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Invest Like A Monster - Interview With Jon Najarian (GOOG, JPM, GE)

Invest Like A Monster - Interview With Jon Najarian GOOG, JPM, GE

Jon Najarian is a trader, analyst and co-founder of optionMONSTER. After a short time as a linebacker for the Chicago Bears, Jon left football to start his financial career at the Chicago Board Options Exchange. Since then, he has been a frequent contributor to CNBC and hosts a daily radio show.

Jon took some time to talk to Benzinga’s Alex Schiff about optionMONSTER’s upcoming conference, Mike Singletary and barehanded softball.

This episode is also available as an episode of the Benzinga Podcast.

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Q: Great. Let’s get right into the questions. Could you start off by telling us a little bit about yourself and optionmonster?

A: My brother Pete and I started optionMONSTER in 1999. We started it to track unusual volumes in stock options. Then we built a number of scanners for volume, volatility, and unusual accumulation of calls and puts. Eventually we moved over to stocks and futures, as well. Now we have various trademarks and patents on processes that look at unusual buying in the market that we think proceeds takeovers, or stocks that are about to move. It has proved to be a pretty accurate reading. That is what Pete and I have used since 1999, more or less on an exclusive basis, to determine which stocks we are going to be long and which stocks we are going to be short.

Q: You were a linebacker for the Chicago Bears in several decades ago. What made you decide to pursue a career in trading rather than trying to compete in the NFL?

A: The not competing in the NFL part was easy. The Bears basically fired me. I got to play 4 games with the Chicago Bears in 1981. Then, as my mother would say, Mike Singletary kept me out of the Hall of Fame by winning the starting spot. Truth be told, of course, Mike didn't beat me out to get the spot, he had just held out on his contract. So I don't mean to hype myself up and say that I was so good that I tested Mike Singletary (laughing). Mike and I were rookies at the same time, and he had held out on his contract, because he could. He understood leverage. So anyways, I got to play because Mike hadn't signed yet.

But that is what brought me to Chicago. I really liked the city, and I noticed that the people who came out to watch us practice tended to be traders, because who else is done with their day at 3 in the afternoon and can come out and watch a bunch of football players practice? Almost universally, the people who came to our practices were traders or stockbrokers. That is how I decided to come down to the trading floor.

Q: How does your experience as an athlete influence the way you trade and invest?

A: I would say overall, the discipline of being an athlete helped an awful lot. You don't think of it at the time, but a lot of those experiences when you are growing up, and more or less the weeding out of people in various vocations, occurs because people just can't stick with it. They give up. Having some good mentors in high school and college as well as my pro football background certainly helped me to be able to overcome the frustration of trading. Because it was utter frustration, when I came down to the floor I didn't understand it at all. But I figured if these other guys could get it, I could get it. When the light came on in made a huge difference.

Q: How do you feel about the Chicago Board Options Exchange initial public offering?

A: This is about one of the best environments that they could ask for to do this IPO. Of course a raging bull market would be even better, but that would be the only better situation. I think that the regulatory environment with Congress talking about FinReg, a lot of those rules that they are looking to put into place will force trades that are currently taking place off of exchanges to take place on regulated exchanges.

That is going to be a good thing. I think that the CBOE (NASDAQ: CBOE) would be one of many beneficiaries of that. The other beneficiaries would be the New York Stock Exchange (NYSE: NYX), CME Group (NASDAQ: CME), the Intercontinental Exchange (NYSE: ICE) and the International Securities Exchange (ISE). I think all of these exchanges will benefit from the trillions of dollars in derivatives that trade in the ether right now. Putting them onto exchanges will provide an intermediary to the transactions and also provide transparency. I think that this will be significant from an investor confidence standpoint and a major benefit for the exchanges if they end up getting that business.

Q: You have an Invest Like A Monster conference coming up at the end of this month (June 25 & 26), what will investors learn at the conference?

A: We are going to be going over a lot of strategies, teaching people how to put on bullish and bearish positions using options. We will also be showing investors how to fix unsuccessful trades and recoup some of their losses using options. In addition, we will be doing live trading. My brother Pete and I will be doing some trading in front of the room so that people can see what our thought process is when we are putting on a trade.

