I didn’t think I could do. So I really just reassessed the whole situation.


Jeff Malec  12:31

And then so your Susquehanna guys said, Hey, this guy’s smart. And he knows a little bit of finance get in here.


Noel Smith  12:37

I think, um, I don’t know, I think they thought I was smart enough. I guess there’s probably the better answer smart enough. Yeah, smart enough. And there’s, there’s, this is one thing I’ve hired a lot of guys, I’ve hired over 100 Guys, and you really can’t teach ambition. You can teach math, you can teach your options, you know, knowledge, you can teach, you know, teach all kinds of stuff. But you the, I’ve had guys, this is, you know, tangent on a tangent that are genetically more qualified to trade for me than other guys. But the guys that just really want it to be there, almost inevitably have been more successful than the guys that maybe had a little bit more standard equipment upstairs. And the guys who just had a more of a burning desire and more ambition, tend to be more successful. And I think that was part of why, you know, the guys asked me to join them.


Jeff Malec  13:26

And who was it the Bear Stearns guy or someone of that ilk was he wanted PhDs poor, hungry and driven.


Noel Smith  13:35

I think that was Gordon Gekko. When


Jeff Malec  13:39

he might, I think he stole it from maybe a Salomon Brothers, but one of those firms will look it up, put it in the show notes. So give us some of the stories from the trading floor. So these guys start you’re there you’re actually in the pit what what pit were you in?


Noel Smith  13:55

My first bid was Sears and I went to Sears because the the guys were the most Nice. So it’s a lot a lot of new traders go to that pit we put all of our new guys into Sears because some of the best pits the guys were vicious they would just blast you every opportunity possible. And Sears the guys were just nice cool dudes and you know, you could kind of stroll in there. And you know, they wouldn’t you know, welcome you but they wouldn’t haze you as hard as some of the the other pits. And typically when you walk into a pit, think about it. Like there’s a pie sitting on the table. Right? And you know, you walk up with a fork, you’re like Hey, guys, can I have some to like No, get out of here? Yeah, exactly. Nobody’s gonna invite you to you have some of their pie because the pie isn’t gonna increase just because you’re there. So usually the pits were the biggest helping of pie was that were the most aggressive about getting you out of there. And you know, they chased away a lot of guys. And so for me, I started in CRM and then worked my way up to the time coke of simple Okay, oh, and there is also a TN T and then I was ended up, there’s actually a good picture I have which they took for the CBOE annual report or whatever else. It’s me, Pete Najarian sitting right next to me standing right next to me. And we’re in the front of the AOL pit, which at the time was like, you know, the hottest thing on the planet. And that was when I was trading real size, and we could actually kind of move around. That was a luxury that I didn’t even know I could do. Once I had enough status as a floor trader, I could like walk into a pit and not get hazed anymore, because they knew I wouldn’t really just be an idiot, and just, you know, soak up bandwidth. Yeah.


Jeff Malec  15:37

That comes back to our earlier theme of like, the limits to arbitrage like, why didn’t the sharks come into the Sears pit? You think they just walk over there and take advantage of all those nice guys,


Noel Smith  15:46

because there wasn’t as much edge, you’ll see, Sears paper wasn’t all that great. What was the other name was Dow not not Dow Chemical, but Dow Corning. And the biggest trade in that pit was when they had a judgment on breast implants. Because there was a reason that in the US, silicone breast implants went away for a long time. It’s because there’s this gigantic lawsuit. And that that news came out one day in the pit where they basically said that silicone is fine. And the stock went crazy. And there’s a lot of opportunity for the next, you know, week or so. But other than that, I mean, Cirrus is like, you know, didn’t really trade


Jeff Malec  16:20

much. Yeah. And you’re trading house. So you’re filling orders for brokers, when you’re trading your own account.


Noel Smith  16:27

You’re a market maker, and you’re doing both. You’re not filling orders for brokers broker, what they do is they initiate orders from somebody else. So say, for instance, you know, you’re a pension fund and go in the account at Goldman Sachs. And you say, okay, you know, we’ve got, you know, 10 million shares of Microsoft, and we want to buy, you know, 10,000, put spreads. So what they do is they, you know, call up the Goldman broker that represent represents that paper on the floor, and then the Goldman broker will walk into the Microsoft BitNet example, or Sears in my example, and say, Okay, I want to do you know, 10,000 spreads, what price can I get these spreads done? And you know, what else? Well, how can I get this order filled? Is the point?


Jeff Malec  17:04

And are you is everyone salivating when that guy walks into the pit?


Noel Smith  17:09

So that’s actually a big part of trading in general, is knowing when the Counterparty is right, or wrong. And that actual mental process is part of when you go from being a market maker to more of a trader, and trying to figure out why what is what is their point? Why are they right? Because, you know, you sit there and you’re like, Okay, I’ll buy a bunch of options, I’ll buy a bunch of options, because they’re selling them. And at some point, you think to yourself, well, maybe volatility is too high, and they’re right. Or maybe, you know, they have a directional opinion. Or maybe there is a breast implant news announcement that has been leaked, and people know about it. I mean, there’s all kinds of reasons that people want to do things. And it’s really not that different today. It’s a little harder, because you can’t just just pick and choose the brokers. Right. And the brokers don’t tell you what they’re doing. They probably don’t even know. And, you know, if a guy is always right, and that’s a, you know, it’s just as useful and the opposite, right? If somebody’s always wrong, it’s just as good as being always right. You can just bet against them.


