From the May 2013 issue of Futures Magazine • Subscribe!

Aurum, spinning gold from market liquidity

Thomas Vitiello and Paul Sacks Thomas Vitiello and Paul Sacks

Thomas Vitiello and Paul Sacks are long-time members of the Comex whose off-floor strategy has led to trading success in the electronic world. Their commodity trading advisor/commodity pool, Aurum Options Strategies, has performed well in its first two years of trading by exploiting the opportunities provided by high-frequency trading algorithms instead of fearing them as so many managers do.

“As a result of the GLD (gold exchange-traded fund), gold has become quite equitized, and because of the options listed on the GLD, there is this highly efficient, high-volume arbitrage going on between the options on Comex and options on the GLD,” Sacks says. “Thomas and I have realized that the days of being a market maker have passed and the days of becoming an intelligent market taker, taking advantage of this degree of liquidity, are the future [for] gold.”

Vitiello started working on the floor in 1983 when he was still in college, and liked it so much that he transferred to New York University from Northeastern so he could continue to work on the Comex floor. He became a member in 1987, and in 1993 started his own floor brokerage operation, filling paper for a major bank.

The rules allowed for dual trading, so he also could scalp and put on short-term trades for his own account while executing the bank’s trades.

“When you are on the floor there is an energy [that allows] you to get confirmation on all your ideas,” Vitiello says. “As the market [went] electronic, that started to dissipate. Sometimes you didn’t realize the intuition that you used had a lot to do with the flow that you saw.”

Vitiello, who serves on the Comex Board of Governors, says it was a painful lesson for many former gold locals, and by 2008 he realized he could not gain the same edge in trading gold electronically.

“As an electronic trader you realize that it turned out to be a lot more of a 50/50 game,” Vitiello says. “Before, you were in the flow inside the store; when electronic trading came in you were outside the store looking in the window without being able to hear what was going on inside.”

While in the pit, Vitiello was a scalper and short-term day trader, and he rarely carried positions overnight. “You knew the players in the pit, you knew the personalities and you are able to use your ability to analyze human behavior,” Vitiello says. He studied technicals but used them along with what he saw and heard in the pit and realized that edge left with pit trading.

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