Schaeffer's Market Mashup Podcast Featuring Tony Battista of Tastytrade

How options traders can navigate the meme stock frenzy

Managing Editor
Feb 4, 2021 at 10:00 AM
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On the latest episode of the Schaeffer's Market Mashup podcast, Tony Battista of Tastytrade and Tastyworks returns to unpack all of the Reddit-fueled retail madness. Patrick and Tony chop it up about how options traders can navigate this new terrain (3:50), a golf analogy for the Reddit craze (12:40), and whether this new normal is here to stay (15:45). He also has a grim outlook on the Bears (Chicago, not options), an underrated pizza state, and cryptocurrency at Tasty!


Transcript of Schaeffer's Market Mashup Podcast: February 4, 2021

Patrick: Ladies and Gentlemen, welcome back to the Schaeffer's Market Mash up. A huge thank you to everybody that listened to last week's episode, a perfectly timed GME Post-Mortem from our very own senior market strategist, Chris Prybal. Today, please welcome back to the show Tony Battista of Tasty Tony, what's happening to my man, good to have you back?

Tony Battista: Thank you, thank you. Thank you for having me, appreciate it. Well I actually, a lot's been going on in the market lately. I mean, it's in every headline so when the markets in every headline, you know, we're usually busy.

Patrick: Exactly. I was lucky enough to have you on for a late August episode. We went, we talked about a ton, but it really, when I went back and listened to it, it felt prophetic in a lot of ways. We talked about educating this huge pool of retail traders, the bar stool and the Robin Hood effect, and then these various options strategies. And wow, six months later look where we are we're in the midst of not only the pandemic still, a new administration but then more recently the seismic event within the trading landscape, that is the Reddit revolution. So I don't want to go with the typical, like what's been happening. I feel like that's almost been overplayed. It's counterproductive at this point when you hear that from people. What I want is your unique insight as a contrarian. What is something going on here that is being overlooked?

Tony Battista: Overlooked? I don't know if it's overlooked so much, but it's kind of like on the back burner, the click bait it's so sensationalized to just have a, you know, talk about the profits and the losses and not really the journey. I think what Robin hood to their credit was able to do that even Taste Trade and Taste Works, haven't been able to do to that magnitude was get a whole demographic involved in the stock market and not like, look at it like their parents' stock market, like look at their own stock market. Now they're quickly learning that, you know, sometimes you can't afford free or, you know, you just can't do things from a mobile device. You know, it's good in a pinch, but probably not the best. And you just can't, you know, buy or sell something because you like the name or you like the product. You really got to do a little bit of research, not only on the companies, but strategy too, which is really the key here. I think it's going to educate a portion of the economy that's never been educated before about finance.

Patrick: Yeah, I think education is something that we touched on in our first episode, back in August, about how you can't just be long, long, long all the time especially when.

Tony Battista: I don't mean to step on your path, you can be, you can be long, long, long all the time, but you have to do it in a strategic way. Meaning, you can't just buy three shares of GME, you know, because you have $600 to spend or $300 to spend today. It's a hundred dollars stock I mean, you, you know, you can't, that's not a good use of your capital, but there's probably an option strategy that can, you know, make that $300 act like $3,000. Now, all of a sudden, you know, you've learned to trade as opposed to just speculate.

Patrick: Yeah. Or, you know, essentially push a button if it's Robinhood, I want to expand on that. What can options traders do to navigate this new terrain we find ourselves in for example, when you, when we first talked, we mentioned volatility a lot about how that can be your greatest tool. Is that still the case?

Tony Battista: Oh, I think so. And it's a double-edged sword too, right? Like I know GME is the big one to talk about, but AMC, Blackberry, all of these stocks, if you got into them early by selling volatility, which is what I like to do. You had an uphill battle for, you know, three or four days and then for two or three days, you really reaped a lot of those benefits. So it all comes down to size. We always talk about trading small and trading often. You really, I mean, size kills, Melvin capital size killed. Everybody who got hurt on any trade, it all came down to size, if you trade small enough you really can sustain just about anything.

Patrick: Okay. What specific strategies do you, can you foresee being utilized going forward?

Tony Battista: So I think you know, again, in a smaller price stock, $5, $10, $15 stock, you know, I don't think that helps the general public to learn how to trade because it's relatively cheap enough that they could just say, I'm going to buy stock. And stock is a great bang for your buck when it's a $5, $1, $15 stock. But when it gets to be $100 or $200 stock or in Game Stop, you know, $400 stock at one time, all of a sudden the product gets so big that you can't participate. So you've got to go to the option. I think you have to go to the option world to kind of be strategic and put some sort of math model behind the trade, as opposed to just, you know, all long or all short.

