Anand ‘Lucci’ Sanghvi is the founder and head trader at Sanglucci.com, which provides trading education for part-time and professional traders.
In a returning interview with host Aaron Fifield of Chat With Traders, the Puerto Rico-based trader discusses the changing face of trading, dabbling with cryptocurrencies, and the perils of launching a hedge fund...
All I’ve got to do is stay alive until the volatility comes aroundAnand ‘Lucci’ Sanghvi
On dabbling in Crypto
What the problem was for me, we had to trade the US markets, so I’m up at 8am and I’m up looking at things, trying to figure out what I’m doing for the day. And the day is so stressful, 4pm comes around and then I have maybe a couple hours, eat some dinner, chill out, and then as soon as China wake up, that’s when the crypto stuff would go crazy. So I’m up until midnight, 1-2am. Then 4am rolls around, I need to get some sleep, then I’m looking at futures. Dude it just got too crazy for me, I was like what am I doing? I make enough money making options, I don’t need to be trading some of this stuff. I mean it’s cool, I own a couple alt coins here and there but this is too much to handle, so I either need to pay somebody to manage my portfolio or I’ve got to get out.
On living in Puerto Rico
Let me explain this. You get 0% capital gains for personal. So anytime you flip a crib or sell some asset or obviously your trading and that kind of stuff, that, as long as it’s under your personal name, is taxed at 0%. Now for a business, you’ll get a 4% corporate dividend. That means if you get cut out a dividend from your business, those will get taxed at 4%. Now if you’re the owner of a business, you also need to pay yourself a salary, and then the tax down here is 20%. Let’s say you have a consultant business that brings in, say a million dollars in revenue a year, you have to pay yourself a salary. Let’s say you pay yourself $150k a year that will get taxed at 20%. And the rest of the gains you take as a dividend, those only get taxed at 4%. That’s the sweet part when it comes to the business and capital gains.
Now the catch is, it’s really just the nature of being in Puerto Rico, is the sales tax is through the roof. It’s double what it is in the States. For example if you buy a car or anything like food, you’re paying a 11.5% sales tax, so that’s tacking on a good amount of money to anything you buy; furniture, lotion, whatever the hell it is you buy. As far as real estate, real estate is cheap, rent is cheap down here and then since it’s an island though, similar to Hawaii you can say, you’re like this place is amazing but it’s the most expensive shit in the world because all the food is imported, everything is imported. So a car would likely cost another $10k on top of what it usually would.
When you look at that from that perspective there a little bit of a catch there, but again if you’re leaning a couple million a year, the taxes that you save well compensate.
On starting a hedge fund
So that fund we had in New York, which we were starting when we last spoke (in 2015), that hedge fund closed down. We had to close it down, our biggest investor pulled out and it was kind of like the incentives weren’t aligned, and I was in New York living a crazy lifestyle and I think I would say the pressure got to me quite a bit. We had a couple of bad months, one of the biggest investors pulled out and that was it. We decided close it up, I went back to Boston with my tail between my legs and I kind of had to work back, not really from ground zero per say, but had to work back on my own and I started to create a different way of going about things.
Now I’m looking at starting a new one here in Puerto Rico. But with a much less riskier strategy and a lot more automation, a lot more hedging strategies behind it and a lot more risk management in general. I still trade like a crazy asshole, completely on my own account. But you know since we’re trying to grow with investors and build down here in Puerto Rico, this is a much more different type of endeavour.
I never really thought I would get into more algo-based strategies and get more into really thinking about hedging and little things like that. Now I’m able to trade size and just hedge in and out of these big positions and stay with my core positions so I’m making money on the hedge and I’ll end up ok on the longer position. My strategy has changed immensely from when we spoke three years ago to where it is now. Going forward, with the automation, it’s only going to change alongside the markets. It was 90-95% long options. And by the way this was the difference here, now I’m like 60% short options and 40% long options. Back in 2015 I was literally 95% long options.
On his trading today
Obviously the volatility man, any time there is momentum, I come in and just destroy shit, especially if it's momentum to the downside. So you have these names that have just been so bought up and valuations that are so incredible ridiculous, and finally now people are starting to book profits, but unfortunately in a market like this where everybody is sitting on the bid, once things change like that and there’s no bids for anybody to get out on and there’s so much supply out there who wants to book profits, you get these big big momentum changes - that momentum is literally my lifeblood. I know immediately if I’m wrong in a trade if there’s no momentum, the only time I’m going long options is when shit is going crazy, the rest of the time, I’m selling everything. If I’m wrong, I’ll hedge a little bit, I’m really protecting my account with the righting strategy more so than anything.