Jeff Malec  18:10

Yeah, some of these funds that trade these like, esoteric stuff with the banks, French banks, and like, take them to the cleaners every three years. Like, don’t you run out of, of suckers? Basically. Right? Like if you keep printing money on all those trades, you know, a lot of those


Noel Smith  18:26

options? Yeah, that’s just it. So when you look at some of these banks, typically, who are the traders, that these banks, it’s usually Junior guys, that don’t fully understand the spectrum of risk. And it’s not so much that you can beat up the same guys again, and again, it’s just the new guys. Right? There’s new guys, they just move on. So those guys either bank of failure? Yeah, exactly. So you know, fitting with banks is some of the best paper that was never there.


Jeff Malec  18:55

So if your definition, so paper, that’s just like you said, this guy’s coming in to do 10,000, put spreads, that’s the quote unquote, paper,


Noel Smith  19:04

it’s just an order, say an order to buy options or sell options, whatever.


Jeff Malec  19:08

And then as a market maker, so that person comes in 10,000, put spreads as a market maker, what are your What are you thinking to do there?


Noel Smith  19:15

So if you pull up on your Robin Hood app, you know, what is the price of a Tesla call? Right? And you’ll see a market you know, $50 bid at $52? Well, who comes up with the $50? Why isn’t it 49? Why isn’t it 40? Why is it 90? Somebody has to make a decision as to what is the best price that they’re willing to pay for these options or the best price they’re willing to sell these options for that person is making a market. They’re creating a bid offer spread, where you can buy and sell, and that’s what a market makers job is to do. And their general function is to try to buy on the bid and then hedge off somewhere in the middle or sell on the offer and hedge off somewhere in the middle and they’re not really trying to wail on the call client or the customer, they’re trying to just make a tiny spread as often as possible so that they can make a good living as well,


Jeff Malec  20:06

right 100 times a day, just take a penny on that type of order, you’re talking about what was the spread there? Couple Bucks,


Noel Smith  20:14

Big, BIG trades usually get shocked really hard. So yeah, realistically, what happens is if a guy has 10,000, Microsoft spreads that like, Okay, if 10,000 spreads, you know, 8500 of them are going to cross on the Philex. And, you know, we have 1500 left, we can do right here, we’re going to do them for a quarter who wants the other side of those trades is guy comes in is willing to pay anything for like a little biotech name. And then you know, you know, they’re gonna have an FDA announcement or something like that. And that paper is very, that trade is very likely to be right in their way. So you’re very skeptical to trade with them.


Jeff Malec  20:49

Right? And then, because you can’t even get the hedge up, right. So talk a little bit about that of the market maker. So you’re saying cool, I’ll fill your 10,000 say it all came to you. Now, you have to Delta hedge it basically to keep yourself flat.




Noel Smith  21:02

So I have one really good trading story about that. I was I was in a relatively small pit. And this was when I was a pretty senior trader. So I knew what I was doing. And Goldman broker comes with this, but there’s only like six guys in this pit. And this is a very new is during the internet craze. And I forget exactly what the price of the stock was. It doesn’t really let’s just make it $100 It wasn’t what you say it was $100 guy comes in, he’s like, Okay, what’s your market and these calls, and there was very high vol name. It, let’s just say it was like, you know, $20 bid on these calls. He’s like, Fine, I’ll sell you, you know, 100 at $20. I’m like, Okay, well, this is a very thin name I’ll buy I’ll buy 50 and I’ll try to get my head off. He’s like, how are you coming out? Meaning like, what’s your new market after this? Trade is just already commenced? And I said, Well, I don’t know. You know, $18 bid. Now, you know, I just paid 20 I’ll pay 18 for the next round is like fine. I got 100 to go, how many? How many you want? I’m like, 50. He’s like, Okay, fine. How are you coming out? Like, really? So you still want to sell me more? And I’m like, Fine, I’ll pay you know, $16. And now I’m trying to get my head off. Things are, you know, the balls are in the air. They are on the stove. He’s busy. And he’s like, how you coming out? I’m like, how many do you have? Like, I got 500? More like $15. But he’s sold it. Now I own them. And I’m like, okay, and he’s like, how you coming out? I’m like, $5 bid. And he’s like, how many like 500 sold, like holy shit. And this is under parity at this point. Yeah. So this, this trade on paper is ridiculously beyond amazing. By the time I was able to get my head off, it ended up being a breakeven trade, but I had millions of dollars of theoretical edge that was evaporated in you know, 30 seconds, 40 seconds, because he was just right. He just he knew the stock was going down. And the options market was the place he was trying to express that opinion. And I had no idea.


Jeff Malec  22:56

So he’s selling, he was selling the calls I missed. He was selling


Noel Smith  22:59

the calls. I was buying, buying as I was trying to sell stock, and I was not able to get any shares for multiple dollars.


Jeff Malec  23:06

And how does that work in that CBOE pit? Actually, so you’re trying to sell the stock? Do you have to, you have a clerk there that can hammer it out? Like pre pre computers?


Noel Smith  23:17

So there was three, three real ways that you did it, you did it with a broker that was usually physically located by you, a clerk that would translate that would act as an intermediary, or you have a computer and we had all three, so whatever.


