REVEALED: The Daily Reckoning’s Latest Heavyweight
“Did you ever tackle Walter Payton?”
An unlikely question for a job interview, admittedly — perhaps the most unlikely ever — but Jon Najarian was an unlikely job candidate at the Chicago Board of Trade.
Today we are pleased beyond description. For we are welcoming legendary trader Jon Najarian to The Daily Reckoning.
You may recognize Jon Najarian from CNBC’s Halftime Report. But you may not know Jon Najarian’s unlikely history…
The year was 1981. Jon had been chasing his dream to play linebacker in the National Football League.
He’d gone undrafted out of a small Minnesota college. Four NFL teams nonetheless invited him in for a look.
He accepted one of them — from the Chicago Bears.
Why the Bears?
Because its linebackers were crusty, ageing veterans… and he reasoned the Bears afforded him the greatest chance to crack an NFL roster.
Jon played four preseason games with the Bears.
But there was a fate against him…
The rusting veterans turned out to be exceptional talents. And he was battling another rookie linebacker for the final spot — future Hall of Famer Mike Singletary.
The Bears cut him loose. Thus ended Jon’s professional football dreams.
But the Windy City had seduced him… and he did not wish to depart.
How could he stay?
“Perfect Qualities for Making Money in Markets”
Jon’s agent had helped several former professional athletes secure positions on the trading floors of Chicago’s financial district.
Firms often hired these athletes because of their discipline, aggressiveness and determination — “perfect qualities for making money in markets,” as Jon attests.
And Jon was a characterful fellow. In him these qualities were deeply lodged.
His father had put them in…
John Najarian was driven relentlessly by the particular enthusiasms within him.
He attended the University of California, Berkeley, on a football scholarship.
He graduated far ahead of schedule — even with the full burdens of a football schedule. Upon graduation he rejected an offer to play for the Chicago Bears — as fortune would have it.
Instead, he chose a career in medicine over a career on the Midway. He attended medical school.
After medical school he became a pioneer in a fledgling field of medicine — kidney transplants.
Jon’s father in fact performed the world’s first kidney transplant on a diabetic patient. Eventually he took a position as chief of surgery at the University of Minnesota Medical Center.
He also had a talent for money — or luck.
It Is Often Not What You Know. It Is Who You Know
Among the family’s neighbors in the Minneapolis suburbs was a family, Coen by name.
The boys — Joel and Ethan Coen — would proceed to stardom producing films such as Fargo, No Country for Old Men and True Grit.
The elder Najarian took in a fortune by investing in their films.
At times it is not what you know — but who you know.
It was a lesson Jon would later appreciate (as evidenced below).
The elder Najarian was also a true family man…
Jon’s brother Pete (who also played professional football) recalls one instance of their father’s dedication to family…
Mr. Najarian had winged off to a medical conference in Paris. There he was giving the latest innovations in kidney transplants.
But he did not extend his time in Paris. Three hours after the conference he was aboard a homeward-bound plane. He would not miss his son’s football game.
“No excuses” was the family’s harsh and uncompromising motto.
Jon took it very heavily.
Yet here he was all these years later, cut from the Bears… and facing an unknown future.
It is true, he could take up employment within the financial industry.
But he had attended college for architectural design.
He could not tell a stock from a bond at the price of his soul… much less an option.
How could he succeed on the trading floor?
But Jon Najarian would always stand to a challenge. So he accepted a position as a clerk on the trading floor.
He reported to work at 6:00 each morning.
His days he passed in hard, ceaseless labor, barreling through the pandemonium of the trading floor.
Months and months of grimy toil passed. And his discipline, aggressiveness and determination paid him a handsome dividend…
Gradually Jon acquired a command of the trade — calls, puts, verticals, diagonals, calendars, butterflies, condors, delta, gamma, vega and theta — all these and more.
More Money Than the Bears Would Have Paid Him
Jon purchased a seat at the Midwest Options Exchange for some $10,000 — two-thirds of the $15,000 the Bears had paid him.
