From Saxophone to Stock Trading: Mat Cashman’s Unique Journey

Join the IBKR Intern Class of 2024 as they sit down with Mat Cashman, Principal of Investor Education at the Options Industry Council to discuss his career path. Mat's unique journey from the world of classical music as a saxophonist into the finance space is as inspiring as it is fascinating, and our interns jumped at the opportunity to glean career advice from Mat.

Summary – Cents of Security Podcasts Ep. 59

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jennifer McKay 

Hello and welcome to this special episode of the IBKR podcast. My name is Jennifer McKay and I am pleased to introduce Matt Cashman, Principal of Investor Education at the OCC and longtime collaborator and friend of our show. This episode will feature Interactive Brokers intern class of 2024 who will be conducting this interview with Matt. Welcome, Matt.  

Mat Cashman 

Thank you for having me. I'm excited to be here.  

Jennifer McKay 

It's great to meet you and have you back on our show. Now to jump right into things. What is your educational and professional background?  

Mat Cashman 

I like it. Okay. My educational and my professional background, so my educational background is I studied music and philosophy at Northwestern on the North shore of Chicago in Evanston. I'm a saxophone player by trade so, like studying music when I was pretty young and then I studied it in college and then actually did a master's degree in saxophone as well. So I have both a bachelor's degree and a master's degree of saxophone performance. Neither of which are extremely valuable in the marketplace and so after that, I fell backwards into the trading world.  

In the late nineties, I started trading options on the floor of the CBOE. It was a pretty heady time. If you look at a chart of the NASDAQ you can see that 1999 to 2001 was an incredibly volatile time for most of the stocks in that world and so that's when I cut my teeth as far as options trading is concerned. Since then, since I started trading, which was probably 99. I've had different parts of my career, but always involved in trading and or options and mostly Implied Volatility Trading or Vol Trading as it's called, and it's had different iterations, but I've always been an options trader. I started my own index trading firm also with three other partners and ran that for about a decade in Chicago up until about 2015. And then since 2015, I've been on the other side of the business, which is essentially leveraging all of that experience to teach other people, how options work. So that's basically what I do now, I'm the principal of investor education at OCC, where I teach people how options work. 

Jennifer McKay 

Thank you. Do you recommend getting an MBA for a field like yours?  

Mat Cashman 

I think the MBA is an interesting thing, a personal decision. I don't think it necessarily is the road to unmitigated success that everyone seems to think that it is always. It can be depending on the person and the organization where they work. Some organizations obviously value them differently than others, but I think we're in a pretty rapidly changing environment from a business perspective and one where I'm not sure that is necessarily, always the best thing for people to do. I think if you want to do that, I think it's a great thing to do, but I also think you need to want to do it for the right reasons. Just going and getting an MBA doesn't necessarily always equate with immediate success, which is, I think, sometimes what people conflate those two things in their mind and it's not always the case.  

Jennifer McKay 

Interesting. Do you recommend any books or films to help interns like us better understand economics or finance?  

Mat Cashman 

Ooh, economics or finance. I love this guy named Taleb, T A L E B . He wrote a book called Fooled by Randomness, which is fantastic. It's all about how we tend to not think about tail risk events as real possibilities, but that they are real possibilities and that we should rethink how we think about the probabilistic distribution of things. That's a kind of a math book for people who don't want to read differential equations as they're flipping through the pages, but it's a book that's centered on markets, which I think is a really good book. Reminiscence of a Stock Operator is a really good one. That's something that's required reading for people who are getting into the trading world.  

And then I think personally, like a lot of times what I have found recently is that there's an incredible amount of information and relatively good information that's available online. If you get yourself involved in some good spaces on things like Twitter or X, where there are people who are talking constantly about things in finance and or on LinkedIn, I do a lot of writing on LinkedIn about how I think about finance, how I think about trading, how I think about options, right? I think it's a constantly evolving ecosystem that has a lot of really interesting stuff that's happening right now that you can access pretty easily. So that's what I would say. A couple of books and get yourself involved in some good digital conversations about that stuff.  

Jennifer McKay 

I'll have to pick those books up and give them a try. The next question is a bit similar to the one you just answered, but how do you recommend that interns like us break into your field?  