Another thing I’ve changed since 2015/2016, is that I’m trading around core swing sessions. Which is something I picked up from a couple of my subscribers in my chat room. Guys that I’ve been trading with for years, some of these guys are much better at it than I am, but basically what I’ll end up doing is swing trade in a position and then kind of trade around it for the intraday or the weekly moves. If I’m in something and its not moving and I need it to move then and there, I’m out very quickly. At least that is when I’m on top of my game. As far as holding overnights, most of my positions, they’ll be done within a day, two days, maybe three days max. Very rarely am I holding something for three or four weeks.
Let me give an example. I’m swing long Tesla, for some reason I feel like it can go over 400 bucks. In the next six months let’s say. So I have $400 strike on calls for March 2019. The stock's trading $340 right now, it’s just been in a range from $330-350. I’m sitting there adding to my swing long, but, it’s not going anywhere, so I’m losing money on the option, plus the market looks like shit anyway so it looks like it will drop even more. I know I’m going to lose money on this Tesla in the short-term, while I figure out where the right price on that option will be. As I figure that out I will be down 5k, 10k, 20k on that position. So in order to hedge this, what I can do is go to a weekly option and sell out of the money calls, let’s say, because I know it’s not going higher just by looking at the tape and looking at the market.
So for now I can look at a Tesla and sell a call, sell a shorter weekly call against my long dated options, so I can just collect income, collect income and then all of a sudden when this Tesla does decide to move, think I need it to go over $360, then it’s like clearout all the short options and let this long option run, hedging coupled with going long options much less than I was going before. These things are helping me make money but not only make money but more importantly, keep the money that I made. That was one of the biggest things that I’ve overcome over the years, just ways of keeping the money I’m able to make versus going out there and damaging myself because of being stubborn.
There’s always value in being able to hedge and being able to stay alive, that’s what hedging will allow you to do, all I’ve got to do is stay alive until the volatility comes around.
On knowing when to push it and when to hold back
This all has to do with finding who you are as a trader. Finding what strategy works for you and finding when it works for you and when it doesn’t. It's really moreso understanding yourself more than anything else man, it’s an inward process, it’s not a market thing. I’m not going to sit here and say it’s an easy thing, I’m not going to sit here and say I have figured that shit out, because I haven’t. But I do know one thing, is that even though, let's say the momentum disappears now, I have other strategies now, I have other strategies to play when the market is dead. There are other things I can roll into, that I’ve collected over the years.
On the future of trading
So first I’d to give a little bit of a backdrop. We went through a period of high frequency trading, after 2007. And don’t you find it crazy that no one really talks about high frequency trading anymore. It’s kind of a thing of the past, it’s definitely become more accepted and more of a part of how exchanges work and how people execute orders. So that was one side to what people thought the future of the market was going to be. Now you look at this quote-on-quote market crash, nobody complains when Boeing has a 100 point up day, but god forbid it has a 100 point down day, people calling that a crash. I say this, to say that a lot of people thought HFT was going to be the future of the markets. I don’t think that’s where it is. I don’t think they’re efficient at all, but I think the markets are very emotional, behaviours and emotions are the controlling factors.
Now. The largest issue with retail traders is their emotions. So I believe we’re going to be in a world of hybrid automation. Where you as a retailer, you’re going to come to terms with the fact you suck at certain things, and you have no solution. The previous solution was go full automation, try and go ahead and work it from that angle. We even heard of funds that were completely automated that blew up completely, how come they blew up, I don’t know, frankly somebody’s code was better and code just has to keep adjusting. They always say you’re as good as your last trade, with the HTF and the coding and the programmers, you’re only as good as your code. So as long as your strategy made money say for a couple of years, you still had to update that code.
I invested in three algos from people who were very respectable in the HTF world as programmers. I lost money on all three. I made money for a certain period of time on two of them and they showed a great track record, amazing percentage gains, investors were happy, then all of a sudden it happened, the market changes. The same stuff that retail traders deal with, it’s the same thing that the programmers have to deal with, something changed, maybe a rule changes, maybe somebody else is using the same scalping method you’re scalping, so the edge is no longer there anymore... there’s too many moving parts, just like retail traders.
I think the real solution, it’s not really a solution, but you just having to survive as a trader, be able to keep your account afloat until your market comes along. How do we change our behaviour, how do we get one leg up on behaviour. So I’m looking at it this way, the future of retail trading and the future of advanced retail trading is a hybrid strategy where we try to help you automate some of your behavioural pitfalls.