Jeff Malec  23:32

Yeah, that was my, when I worked at Board of Trade, I was in the bond pit as a clerk, and my broker was a futures broker. But I had staring at the options pit. So while there delta hedging, right, I was just the guy of like, by 200, by 400. Right. And so I always like to talk about this for the people who weren’t back in those days. So you, you knew how many of the heads you had a little sheet in your pocket, right? Yes, all these option guys had sheets in their pocket. And basically, that’s telling you all your Greeks for how many however many strikes down.


Noel Smith  24:05

So with the sheets with the sheets did was basically act as a matrix. So if you said that, you know, Apple, Apple, what didn’t really trade back then it was it was basically bankrupt. Yeah. Most people don’t realize that. But Apple was almost bankrupt in the 90s. But say it was an AOL in the fall was, you know, 30. Well, you’d have you’d run a list of strikes and prices at a 30 Vol, then you’d run a different list of strikes at 29, Vol. 27, Vol. 25, all or 35 or 40 Vault. And if it got too far out of range, you literally you literally would leave the pit, go run new sheets, print them out, back down, and then you know, try to re engage the marketplace.


Jeff Malec  24:43

So as vobis wasn’t price based, or as both to matrix is


Noel Smith  24:47

both because volume and price are algebraically fungible. So you can say that you know, a 30 Vol equals $1.50 on the option or $1.50 on the option equals 30 Vault. And once you do it enough, they’re interchangeable.


Jeff Malec  25:00

So how many times did you have to go up to sheets,


Noel Smith  25:04

you go off your sheets for the best trades. So the best trades come in to you. And you know, what happens is 90% of the time, you look at your sheets, and you get a good idea where things are, um, you don’t use your sheets that often after a while, because you just kind of instinctively know where, where things are. And then what you know, versus what the market is offering you and data. Because say, for instance, the guy says, I’ll pay $1 for these options, that equals 30. Vol. But he say he wants to change that, then you like you have the choice to either trade at his price, or not, everyone around you is going to so then you’re put in a position to kind of noodle this stuff through. And where is it in the spectrum of the rest of your book as well. And that’s, that’s really when you go from being you know, kind of a market making monkey, which is not all that easy in the first place, to really being a small portfolio manager. Because if you’re shredding everything in your pit, let’s say that’s, you know, 10 to 20 different names, you already have a portfolio of those 20 names. And then you have to figure out what is the correlation between, you know, AOL, and Dell and Dell and you know, at home or Lycos or whatever else? Those are real names that traded?


Jeff Malec  26:10

Yeah. Sure, do any any of those guys.


Noel Smith  26:15

So actually was in tears. So that was one. I had a guy in that pit and I didn’t trade pets, but he did. And that was just one of those stocks where everyone knew that it wasn’t really a stock. It was like, three dudes in a closet with a dream. And it was like No $90 stock, right? No puppet way. Yeah. So the funny thing is actually from that era, I had a typical trading ticket, my stock fill, and I had bought 10,000 shares of Yahoo at $499. And the receipt was still in my breast pocket. And I didn’t find it until years later, when Yahoo was like, you know, 40 bucks or whatever. Yeah, exactly. It wasn’t I wasn’t trying to get long that much. Yahoo was a hedging trade. But it was just very laughable to see that years after the fact.


Jeff Malec  27:03

Where do you should frame that? Put that up? And talk about that real quick. That’s interesting. I’ve never actually knew that I was a Board of Trade guy, not a CBOE guy. But I’m picturing there’s pits for every stock way too many, you’d have to have way too many pits. So Right. So how many stocks were in each pit. So the


Noel Smith  27:20

CBOE management tried to put like one or two super busy stocks in each pit. And then you know, we’d have, you know, eight or nine somewhat boring stocks, and every now and then one of the boring stocks that have takeout or become hard to borrow or something like that. And, you know, so usually, as I’m saying you had 10 to 20 names in any one given pit. And that is really, you know, the basis, the Bootcamp for becoming a portfolio manager, because that’s probably what you’re doing.


Jeff Malec  27:49

Right? So let’s dig into that a little bit. So you’ve had all these positions, you didn’t have to, were there guys who just stood in that pit and just traded one name? To keep it simple? Yeah, but so your brain started going, Hey, I could trade all these things in a little mini portfolio. But to your point, you’re way off your sheet, then there is no sheet for that you have to track. You’re mentally doing that math. Like okay, I’m long this much AOL, I’m long this much. I got a Delta hedge these. And then it’s all fungible in your head of like, okay, if I sell some AOL, I can hedge these other calls that I bought?


Noel Smith  28:23

Absolutely. So if you know that there is, you know, a relationship between, you know, AOL and XYZ and that relationship, usually, you know, 80%, or maybe 120%, and beta for better terms, then you have to figure that out. And you have to kind of know where your risks really are. And what happens if they all go down? What happens if they all go up? What happens if your lungs go down, your shorts go up, happens all the time.


Jeff Malec  28:50

So when correlations change that can screw you, right? So that’s the biggest risks, they’re one of the biggest risks. But two, how were in this, What years were these? And when did you start to move to the computer to do all this work.


