Noel Smith – Always Have Risk Measurements in Place

Apr 30, 2023

30:42

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BIO: Noel Smith is the Chief Investment Officer of Convex Asset Management and the Head of Options Trading at Tanius Technology.

STORY: Noel and his partner invested in a stock whose price kept falling. Every time the price would fall, Goldman Sachs would come in and buy like 50,000 out of the money calls. This made the partners hold onto the stock, eventually riding it to zero.

LEARNING: Have risk measurements in place that you know you will not break. Have some percentage that you're willing to lose.

“Learning about options and how they affect the marketplace is much more important than you think."

Noel Smith

Guest profile

Noel Smith is the Chief Investment Officer of Convex Asset Management and the Head of Options Trading at Tanius Technology.

A member of the CME, CBOT, and CBOE, Noel has over 25 years of experience trading volatility, market making, and managing risk.

Noel was previously the CIO and Portfolio Manager of two separate Chicago-based proprietary derivatives trading firms. Additionally, he was the seed investor who financed the launch of global high-frequency trading firm GETCO LLC (KCG/Virtu), which grew to account for 20%+ of trading volume in the U.S.

Worst investment ever

Noel and his partner had a position in Enron, the ninth largest market cap company at the time. Enron started to lose money. Each time the stock would go down 10%, Goldman Sachs would come in and buy like 50,000 out of the money calls. Such stunts would convince people, Noel included, to hold onto the stock. And so the partners kept holding onto the stock as the price went up and down. Eventually, they rode the stock to zero, losing their entire investment.

Lessons learned

Have risk measurements in place that you know you will not break.
Have some percentage that you're willing to lose.

Andrew's takeaways

A good investor has set up a structure of how to invest and doesn’t second guess the structure.

Actionable advice

You always have to be able to see the cause and effect of everything.

Noel's recommendations

Noel recommends learning about options and how they affect the marketplace.

No.1 goal for the next 12 months

Noel's number one goal for the next 12 months is to develop his business and get more people to understand why options are useful and not to be afraid of them.