Patrick: I agree, I agree. And I think you can use a combination of qualitative and quantitative analysis. You can scan the Reddit forums and see what's going on, on StockTwits and on Twitter, but you also have to filter and frame that through a mathematic lens, correct?

Tony Battista: One hundred percent Patrick. I mean, even myself, I've been doing this almost 40 years now. I rarely come up with my own idea. You know, it's always something that you read from somewhere else and say, you know, somebody likes ABC stock and then you take a look at it. You go, wow, I really agree with them. I liked what he said or she said, and I liked the technicals of it. If that's what makes you a competent and clicking the button, but then find a strategy that kind of fits how much buying power you need to use, how much money you have in your account. I mean, we're all subject to how much money we have in our account.

Patrick: Exactly. And I think we might have lost the plot a little bit in these past few weeks, you know, you were so adamant in August about saying, you know, the more players on the field, the better do, do you still believe that?

Tony Battista: One hundred percent.

Patrick: And you know, like what do you think of this retail trading going forward? Do you see it still trending in the right direction or is there going to be some bumps in the road?

Tony Battista: Well, I hope I'm wrong because I have a feeling that, you know, there are a handful of people and that, and by handful, you know, that could be, you know, hundreds of thousands of people. But in the relative scope of everything that invests in all of these kind of go-go Mimi kind of stocks, there's a handful that did very, very well and the masses, the majority, you know, probably didn't benefit. I mean, I read a story about a gentleman who's I think an iron worker who invested 4,500 bucks and, you know, he's a millionaire now, and that's a wonderful story. And it's a great story. I don't know how many of those are going to come out when this is all done, as opposed to the person that, you know, I bought Game Stock when it was $200. I bought Calls when it was $200 or I bought Calls when it was $100 and a stock, still a hundred dollars and I'm down money. How can that be? Like, you know, they're going to feel like they would cheated in the process. And that could be the biggest backlash to this whole thing. Like they could feel that they're cheated that the, you know, it's so easy to say that the big suit or wall street, you know, took their money, but really, they just didn't understand how to maximize their strategies.

Patrick: And that's unfortunate that you, anytime you hop on Twitter, the click bait articles, you know, the, I saw one localized in Cincinnati where somebody who bought Game Stop then turned around and donated that money to the children's hospital. Great story, outstanding. Awesome, you have to commend that person, but you have to worry then at the same time, how many people is that going to ensnare who don't have necessarily the strategy in place that this person did or simply the luck?

Tony Battista: Yeah, totally, totally. And hopefully what it'll do is it'll, when you shake all of those people out of the, like, when you're panning for gold and you shake the ones out there really kind of, were just in for the quick game and you're left with those golden nuggets. Those people that really want to figure out what's going on with this market and how to benefit from it. I think that's where you're going to see this kind of revolution of the younger, you know, more mobile trader come to the market. And there, nothing bad can happen from that. I mean education and power, knowledgement, figuring things out. If you want to learn, there's a lot of great resources out there, Schaeffer, whether it be Tasty Trade, whether it be Google search, do your own kind of homework. It's a great, it's a great time to be alive and trading.

Patrick: Yeah, I agree. And it's exciting for her, myself, who I came in this business in 2017. I am still a junior in college technically, if you think about my four year career, you know, I'm approaching well, no, wait, no, that would make me a senior. I also can't do math. So I'm coming on to my senior year here.

Tony Battista: You almost, you're almost doing that victory lap they talk about.

Patrick: Exactly, you know, and I never got to do that one in undergrad so here we are. And it's so exciting to when I started in 2017; there of course, was the niche of the options. And I know it was even more of a niche back in the, you know, late eighties, early nineties, going into the two thousands, but now to see it blow up in the past four years, it has me really excited.

Tony Battista: The cost too let's, we just have to hit on it for a second. You mentioned the eighties; I started trading in 1983 as a member of the CVOE on the floor of the Chicago board options exchange. You know, a seat lease was a couple; the seat price was a couple of hundred thousand dollars, the seat lease. The rent was a couple of thousand dollars a month. You know, you get on a trading platform, you know, you get it for free and you have access to all the tools that are in there. And by tools, I just mean looking at what the futures are doing, the mini S&Ps, the Net and Volatility. You mentioned volatility I mean, volatility presently is around 26%. That's, you know, the mean is something around 19% doesn't sound like a lot, but that's a huge movement. You need volatility, especially as a new trader. If you don't have volatility, you don't have as much opportunity because violently just means how much is the stock going to move? How much is the market going to move? Higher volatility they expect a higher movement. If you're a new trader, you need opportunity; you need [unclear 11:21]. And otherwise it's like watching paint dry and you get bored.

