117: Larry Alintoff – Traders' Opportunity—When Things That "Should" Happen, Don't Happen

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Hey there, team. What's good? Welcome back once again. With me this week for episode 117 is trader Larry Allentoff. If the name rings a bell, then chances are you've seen the TV series Wall Street Warriors, where Larry was featured on season two. Larry's had a long lasting and impressive career as a trader. In his earlier years, he worked as a prop trader for Paul Trudor Jones. Later on, he ran the largest group of traders on the Amacs at the time.

Then when he went over to the New York Board of Trade, Larry became the largest trader in frozen concentrated orange juice. Nowadays, Larry is CIO of the Toro Fund. During this episode we cover the thing which helped Larry to become consistent, why there's great opportunity in knowing when things that should happen don't happen. how he's been able to successfully apply a similar trading method from the floor to the screens, and how a market obsession has carried him this far.

Please enjoy the interview, guys. Hit me up on Twitter if you have any thoughts at ChatwithTraders. Here is my guest from the state of Florida, Larry Allentoff. Larry, what's going on, boss? How's your day been? Uh the day's been uh actually sort of interesting because uh The United States markets are really, really slow right now. The the actual indexes aren't doing much, but tomorrow we have a Fed meeting. So we really spent the day trying to model

What we think should happen tomorrow based on three different scenarios that the Fed might do. So basically most of our day was was. uh dealing with with that type of stuff. Which we normally don't do, but w we'll get into that. But uh today we we actually did do it and the markets are quiet and giving us a ch chance to do that. So

And there's there's some interesting stuff with that that uh we'll we'll get into. Yeah, yeah. I definitely want to pick up on your mention there of modeling what you think may happen tomorrow. So let's circle back to that. To get this started, I know you've been trading for around about thirty years, which is a fair while. Um, where and how did you first get started though? Oh, Aaron, that is a that is a an actually a great question. And it's uh it's a funny story.

Believe it or not, on October nineteenth, nineteen eighty seven, I was at the University of Michigan and I was eating lunch and one of the guys that I was eating with had mentioned. To the whole table did anybody see what was going on in the stock market? And literally I finished lunch. I went downstairs into the basement. I was totally by myself and I put on what was then FNN, which is now CNBC.

And sure and behold, the stock market was literally crashing and it was down twenty something percent. That moment that I sat there and watched TV, I was hooked. Hooked and obsessed and I've been that way Fortunately or unfortunately for thirty years. And that that's literally what got me totally involved in the markets was that specific day. So had you had any interest In the stock market at all prior to that event?

You know, I I knew about the stock market and I had and I had watched some stuff, but I I never really thought about it in terms of what it meant and in terms of, you know, how to think about it properly and the correct way. And what's funny about that day was that I remember there were a couple of quote unquote gurus that you know, that claim that they actually called for a crash.

And when the crash came, all of a sudden the entire media wanted to speak to them because now they were a guru and they could tell you what was going to happen. Well, I specifically remember one of them and they were saying, well, now that the stock market crashed, we're gonna go into this Great Depression.

So I'm sitting there, I think it was my sophomore year of college, and I'm like, wow, I guess if we go into depression, I need to change my career. So at the time I was a uh getting a degree in finance. And I said, you know what? I better maybe do a dual degree so I won't have to worry about it for in a depression. And I actually went and became uh an accountant as well as a uh a degree in finance. So I double degreed basically because of that day.

Okay. Okay. So how did you begin learning how to trade? I I mean, I'm we're probably skipping a a short period of time here, but You know, when you decided that you were going to start trading, how did that sort of come about and how did you begin learning the stock market? I totally started probably a little different than most people. I Literally started I got graph paper, a giant poster of graph paper, and I started plotting prices in my dorm room.

uh after the stock market crash. And I was watching gold and the S Ps and literally every single day I would track the high, low, and close. Not knowing anything at all. And over a period of time, I started to notice what what I call a pressure point. and whereby the market would either go up big or down big. And I was able to start to sense it before it happened.

So I I would see something, for example, in in the S P and I would have a pretty good inclination that, you know, the next X days we're we're gonna be strong to the upside or or strong to the downside. So that's literally how I started. And after that I did what probably most people do and Go to the uh business library or the bookstore and get as many books on trading and people that traded uh as possible as you can get.

Okay, and these pressure points you referred to, is that something that you continued using, um sort of moving forward, or was that just sort of where you began to cut your teeth? No, I did. I used those points in virtually every single market. Mainly futures markets for the most part. But That's where I really started to put together a track record and it was small, but it was consistent. And I those pressure points completely existed, probably do today.

But they were they became they were very, very clear back in, you know, the late eighties, early nineties. And a lot of people talk about There were some big trend followers back then. You know, how and the markets have obviously changed. And the the markets always change. So for me, for the first X years, seven years, six years, I was completely using that method that I had literally taught myself.

And and and I could take the graph or the chart and I could turn it upside down and I could see it from the opposite way. And I I would literally just my mind just started. to totally look at different patterns. And I could see patterns just from the open, high, low, close, like other people can, but I was doing it at such a young age that I was becoming got kind of getting in rhythm with the markets, if that makes sense.

Yeah. So what is a pressure point? Can you just kind of I might I know it might be a little bit difficult to explain'cause we've only got audio here, but you know, can you just give us a basic idea of what is a pressure point?

Yep. And it's very simple. It's basically what is known as, for example, an ascending triangle. It's basic tech uh It's basically technical terms, basic stuff, like uh an ascending wedge or a a triangle, whereby the market's gone or even a market that's gone completely sideways for a period of time, and you're literally looking for a breakout.

in either direction. And you can overlay that market with an an an indicator, for example, like a stochastic, and you can start to notice divergences on that chart where The stochastics today are higher than they were recently, but the market is is making higher highs. And you can tell and you can start to get a sense that if it breaks above a certain level, the market can really take off here. Have you found those sort of things to become less reliable over time?

