Keep the Disco Ball and Shag Carpet in the Closet

We’re living in an Age of Chaos, but you don’t have to fear it. Embrace it!

Charles sat down with options expert and Masters in Trading Founder Jonathan Rose yesterday to discuss the opportunities he’s seeing today. 

He ought to know. Back in 2008, when the financial world was melting down, Jonathan enjoyed the best year of his trading career. And while history never repeats itself exactly, Jonathan sees some of the same conditions lining up today. 

You’ll want to see this. 

Click here or on the image below to watch this interview now.

If you’d prefer to read the transcript of this interview, you’ll that below.

Jonathan will be holding his first ever Masters in Trading Summit next Wednesday, May 8 at 10 a.m Eastern. This is also free to anyone, but we do suggest registration. You can do that right here.

Now’s let’s look at what we covered this week in The Freeport Navigator…

Looking Ahead

Are the 1970s making a comeback? 

Keep the disco balls and shag carpet in storage, please. But prepare yourself for the comeback of that most unfortunate relic of the ’70s, stagflation. 

Stagflation is the worst of all worlds, as it combines high inflation with sluggish growth. 

And about that…

Hot on the heels of the recent Federal Open Market Committee meeting (Charles nailed his early April “no-rate-cuts” call on that one!), we got reports that the U.S. labor market cooled more than expected. The economy added 175,000 jobs last month, much lower than the 240,000 economists expected.

So, here we are. We have inflation that won’t die, even as the economy appears to be cooling.

The next week will be telling. Up until now, the consumer has spent the economy into health. So brace yourself for the Federal Reserve’s report on consumer credit and a separate update on consumer confidence. 

We should get a little guidance as to how sustainable consumer spending is in this environment. And we’ll also have prepared comments from three Fed board members. 

But here’s the reality check: Consumer health is a concern we’ve had our eye on for some time now. Despite some upbeat market trends, fueled by the S&P 500’s best first quarter since 2019, the elephant in the room remains excessive spending. This further dampens any hope of economic stability, which is honestly a long shot anyway.

Unsurprisingly, our alarm bells are ringing. As the spotlight will shine on consumers, it’s a timely reminder to tread cautiously in a world where spending habits easily outpace income growth. Stay tuned for our weekly emails as we weather this chaotic storm together.

To life, liberty, and the pursuit of wealth.

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Transcript

Charles Sizemore: Hi. Charles Sizemore here, Chief Investment Strategist of The Freeport Society. You’re in for a special treat because today, as my special guest, I have Mr. Jonathan Rose, the Master in Trading himself. Jonathan, welcome.

Jonathan Rose: I’m excited to be here, and thanks for having me.

Charles Sizemore: Yeah, you bet. Now, before we get into it, I do want to point out that Jonathan is my options expert. When I needed a trade for my number one options trade for the 2024 election, he was the guy I turned to for my readers. I’m not going to tell you what the trade was. That’s for my Freeport Alpha readers. But just know he’s the guy I went to. 

So Jonathan, I know we’re living in an Age of Chaos. That’s a theme we’ve been writing about all year.

This is a very turbulent time. We’re in a time when, for the first time in the trading careers of most people, interest rates are high and potentially even going higher from here, at least on the long end of the yield curve. Stock prices are also high. 

A lot of the trends that have been in place for the last 40 years are not in place anymore. So that’s led me to draw the conclusion that, look, buy and hold investing has its time, it has its place, but short-term trading might be preferable in this environment. I’m sure you have very strong opinions on that. Why don’t you tell us what you’re up to?

Jonathan Rose: Sure. Short-term trading gives long-term investors, not to be punny but, more options, because how many times you sit there and you see volatility spiking in the world falling apart and know that you’re comfortable for the long term? 

But sure, it would still be nice to capitalize on that short term move. 

And just like you said, I think we’re going to see a lot more of that because I’ve never heard that someone said the Age of Chaos, but that nails it. That nails what I’ve been seeing with the different volatility measures. It is the Age of Chaos. So I’m going to be using that myself. Nice one.

Charles Sizemore: Trademarked Charles Sizemore… I’m joking. Okay, so chaos. You mentioned volatility. Volatility for a lot of people is associated with risk. And I hear very often a lot of people are scared of options. They view options as being this risky corner of the market, but I’m sure you also have other thoughts on that. 

This is something you’ve been doing for 25 years, you said… and you’ve actually educated over 100 professional traders. Not just 100 average Joes. You’ve actually educated 100 people that went on to trade professionally. So you tell me. Are options risky? And how do you mitigate that?