Mat Cashman 

Options trading is an interesting place over the last decade it's become increasingly programmatic. There's a lot more so you have to think about like where I came from as far as the options world is concerned. When I first started trading, everyone traded on a floor, right? On a we were standing in pits, we were all floor traders and so it was a much different place than it is now. The landscape of the options trading world now is very programmatic, it's very digital and so people that are digitally native, like I'm sure most of you are going to have a leg up in understanding how that world works, just more generally. It's an interesting thing, if you had asked me this question five years ago, I would have said you need to go and make sure that you understand a coding language and now I think coding isn't quite as important as it used to be just because of recent developments in AI and so it's hard for me to say you need to fully understand Python in order to be a trader, because I don't think you necessarily do as much anymore. So, what I think that means is that the best thing for people to do is to understand the inherent math that is underneath all of how these things work and the game theory that's embedded in all of the decisions that people have to make on a minute by minute, second by second basis as far as trading and finance are concerned. That part of it's not going away, right? The coding part of it has changed significantly, but the game theory and the math underneath all of these contracts hasn't changed at all. 

Jennifer McKay 

Could you expand on that a little bit? How often do you deal with coding in your day-to-day activities, and would you recommend that we take a coding class at school, or do you think something like game theory would be more important?  

Mat Cashman 

I think game theory is probably going to be far more long term viable as far as something that you're going to be able to put your finger on to, to understand how you can apply it in different aspects. The reason why I say coding is up in the air more so now than previously is because if you look at the way that artificial intelligence has changed. If you're a software developer or a coder or just an engineer, the actual advent of artificial intelligence over the last two years has changed how you code and how much you're expected to code and just how you interface with that entire stack significantly. And if you think it's changed how people do things over the last two years, I think you should extrapolate that out forward and think that curve is only going to accelerate. As the artificial intelligence becomes better at what it does and so I think that part of the business is changing significantly.  

As far as how much I code, I don't code at all. My side of things is education, I teach people how options work. When I was trading, I was coding, 40 percent of the time towards the end when things were getting exceedingly more digitally like more in the digital ecosystem and so I was coding a lot more then. But I think now it's up in the air as far as whether or not, I think that's like on the top, in the top five things that you should definitely build into your stack of expertise. It's hard to say, but the one thing that I would say is that I think the next five years are going to be more of the same as far as the last two have been since the rollout of AI broadly. 

Jennifer McKay 

Thank you for these valuable insights. Now I'm going to pass it along to Caleigh, and she's going to ask a couple more questions. 

Mat Cashman 

Hi, Caleigh.  

Caleigh Shapiro 

Hi. Thank you so much for being here with us. I just have two questions for you. One is about your career as a whole, and then the next is about investors as a whole, so a little bit more specific.  

So, have you ever had a low moment in your career and maybe questioned if you were in the right industry or maybe suffered a large loss? And if so, how did you deal with that and decide that you weren't in the wrong space? 

Mat Cashman 

Caleigh. Getting deep right away. I like it. We're going to go deep right now. All right, I'll tell you a short little story that may give you some background on this.  

So, at the beginning I told you that I started a trading firm with some partners and ran it for about a decade and that wound down in 2015. Generally speaking, the part of that story that I don't always build into my bio is that the reason that wound down is because in the trading world there's a terminology called blowing out. Blowing out basically means that whatever you just did in the marketplace lost you more money than you actually have in your account. And so what that means when you run a trading firm where there's a bunch of people that you employ is that everybody loses their job. You're, you have blown out basically, right? So in 2015, my partners and I did not do a great job of internally managing our risk, and our firm blew out. We took a really large position into a very volatile event. There were some conversations beforehand that were pretty animated conversations, let's say, about whether or not we should have this risk on, but ultimately through the way that the partnership was designed, the risk was carried into an extremely volatile event and we lost all our money. So in 2015, I went from being a partner at a relatively successful trading firm to not having a job. And it's a really interesting transition to make when you're however old I was and when it happens overnight like that, right? It happens fast. And so what you have to do in many ways is figure out what it is that makes you want to get up and go to work every day because in some ways, all of the things that you had going on before are now gone, and you have to dust yourself off and decide whether or not you're going to keep going. And so that process is not always easy, and it requires a little bit of soul searching.  