So I think what happened is they've certainly become I don't want to say less reliable. They're reliable, but In the in the what I'll call the old days, th a move a move from one of those pressure points could last Weeks if not months. And I think today, which is something that we definitely need to discuss, but the way that information works today.

These moves can happen so quickly that it's literally incredible. What used to take two weeks or a week can literally happen in an hour now. So it it's it's a it's a little trickier. because of that. And I think some of that has to do with the information flows that are going on. When you say those moves can happen in the space of an hour, are you talking about like the same amount of range or are you just talking about the the actual move is over and done with a lot quicker?

Well, yeah, it's a combination of both. Right now in the stock market, for example, I'll use that as an example. We have these high frequency traders. And basically they're sniffing out order flow and when orders come in to buy Oftentimes they they can literally they're running in front of these guys and they're moving this the price up so rapidly and so quickly that in the old old days when there was a specialist

and the price would move a quarter at a time, you know, it was a little different. You had more time to evaluate, to think. Where today you don't have that time. If your order wasn't in, You you you could literally miss the move. It can happen that fast and and and the models have to adjust. Now that's not to say if we get some crazy supply demand situation

You know, the markets will trend. And the markets can trend and they do trend. But the trends look and feel a little bit different than they do back in the nineties, if that makes sense.

Well let's continue on the path of your journey as a trader, if you will. So Uh think the first actual job you got in markets, you worked at uh Refco. Um can you tell us a little bit about that? I think that was a Forex broker, if I'm correct. Yeah, they were they were at the time Probably the largest for foreign exchange broker. We competed with in all the banks, Citigroup, Citibank.

JP Morgan. And basically what I was doing is was running a desk and actually learning how to be a market maker in foreign exchange and metals. And uh over the course of about six, seven months I I picked it up pretty well and I ended up running the desk. So I was actually running the the overnight desk. So I had uh kinda interesting hours. I worked like two in the afternoon to midnight, New York time.

uh the experience that I got from there was just being, you know, making a market and learning how to kind of get out, get in, get out, get in, get out, that kind of thing. and uh trying for the most part not to take too much risk. What was interesting was Th my boss at the time saw that I was able to and I was using these pressure points again and watching the the the order flow and the market.

And my boss said, You know what? We think you should you should trade for the for Refco. You should be a uh have a line and and and trade. And I did. And uh I was fortunate and and I started to become very, very consistent in the market. And uh one of the I don't know if it was my boss or somebody else and I don't know if you want to go into that story, but had brought my name up to a market wizard basically.

And uh I started managing money for uh uh for a for one of the market wizards. And that's basically how I ended up going from Ref Go to working for basically Paul Tudor Jones. I jumped the gun. That's awesome. Before we get into you meeting Paul Trudor Jones, which we're obviously going to spend a little bit of time on, I wanna pick up on your mention there of becoming very consistent.

How were you able to become very consistent? Can you can you relate that to anything? Was there anything you did which really helped you to get that consistency? Yeah, I can. It it's very, very interesting. There is a fabulous book called Reminisces of a Stock Operator. And it's by uh Edwin Lafay. And it is an absolute classic and I I

uh every one of my traders that have worked for me have read that book at least at least one time, if not more. In that book there's one of the stories when when the head trader, Larry Livingston, loses his basically goes bankrupt, loses his money. He comes back with a stake and he's only really can trade one thing and one time and he has to be right. If he's wrong, he's basically completely done.

If he's right, he'll get a bigger trading line and he can come back. And and and the thing is about that, is that if you think about it. I kind of back then did the same thing. I would say I would wait for every single thing to line up before I made the trade. Everything. So I wouldn't just take good trades or what I thought were going to be a good trade. I would take great trades. And I would put the probability of being successful

completely in my, you know, in my corner, if that makes sense. And instead of just throwing darts and being all over the place, that's kind of what I did you know, back in the beginning, is that I just superly made sure that everything lined up. And it's kind of modeled after you know, after w what he was able to do or what he did in in in those in those books. So I guess in some ways it was about being very strict and very disciplined and

picking the sort of trades that aligned with your plan. W is that a fair statement? Absolutely. Absolutely. And that is absolutely critical. To be completely have your game plan. And be able to be extremely disciplined and not be influenced by, you know, noise or something else. And that is a that that was a huge key for me. And I learned that really early on. And to this day.

It's the same thing. And to be successful and to survive, you have to have the utmost discipline and, you know, basically a rigorous game plan that is well thought out before the trades put on.

All right, Larry, well tell us about how you met Paul Tudor Jones. How did this come about? So I a after a while working for RefGo and I started to put together a fairly decent track record. It wasn't it wasn't over the course of years. It was over the course of You know, maybe nine months, eight months, something like that. But it was very, very consistent and it was very, very good. And I got introduced.

Not specif specifically to Paul, but somebody in the in the tutor group and they were I think they had started a program a year earlier or two years earlier and they were From my knowledge, they were they were picking approximately twenty, twenty five traders. that they thought would be good and they were going to allocate money to them and you know those traders would basically trade piece of Paul's funds, if that makes sense.

Okay. And that's what you did? Yeah. So I was accepted into the program and literally I left RefGo and I started to trade. Uh I started to trade for the for basically for tutor, yes. Okay. And whereabouts were you trading? Were you trading from an office? Were you trading on the floor at that stage? Yep. No, I I was trading uh I was trading off the off the exchange floor.