Patrick: Well, it reminds me of what you said in August. You said, if you just want to buy SPY calls, go ahead and do that. 

Tony Battista: Sure. Why not? 

Patrick: You know, when you went from New York to Chicago, you were joining kind of the open playing field of CBO. And I see some parallels between, you know, how you recognize an opportunity with CBO, with how many are approaching the ease of which trading is access today. Is that too big of a stretchy thing to [unclear 11:52] ?

Tony Battista: No, I think it's a great parallel. I mean, obviously the times have changed, technology has changed, but it's a great parallel. I mean, look, there were other kids who came from other states to come to Chicago and didn't make it, whether they didn't enjoy the process, which is certainly possible, or they didn't see the benefit of it, which is certainly possible. And then there are those people who really embraced it and it changed their lives. I know it changed my life so for me, I think it's totally the same kind of parallel. It's just, it's the same, but different.

Patrick: So I have an analogy that I cooked up last night. I'm pretty happy with it. I know you're a pretty decent golfer, so.

Tony Battista: Good not great.

Patrick: I'm, is it wrong to classify this current trading environment as a little bit like Bryce and Dacian Bo's recent bulking phase, you know, we're talking about the big golfer .He's going long on every drive. He is just pounding it past, you know, past fairways in getting it to the green and it's up and down. But when you put him on a course, like Augusta, that you have to navigate, he struggled. And yet he still created this debate of the, what happens when an unstoppable force meets an immovable object. It got people talking in, it changed the game. 

Tony Battista: Yes. 

Patrick: Is there any parallel between that and what we're witnessing now in the trading environment?

Tony Battista: Yeah, but I got a feeling we're going to be in a lot more Augusta moving forward than we are going to be at the driving range you know what I mean? I don't think it's going to be top golf and see how far you can hit the ball moving forward. I think it's going to be a lot more of the Augustus. So yeah, I like it, I just think it's evolved a little bit to a little bit of a different place and it evolves quickly. I mean, it doesn't stick around for long, just like, you know, the ones that were able to get in on a stock, you know, under $20 were few and far and between, and the ones that were able to get into like a game stock over $200 were probably the masses. And now it's sitting at a hundred dollars. And I mean, again, that's just my personal opinion. But I think we've kind of long in the process already.

Patrick: Yeah and so you mentioned, you know, when everything shakes out, I have no clue when that will be. I have no sense of what a timeline would be. Do you think it has anything connected to the pandemic or, I mean, I don't know when this is going to shake out. It's been about what three weeks of now.

Tony Battista: Yeah. No, I don't think it; I don't think it really shakes out. I just think it's the same, but different again, like, I think it's just going to evolve. You're going to see people who, you know, we think it's, you know, just the younger, the 20, 25, the, 28 year old, there are 30, 35 and 40 year olds who I consider young being 58. Who are never, you know, like to go, you know, they have careers and they've amassed a fortune, whatever that may be, you know, one investors floors, another investor ceiling. And they never ever looked at it before those people are going to be looking at it for the first time, just because of all the headlines they read and they're intelligent people. I mean, if you've amassed some sort of a savings, you did something right in your life, you can certainly figure out what's going on in the market, at least do what you want to do. As opposed to letting somebody else do it for you, or even just forgetting about it. Like, you know, maybe they'll look at the mutual fund they have and say, okay, you know what I've got a choice of 50 mutual funds. Maybe I want to take a look at this and figure out which one fits my personality or what I want to do, as opposed to just picking it from a name.

Patrick: You don't think there will be a correlation with, if people are heading back into the office and there's this return to normalcy and events and things that can take attention away from hopping onto Twitter or hopping on to Robinhood. You think that is here to stay?

Tony Battista: Well, with the mobile device being on your hip, you know, 24/7. I don't think that really is a problem and with the stock market, the stock market's like, you know, thinking about it as like gambling on draft Kings. I mean, it's super bowl Sunday, every day, potentially super bowl Sunday, every day in the market, you don't have to wait until one time a year. So I don't see that, I mean, you'll have your flows, but I don't see that as a problem. It feeds on itself.

Patrick: That's a good point.

Tony Battista: And if you, if you're into it and you have two or three friends and you happen to do well at it, you usually tell one or two of your friends, and then they kind of check it out and then it kind of feeds on itself. I think it goes on for a very long time.