Jonathan Rose: Well, the first thing you do with anything is you mitigate risk with education. There’s nothing that’s going to mitigate risk more in the stock market than just being aware. And being aware is when you trade options. If a stock is at 100, you could buy the 110 call, and that’s just buying stock at 110. If the stock’s at 100, why would you buy stock at 110? Because you get a whole bunch of leverage.

If those options were a dollar, you could risk $1. If you bought 10 of them, you could risk $1,000 dollars. The great thing about options, if you want to risk $1,000 dollars, it’s not $1,001 at risk, it’s $1,000 dollars. 

And you make that decision before you get into the trade. 

So if somebody is more conservative and a longer-term investor, you could potentially buy a downside put, like buy insurance that protects your portfolio, and you decide before you get in the market, I’m comfortable risking 500, 5,000, whatever it is you need. 

When people say options are risky, I think that they’re thinking about naked options with no protection, and that’s the antithesis of what I do and something I would never, ever teach.

Charles Sizemore: Yeah. Well, also I think people think, “oh, I’m going to buy this option and it could go to 0.” Well yes, it could go to 0. But if you’ve determined ahead of time that, hey, I’m only risking whatever, $500, a $1,000, whatever your risk is, you can’t lose more than that if you’re long an option. 

I think that is an important distinction there. A lot of people, that’s a psychological barrier they have to get past. Once they get past it, these new doors are opened to them. So I love that aspect.

Jonathan Rose: There is no risk, there’s no downside in making yourself aware and just exploring, because if you do own that stock at 100 and you’re really bullish. You believe that stock’s going way higher and you tell everybody that you know, and that stock trades $130 and you did great and you nailed it. 

Maybe you made a little bit of money and you made 30%. 

With options, you could make 1,000% being that confident. So not only are you going to tell your friends about that great stock. Next time you can tell them about the 1,000% you made, rather than the 30% by just holding the stock.

Charles Sizemore: Asymmetric returns. That’s the key there. Your upside can be an order of magnitude, literally multiple orders of magnitude higher than your downside. So that is a very nice aspect and an underappreciated aspect of options trading.

Okay, returning back to this age of chaos theme, the most chaotic time for most of our lives as investors, as traders was of course the 2008 meltdown. The 2008 financial crisis where the banking sector collapsed. It felt like the world was collapsing. 

That was a really difficult time to be an investor. Most investors lost money. Not just lost money, lost a lot of money. A lot of people had their retirement plans cut in half. 

But word gets around the office. We gossip like little old ladies in church sometimes, and we know that you did quite well in 2008. That is the reputation. If memory serves, that may have been the best year of your trading career, so why don’t you walk us through it. 

How did you do in 2008 and what did you do to get there?

Jonathan Rose: Sure. Yeah. 2008 I had a great year. Between 2003 and 2011 I was working at a bond trading firm. And we traded bonds, we traded the yield curve, we also traded the QQQ, the Nasdaq. We traded a little bit of everything, but learning about bonds and learning about the yield curve and seeing how the Fed is going to control where the market is really going and how the Fed is so quick to step in when the market does fall like it did in 2008 going into 2009. 

So as traders, when you see times in history that repeat themselves, and we like to say filling your memory bank, well, an inverted yield curve has oftentimes, in 2008 it led to the market getting absolutely annihilated. And that inverted yield curve saw the front end, the twos, threes, 4.5%, 5%. And the back end was 4%.

And it’s very, very similar to what’s going on now. So just like in 2008, where you end up making a lot of money as markets go down a lot quicker than they go up, and being able to buy that insurance to protect long-term portfolios. 

It’s amazing when the market does move, how that insurance can pay off, and it’ll allow you to parlay into your longer term holdings, add more to those companies that you really like, but you’re protecting yourself because you take a step back and you see what’s going on in the world.

Charles Sizemore: So in your view then, the market we’re in today, there are some pretty significant parallels to 2008. 

Now, obviously history never repeats itself exactly. It’s not going to be the same banks, it’s not going to be the same situation. It’s not going to be the housing market that collapses. It’ll always be some new crisis. But you see some pretty significant parallels with what you’re seeing in the market itself.

Jonathan Rose: Absolutely. I think that right now parallels two times in my trading career, 2008 because the yield curve looked exactly the same and risk was coming into the market, but it also feels like 1999 when I was a young trader in the Nasdaq pit, when the Nasdaq was trading under 1,000 because the internet was coming or the internet was here.

That’s what I feel like with AI and technology. So I see volatility and uncertainty and great trading opportunity because of the shape of the yield curve, but I am so excited about the potential of AI and what that offers. 

I see it in my own life, using AI, whether it’s to watch videos, my kids are using it in their different school projects. It’s changing the world. So very, very bullish long-term, but I’m excited to take advantage of those volatility spikes. That’s where the real money could be made.