Everyone, is going to have low points, maybe not quite as low as that one in their careers, but it does require you to dust yourself off and get up again. One of the things that one of my mentors, when I first started trading said to me, which I didn't understand at the time, this was 1999, is he said that the trading world is a place where you're going to learn more about yourself faster than you ever will in any other industry or job. And I think that's really true. It took me a lot longer to learn that stuff because the first event that I had that was like really bad was 2015. Up until that point, I had a relatively Goldilocks career.  

Trading is one of those things that forces you to look inward much more than people like to think it does, right? It forces you to evaluate whether or not you're making the right decisions over and over again. So that's my little story, but it situations like that always test your mettle and make you figure out whether or not you're, whether or not you want to keep going.  

Caleigh Shapiro 

Thank you for sharing that. And also, just to back end off of that, would you, is that part of the reason why you're in education now as opposed to going back and dealing with trading? That experience?  

Mat Cashman 

Caleigh, getting deep again! There are parts of it I think that, that influenced that, part of that decision making process post an event like that is figuring out what parts of that did you not like, or were not a great fit for who you are intrinsically as a person and what parts of it do you want to pick up off the ground and carry forth into whatever next iteration of your life you have created.  

One of the things that I think I realized is that I wanted to be involved in the capital markets, I find them fascinating and especially the options part of it where there's a lot of math speak to the way that I think about optionality in a very broad, general way, but I wasn't sure that I wanted to be fully hair on fire taking massive amounts of risk all the time. I think part of that is a function of just me getting older, but also part of it is probably if I look back on it and I'm truthful with myself, it's probably a function of a kind of like a traumatic event like that changes the trajectory, but also that changes the way that you think about things the way that you evaluate risk. And yes, I do think that there's a part of that definitely flows into where I am now versus where I was then as far as which part of the business I'm involved in.  

Caleigh Shapiro 

Got it, thank you. Now not so much of a personal question now. What factors do you think have the largest impacts on investor sentiment as a whole, and do you think that it's prices that impact sentiment or sentiment that impacts prices? 

Mat Cashman 

Oh man. One thing that I always, so I was an agricultural options trader for a while. I traded options on soybean, corn, wheat, soy oil, soy meal. The funny part about agricultural options and agricultural futures is that every growing season is different from the one previous to it. If you think about like right now, corn, soybean, wheat, anything that grows in the United States, the futures have gotten hit, meaning they're down at four year lows, partially because of just larger macro effects, but also because there's a giant rainstorm that we call barrel that's coming up from Texas through the plains and it's going to dump a bunch of rain on a bunch of grain that is in the middle of its growing season. In situations like that you have weather that affects how the actual futures trade, right? There's a phrase in the agricultural world called rain makes grain. That's what they say. The more rain you have, the more grain you have. The more grain you have, the lower the prices are just based on supply and demand. 

The reason I bring that up in the context of this question is because every year in the agricultural world, the growing season tells its own story. It has a narrative built around it and in many cases, I think that markets respond to narrative. They respond to stories. And so, I think that it was always hard to find a reason to know that like grain prices were going to be higher if there was no story behind it, right? The story is what creates the actual response, our human response that is encoded in that supply and demand dynamic that forces people to want to pay higher and higher and higher prices for things, or to sell things at lower and lower and lower prices.  

There's a guy named Ben Hunt who runs a thing called Epsilon Theory and he was he was like a hedge fund guy for a long time, really smart guy. And much of what he writes about is the knock on effects of narrative in the markets and that we as human beings tend to like to latch on to a story. We're all storytellers and that's what actually fuels the marketplace. So, if you're asking me whether sentiment affects prices or prices affects sentiment, I'm probably, if I can only pick one of those, I'm probably going to say sentiment affects prices because I think the narrative is really what drives. What we're looking for from a price perspective.  

Caleigh Shapiro 

Got it. That's a very interesting way to frame that. I like that. Thank You, it was great. 

Mat Cashman 

It's a good question, Caleigh.  