Noel Smith  29:03

So this is, you know, the mid and late 90s. And then we started using computers pretty early on, I didn’t use I only use paper sheets for a little while. And just by virtue of chance, when I showed up when computers started to exist on the floor, because you needed the connectivity as well, right. And then we also had these little, they were called res res trades, and which was like a retail execution order system or whatever else and trades would just hit you on your marketplace, which is actually the real birth of high frequency trading. So high frequency trading was born out of automated trading at the CBOE. And those two things are very interconnected. But, you know, being able to hedge out your deltas on a computer, was it happened relatively fast in my life, and then after I started trading my whole pit, we started backing with the guys I started to try to like Lord over other pits with you know, you had a guy in the pit next to you like Okay, how’s your at&t position doing Bob? How’s your Microsoft position position doing you know, Steve And you know, you kind of figure out where everybody is in the matrix of things. And you realize that well, the golden brokers selling me options in AOL, the Goldman broker selling Microsoft option is to Bob, and the Goldman broker is selling options to Steve, maybe vol is for sale, maybe I should lower my bid. And that’s when you start to become like that’s like 102 level Portfolio Manager or maybe even 103 level.


Jeff Malec  30:26

And how did but so you’re just using the computer as a tool at this point. It’s not basically informing you, right?


Noel Smith  30:32

Just a tool that gives me no information. Right.


Jeff Malec  30:35

So how long after that till nowadays, the delta hedging can happen automatically, right?


Noel Smith  30:40

Yeah, all my deltas are done instantly. How does it go? How do you start to get a big picture stuff, I didn’t really get big picture stuff until I started learning over the whole firm. So you know, if we had a guy in every pit, we had a guy in every pet in the CBOE we had guys the Board of Trade we had guys with Merck trading Euro dollars, we had guys the NYMEX, we had guys the COMEX. And then as you become the hub of all this information, you start to have these big picture ideas. And that is where the ideas and the experience really started to coalesce. For me, as to big picture ideas follows for sale, interest rates are moving. What does this mean, you know, across the board when these things happen? And that’s quite relevant to my current job, which is why I’ve been daydreaming about burning outside money. I don’t know since 2003.


Jeff Malec  31:28

Yeah, well, we’ll get started, I’m gonna stick on the so you, you went to a basically a prop model, right? So you had all these guys inside the firm that all their p&l ‘s are syncing up all their risk is syncing up. So that Goldman example you’re seeing then they’re selling and a whole bunch of names? Maybe they’re even selling rates, VA and whatnot. So is that get put into the computer? Do you see it as a as an alert, or you’re just taking that in into your human brain and saying, Okay, this is happening, I need to reposition the whole firm this way.




Noel Smith  32:01

So it was both at the time we cleared for chemical packs. And then we also had spear leads, and the way they shocked we they would give us paper risks. So he would say, okay, you know, you had x amount of capital, now you have X amount of capital, and here’s your risk on different matrices of shocks. And so we would kind of comb through these these physical paper printouts. And we would say, Okay, well down, 10%, volume up 30%, we are at this much rest, and then you keep this stuff in your head, because if you don’t, nobody will, right since your job. So you start to get a really good picture. And when you stare at the same stuff all day all the time, you get pretty accurate at it. And you know, with their Microsoft ball goes up a pointer to is something you don’t really remember. But unless you have a huge position in it. But the overall Vega of the book, the overall gamma of the book, the overall state of the book is totally irrelevant. And you’re looking to, you know, mitigate that risk all the time?


Jeff Malec  32:57

And Did did you say, Hey, we’re going to I’m going from but this was the same firm that you had joined up? Or did you start out and say, I’m going to start my own prop firm?


Noel Smith  33:05

Now this is my my own prop firm, I was an equity partner in this firm. Got


Jeff Malec  33:09

  1. But so to me, it’s like, when did you go from Alright, I’m going to be a trader, I’m gonna make a lot of money for myself, too. Was there a conscious decision there of like, Hey, I’m gonna scale this with all these other guys? Or was it more of an intellectual exercise of like, Hey, I’m getting all this other information we need to put it together?


Noel Smith  33:26

No, it was it was more rudimentary than that. It was more like, Okay, well, if I can make X amount of money in a given year, then if I have a guy next to me, maybe I can make 2x, maybe even more. Yeah. So then you can extrapolate that to you know, 30 guys in 30 pits. And all you really have to do is cover the, you know, the CIF lease, which at the time was like 13 grand a month or something like that. And then you if you have the excess capital, and you have, you can take on the extra risk, you decide to back somebody else, and then one becomes two and two become four and four, become eight, etc.


Jeff Malec  34:00

Right. But which Stafford, the aforementioned was doing the same thing at same time. A lot of different groups. So how did you differentiate yourself there? Like, everyone’s got the same sheets? Everyone’s got the same knowledge, right?


Noel Smith  34:12

So it’s funny, you know, I’ve done a handful of interviews, and nobody’s ever asked me that question. And the real answer is way more disappointing than, than a lot of people want to hear everyone is really great black box, right? There is no black box that I know of the only real black box is is high frequency trading. And it’s almost literally a black box in the sense that it’s faster logic. But the quality and the timing of information is how we did better than our peer group. And what we did is we got to know the brokers, we have to understand and we would keep track of like, where the information came from and how good was the information or was it counter factual information? Some brokers at that time constantly had you know, TD paper TD meaning they were trying to cheat the marketplace, they had insider information or something like that, and their trade It’s almost always went their way. What is TD stand for? Cheat? Like he’s cheating at cards you said like Chiti Chiti cheat, like, like cheating paper


Jeff Malec  35:10

got DHEA t what? You’re saying like TD Ameritrade?