And I had a little office over at uh at at the same firm. I had an office over at Refco. And uh and that's basically where I was trading, you know, and that's basically where I did my trading. And I continue to do the same thing, very disciplined, watching the markets, looking at the markets, and and picking my spots where I thought that momentum would carry the day, if that makes sense. And I and and I so I was I was still using, you know, the basic technical stuff that I had taught myself that

that was working, you know, fairly decently across all markets. It wasn't like uh it worked in one market and not not somewhere else. It worked across the markets. It was the same human psychology that when it exists, it doesn't matter where it is, it exists. And did you have much interaction or or much to do with Paul during that time while you were trading his funds? No. No. It was we were basically a complete

I mean, we had spoken to people within within the group and I can tell you a story about that, but we were basically had no guidance at all from Paul. Uh we were completely um separated from them. From you know, from what what they were doing and we were we we existed basically on our own. Okay. Right. Yeah, I mean I'd I'd love to hear that story that you hinted at.

Well, y so sometimes things are Paul, you know, Paul's known for being a you know, for being completely a genius and he is. And I remember back in the old days they used to have faxes. instead of like emails and stuff like that. And I remember that Uh one day I went over to the fax machine and there was a piece of paper uh that came through the fax. And I I had just was talking to one of the other traders.

That uh I think was also managing money for them. And lo and behold, it looked like it had a list of all of the traders' positions. And it's you started to put one and two together and you could see, you know, here was something that You're out trading for him, but you realize that the the genius part of it is he's building a sentiment indicator or something to see where traders may lie. So for example,

if everybody was long cocoa and, you know, somebody in their group would know that, that's valuable information. Because if we're all long then maybe, you know a lot of other people are along. And it kind of like it kind of dovetails with the end, what I call the end of those pressure points. And and and and the market started to get a lot choppier towards the end of that.

And yeah, I always wonder if it kinda like m if if it kind of like runs amok between the two, if that makes sense. Everybody was trying to game something else. Yeah. So he was trying to when you describe it as a sentiment indicator, you're talking about amongst the traders who he had funded. Yeah, so he he had funded traders and you know, obviously he keeps track, you know, somebody in there was keeping track of everyone's positions.

And it just gives it just gives really, really good information to you know uh uh to an amazing trader, to somebody, a great trader. It just gives more and more information about what other people are doing in the market. as opposed to what people say they're doing in the markets. These are what people are actually doing in the markets in their positions. So We probably weren't supposed to see that facts but it was um nonetheless it i it was interesting.

And for me, like I I was always which started again in the nineteen eighty seven when I was watching I've I've always questioned things. I always You know, I always ask why, why is something happening? Why is a market moving? What's going on? And y you know, you question everything. So you start to see that and it's just, you know, it's like, wow, okay, there's there's You can you can get valuable information if you know what other people are doing.

And it's ingenious and it works. Yeah. And even though you didn't have a great deal or a great amount of interaction with Paul himself, obviously you were very familiar with who he was and the sort of level that he was trading at. Was there anything which you picked up or you noticed about him that really made him such a a legendary trader? Just the stories that, you know, basically that everybody heard.

You know, starting down in the New York Board of Trade when he when he made some unbelievable trades in cotton and uh and obviously the stock market crash of eighty seven, uh if if memory recalls, I I think he made like twenty five percent he called it. He had an analog model. that matched up with it pretty well. But You know, for the most part, i you know, people that have existed for so long in trading, um

It's definitely it's definitely cool to see not only how they evolve and and what they do, but you know, how they do it and how they go about it. So no no real, you know, no real dead secrets from from what from what they're doing, but you know, they're they're very, very good, obviously. So you spend a bit of time trading Paul Trudor Jones uh his funds.

You then went on to trade the funds of another market wizard who will remain um unnamed for now. But tell us a little bit about how that opportunity came about and what sort of things you were doing at sort of the next milestone in your career. Yep. Well th that that actually the the the other market wizard came several, several years later. Um it is something that that I that I that that actually your viewers might find interesting with with Paul.

Um, if you want to just go back to for one quick second. Yeah, sure. So at the I think this was the second year, the third year of his program. And uh I had remembered speaking to the other traders that and again I was twenty-two, twenty-three years old. At the end of the year, the successful ones not only got paid, but they were getting this, I think it was like$10,000 bonus.

So obviously I was very, very excited. I had a decent year and uh I remember I'm sitting home living in New York City, struggling, rents are high, all Like any other young twenty two year old would be thinking. And I remember getting this box in the mail. And it was a a a little white box. I think it came like I don't know if it was FedEx or it was in the mail, but it was a a really cool looking box. It happened to be from Paul Tudor Jones.

And uh I opened up the box and it said, congratulations. Uh Paul's making a donation in your name to his new charity that he's starting, known as the Robin Hood Foundation. So here I am, I'm twenty two and I'm like, Are you kidding me? Like I need the money.

Uh, you know, I I actually I needed that money. Looking back, obviously it's the greatest charity in the world, unbelievable charity and um but it was just it's just funny'cause some things have a way of you know, some things when you look back like They become major milestones, and for mi.

needing, you know, kind of needing more money for me became a a major milestone. And that box literally, when I got that after that, I literally really, really thought about trading off floor. And I had I had a friend That was literally begging me every single day to come and join him. And he was working on the American Stock Exchange and trading stock options.