Caleigh Shapiro 

Thank you. I'm going to pass it on now, but thank you so much.  

Shweta Lokeshkumar 

Thank you. Thank you, Matt. Your answers have been so insightful. I'm really enjoying your conversation so far. I have two questions today. One is around your experience in training new traders and the other around the new technologies and how it is impacting the finance industry. So, my first question is, you have been involved in training new traders throughout your career. What are some of the most important skills or qualities you look for in potential options traders? 

Mat Cashman 

The number one thing that I think is important is very similar and has a lot of parallels in sports and trading, which is, I think the best traders that I have seen have extremely short memories. And not like broadly, like they don't remember things, but more specifically, they have extremely short memories for like traumatic events that happened to, their personal P&Ls. It's really hard to be a person who takes risk for a living and to get up and go back to work and do the exact same thing that you did yesterday when the thing that you did yesterday cost you $150,000 or something, right?  

The best people at that are the people who are able to let the underlying math be their guiding force and not the actual like minute by minute iterations of that math, the results of that, the daily P&L of that on a daily basis. And to not be in a situation where you allow your P&L to be mixed in artificially with your own personal worth, right? I think that's a really hard thing that's hard to separate when you're talking about those kinds of things from a trading perspective in the trading world people tend to equate net worth of their bank account and the net worth of them as a person. And I think that people that are really great traders are able to separate those two things and say one doesn't have anything to do with the other. Just because I make a bunch of money doesn't mean I'm a better person. Just because I lost a bunch of money doesn't mean I'm a horrible person, right? It doesn't have anything to do with them. One doesn't have anything to do with the other, essentially. So, I think that's a really great quality to have.  

Think about it from a sports perspective. A quarterback that gets put in the game and throws three interceptions. When the offense has the ball again, they have to get back in and throw the ball again. They've done it a hundred million times in their life cycle as an athlete, and the last three of them happened to result in interceptions, but don't think about those. Think about the next one. So, I think that's probably the best quality that I would look for in someone. Yeah, so that's, I'll stop it there.  

Shweta Lokeshkumar 

Thank you. That's never give up kind of a mindset that everybody has to have.  

Mat Cashman 

Yeah, there's some of that in there too, yeah, for sure.  

Shweta Lokeshkumar 

Yeah. So, my next question is, with the increasing impact of AI and machine learning in finance, how do you see these technologies shaping the future of options trading?  

Mat Cashman 

Oh wow. It's hard to say, right? I think AI is going to color everything that we do from here on out. I don't think that there's any part of our business that's going to be untouched. Everything from order execution, to how people choose option strategies all the way through to like how people are educated about how options work. It's going to be built into everything we do. And if the question is designed to ask like how people should be thinking about it or using it, my advice is build it into how you interface with the digital world every day in some way, shape, or form, right? The more you know about it and the more you're able to use it, the better equipped you're going to be in whatever field you decide to be in because it's going to touch everything. And it's going to be something that you're going to need to be able to actually utilize.  

And, right now, the way that people use it is we type, silly prompts into text boxes, and it, uses predictive modeling to figure out how the internet would necessarily answer that question, just based on the word before it and what the word is after it, right? But that's going to change significantly and that's not going to be the way that interface happens between person and large language model, right? It's not always going to be like we're typing into a text box. And I think that's going to happen very quickly that change is going to blow all of our minds as far as how integrated that is into our daily life. I think it's going to touch everything and we should probably get on board and learn how to use it as best we can if we want to be successful in any way, shape, or form going forward.  

Shweta Lokeshkumar 

Thank you. 

Jenny Wang 

Hi, Matt. My name's Jenny, and I'm also not from a finance background. And these years we have witnessed an increasing number of talents taking up finance related jobs with non-finance backgrounds. Is it becoming a trend that a more diverse background is more highly valued in finance related careers? 

Mat Cashman 

Ooh, that's a good question. I like that question, especially coming from my background as a musician who ended up being a trader. I think there's a lot, I think this is a broad-based trend that's happening and it's not just in finance. I think what's happening here is that we're understanding a little bit more about how people interact with each other in the workplace, and that skills can be more easily taught than we thought and so is a finance degree or an economics degree absolutely necessary for someone who's going to be a trader? And I think the answer to that question is no. And the reason why is because I think most broadly what I said earlier is there are parts of how people trade and how they think about trading that are far more important than whether or not they took macro or microeconomics in their first year at Yale or whatever school they went to, right?  