Noel Smith  35:14

No, no, actually TD was still Toronto Dominion Bank at the time,


Jeff Malec  35:19

which ended up buying Stanford right?


Noel Smith  35:22

By Stafford, they bought.


Jeff Malec  35:24

I know, they bought off Stanford, I believe. I


Noel Smith  35:26

didn’t know that. Well, I just I’ve kind of forgot I kind of forgot it. So brokers that always have paper that cheats is just as useful to brokers that never have paper that cheats, actually, it’s probably more useful. So what you do if a guy wants to buy 1000 options, you know, you sell him 50, just to keep her happy. And you go on your buy as many shares you can get your hands on. And maybe you’re right, maybe you’re wrong. But if he’s, if he’s always right, you’re probably going to bleed into that just right.


Jeff Malec  35:52

And who cares if he’s actually cheating, right? If he’s always right, doesn’t matter why he’s always right. Just get in front of it. Right. Like that was the whole concept behind the Goldman roll going into commodities, right of like, we know this flows coming at this time every month get in front of Exactly. Which is interesting of like, insider trading cases, do they ever come down? Were you ever just posed or anything like, Hey, we’re coming all the way down to the market maker them?


Noel Smith  36:15

I had one case where I was the largest shareholder of a stock that didn’t work for the company. And I had some law firm call me up and be like, hey, you know, do you want to go to court and testify? I’m like, no, no, not at all. How about if we put you up at a $5,000 night hotel and all these other things? I’m like, Okay, fine. And this is actually a pretty interesting point that I think a lot of us older people come to. So I find myself in federal court. And the other side was three guys, this is in Boston. So it was a all older guys, gray haired Professor types. Guy from Harvard guy from MIT, another guy from Boston College. And they’re all talking about me, but not to me. And there’s like 50 people in court. This is not like, there’s not a jury trial, right? This is not jury


Jeff Malec  37:07

trial. Are they the expert witnesses on?


Noel Smith  37:10

Yes, exactly. So this is this is such a seminal point in my life. And it’s really guided me ever since. These guys were all talking about this stuff in the My lawyers asked me, What do you think? Are they right? Or they’re wrong? Like, I can tell you that these guys were wrong. And I can prove it with math and graphs in 10 seconds. And they’re like, all we need to know. Boom, that’s all we need to know. And I’m like, so you know, you can study skiing on paper for 1000 years, you can say, Okay, well, if the coefficient of drag on your your wax is x and your your, your edge sharpness is why and you know, the temperature outside is q and you can come up with fright. Exactly all these reasons why you should be able to ski things get on skis, you know, show me how to do it. Not so easy, is it? And it’s exactly the same thing. And that has kind of guided me for so many years, which are people that are supposedly experts in something are not practitioners. And sometimes they are sometimes they’re not. But a lot of times people that only operate in the domain of intellect or theory are often terrible practitioners.


Jeff Malec  38:15

Yeah, yeah. I mean, we say that all the time, you get a super smart coder quant. But you put him in front of live trades real people’s money, and they like deer in the headlights like, oh,


Noel Smith  38:25

absolutely true.


Jeff Malec  38:25

That’s supposed to work this way. So you have all these guys, what was the peak number of guys in the Prop firm? What was it called Third Millennium,


Noel Smith  38:39

Third Millennium trading. I don’t know if you’ve ever actually done a clicker count. But we probably had at our largest time for about 65. Guys, but we’ve probably hired 100 And something over the time period.


Jeff Malec  38:52

So 60 in pits actually trading,


Noel Smith  38:55

in other words, like 65 guys or so on payroll every month that we had to take care of.


Jeff Malec  39:00

But then that also each had a p&l. Just yeah. So So were you ever thinking like, Okay, I want to put uncorrelated return streams together. They’re basically all doing the same trade just in different names.


Noel Smith  39:13

Definitely, number one, definitely uncorrelated strategies. So as you know, what happens is is you know, say that say the VIX goes from 30 to 15. Well, the volatility and all of the pits will go down. And so that’s when again, this is the next level of going from being a market maker to a trader to maybe a prop trader to being more of a real Portfolio Manager and then kind of guy who runs a firm and you start to see all of these things and you start to connect the dots as like, Okay, well, if the papers really hot in Euro dollars, what does that mean, my Goldman Sachs well, actually Euro dollars and Goldman do have a relationship because the shape of the yield curve for Goldman’s lending program is completely affected by interest rates and interest rates are being borne out to bear right now in Euro dollars. Okay, well, what part of the Eurodollar curve is most relevant to Goldman? Well, it’s the front end. Okay, well, how much front end paper does Goldman have and you He starts assess all these ideas out, like, okay, there’s a relationship. And you know, we can probably make a trade here.