And and and after that I uh I actually left and and joined him uh on the American Stock Exchange where we ran a huge group. And I know that you had a uh one of the Blair Hull traders on that I think was doing it in the Pico. And uh but that's a whole that's, you know, uh this the American stock exchange, and I don't know if you want to talk about that. is was a little bit different than the peacoast, but very, very interesting nonetheless. And for the next

five or six years I ended up trading on the American Stock Exchange and running the largest group down there at the time. Okay. And and what exactly were you trading on the floor there? So we we ended up having guys that were trading every single literally we would put people in every single market um trading equity options. And

completely different exchange. So it was the first time I was actually on a floor on an exchange. And the way it was set up was really interesting because you didn't have to think at all. The specialists would do all the thinking, and they were required to basically give 40 to 60% of any trade that came in out to the crowd that was helping to assist the specialist. So the guys in the ring didn't have to really do anything. They would just be handed trade. And it was interesting because

It was very, very, very it was not so competitive, very, very, very easy to make money, not knowing what you're doing. And uh we had guys making just really ridiculous money, never asking how they're making it or anything. And just because the specialist would be giving them tickets and they would be getting trades that were basically guaranteed winners, if that makes sense, with very, very little risk. So obviously what we did is we went out and hired as many as many guys as we could.

and we put them in all the different markets and all the different equities and uh, you know, we basically ran a giant book because of that. And they were just down there. Some of'em, you know, did did question what they were doing and and tried to learn. But it's funny because out of the fifty guys that we had working for us, I think uh Maybe one still trading today, which is uh which is, you know, interesting in of itself. And the rest of them are are gone.

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Trade the Pool offers a free demo and educational resources. Practice on live data, master the platform, and build confidence risk-free before you even pay a cent. Click the link in the show notes to start trading with Trade the Pool's capital. So I mentioned before a market wizard who it's the second one who will we'll leave unnamed. Was that the trader who you joined on the on the floor?

No. So a after the a after the American stock exchange, things started to happen towards the end. And and and your other trader was talking about it basically on on the Picoast, for example. On the old days the American Stock Exchange had no competition whatsoever. So for a stock like Circus Circus or IBM or Intel that was listed down there.

There was no competition. So if somebody wanted to trade, an Intel option, they would have to come down and see the specialist on the floor of the American Stock Exchange. The trade would occur. And that was it. What happened a couple years later, and this is this is the reason why a lot of these traders no longer existed, was all these other exchanges started to uh basically started to started to trade these same stocks that were traded on the American stock exchange. So

All of a sudden where the spreads or where the bid and offer was a quarter dollar wide or half a dollar wide started to become an eighth wide or a dime wide. And All of a sudden, what was very, very easy no longer was easy. You actually had to start to think about what you were doing and why you were doing it. And it that competition literally killed those floors.

The American stock exchange w was no different. All of a sudden we had the Boston Exchange, you had the Peacoast, you had uh the C B O E and all these other exchanges were listing. basically were breaking up the monopoly that the American stock exchange had. And uh if you didn't really know what you were doing and how you were doing it, you were kind of in a little bit of a tr in in a little bit of trouble. And uh

For me, after you know, after X years with that, I ended up going over to what was then the New York Board of Trade. And uh on the New York Board of Trade, I ended up going into, believe it or not, the frozen concentrated orange juice pit. And uh, I don't know if you ever saw the movie Trading Places, but uh it was very, very similar to that. So I ended up

going to a completely different exchange where the rules were completely different than the American stock exchange rules. And um this is the first time that I would say that there was basically real trading. It w this was complete open outcry trading. You had to be first. You had to be fast. You had to be the best, the best price. And um survival was was basically nobody was handing you anything. Survival was no guarantee. You actually had to be able to think.

make t complicated, two sided markets at times and uh completely different puzzle, if that makes sense, than it was on the American Stock Exchange. And you also, Aaron, which which is which is interesting, but You had to be very anticipatory, if that makes sense. You had to think about your position, not necessarily how it exists today, but how it would look tomorrow and a week from and a week from tomorrow.

and tried to figure out the best way to balance that position off. So it it it ended up being a a completely, completely different experience being on that floor. Just so we don't leave any loose ends, Larry, I definitely want to speak to you about trading um orange juice.

But your involvement with the second market wizard who we referenced, what was the involvement there? Was that in relation to the frozen orange juice? I mean, just so that we, you know, can can tie that off and keep moving. Yeah. So basically after You know, the the the second market wizard comes into play a couple of years later after the floor. Um not after the floor, excuse me, towards the end of of of the New York Board of Trade.

There was like a th yeah, three year period where there was the the second market wizard did not yet appear. I count. Um Yeah. That's that's why sorry, that's why I didn't bring that up yet. Makes sense. Makes sense. So how did you get into trading frozen concentrated orange juice. I mean it just seems like such a a random thing to trade. I mean, I know it's a real commodity, but why is it a tradable commodity? Like how widely is it actually used?

Well it's uh it's not really widely used. Believe it or not, they they used it in the the prison population. They were th that's usually what what they were using it for. But the market at this time in in orange juice was fairly Fairly crazy and fairly active. Uh there were a lot of there were a lot of players and there was there were some very, very large players, you know, off floor that actually needed the market to hedge.

There was no fresh orange juice market at the time. So they were using the frozen to basically hedge their fresh. And for us it was great because we had it was tremendous order flow. Tremendous things were going on there and a real theme started to occur. Uh it had occurred for me throughout my entire trading experience, but it really started to become concrete.

on that floor. And the the thing that the way I think about it is that, and they always say when things that should happen do not happen. That is such a big information piece. There there is so much noise on the trading floor. When you come onto the trading floor in the old days. There's just so much it's so chaotic. If if if I brought you down there or somebody came down there, you wouldn't realize what you would just hear noise and screaming.

But in that, some of that is very, very valuable information. And and I and I I think and I know I'm getting random here, but I think that You're seeing it like today, where you have so much information and so much different data coming at everybody. It's very similar to the trading floor. Yeah, it's very, very similar to the trading floor. And the best traders were able To figure out what true information is and what information will be impacted in the market versus what noise is.

And too many people get carried away with noise. You know, where they'll see something on the tape or this or that. versus what true information is. And the true information is what we are seeking to, you know, to achieve and and and and to and basically looking to model. And that that is that is literally the the biggest key.