There are more important factors that we're starting to think about as far as who is this person? How do they think? How do they solve problems? And whether or not they can actually take that process of solving problems and apply it to a whole host of different situations that you put in front of them because someone who's dynamic and elastic in how they think is going to be much more equipped, much better equipped to be successful in any number of different scenarios than someone who is non elastic or very dogmatic in how they approach things. It matters far less what's on your resume, it matters far more how you think about things and how you solve problems than anything else.  

And that was something that I always thought, like I was always the partner who was in charge of hiring new people, new traders and right, and then training them as they came on and that's how my education background started, right? Like my mom was a professor, and my grandmother was a teacher so there's a little bit that's been built into my background ever since I was a little kid. But one of the things that when I was evaluating people that people, I think we're always surprised by is they would hand me their resume and sit and I would sit across from them and in an interview and like most of the time their resume was like face down on the table. Card players always say, you're playing the player, you're not playing the cards, right? And what that means is that you're interfacing with the person. The actual living human being that's sitting across the table from you. That's the important part. Read the player. Read the person, figure out who the person is. Who cares what their resume says? I don't really care whether or not you took macroeconomics or not. I care whether or not you can solve the problem that's in front of you. And so, I think that's the, I think that's the more important thing. And I think people are waking up to that over the last 10, 20 years in business, it's become something that's a little bit more fashionable to talk about, which is I don't really care what your resume says, I care whether or not you can answer the questions that I have. 

Jenny Wang 

Oh, yeah, that's super inspiring to know and just to dive a little bit deeper to your journey to trading. So, given that you have a background in music and philosophy, is there any connection between music and finance that you find interesting or inspiring to your work? And what is a key motivation that pivots you towards the current profession?  

Mat Cashman 

Oh, that's a good question too. You guys are full of good questions today. I like these. So, there's been a lot of research that's been done that actually links people's understanding as far as music is concerned and math. Generally speaking people who are good at music tend to be pretty good at math. I think the reasoning there is just there's some part of the brain that is activated by the understanding that you have to have of how a music staff works and the kind of grid that creates with how numbers work and how they are additive and, how they interact with each other. I think it's an interesting part of how our brains work. I get this question a fair amount, to be honest with you, and I think part of it is just because I talk about my background as a musician and as a trader oftentimes and so people are fascinated by the connection that might exist there.  

One of the things that I think is really interesting, and I always thought was interesting. So, I talked to earlier about being a floor trader. You have to understand that and I realized this when I stood in the soybean pit at the board of trade. The board of trade is set up, especially the agricultural room of the board of trade was set up. It's one giant room, so it's like the size of a football field and the ceilings are like, I don't know, 50 feet high, like it's a massive giant open room. The reason why is because it has to have these big giant boards that are all the way around that have the prices on them. So that no matter where you're standing in the pit, if you're facing this way, or you're facing this way, or you're facing this way, there's always a board that has a price with the last soybean contract price on it for the futures. What that does is it creates a giant cavernous echo chamber and if you put 1500 people in there screaming at each other, it makes a lot of noise, but the really interesting part about it that I found is that because I was a musician and I had really tuned in ears, I figured out after a little while that a futures pick, soybean futures pit that is involved in the market going up in a rally sounds different than a market that's going down.  

There's a difference in like how the tambre of the din of the crowd sounds. People are obviously, most of the time, way more excited when things are rallying when prices are going up then they are when prices are going down. Obviously, like when prices go way, way down, people start to completely freak out and you start to get, a similar sound at the very bottom of a move. And it's not as if I was able to predict movement based on it, but it taught me something really interesting about paying attention, which is if you pay attention to being in the exact moment that you're in and you listen for things like that, open up your ears and this can be something that can apply to many different things. Paying attention to how something sounded gave me a little bit of insight as to what was actually going on over there. Even when I couldn't see it, right? Because the options pit was separate from the futures pit. And so I could hear the futures pit and I could hear there were times when I felt like the actual sound of the pit was getting to the point where I was like, eh, this move might be over. We might be getting to the top of this move. These people are way too excited about what's going on over there. And so those kinds of things would color some of the option trades that I would put on. I would think about that and say, okay, maybe it's time to start to trim this part of my position and start to build the bottom side of my position. And, and oftentimes, oftentimes I was wrong. Let's not kid ourselves. It was not a predictive. But it does color the way that you trade sometimes, or the way that I traded. And it can be a larger kind of idea to pay attention to what's happening right in front of you because sometimes that can be the most instructive thing that's happening.  