The first few months he scarcely scratched through. But eventually he found himself in much easier waters.
He began to take in $2,000 per month. Then $5,000. And eventually… $20,000 per month.
By then Jon Najarian was hauling in more money than he would have made with the Bears.
He traded in his little $10,000 seat for a large seat at the Chicago Board Options Exchange (CBOE).
But next came the major challenge…
He applied for a seat at the prestigious Chicago Board of Trade (CBOT).
“Did You ever Tackle Walter Payton?”
“If an interview at the CBOE was like lunch at the country club, the CBOT was a dinner invitation to Buckingham Palace,” Jon recalls.
Each applicant had to face a blistering interview before the membership committee — which took great relish in humbling and rejecting applicants.
“Their goal was to make a mockery of your application,” said Jon, “and send you on your way.”
Well, there Jon stood one morning in an icy, tortured sweat… awaiting his interview.
The applicant before him emerged from the interview room broken, battered, bludgeoned… rejected.
In Jon went…
“It says on your résumé you played football for the Bears in 1981 — is that true?”
“Yes, sir, that is true. I played football for the Bears.”
“Did you ever tackle Walter Payton?”
“Yes, sir, I did.”
“Congratulations, you’re a member of the Board of Trade.”
It is not always what you know, as Jon remembered from his father’s example. It is often who you know.
And in this instance… Jon happened to know Chicago football legend Walter Payton.
The Value of Information
But Jon was not merely fortunate. He had talent in back of him.
And Jon went on to become a money man of the first chop.
What separated this former football player from his fellows in finance?
Access to information.
When he started out, Jon was told the stock market was a “random walk” — one-off, hurly-burly, unpredictable.
He eventually learned otherwise:
After more than three decades of trading, I have a different view. I’ve learned that stock prices are moved by more than just random events. When you see the greed, corruption and manipulation that occur, it’s not really a random walk. History has shown that as long as we have financial markets, we’ll have those who try to influence prices.
Jon opened his own trading firm in 1989. His own brother Pete joined him in 1992.
Both men noticed that when large firms came in with large orders… they were on the right side of the trade far more than the iron laws of chance would suggest.
These are the Morgan Stanleys, Goldman Sachs, Merrill Lynches and Citigroups of this world.
The two brothers concluded that these folks knew something others did not.
Their success was not owing to dumb luck. It instead owed to smart money.
Legally Betting on Inside Information
In their book Follow the Smart Money, the Najarians heave forth example after example of how the smart money bends markets to its advantage.
So the Najarians hired a team of computer wizards. This was their mission:
To create a search algorithm hunting the market for unusual options activity.
But it was not enough to know that unusual options trading had occurred. To benefit from the knowledge… they had to know which way the insiders were betting.
What emerged was the “Heat Seeker” — which would reveal the trading patterns invisible to most.
By determining which way the “smart money” was betting… an enterprising fellow can bet right along with it.
He is essentially trading on inside information — but legally.
… You can ride the coattails of the powerful insiders who trade or leak inside information — and you can do it legally. By using unusual option activity, you’re not trading on inside information. You’re using publicly available information to track them. Given that unusual option activity is often not based on insider trading, but still is what we define as smart money, the trick is to know where to look, how to interpret the information and how to set up the option strategies.
Jon knows where to look, how to interpret the information… and how to set up the option strategies.
It is a skill that has made him millions and millions.
You do not need to “crack the code,” Jon affirms. “You just need to know how to follow the smart money— and stay disciplined.”
Were you aware that Jon is a card-toting member of the U.S. Options Industry Hall of Fame?
Yes, this honorific exists. A younger Jon Najarian would have likely preferred the football Hall of Fame.
But a man accepts what he must in this fallen and compromised world.
And so today we are exquisitely pleased to welcome Jon Najarian to The Daily Reckoning.
Into our growing stable of misfits, dreamers, visionaries and money men he goes.
We dare say, he alone among them can claim he has tackled the great Walter Payton…
Managing editor, The Daily Reckoning