How does an NFL linebacker develop a series of computer algorithms that give him a crucial edge when trading the market? That is the question I hoped to answer when I interviewed Jon Najarian, co-founder of OptionMonster (click here for the site at http://www.optionmonster.com/ ).
Jon’s proprietary program, called Heat Seeker ®, monitors no less than 180,000 trades a second to give him an early warning of large trades that are about to hit the stock, options, and futures markets. To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes, every 33 minutes.
His firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. Jon then distills this ocean of data into the top movers of the day, which he puts up for free on his website, and offers much more detailed analysis through a variety of premium subscription products. Jon is also co-founder of an online brokerage called “TradeMonster” off the back of this impressive research effort. “As with the NFL,” says Jon, “you can’t defend against speed.”
The system catches big hedge funds, pension funds, and mutual funds in the midst of shifting large positions, giving subscribers a peak at the bullish or bearish tilt of the major players in the market. It also offers accurate predictions of imminent moves in single stock and index volatility. Long and short vol traders take note. If anything, the profusion of dark pools and high frequency trading, now thought to account for 50% of the daily volume, makes Jon’s tools more valuable because that are exacerbating the quantitative nature of the markets. Some 200,000 traders are believed to be following Heat Seeker’s advice.
Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that’s like a steel vice grip. Maybe it was his brute strength and ability to take abuse that enabled him to work as pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of “DRJ”. He formed Mercury Trading in 1989, built it into a substantial business, and then sold it to the mega hedge fund, Citadel, in 2004.
Jon developed his patented algorithms for Heat Seeker® with his brother Pete, another former NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.
Jon thinks that if China is serious about throttling back its economy, it will have a dampening effect on global financial markets for some time. The S&P 500 is going to stick around the 1100 level, and commodities are going to stay in a big sideways range. Volatility is going to die.
To hear my interview with Jon at length on Hedge Fund Radio, please click here at http://www.madhedgefundtrader.biz/Jon_Najarian.html )
For more iconoclastic and out of consensus analysis, you can always visit me at www.madhedgefundtrader.com , where the conventional wisdom is mercilessly flailed and tortured daily, or listen to me on Hedge Fund Radio at http://www.madhedgefundtrader.biz/ .