We will also be showing investors the most prudent way to get either long or short in a particular stock, option, or futures contract. So, we will being doing a lot of back and forth with the audience where they will throw out a stock that they have been trading and we will show them a better way to do it with options or futures. These conferences have been very popular in the past. This is only the second time we have done one in Chicago. We have been to New York, Dallas, Atlanta, San Francisco, Washington D.C., St. Louis, and Philadelphia last year.

Q: What’s the advantage of trading options rather than just buying a share of Google or Apple itself?

A: Number one, you can limit your risk on your entry. By using options, you always know what your maximum loss is and you can define your risk. It also allows you to put a lot less money on the table, compared to buying stock. A lot of times you can buy an option spread for 1/10th or even a 1/50th of the price of the stock. So for example, in a stock like IBM (NYSE: IBM), instead of putting $130,000 into a thousand shares of IBM, you could put $2,500 into a bull call spread and control the same thousand shares. I think it makes a lot more sense to define your risk on entry and have less money on the table. You are able to sleep better at night and you can generate better returns on your investment.

Q: For a 12-month time period, name two stocks to buy and two stocks to short, and why.

A: Well, I like a lot of energy stocks down here, quite frankly. The baby has been thrown out with the bath water in the energy sector. If you look at Anadarko Petroluem (NYSE: APC), for example, the stock was at $72 before the Gulf oil spill. You were able to buy it last week for around $33. While I think that stock is very interesting going forward, I would focus on some of the land drilling names, like Brigham (NASDAQ: BEXP). I think that Brigham (BEXP) would be a good one to get into for the long term, because it is a land driller, and could potentially appreciate rapidly.

I think that the more the financial markets stabilize the better it is going to be for J.P. Morgan (NYSE: JPM). So, JPM would be another one. Or if I took a derivative off of that, a stock that most people don't think of as a financial, General Electric (NYSE: GE) will benefit from the same trends. At $15 and change, I think GE is too cheap. As the world financial picture clears a little bit, General Electric, which is really a finance company, should do extremely well.

As far as company's that I worry about, I am still a little concerned about Google (NASDAQ: GOOG), even though they own the space. Google (GOOG), I think has made such horrible missteps in China that they could still see more downside from lost opportunity. The growth that people were looking for out of Google may not be there.

Q: Now that we’ve got the hard questions out of the way, here are a few fun questions. What was your first, and what was your worst job?

A: Hmmm...I think that my first job was as a janitor at Dayton-Hudson, which is now known as Target (NYSE: TGT). I worked there during the Christmas holiday. I don't know if I have had a lot of really, really bad jobs. I have been lucky enough that since 1981 I have been down on the floor trading, and this has been a great job. I didn't have many jobs in between. I worked for the Vikings as a ball boy and that was a great job too. Honestly, besides being a ball boy and a janitor, I haven't had a lot of jobs outside of what I am doing now. So, I haven't had a bad job.

Q: What’s your favorite restaurant?

A: Right now, my favorite place here in Chicago would probably be a Mexican restaurant called Fuego. It is a great authentic Mexican restaurant. They have wonderful mezcal margaritas. I am a big fan of tequila and mezcal as well as red wine. They have a good selection of tequilas and red wine at that restaurant, so that would probably be my favorite.

Q: What’s your favorite thing to do outside of trading/finance?

A: It would probably be playing softball or skiing. We are in the softball season now, and I play on a team called the Media All-Stars. We play against a bunch of radio stations in the Chicago area. I play shortstop. It is a lot of fun.

Q: And our final trademark question: If you could offer one piece of advice to Benzinga to help grow its company and enhance its success, what would it be?

A: I think just keep doing what you guys do. You got on my radar because you put out timely news quickly. I think anything that can make investors better informed is going to be a powerful driver. To the extent that you guys offer some education as you are doing now, and/or interesting interviews, I think that enhances what Benzinga does, but the real core of the site, it seems to me, is getting timely information out about market moving stocks.


Be sure to check out the Invest Like A Monster Conference.

Posted-In: Benzinga Podcast Jon Najarian optionMONSTER Pete NajarianMovers & Shakers Options Markets General


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