So how are you able to differentiate between the two? I mean, I guess that's where it becomes really tricky is actually differentiating what is noise and what's uh information or or signal. Yeah. And that really comes from a couple of things. It comes from and I and I'm actually gonna I'll give you an example. So we were we were down in Orange Use and we were in the pit and there were a bunch of uh

A bunch of a bunch of order flow started to come in into orange juice, and they were buying massive, massive amounts of call options. Basically, they were making a quote unquote bullish bet on the future price of orange juice. And they were doing it in such a big way that the price of orange juice should have been moving up at this time.

I think coming into the thing, we we might have traded, for example, a thousand options a day. During this three day period, we were trading five thousand options a day, six thousand. Options a day. So it was so extreme. And it was just straight out a call buying. Buy them, buy them, buy them. And The price of orange juice should have gone up.

And all the guys I I don't know, you know, how familiar we want to talk about options, but the guys in the pit, the floor traders that were making markets and selling these calls, had to buy futures to protect themselves. And The the call buying was so fast and furious that everybody was raising their implied volatilities.

to protect themselves and they were being forced to buy more and more futures. Well, that was all fine and dandy. And my partner made a great point. Two days later, the futures price did not move at all. completely didn't move. That bit of information was absolutely critical in use and huge. And I'll tell you this. A month later,

Orange lost fifty percent of its value. It absolutely got imploded. And Aaron, I see it today. So take that one little example of something that should have happened that didn't happen. And we see it today. We see it sometimes you get exogenous call buying, for example, in a stock. Okay. And we we had one a couple of weeks in Starbucks. We had it a couple of weeks ago. They came in and they're buying massive amounts, abnormal amounts of call buying.

Stock price doesn't move, doesn't move up. That's huge information. Two weeks later, the the price of Starbucks goes down, down pretty big, six, seven dollars. So it's it's being able to use huge information and the correct information and the best information is actual impacted information. So these were people that were coming in and they were buying call options and they were putting their money down. And when things don't happen that should happen.

That's when there's real money to be made, when the markets literally go the opposite way. And by the way, if you think about it, um, look at the the the election that we just had with Trump. Everybody said the market should be down and down big, and it should have been a bloodbath, etc. And when it wasn't, That's information. So it's it's basically it's every single day, it's every trade. Asking yourself, what should happen and what did happen?

And if you start to think along those lines, all of a sudden you you start to you start to see what's working, what doesn't work, and you can start to model sort of correctly. as opposed to modelling based on, okay, if if a market, for example, closed lower nine days ago and you know and the RSI is is is is above a certain level, we'll buy the market. I mean that's just back testing stuff where this is actual market information.

So in these couple of examples you gave here, you said that the price should have gone up because there were so many people taking bullish bets and buying options. Why did the price not go up and barely move at all? Why not? So what most likely happened was that smart money came in to buy those calls because in reality they wanted to protect themselves. They wanted to short the futures. and have God forbid protection if they were wrong, where the calls would basically stop them out.

And they came in and they probably for every call they bought, they would sell future. So the futures were not moving up as they should have. And the Starbucks example was probably the same thing where they came in and they buy thousands of upside calls. And you know what? The price isn't moving because they're shorting the stock.

Uh, and they could be shorting the stock for any slew of reasons, but there's a there's a there's a probability that that could be smart money, if that makes sense, or insiders or somebody that knows something that's going on. And uh not all the examples work like that, right? Sometimes they come in and they buy other calls and the stock moves up. That's fine. That's what's supposed to happen. Ciao.

It comes down to what when something's happening that should not happen. That's what should pique your interest. And and and look at it that way, that's where real opportunities to make substantial amounts of money lie. When something doesn't happen and should happen.

And when you're talking about smart money and you're referring to other participants as is they, who are you actually talking about in in these examples? Like I know you don't know specifically, but like a general idea, like who are you referring to here? So like in in the case of orange juice, there would be smart money would be considered somebody that's actually producing the orange juice crop and they actually have oranges. They know

They have better information than anybody. They know, you know, what the demand is, they know how much they're selling, and they know they can look out their window and see, you know, how big their s their crop is. And Orange juice is an interesting example because it's a very, very small market and there's some people in there. Louis Dreyfus is the biggest player and they basically control a lot of this crop.

You wouldn't know if you're standing on a trading floor, you know, who's, you know, which order's coming in, if who it is, but you look for certain patterns and you look for how the market reacts to certain things. And, you know, I know RNGs or the Starbucks example is just is just two small examples, but it's it's any way that inf information or data Reacts to the actual impact and the price movement of the underlying and how and how and what should happen.

Um d there's no way, like you said, there's no way to always be able to tell what the smart money is or the dumb money, but you start to see patterns. And and you can start to see when you watch news, for example, or different data, that some of it doesn't move the doesn't move the stock. And other times other information does.

When we stood on the floor of the American stock exchange If somebody bothered to pick their head up There were times when there would be fifty brokers coming in to buy, you know, calls or puts or come in for s for for a reason to buy a stock. Other days nobody would be there. And I've always said and we've always tried to model, well, why are brokers coming in today? to buy this stock. And you backtrack, you say, okay, let's let's figure out why.

Um was it a technical point that came out in the market? Was it earnings? Was it some news? What was it that is impacting that price? And I say this because I wanna say as opposed to looking back and saying, Okay, you know, IBM went up three days in a row, so therefore the next day should be down, that kind of model, if that makes sense.

The models that we look at here, what I'm doing now, and the models that we've developed deal with actual things that are happening, informational and data in the markets versus what should happen, if that makes sense. Okay. Yeah no it does make sense. It does make sense. So Let's say you spot some of this activity which seems kind of unusual. How do you actually plan a trade and how do you actually trade based on that information? Like how do you actually capitalize on what you've observed?

