Lessons Learned from “The Big Short”

In Blog by Michael Arnold

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“The Big Short” is a film that was co-written and directed by Adam McKay, based on a book of the same name, by Michael Lewis. The film stars Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt. Distributed by Paramount Pictures, it began a limited release in the US on December 11, 2015, followed by a wide release on December 23, 2015. It is also a must see for traders, but not for the reasons you may think.

Without letting any spoilers go, the movie is about a few huge short trades in the mortgage market, placed by some very smart traders that ended up paying off in a very big way. Most people see this type of movie and think, “I want to make that kind of money, that quickly! I want to be a trader!!!!” That is not the message of the movie, however, that new or aspiring traders should take. Quite the opposite actually, the movie is about markets not doing what they are supposed to do all the time, as well as people on the opposite side of the big shorts telling the traders placing the short trade that, “what you’re saying, has never happened and CAN’T happen”. Hidden within the time limitations of the movie, is the amount time the big shorts took to pay off, as well as the amount of pain that the traders took waiting for their trades to pay off, and waiting for markets to do what they are “supposed to do”. Real professional traders know both of these fact, and have a plan for their trades from start to finish. Nadex binary options are such a great training ground for 2 of the main components of a planned trade; when to take profit and when to cut a losing trade, because those decisions are almost made for you. Multiple expirations, controlled risk and the ability to cut trades prior to expiration, essentially covers the exit components of planning your trades if you don’t have a handle on doing it yourself.

Many people will talk about the money made by the traders after seeing this movie. The real truth of the movie however, is planning, patience and knowing that the can’t-miss trade, CAN miss. There is a quote in the movie that sticks out; “The truth is like poetry, but most people (bleeping) hate poetry.” If you want to be a trader, then see this movie, but make sure you see the truth in the movie.

Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results