Jeff Malec  40:06

But in real time, or like over a course of weeks, or like you’re sitting down with the whole, all those traders and saying, Hey, this is what might be playing out


Noel Smith  40:14

in real time or by end of day. Yeah. So, you know, you look at, you know, the Eurodollar, paper and data. Okay, what was going on Euro dollars? Okay, well, they’re implying an interest rate rise, or whatever, right? We’re moving at maybe a more accelerated interest rate rise than what the marketplace is currently pricing. Okay, well, if interest rates go up faster, where’s it what part of the yield curve is most relevant to? And again, you have to figure it all out. Because, you know, interest rates are relevant to all kinds of things,


Jeff Malec  40:41

everything. This blows my mind, because, right, you’re everywhere, you’re on Twitter, you’re reading blog posts, and you’re like, oh, this euro dollars are signaling this and you think about a trade for a few days? Like, by the time you’ve read that on there, and think about it, it’s already been right. There’s market makers who have been there for a week already. Absolutely. Yeah. That’s fun. And so right, to me, it’s like this is this new concept of pods, right of belly as knee, all these other groups of like, Hey, we’re putting pods of traders together. But Mark, you know, prop firms were doing this long before it became a


Noel Smith  41:17

we did not invent that at all. So we kind of knocked it off from Susquehanna, which is kind of the DNA that you know, I have trading DNA, and I don’t even really know who did it before Cisco Hunter, maybe O’Connell, maybe. Connell, I knew a guy named McConnell. O’Connor or spirit leads. Actually, the O’Connell guy was the is the brother of an actor that was he was robbing in the Batman movies. Oh, yeah. Yeah, I forgot his name. That’s the next to me that. Maybe I forgot. But anyway, it’s funny how the memory works. Here’s the guy who stood next to me in a pit and whatever their you know, their family are from Winnetka. But they’re nice guys. But anyway, so you start to figure these things out. So that’s also kind of, you know, the genesis of my fun, which is, once you start to see various trades, like say, you have a Euro dollar guy, and you have a bond guy, well, those two things are related. And then you have a guy that trades, you know, I don’t know, cat, all right, I knew a guy that traded cattle, he was literally a rancher from Texas, like the guy who would ride around on a horse and figure out cattle stuff. And then his information was as contemporaneous as you’re gonna get into cattle world. And I thought to myself, as I got to know this guy, I’m like, I will never know more about cattle than this guy. So if you’re trading against this guy, you’re probably going to lose money. But barring luck,


Jeff Malec  42:37

I love I asked, we have a few funds that do cattle or hog trading, and I asked those PMS, there’s two, there’s one right answer, like, how come Citadel or sponsor someone doesn’t go pay this same ranchers, you know, and get this information? The incorrect answer is like, Oh, they’re my friends, and they won’t do it. The correct answer is it’s not worth their time. Yeah, like they could easily go do that get the same information, it’s not worth their time. It’s a limited market. And they’re like, We don’t need to do that. But so that was gonna be one of my questions. Were these all option, vol traders? Or did you have a guy who is like, picking stocks or going outright, long natural,


Noel Smith  43:15

we have never had, we’ve taken deltas everything all the time. So. So if you have an opinion of natural gas, you don’t have to express it in the options marketplace. I have always gravitated toward options, because that’s my comfort level. But also, I feel like anything you can do in the equity space or in the you know, the delta one instrument space, you can do better or equal to or greater than the option space. Yeah, so I almost always


Jeff Malec  43:39

always go delta one and options. Right? Exactly, you can get both Right, exactly, just


Noel Smith  43:44

put on a combo and poof, you own it. Or you can do some kind of a risky and you know, you kind of sort of own it. Or you can buy some out of the money calls and you probably don’t own it. But yeah, there are so many things you can do with options that you can’t do with the delta one instrument and you can even mitigate your decay and all this other stuff. And once you kind of suss it all out like I said it’s to me it’s equal to or greater than the delta one instrument whether it be gas lumber, Tesla whatever


Jeff Malec  44:08

you’ve got this prop firm going did it become Winner Take All right like how what happened why did it cease to exist it’s the became an issue high frequency became a


Noel Smith  44:19

no we kind of dissolved due to my business partner and I just going different directions personally. And that was it. So we, we had made a bunch of money and then I’ve never been able to make money like this right? Sadly, I wish I could. I wish I could now but I don’t know how I’ve always made money in clumps. So what that means is that my p&l



Jeff Malec  44:40

Many people make it like


Noel Smith  44:42

yeah, people that are high frequency traders, guys that trade cattle high frequency and you know these they never lose money, but they can’t scale that big. Yeah, they have a 12 sharp but they only control $3 million. The p&l that I’ve always unfortunately had to deal with is like, you know, kind of upward sine wave right? If we were just coming off of, you know, a crest of a sine wave, and I was getting pretty bearish on my own expectancy, so I decided to take off the summer, and the summer turns into a winter and winter turned into a year. And then that was kind of the dissolution of the firm.