Well, in the case of the ones that we just spoke about, so you would let uh we would basically let a little bit of time go by and see what happens. And we know when we model it that, you know, X, Y, and Z should happen. In those two cases in in Orange Use and Starbucks, for example, just to use those two and just to use this one form of information, because there's a there's a lot of them out there. Um

Just to use those two. Over the next day or so, those both of those prices should have moved higher. Orange juice and Starbucks. Both cases did not happen. And actually both started to go down. So that was the tip-off to a trade. Now, how you expressed that trade. That's really dependent on the risk tolerance that you have, whether you want to go short it, protect yourself with a call.

or uh, you know, if you were long, you may be realizing you you might want to get out because the probability has now changed in that marketplace. And you know, uh how basically you you want to do it, you can short it or or whatever. That's that's really up to the individual trader and how they do that.

What we do here is we obviously you sh you have to have a point where even if you have that information, you have to have a point where you know you're gonna be wrong. And if you're wrong, you have to get out. And and that and that's the key. And you're dealing with probabilities. And One of your one of your Edward Thorpe who you interviewed who's amazing.

talks about in the casinos how he change he would change his bet based on probability. When there was a lot of high cards, he would increase his bet. When there weren't, he would have a lower bet. It should almost be no different in the marketplace. When you have information that uh price is not doing what it's supposed to do. You know, after you look at thousands of cases, you start to develop a probability of an event likely happening.

And if you can weight that probability, you can also weight your bet size so that you have a bigger bet size for a higher probability event occurring. Having said that, you'd still have a stop in place than if you were wrong. But no different than, you know, what what what he was talking about on the on the casino if you were counting cards or something like that. So it's all about t having a probability and the way you get a probability is to

have been able to go back and look at as many cases as possible as you can find. Um We've looked just so you know, rough and dirty. uh over eighty thousand cases. And with that we we are able to put together a fairly good probabilistic point of view as to what should happen in a market. And we can vary our bet sizes based based on that information. Now you said that these sort of opportunities can lead to massive rewards.

When you were trading frozen orange juice How much would you say these opportunities made up your your profit at the end of each year, like I I don't know if you have any numbers on that, but just like a rough idea. No, that that that's a great question. So we were

in orange juice, we ended up becoming, or I ended up becoming my partner ended up becoming the largest traders in orange juice. And uh It's funny because uh I there was a magazine called Trader Monthly and I don't know if you're familiar with that or you ever heard of that, but

It was a an actually a pretty famous magazine that no longer exists. But they had contacted They had called, I guess, randomly up to our clearinghouse and they they had asked if there was anybody that stands out that they should speak to and they brought up my name. And they did a they did a feature in Trader magazine on me and and and on Orange. And that led to other opportunities, which I don't know if you want to get into, but in terms of your specific question.

We were able to generate very large, very consistent profits. I would say that that event that I told you about in orange juice might have occurred in that one specific market. Probably once or twice a year where something didn't happen that should have happened, and we were able to capitalize on it in a pretty big way, I would say that probably led to 20% of our profits from those events.

And the other eighty was doing our thing, filling in the puzzles, being anticipatory, and you know, buttoning our positions and and making, you know, size market. The beauty is off, you know, you're on the trading floor and there's only, you know, I'm trading in orange juice. I have one market. Where now, you know, it's funny'cause you go off floor, I have s seven thousand markets theoretically. You know, we have seven thousand stocks that we can look at and apply

the same edge that we were applying in orange juice and apply them to 7,000 different stocks. So it it kind of It's kind of very, very interesting in a weird way, but all the building you know, you can't just come and say, Okay, I I'm gonna trade, you know, five thousand stocks. You almost have to figure out what you're doing. And then see if you can apply it towards many different things, if that makes sense. Being in orange juice.

for X years. And then being on the Amex and trading one or two stocks, you know, kind of allowed me to see Well why would the stock move today? Why were brokers in here today? What were they reacting to? What are they looking at? Why is something happening? And I I think You know, that that's I think that's a a really I think that's a really important thing about being successful is to kinda ask yourself, you know, the whys instead of just blindly doing something, if that makes sense.

Do you think it's important to always understand why a certain move is happening or or why a stocks moving a certain way? Or do you just kinda need to be able to react to it? It's sort of it's a great question. It's sort of a it's a combination. My my my biggest issue is always taking profits too quickly. Um and not letting it run long enough. Knowing why something is moving would allow that person to probably stay with the trade longer, uh, if that makes sense. But

In today's world there's no way to real you're not really ever gonna know for for for certainty why something is moving. Um So it it's kind of like a caveat. It's kind of like, you know, yeah, it'd be great. But the reality is it's not gonna happen. So the most important thing is to know when you're wrong and be able to be disciplined to get out of it. and structure the trade in such a way that no one trade is going to really hurt you.

And, you know, to be able to put together a string of those trades where you have, you know, sixty percent probability, sixty-five percent pro probability of making money, and you can put together fifty of those. you know, each day or twenty of those each day when something is going on, you know. And just to use that one example where it shouldn't be going on and you pick that up from two days of work before.

Well, you start to build a portfolio of that, yeah, you're gonna have some losers, but you're gonna have an awful lot of winners too. And you're not gonna always know. why or who's doing what, you're just gonna, you know, follow along if that makes sense and you're gonna get in gear with the market. You know, and I don't mean to keep using those two specific examples'cause

There's tons of, you know, different different news that that may move a market or may not move a market. And If you just sit and you ask yourself what should happen and what is happening, and if it differs from what should happen, that's where the opportunity lies. So when Trump won, the market should have gone down, but it didn't. That told you something. So

You know, y how you play that accordingly, forgetting your views if you were bearish, but that it's that's information. So if you have a list of things that you think should happen, when they don't happen. That is such valuable information, even from an individual point of view or trader, that you can totally take advantage of that and absolutely make money.