Patrick: Yeah, it's funny. I've noticed in my own friend group, just a couple of random group texts popping up with people, and it's, there's no rhyme or reason to it. Some are from Connecticut, some are college friends, but there it's, it always grabs a certain type of someone and it holds onto them. My nephew and I trade text messages.

Tony Battista: How cool is that? You probably never thought that you would be talking to your nephew. I'm assuming younger than you.

Patrick: Yeah. He is 19 years old, so yeah.

Tony Battista: I mean how cool is that? I mean a 19 year old kid thinking about the stock market? I mean, you didn't have that 10 years ago or five years ago, maybe. 

Patrick: And he's well-informed, he's not just pointing and clicking. He is doing the research; he's asking the right type of questions. And so that is just so encouraging. 

Tony Battista: It's going to be a better market because of it like it’s going.

Patrick: Yes. I think, I really think a rising tide lifts all boats in this situation. I do want to have a quick question about the liquidity. Can you try to unpack how Robin hood handled that and what the terrain will be like going forward? Because that is something I think that I, that has been lost on a couple of people.

Tony Battista: Okay. I mean, full disclosure, you know, I'm part of a brokerage firm, TastyWorks. So Robinhood is my competitor as is TD-Ameritrade, IB, and all the other brokerage firms. At TastyWorks, we have no restrictions so you can buy or sell as much GameStop as you want, or any other stock. I mean, think of a broker firm as a place that makes pizzas, we make pizzas. How many pizzas do you want to buy or sell? I'm in the business of facilitating that for you, so I don't want to limit you on any strategy or any amount that you want to do within reason. If you have X amount of dollars in your account, you can do X amount of pizzas. To me, it makes no difference. If you're asking my personal opinion, what happened with Robinhood?

I think they're broken. Like, I think somewhere on the backend, I don't think it's, it's not the facilitating of the trades I think it's the reconciliation of the trades. Like I don't think, and again, it's just my own personal opinion. I don't think they know where all the money is. I think they have all the money. They just don't know where to distribute it. You know, stock takes two or three days to close, meaning it's T minus two days for settlement. And I think they had a bug or some sort of problem in the backend that just didn't, you know, because they self-clear. There's no reason why they should stop if they self-clear, unless there's some problem with the clearing. Again, this is my personal opinion. I don't have any insight to it. It's just a hypothesis.

Patrick: Yeah, that's what confused me is the self-clearing part of it.

Tony Battista: Like TastyWorks had a stop for two hours on Thursday because Apex, our clearing firm said, hey, we got to figure things out here for a minute. They're raising the regulators, are raising the requirement. So like, let's say you're trading a stock and Apex has to hold a hundred dollars in reserve to make sure that the system never breaks. They said, okay, now you have to hold a thousand dollars. Now Apex had to say, oh, hold on a second, thousand dollars, that's way too much. That's two times the stock price; the stock can only go to zero. And then they figured out what a good number was and we were up and trading again. So we had a two-hour stoppage in all of these stocks where it was only closing only, but nothing after that. So, you know, people would say to us you know, why did that have to happen? I'd say, well, you know, I've never seen a stock go up a thousand percent in two weeks. So I don't know why it happened, but that was what we were told. I don't know what's happened with Robinhood and you've heard nothing which.

Patrick: And at least that's, at least there were some organizations.

Tony Battista: And TD Ameritrade's another one; they self-clear also, which wow. You know, why are they limiting spreads? Like, why couldn't you buy or sell a spread and GameStop. I mean, it just doesn't, something's not right, like.

Patrick: That's why I wanted to, you know, to bring that question up it just, something smelled fishy there.

Tony Battista: Something smells fishy and it's not, but it's not going to be, in my opinion, it's not going to be what the news projects, not like it's not Citadel. They want to take every side, the other side of every one of your trades, it's not Melvin capital. They lost 50%, they lost a hundred percent I don't care. It’s one company, the system doesn't blow up because of one company, something, eventually we'll find out it probably won't make the news or it'll make the news eight, 10 months a year from now. And nobody will care because we'll be onto the next subject.

Patrick: Yeah, exactly. And it could be something as simple as just really mismanaged public relations or media relations you know, and that's.

Tony Battista: I think you hit on that and that's pretty good. I mean, what Robin Hood has done Vlad and his group there, I mean, they grew a business. I mean, they revolutionized the industry, but I don't think they were the expert in the industry. And I think that's what's kind of making them suffer right now. Probably things that they had done in the past, which was well in good intention. It doesn't click as we've evolved into this market.

Patrick: I think that's a very important distinction you just made, a very important one. I want to move away from, you know, the Reddit and all of that for a little bit. It looks like we're finally getting out of the pandemic slowly but surely. What are you keeping an eye on in terms of macro trends as the US starts to open up? Back in August, you talked a lot about the NASDAQ and the Rut and the Fang stocks has anything changed in the last six months?