Jeff Malec  45:14

But to me, it’s always like, Red Queen principle, our buddy Jason Buck would say, right of like, hey, that problem, you’re always chasing, I was going to upgrade the technology, I was going to upgrade the everything’s going and you start to lose pace with the DA W’s and peak sixes and all these groups that have someone unlimited resources to throw at the


Noel Smith  45:32

game. So it’s true and not true. So what is the technology do for you, the technology enables you to do all the same stuff that you would do in a pit, but better, it allows you to access to trade more quickly, it allows you to analyze your risk better and more accurately. And it just basically puts a turbo on all of your same pit stuff. And the quality of the information that we got, because we were first looked for many banks. So you know, say for instance, this pension pension fund in theory as a Microsoft trade, and they pick up the phone, or they call, I was literally the first call on planet earth for, you know, a dozen different banks. So just by virtue of me being that first up on the information tree, the quality of information I got was part part none, you know, I mean, it was just excellent. So that was one of the reasons we were able to make money. And then once things became more and more electronic side, side work. The the game changed a little bit. And then it changed a lot. And then it actually kind of reverted because you know, speed is now more commoditized


Jeff Malec  46:32

Yeah, I’ve heard stories like the Susquehanna guys just sitting in the pit. And they only they have bands that they’re allowed to trade in, right? And if they can’t, even if it’s like you were saying before, this guy wants to let me buy him for 15. Right, their price at 25. They’re like, No, you can only stay within the band. I don’t so


Noel Smith  46:48

those guys, it was really like Timber Hill guys, which were the probably the worst paper in timber Hills now, actually, two sigma, because they were bought by the guy in Florida. Interactive Brokers. Yeah. And then then two sigma bought that operation. But there are firms that are given parameters by the guy upstairs. And he says, Okay, you can pay $1. And you can, you can spend $1.50, and nothing more, nothing less than the guy, the guy is just like, whatever. And you know, if a guy comes in and says I’ll sell for 50 cents, and he’s just like, I can’t do it. I’m like, fine. I’m all. I’ll take everything he’s got for 50 cents. Let’s Let’s go. And you know, that discretion? was great.


Jeff Malec  47:30

Yeah. And just wonder, like, why did those firms it’s just, again, not worth their time. Like, we don’t want to get hung up on some we don’t understand just trading this ban. But this guy was saying it’s like, they’re robots. They’re just trading right there, dude, the human in there. But essentially, they’re a robot because they can only do this limited thing.


Noel Smith  47:47

It’s exactly right. So what happens is, is if you look at the guys that run funds, or run market making firms or whatever else are typically guys like me, that had to really learn it risk their own money. And if you look at the guys that were, you know, Timber Hill, guy, number 63, standing in the pit, I have no idea what that guy’s doing. Because, you know, he never really learned a skill set, he was just a device in which to get your business executed,


Jeff Malec  48:09

my brain goes to the Ready Player One book, and moving, we’re all the guys trying to solve the game or like in the right, they just have numbers right into it, they had no soul going on, and we’re gonna do a listeners, we’re gonna do a second part to dive into the strategy, because there’s lots of good stuff here. But this is all good on the back. So somewhere along there, you got involved with get go. Tell us what happened there. What happened with get go.


Noel Smith  48:40

And so the guy that started Gecko used to work for me, us. And we lost a bunch of money. And I think it was like, you know, LTCM or the Russian ruble Thai baht. I don’t remember exactly what it was. But it was like, you know, 9798. And


Jeff Malec  48:56

when you can’t remember losing a lot of money, what it was from,


Noel Smith  49:00

because I remember, oops, we lost more money than we had on deposit. So at the time, well not know that we lost more money than when our haircut a haircut needed. So our haircut was like, you know, you know, 10 million and we had like, you know, nine, so we couldn’t take any money out. And we were in closing all so this is like the worst. This is the closest we ever came to blowing out. And this is the beginning. So we said to this guy, you know, you’re not fired, but we don’t have any money for us or for you. So if I were you I’d quit. But you don’t have to quit. So he came back with a buddy of his and they were working on some basically electric versions of what other people were doing. And they pitched the idea of what ended up being get go to us. And we said sure, here’s some money and that was the genesis of Gecko


Jeff Malec  49:44

and explain Gecko for the listeners. It became a big thing and then it sort of disappeared. It’s still out there.


Noel Smith  49:51

Deco is now for to sort of really okay, so what happened with Deco is they made a lot of money and then they they bought night after the night algo went nuts


Jeff Malec  50:00

But basically, it’s an electronic marketing.


Noel Smith  50:03

Yes, I remember the exact meeting where I was, my brain was blown up by Gecko, we were having a meeting after school one day and one of the guys said to me, he’s like, okay, no, I got a question for you quiz. What percent of Intel’s total daily volume Do you think we are? And I knew he wanted the answer to be high, so he could feel good about himself. Now, my, my real internal answer was point 5%. So I said, 1.5% thinking, I’m trying to make him feel good. He’s like, 17. No way. No ways that that. And that was when I was like, Okay. What are you talking about? And that was when I really, you know, paid attention to the gecko idea. And then, you know, we tried to do more with options and options thing was was a little bit more difficult. And then, as we became more and more commoditized, you know, the gecko trade started to suffer,


Jeff Malec  50:56

and who did they who to get go replace the specialists, the human specialists on NYC or what who did they disrupt


Noel Smith  51:03

the specialists on the NYSC. The people that you see on CNBC, the DPM marketplace at the at the time was called DPM that it was moved to DMM. Same, same but different. There’s basically the primary specialists that would take down paper in either stocks or derivative products. That’s mainly who that ruined


Jeff Malec  51:27

all right, two more things on on these glory days. So, CBOE, you were CBOE guy I was CBOT guy then the CME guys what was their competition there? Did you like those other guys? Were you like, Oh, those crazy commodity cowboys? Like what? What was the vibe in Chicago back in those days between the pits?