Yeah. I like how you keep emphasizing this point. I think it's really valuable and I think you're you're doing a great job of e explaining it to her. I think it's it's good that we keep referring back to the same examples as well because it you know, adds a lot of context. So um yeah, no, I appreciate that, man. That's awesome.

So tell us a little bit about How you're trading today You know, I think you've probably already described it to a certain extent. Is there anything else which you're doing, working on? Give us the the thousand foot view on on how you're actually trading today, like your sort of universe, your time frame, that sort of thing.

Absolutely. So it it we we have taken what we had on the trading floor and the observations that we have seen on the trading floor and have figured out a way to apply them to basically we're trading equities now, so and a lot of these equities trade like commodities. uh as you know because uh w we spoke about it earlier these HFTs, the way they they trade, they move in and out of market so quickly. These stocks are moving around like commodities, but we we have taken what we had

this quote unquote edge or alpha, and we have been able to apply it to seven thousand domestic stocks here in the United States. And We build portfolios every single day on long and short, and they're all have a fundamental catalyst. So there's a reason why these stocks should go up and or down. And we build a balanced portfolio. So it's long, short.

that's basically completely balanced so that we're we're trying to capture, you know, basically that VIG or that extra edge. And it's all based on short term fundamentals. That we can quantify. And we know from looking back, you know, basically for twenty years or fifteen years, and we can go back and look at I think we looked at eighty-six thousand different data points for these names and see how

a fundamental change or a fundamental news would move an individual stock up or down over a very short period of time. And I bring up the HFTs because Had you been running a portfolio like this in let's just say fifteen years ago, your holding period on the portfolio might have been two weeks, because stocks didn't move as fast as they do today. Well today at our fund we hold our portfolio for approximately five days. That's it. So our portfolio is completely turning over continually.

And it's all based on stuff that we had spoken about earlier and how to identify that, but also other fundamental catalysts that diversifies that portfolio out. Okay. Now you mentioned that you've got seven thousand stocks in your universe. How many names would you be holding or a position in at any given time? Great question. We approximately hold, I would say eighty to a hundred longs and eighty to a hundred short.

at any given time. Out of the 7,000 stocks in the universe, and I mean all the different exchanges, you have to weed out for liquidity. So you're probably going to be left with, let's say, 5,000 stocks. Out of those 5,000 stocks, we probably get signals on 15 a day. that, you know, to to be bought and fifteen a day to be to be sold. So out of thousands of stocks, there's only fifteen a day that'll meet the very, very strict criteria that we are specifically looking for.

And trying to capitalize on. So it's it's yeah. And you know something, Aaron, which is crazy, but In the old days, there was no way to do it. Computing power today is so great. Our computers literally go through thousands of of of data points and it can do it in literally a minute and it can literally spit out to us the ones that we need to take a look at. So and I don't know if we you could have done that ten years ago.

I think it would have been very, very difficult. Yeah, definitely much slower, that's for sure. Yeah. As you bring that up, y and you're doing a lot of modeling now and you're looking at such a a wide universe of equities. Has that required you to learn completely new skills, you know, since coming off the floor, or have you just hired people to do this for you? That's really a great question. I am not a per se

uh a programmer. So I I have uh uh we have a small team of of four different people in here and uh one of them programs, but we've also used outside programming. uh to do it. I am literally like complete old school. Like if you saw my desk, I am I have yellow pads on it. I write down notes. I think.

Um, you know, I'm watching the markets and seeing w what's going on versus what should be going on. And I take all of those ideas and then they get spun to my to the programmers and then they write up stuff and we look at it. It's one of the things I wish I had the time to do, go back and learn how to program, but Thankfully the younger generation can can do all that and and they do for me. It's great.

I just want to go back to a point and speak about it a little bit. Why do you want to run a long short portfolio? What's the advantage of doing so? The advantage for us is that, you know, it was like for us the when the floor w we knew the floor was coming to an end and uh and everything was going electronic and

We we had seen so many cases and I saw it from the American Stock Exchange. We had fifty guys working for us and nobody was able to kind of make the leap to the to the to the next level or the you know, off the floor. And We had such really good observations throughout the twenty years of trading that We knew if we can apply what works on a trading floor, but figure it out to do anything off the floor that

It it w it could be really, really interesting. And again, a lot of it comes down to because Instead of just trading one market, you can trade, you know, X thousands of different markets. And for us, we kind of we kind of got lucky in i in a weird way that it all, you know, that kind of all lined up. That these notes You know, the reasons why brokers were in there, the reasons why they were buying or reasons why they were selling.

You know, they didn't just wake up one morning and say, Oh, I wanna buy XYZ today. There's gotta be a reason. There's a catalyst for it. And we were able to go back And figure out we had we had, you know, what we call positive expectancy on the trading floor, where every time we did a trade, we mathematically can quantify how much we should make on the trade. Now not every trade's gonna be a winner, so

It's over the course of time to figure out exactly mathematically what your edge is. And we were able to take that from the trading floor and bring it off the floor and mathematically quantify. You know, each time we do a trade, we know that over a course of time we're gonna make X, Y, or Z. You know, with the losses, with the slippage, with the commissions, everything built in. And That's kinda cool to see. And for me

It all comes back to sitting down in that basement and watching, literally watching the stock market crash that hooked me thirty years ago. And I'm still hooked to this day. And I I remember, Aaron, I remember every single Friday. on the floor, I would be so depressed. I would leave the floor on Friday, so depressed, because there was no trading on the weekend. And I'd have to literally wait till Monday morning to get back there. And

It's weird, but I f I I I mean, I feel like kind of the same way. So I I I wake up every single day just so excited, I just it's just we're basically become obsessed, which is good and bad, but I basically for thirty years completely obsessed, you know, about the whys and what's happening and why it's happening. and try to look at the ways to make money.