Tony Battista: Not really. I mean, they're all basically near their highs as we speak today. We had a little bit of a downturn the week prior. So right now it looks like, you know, listen, you mentioned, you know, a lot of things that happened earlier in the interview, you know, we have a new administration nothing's changed you know, the sky hasn't fallen yet. It may fall, but it hasn't fallen yet, I think we had the best, one of the best January's ever for the stock market. I mean, you know, so bonds seemed fairly soft, but sideways, the lower end of their range, I think the yield is going to increase. And I think bonds are going to go a little bit lower. The dollar was kind of soft; we just started trading crypto currency on TastyWorks, which is pretty exciting. 

Patrick: Very cool, very cool.

Tony Battista: Yeah. Light coin, Ethereum and Bitcoin and Bit coin cash, which I think is a market that the retail investor hasn't been exposed to yet. So you'd be able to trade crypto, which I think might a lot of people kind of get a little bit of alpha to their portfolio, meaning a very big bang for your buck for a small amount of money. Just being able to buy the outright coin, which is pretty cool?

Patrick: Yeah, that's awesome. I keep hammering it home how prophetic you sounded in August. So I guess I'm going to have to take you to Vegas and give me at least one super bowl pick.

Tony Battista: I think it's, I think we're going to have a great super bowl, which is kind of cool, you don't think so?

Patrick: No, no.

Tony Battista: You think KC is going to blow it away?

Patrick:  Over a halftime.

Tony Battista: Over half time. Yeah, okay. Well I think just the opposite I don't think you're going to need the spread. And I think you're going to look at the, I think you'll look at Tampa bay as your Victor.

Patrick: Wow, wow.

Tony Battista: And it's not going to be, you know, you're not going to be [unclear 24:32] spread. I would take Tampa in the money line.

Patrick: Wow, okay. Sticking with football, who do you want to see the Bears pick first round?

Tony Battista: Wow. I mean, I'm a bear. I'm a die-hard Chicago Bear fan. I mean, I'm old enough to remember, you know, when the bears were the most feared football team on the grid iron. We got no money to give, I think we're stuck. I think we're going to stick with Mitch Trubisky and try to build around it. I think we're a rudderless ship.

Patrick: Yeah, so much for that question. Okay, well I guess that we'll wrap there. I did want to brag though Connecticut was putting a vote to name itself as the pizza. What were they saying to name pizza as the official food of the state?

Tony Battista: I have no problem that'd be Spinoza, new Haven style pizza. Hey listen I was born and raised in Brooklyn. We got a decent pie ourselves. I came to Chicago, they've got a decent pie themselves, but that Pepe's pizza is pretty good. And that I can't lie, I can't argue about that.

Patrick: Yeah. I was pretty proud, you know, there are not a lot of things I get proud of coming from Connecticut. It's basically Yukon basketball and pizza. That's about it, so.

Tony Battista: [Unclear 26:00 ] a good pizza too. They're a dark horse if you want to lay a couple of dollars on a dark horse kind of your AMC kind of like you would go to Jersey.

Patrick: Okay, that sounds great. Okay, before we wrap up, you know, you mentioned the crypto currency, is there anything else new going on at Tasty that you want to plug?

Tony Battista: Well, thank you for the opportunity. Yeah, Crypto is our newest product that we're bringing out to the retail investor. So we're very, very excited about that it's Bit coin, Bit coin cash, Ethereum, and Light coin. And the great thing about it is you can buy as little as you want, meaning you can buy $10 worth or $75,000 worth. You put the number in that you want, and you're actually buying the coin. And it's held in your platform at Tasty Works, which is kind of cool with but partners zero ash who is actually the custodian of the account itself. You could do it all inside the platform, its one click. I think it's going to be an exciting product for a lot of people capped at a $10 commission. So if you buy a thousand dollars’ worth of Bit coin, it's $10, if you buy $20,000 where the Bit coin it's $10. And if you buy $1 worth of Bit coin or Ethereum or light coin, it's 10 cents. So commissions are on a big factor and you can get involved in crypto I think that's the most exciting thing right now.

Patrick: You heard it here from the man himself. If you should be one thing, it should be efficient. Tony Battista, thank you for coming on again. Maybe we'll make it a trilogy in six months or so but be sure to check out Tasty Trade, Tasty Works for everything they've got going on and stay safe out there Tony, cheers.

Tony Battista: Thank you, man you too be well. 

Patrick: Take care.


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