Here’s How the “Masters in Trading” Get Ahead of the Market
Here at TradeSmith, we believe in taking a data-first approach to investing. Whether you trade individual stocks and indexes, options, or cryptocurrencies – or all of the above – we’ve developed a powerful suite of proprietary software, advanced research tools, and algorithm-enhanced strategies to help you fine-tune your portfolio and maximize your returns.
Earlier this week, I talked about the shifting market seasonality picked up by our Trade Cycles tools, and the market downturn we could expect to see as we enter September and October – as well as the buying opportunities we can look forward to as we approach the end of this unusual election year. But the closer we get to the U.S. presidential election in November, the more we see rising volatility shake the market.
With investors anxious for interest rate cuts and fresh economic data, the uncertainty rippling across the market makes it more important than ever to pick your trades carefully. But despite all the noise, you can still find excellent trades – if you know where to look.
Jonathan Rose, one of our corporate partners, turns searching out trades into an art form. After spending 25 years learning on the Chicago trading floors and inside private investment firms, he’s developed a strategy and a toolset that reads volatility in the market to find winning trades – and he’s a master when it comes to discovering the big-money trades happening behind closed doors.
Jonathan became a Chicago Board Options Exchange (CBOE) market maker in the 2010s before launching Masters in Trading – and every morning, he offers up live trading ideas, market commentary, and educational lessons to help his community of traders grow and succeed.
As a veteran of Wall Street myself, I’m a big fan of his insights – so I invited him for a chat, to get a crash-course on his approach… and a peek behind the curtains at Advanced Notice, his latest service.
A Chat with Jonathan Rose, from Masters in Trading
Mike Burnick: Thanks for joining us here at TradeSmith, Jonathan.
Jonathan Rose: Happy to be here, Mike!
Mike: Well, Jonathan, I know you’ve got a very interesting background. You’re a former floor trader from the Chicago Board Options Exchange – can you tell us a little bit about that?
Maybe share a few of your best war stories from your time on the floor at the CBOE?
Jonathan: Wow, just like that? Okay!
So, I actually started at the Chicago Mercantile Exchange (CME), trading futures from 1997 until 2003 or so. Then I was with a proprietary bond trading firm for a while, and then finally in 2008, I worked on the floor of the Chicago Board Options Exchange (CBOE) – and that’s where I really learned to price options to the penny.
I would say… ah, here’s a crazy war story:
Back in 2000. This was when computers were just getting down onto the trading floor. Before that, it was all just pit traded, like the movie Trading Places. Like those guys with their hands in the air, making trades?
Mike: Right!
Jonathan: I was in one of the first groups to trade on the computers that surrounded the pit. And I did that in the Nasdaq, trading in Nasdaq futures.
And so, Nasdaq futures were traditionally traded in the pit, but this new market was trading them on the computers. But they were all trading the exact same thing – this is important for later.
So, there was an arbitrage in keeping those two markets in line… where you could buy the Nasdaq on the floor and sell it, sell the Nasdaq on the computers that is, and it would all just wash – because again, everyone’s trading the exact same thing there.
And so, this is one of the craziest things that happened: There was one time down in the pit that people were yelling just the handle of the trade. So, at the time, for instance, if the Nasdaq is trading at 550, they would yell to buy at “50” rather than saying the full number.
Well, one day they were trading the Nasdaq futures at 550 on the floor… and we were trading the same futures at 650 on the computers. So, there was a 100-point arbitrage opportunity in the futures for anybody who took advantage of that.
Mike: Now that’s a pretty big gap. I’m surprised you’re still in the business today, after getting so rich on that arbitrage trade!
Jonathan: Ha! Well, that trade ended up bankrupting the biggest broker in the NASDAQ pit.
Mike: Wow. So that’s why you compared it to Trading Places.
Jonathan: Yeah… it was a mess. Because of the wide difference in the prices, they tried to break the trades and cancel the trades. But the problem is, some people would’ve been stuck long on some of the contracts and some people would’ve been stuck short on some of the contracts.
So, it was just chalked up to growing pains – and just like that, people benefited.
But other people, you know, went bankrupt because of it. It was really kind of a crazy event.
Mike: It sounds like it!
Well, in that case, talk to me about the here and now. Let’s fast-forward to today: now you run a great daily video podcast called Masters in Trading. And I want to talk a little bit about that.
So, I find your videos fascinating. I always try to tune in every morning, if I don’t have another meeting scheduled at the time.