Jenny Wang 

Thank you so much for sharing these amazing anecdotes with us.  

Shweta Lokeshkumar (on behalf of Cara Cannatello) 

What do you find in your job that challenges you the most?  

Mat Cashman 

Ooh, that's a good question. I like that question. There's a couple of things that challenged me in my current job. So, my current job is like I said, I'm the principle of investor education, it means I teach people how options work. I have a lot of experience in trading options, thinking about options and also in teaching them.  

One of the challenges for me is to constantly come up with inventive ways to teach the same subject matter. The syllabus of a college instructor, of a professor tends to be the same year over year over year. How do you do that and instill in people the excitement that is necessary to foster a dynamic learning environment when you've taught the same thing 300,000 times? If you know anything about options, you know that there are calls and there are puts and right? They have different characteristics, but they're not really that different when you think about it mathematically. I have to figure out a way to constantly not only telegraph the concept to people who have not necessarily understood it previously, but I have to also do it in a way that keeps it interesting to me in order to be engaged from a teaching perspective, right? I'm not a robot, right? I'm not up there just doing the robot teaching thing, that wouldn't be interesting to anybody, right? Think about when you have to try to learn something from, some YouTube video that is narrated by a robot voice, it makes you want to go to sleep immediately, right? And so that part is not interesting.  

The challenging part from a teaching perspective is to make it interesting for you, the learner, and for me, the teacher, at the same time, even when we're dealing with the same subject matter. I think that's probably the most challenging part of my job right now. My previous jobs have obviously had different challenges, but that's why I think what's the most challenging part now. 

Shweta Lokeshkumar (on behalf of Cara Cannatello) 

Thank you, Matt. What are the best ways to differentiate one's performance that align nicely with the company's culture?  

Mat Cashman 

I think I just have to go with like you, have to be yourself. There are parts of my background that I would say I de-emphasized for a long time. Part of that is because I didn't think that they were going to be a contributing factor to me being successful.  

For a long time, I didn't tell people that I was like a musician before I was a trader. Part of the reason why is because I think there was a prevailing sentiment in general that like in order to be a good trader, you had to have an economics degree or, a business degree or have an MBA or, this or that. And through many of the things that we've talked about thus far, I think that there's been a transition in the way that people think that I think values more who you are as a person and your individuality over necessarily, whether or not you have the right pedigree in order to do this. Don't be afraid to show up and, bring your collected history with you because that's who makes you that's what makes you who you are. And if the organization that you work for is a good organization, they're going to understand that having people on their payroll and part of their organization that embrace who they are and each person being individual in that regard makes that organization better, stronger, and more resilient than an organization where everyone is homogenous and has the same background. So that's what I would say. 

Shweta Lokeshkumar 

Thank you, I think this is something that we need to remember throughout the career because we keep changing roles and then we keep working in different cultures and we tend to forget it sometimes so, thank you.  

Mat Cashman 

Yeah, absolutely. I completely agree. You guys are all at the beginning of your careers. It's going to be something that you can hold on to no matter what, right? The one part of your career that's never going to change is the fact that you're the person in charge of it. The sooner you embrace that, the better off you're going to be.  

Shweta Lokeshkumar 

Thank you.  

Caleigh Shapiro 

Matt, it's been great having you on the show. I know I for everyone when I say that I think we all learned a lot, we really appreciate you sharing your insights and experience on your career with us. As always, listeners can learn more about an array of financial topics for free at IBKRCampus.com. Follow us on your favorite podcast network and feel free to leave us a reading or a review. Thanks for listening, everyone.