Charles Sizemore: This is where the truth comes out. You’re actually speaking to an AI avatar right now. I’m joking. I’m not an AI avatar. But no, I share your enthusiasm for AI. One of the themes I cover as well is this idea of exponential progress. And we need AI. We need a lot of innovation because that’s the only way we’re going to conquer inflation. 

Inflation is first and foremost… well, I guess it’s first and foremost a monetary issue, but beyond that, it’s also a productivity issue.

If you’re able to produce more for a given level of inputs, then you have beaten inflation. And that’s what AI is poised to do. It’s poised to make every worker that uses it vastly more productive. So I absolutely share your enthusiasm for that. 

I think fortunes have already been made in this and fortunes will continue to be made in this. I think there’s a very, very long runway here, so I absolutely share your enthusiasm. 

Let’s pivot for a minute and let’s talk about Masters in Trading. 

When did you start Masters in Trading and what was your rationale for starting it? What led you to become an educator of traders?

Jonathan Rose: Sure. I traded throughout my entire career. In 2015 I was trading on the computers. I was a market maker on the Chicago Board Options Exchange and I was working at home. And I was just kind of a little bored and just starting more of a side gig. And I made a few videos and put them on YouTube. 

At first I was just looking to build a little trading room of people that I could hang out with throughout the day. I’m a big believer that all markets are interconnected, bonds, gold, you name it. They’re all tied together. They’re all pushing and pulling off one another.

So I started Masters in Trading in 2015. What I realized, I was growing too fast and had too many people that I wasn’t able to communicate with or talk with throughout the day. So what I ended up doing is just doing a six-month high ticket coaching program. And so the coaching program was $10,000. I would work with people real closely and ended up just building some relationships with incredible clients over these past nine years.

And now we’re doing a big change with some new corporate partners on May 8, which we’ve been working on for the last five months, where we’ve built an unusual options activity tool. A tool that I’ve been working with a team of developers and literally they’ve asked, “What exactly are we looking for in these orders?” And they put it all into a system, a tool that they built that every day will find the 10 most unusual trades, unusual option trades in the market.

And so in the past, finding the trades that we like to do, it was a bit laborious, but with this tool it’s literally, turn on your computer every day and it’s sitting there lined up, the top trades. And that’s what we’re going to be telling you about on the May 8 summit. I am so excited about this. It’s going to save hours of every day of my life, finding trades.

Charles Sizemore: Excellent. Yeah. So it’s sort of the old cliche of give a man a fish, he eats for a day. Teach him how to fish, he eats for a lifetime. You’re definitely teaching us how to fish. You’re giving us the tools here to trade, but you’re also giving us the fish, too, in this case. It’s a little bit of both.

Jonathan Rose: It’s a little bit of both. In risking money, you do have to learn because you’ve got to fall in love, because trades are going to go against you. And when a trade goes against you, and if you like that trade and if the reasons why you like that trade have not changed, that trade is on sale. That trades doing you a favor. So you need to retrain your brain not to think when a trade goes against you, like, “Oh no, here it goes again. Why does it always happen to me?” No. A lot of that goes on, too. It’s life. It’s real life, and self-talk does get in the way as well, so we’ll even have to deal with some of that stuff.

Charles Sizemore: Yeah. And the benefit of being an experienced trader, of educating yourself is learning to make that distinction of, has something changed? Or are the reasons that I love this trade still in place? Or has something actually changed and I’ve just become married to the trade and I need to be objective and just make that distinct and sudden change? 

So I love that this is the business you’re in. I love that you’re teaching your viewers, you’re teaching your followers here how to make those kinds of decisions. 

I personally will be planning to join you on May 8. 

I’m personally very excited about it. 

We’ll actually put some details here below the video for instructions on how our viewers can be a part of that. But in the meantime, where can people find you?

Jonathan Rose: Well, every single day, which has been so much fun, starting on February 28, at 11:00 a.m. Eastern I hop on a live broadcast and I go over the market for that day. But the cool thing, and it’s gotten me back to getting up at 6:00 in the morning every day, because every single day I’m researching and sharing a trade live. And so you’ll watch me live. I have two kids that are in high school that know that I’m live, so they watch every day, just waiting for me to fumble. And then they’ll take a little clip and send it to me and make fun of me. So if you want to do that, you could do that, or you could just watch the content. But every day we’re sharing a trade. The goal is, let’s learn options, let’s make some money, let’s have some fun.

Charles Sizemore: Alrighty. So for everybody watching this, please go to mastersintrading.com. See it for yourself. 

Well, all right, Jonathan, thanks for being on the show today. That’s going to wrap it up. I’m looking forward to your summit on May 8. 

Until then, to life, to liberty, and to the pursuit of wealth. 

This is Charles Sizemore signing off.