And you know, I was listening in the other day, and you were talking about the “VIX term structure” and what it could mean for the markets… particularly the stock market.
I don’t think a lot of our readers are familiar with what the VIX term structure is, much less how it can influence the markets. Could you tell us about that?
Jonathan: Sure. So, you know the Fear Index, right? The Fear Index is the VIX – the CBOE Volatility Index. Most people are familiar with that ticker.
And what that is, the concept of the “Fear Index,” is just marketing – from the Chicago Board Options Exchange to promote the VIX product, which is a 30-day measure of volatility.
So that becomes what’s talked about in the news. That’s the big number.
Well, when we say we’re looking at the “VIX term structure” on Masters in Trading, we’re just looking at the VIX volume and price movements as a measurement of volatility over 30 days.
But we’re also looking at the VIX as a measurement of nine days of market volatility, and 23 days – 90 days, 180 days, all the way out to a year. Because for traders, when volatility rises, there’s more risk that’s in the market.
Mike: Right. And this year’s had plenty of volatility.
Jonathan: Exactly. But right now… it’s September, and the real risk will come in November, in time for the election.
So instead of just following the VIX, which is a 30-day measure, at face value, we want to drill into how the VIX has moved on the different timeframes – to figure out what areas we should focus on. That’s the VIX term structure in a nutshell.
Just like how oil trades as a curve, where you can trade oil two years out or three years out. That’s what we use volatility for – to ask “where is the risk in the market right now?”
And we cover that every day at Masters in Trading. I go on at 11 a.m. Eastern every weekday, and we’ll often talk about the VIX and VIX term structures there.
Mike: Thanks for the breakdown. So then, Jonathan, tell us a little bit more about the VIX term structure in terms of what it’s saying about the market right now, and what it’s suggesting about the weeks ahead?
Jonathan: Right now, it’s incredibly elevated. So, the probability of us going lower – that’s what we’re using VIX term structure to track for right now – is a lot higher than usual.
What we’re really watching right now is the VIX on the one-day – it’s spiking, the nine-day is spiking, and so is the 30-day VIX. So, there is a ton of risk in the market right now, but that same VIX structure is also what we’re watching for signs that the market will turn.
As soon as the VIX starts to head lower, the market overall – speaking in terms of the S&Ps or the Nasdaq – will trade higher. Because again, the VIX is just an expectation of uncertainty. So, whenever the VIX is super low, there’s not a lot of risk in the world. And it’s a lot easier for the market to just trade higher and higher over time.
And whenever those volatility measures like the VIX spike and go higher, the probability of those same indices going lower is much higher. And right now, we’re seeing that probability – and the VIX – going higher.
Mike: That makes perfect sense. You’re saying is that we’re kind of at a potential turning point, just waiting for a catalyst to kind of tip the market in one direction or the other, either higher or lower.
Jonathan: Exactly.
Mike:Do you think that the August jobs report coming out tomorrow could be a market-moving catalyst?
Jonathan: Mike, I think that’s exactly right. I think that we’re all just waiting for economic data. Last week’s inflation numbers came out and the market didn’t really move, now this week we’re starting to move, starting to trend a little bit to the downside.
I think Wednesday was a little appetizer for the big meal that comes on Friday. First Friday of the month, we have the non-farm payrolls that come out – and I think that’s the big market-moving event for the moment.
It’s also a really good trade, speaking as a shorter-term trader. There’s a larger expectation of movement this Friday, so we can make trades placing bets that volatility will rise. I like to call that “common-sense” trading.
Mike: That sounds sensible to me.
So, on that note, let’s talk more about your trading. I’ve seen what you do with Masters in Trading: Often you’ll outline specific trades or give some kind of general ideas about how to find trades. And you said in one of your videos, that one of the big things you key on is unusual options activity – to find out where the smart money is trading.
Our Inside TradeSmith readers definitely have a vested interest in that: TradeSmith has a few products that categorize smart money trading and money flows, and they’re pretty popular. So please, tell us a little bit about how you do that tracking.
How do you spot this unusual activity that can lead to these high value targets for your trading?
Jonathan: Sure! So, before I was a market maker on the Options Exchange, I had experience and familiarity trading options. But when I was around professionals, I quickly learned that I really had no idea what was going on. And at that point, I was kind of forced to rebuild myself at the Exchange and just learn as much as I could.
And so, it took me… probably about six months to really get comfortable with options trading in that way. But then I just realized that everybody was just… waiting around, so much of the time.