And how key do you think your passion and your obsession as you describe it for trading has been to get you to where you are today? I think that my personality, yeah, I think I never you know, it's like it's weird. You see people sometimes give up. I'm not I'm I will always keep coming back for more, if that makes sense. I'm always trying to learn, always trying to get better. And I think my personality completely fit.

into that into that motor, into that model. And always, you know, like I'll go home at night and I and I'll spend an hour and a half and I'll go through the entire day. And I I'm not I don't get lazy about it. It's just it is. It's it's almost like a workaholic Kind of uh, you know, background that I have. Like I just don't stop. My wife's not happy about it, but and I I think that's helped me.

Now Larry, I want to ask you a question. So, you know, someone like yourself who's been involved in trading for, you know, around thirty years now, it's a long time. I think what I've done in the past when I've spoken to traders who have been trading for similar periods of time, I've asked them sort of like what things have changed over that period of time, you know, what things have changed over the last thirty years. But

I was having a conversation with Jeff Davis, who was on I think he was originally on episode seventy. Anyway, we were speaking and He sort of said to me, one of the things that's really important is what hasn't changed. What's stayed the same. So I'd like to ask you, you know, over the thirty years that you've been trading Even with all the changes that have taken place, what are some of the things which have remained the same after all this time?

Yeah, that that that that's great. It's great to look back and and think about that. The reality is is that is that it it really, you know, and I and I hate you hate to say this'cause you're you're trying to, you know, after after thirty years you want to say, wow, I'm so sophisticated and this, that. The reality is the human nature is not changing. Fear and greed, it's exactly the same. There's still elation when you're right and despair when you're wrong.

That's not going to change, and that's never going to change. And the things that were it's it's it's funny because A lot of things that work will continue to work as long as it's based on the right premise and And I I think that's, you know, and I I know we c came back to it, but I think that's just so important. And for me, like thirty years ago with pressure points and things like that, uh that's important. And that stuff still works today. maybe the movement happens faster now.

where you can you'll you'll make money faster and or if you're wrong lose faster but You know, you can adjust to that, right? All you have to do is lower your bed size down, lower your wrist down, and you'll be in the same spot you were in. So You know, the the old saying i is the markets change. But the markets always change and the markets always stay the same. And I I think the successful

Traders kind of come back to the the bottom line is why is it going up? It it uh a a stock or commodity or futures is going up today, probably for the same reasons it went up five, ten, fifteen years ago. There there's a reason that for one day there are more buyers than sellers, or vice versa. And that's just not going to change.

And um yeah, you can go and people can go and model things like that, but the the reality is is it comes back to the basic human nature, fear and greed, and that's not gonna change. And and and and and that look up that book that I mentioned, Reminisces of Stock Operator.

Let me tell you, when you read that, it's just it's just eye opening because those stories are exactly the stories that you will have today from trading. And you sit there and look at it and you go, Oh my God, this is seventy years ago. How can that be? They didn't have computers and things then. But you know what? They're exactly the same. And it's pretty cool. That's probably why

I've been doing it so long because you know, s like like we said before, I'm not a programmer. So if it was all just programming now, I wouldn't I wouldn't exist. I wouldn't have been able to adapt to that. But It's not. And and and it does come down to, you know, what's worked and observations. And um for me that's that's been completely key.

I really need to read that book. I know a lot of listeners are probably shocked right now. I've been saying it for a long time, but I've never I've never read that book and it just keeps coming up all the time. It's just The problem I have is there's so many books I want to read and I'm not the fastest reader so it um it's all about, you know, certain books taking priority, but I think I need to move this one up the list.

Anyway, Larry, let's leave it at that for now. Um I know you don't have a great online presence. Is there anywhere listeners can go to find out more about you? Yeah, you know what? It's funny that you mentioned that. I uh one of the guys that works in the office, I've always really, really kept a low profile. And uh I I did that for a whole bunch of reasons. My love is the markets and uh

I I mean, I'm literally I'm not on Facebook. I'm not on anything. I am on Twitter and I am going to update all my stuff. It's gonna be updated in the next twenty four hours. I will get a social presence going and uh there will be ways to to get in touch with me. I haven't I mean I have an email I can give you and you can do that if that wants.

I mean it it's up to you. If if anyone wants your email, just uh hit me up and um I'll I'll uh share Larry's email with you. That's probably the better way to do it. But do you know what your Twitter handle might be? I think it's d I think it's the name Larry Allentoff, but um I will uh I'm I'm d I'm on Twitter all the time, but I never reply. I o not that I don't reply. I I'm uh I'm like a much better listener, if that makes sense. I'm always taking in information.

And I'm often not sending out information. But it's under uh I think it's Larry Allentoff or Larry.allentoff, but I can definitely text you back or send it through this the Skype. Yeah, yeah, we'll work it out. We'll put a link to it in the show notes because I'm sure some of the people listening to this will uh be keen to follow you. So I'm definitely yeah, I'm definitely I'm definitely on Twitter. So like if you put my name into the thing, it will come up.

Okay, okay, cool. And I will also just mention you were on season two of Wall Street Warriors. Um all ten episodes of that can be found on YouTube as well, so I'll also post a link to that in the show notes. Uh Larry, thank you very much for coming on the podcast. Uh it's been an absolute pleasure to have you on. Thank you once again. I really appreciate it, Aaron. You you uh you're doing great work here.

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