Noel Smith  51:51

The I’ve never had any real knowledge. I never even went to the merch floor. I was on the board of trade for a couple times. The crazy salacious stories that you hear about for traders are almost always the merch, guys. At least to me, you know, those dudes that were like, you know, run around and FAST Women are all the stories that you’re here that are maybe sometimes true,


Jeff Malec  52:12

as the only pit as far as I know that the FBI was had some plans.



Noel Smith  52:18

And so yeah, exactly. So you know, I remember what in this year’s pit a couple of guys in the first started talking to these dudes, one guy was was a dentist, the other guy was like a some other kind of doctor that the guy was a lawyer, like, Oh, these guys are actually pretty smart. You know, they knew what they were doing. And the Board of Trade to me was maybe a little bit less intellectually robust than the CBOE. And then the Merck was like, I don’t know, used car salesmen dudes. That was my perception, whether it’s wrong or not, and it could be totally wrong. That was how it was kind of at the time, in my mind.


Jeff Malec  52:47

I think I would back that. But did you guys ever all get together, commingle with them, like maybe on a boat,


Noel Smith  52:55

we had a boat in Chicago. And, you know, we had a pretty nice boat, and then we ended up upgrading it to a pretty big boat. And, you know, a lot of traders, you know, we would have people with, you know, 150 people on my boat, and it would be nuts. And we would have people from all over the world and come visit, we actually we took that same boat to Europe into New York, we would have a party in New York twice a year, because the boat would go from Chicago down to Florida, and then back and have to go over the St. Louis waterway. That’s where my fingers going up. And then as it goes to the St. Lawrence waterway down through New York, and we’d have a party on the boat in Manhattan, once in the spring and once in the fall.


Jeff Malec  53:33

And how big of a deal with it. I’ve heard other guys talk back in the audit, right? It was like, you’re taking those brokers to Gibson’s you’re taking them out on the boat, right, like to get that order flow. That was how business was done.


Noel Smith  53:47

Yeah, um, the brokers aren’t dumb or nefarious, right? They just want everything else being equal. They want to make the most of money for money for themselves and for their families. So all they really want from you is to give you good markets and give them fast. That’s their incentive. And everything else being equal. They just want you to be a cool dude. But the but the idea that there would be worse pricing, or slower pricing is antithetical to their money. So


Jeff Malec  54:19

no matter how many times you took me out to Gibson’s, if you give me a bad filler, it’s love though you’re out.


Noel Smith  54:24

Exactly, exactly. So what you really have to be able to do is be good at your job and if you can be cool on top of that and show them a good time, all better. But you know, being cool or throwing money at a steak at Gibson’s is it’s a fart in the wind.


Jeff Malec  54:40

And then tell us one good story about a guy whose like house got repossessed or something of that nature when the when the accounts went the wrong way.


Noel Smith  54:50

We got a million of those trying to think I mean, I don’t I know a lot of guys that blew out and I don’t I am I think I’m blessed in the sense that I don’t ever get joy out of someone else going out because I always feel like I’m next. Yeah. So I never really, you know, like that stuff but I can tell you one story that was pretty funny. You don’t remember the old song by Janis Joplin Mercedes? My old Lord Hunter Biden or Mercedes Benz? Yeah. So there was phones in the pet. And this isn’t the AOL pet. And one of the guys took a call from his wife, and he was yelling at her on the phone, but everybody can hear because you’re standing like three inches from everybody.


Jeff Malec  55:33

Cell phone, you’re saying there’s like a physical quarter,


Noel Smith  55:37

quarter phone in the pit. So no phone rings that you know, this guy picks up the phone, and his wife had just crashed their Mercedes Benz and the rest of the pit figured this out from the context of his end of the call. They all started singing the song at the same time. It was just absolutely hilarious. This guy’s like, shut up. Just my work just crashed my car. But yeah, in terms of blowouts, I mean, those those stories are innumerable. And they’re all kind of sad, because you know, those are people with families and all that other stuff. And you know, that it happens. You know, I think one of the biggest things that people don’t, they would they want to believe that everyone down there is crooked, or that everything is like just these little coupe filled orgies or whatever else. I never saw anything like that. I never knew of any insider information. I never knew of any, you know, Coke filled orgies, or anything like that most guys are just dudes that want to make a living.


Jeff Malec  56:25

Yeah. And to me, the best thing of it was, you mentioned some of these CME and CBOE T guys aren’t the smartest tools in the shed. But it gave him a chance, right? Almost like crypto today or whatever, like, Hey, you didn’t have to go to the Ivy League. You didn’t have to know all this stuff and get perfect scores on your test. You can go down there, have the drive and make a killing.


Noel Smith  56:43

You could be standing next to a guy that has a 1400 I was sad and went to you know, whatever college and you know, you barely got out of St. Viateur. Somehow. And you know, you could be standing shoulder to shoulder with this guy and maybe you make $10 million. That was the dream.


Jeff Malec  57:01

Okay, we’re cutting part one there. And we’ll bring you the rest of all those great stuff in part two. Thanks for no thanks to our editor extraordinaire Jeff burger. And thanks to all of you for listening. We’ll be back next week with either resolve or part two of No, I haven’t decided yet. Just have to tune in and find out. See you next week.

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