These people, you know, you get down there on the floor and you’re so intimidated and you think everybody is so smart, but they’re just like you – and everybody is just following the same thing in their trading.
They were waiting around until these gargantuan orders would come in – just like really, really weird orders that you’ll find on the books sometimes. It might be that a $20 billion company with a little bit of options liquidity, which is a relatively small company in this context, would see a $10 million trade come in – playing this company that doesn’t trade very much.
And people would just say, “Yeah, that’s… that’s unusual.” And people would hop aboard the trade.
And it was then that I really humbled myself and went down there and joined them and learned from that experience. I don’t really guess on the direction of the unusual trades that come in; I think direction is kind of random.
At the end of the day, the Masters in Trading community is just trying to grow our accounts and look for opportunity. So, if we did see a $10 million trade on a $20 billion market cap company, we’d give it the benefit of the doubt that that guy making that trade knows more than we do.
Then we’d just follow along and get out of the way – and let the big money take us along.
Mike: They’re certainly putting the money where the mouth is with a trade like that, that’s for sure. So, then Jonathan, you probably have scans and strategies set up for finding this unusual options activity, and these unusual trades.
I know you share the details on that a lot in your daily videos. Tell us how would you go about scanning to find something that’s truly unusual?
Jonathan: Sure. We have our Advanced Notice tools to search for that.
Masters in Trading has four component services you can engage with, but the main one – or the starter one I should say – is Advanced Notice, which is a scanner that finds unusual options activity and helps you follow those trades. And along with that, we have a Discord community where everybody’s talking and learning.
I would describe the community as being like a coffee shop that you walk into in the morning. The neighborhood styled ones where everybody says good morning. And there’s not an expectation that I’ll be like Pinocchio in there or anything – you won’t have me singing and dancing for everyone every day.
But when there’s a trade idea or there’s something to share, I love to jump in and share what I’m seeing, and answer questions as they come up. It’s a really great environment where people that aren’t as comfortable trading or want to share ideas – or who just want to ask questions that they otherwise would think are “stupid,” can go and talk to one another and learn.
As far as the tool that we have is concerned, what’s helping to find these options trades is our Advanced Notice program. And then looking beyond that, we have more of an all-access program that gives you access to more advanced concepts than just the unusual option activity stuff: That’s where we talk more about earnings trading, divergences, and then there’s a Blockchain alpha program as well.
Mike: Wow. You cover all the bases, it sounds like.
Jonathan: Right. Well, it’s mostly that we have levels of trading that build upward. We have Advanced Notice, and then the next level allows me to look at the market myself when we’re sharing trades, rather than just pulling from the unique scenarios the tool finds – that $10 million trade on a $20 billion company, for example.
Mike: Got it! Thanks for sharing all that with us. And hey, be sure you give me advance notice of your next big $10 million trade when you see it? Just, you know, email me on the side.
Jonathan: Ha! You got it, Mike. I’m sure our corporate partnership would love that.
Mike: Well, I’m very happy to have you as a corporate partner here! And one last time, give us your website details again? How can people get started watching your 11 a.m. webinars?
Jonathan: You can find it all at www.mastersintrading.com.
You know, I actually started Masters in Trading back in 2015. And I did have to explain that the name wasn’t a He-Man reference. It was more of like an education reference. When you look on the internet and see all these names for things and making your choices… I’m a little sad that I had to point that one out to people.
Mike: And it’s every weekday at 11 a.m.?
Jonathan: Yeah, every weekday at 11 a.m. Eastern. And it’s live! You can also watch on YouTube – that’s where we uh house all our videos. You can just search for Jonathan Rose or Masters in Trading and you’ll find me either way.
Mike: Great. I’m looking forward to your next session!
Jonathan: Thank you, Mike – I appreciate that. Thanks for having me.
Mike here.
Advanced Notice finds trade recommendations by screening for unusual options activity to identify the movements of market makers and big-money firms before they become common knowledge. By following outsized trades and unordinary positions, and building trade recommendations from those signals, Jonathan’s managed to give his readers a chance to capture incredible returns – booking wins with returns of 98.58%, 245.13%, and even 462.50% on options trades made over the last four months alone.
It’s a great track record and an intriguing approach – so I’m excited to share it with the TradeSmith audience.
If you’d like to learn more about joining Jonathan and his community of data-focused traders, you can check out Masters in Trading – and the Advanced Notice options service – right here.
Good investing,
Mike Burnick
Senior Analyst, TradeSmith