life. money. probability. PLUS
Album Covers NFTs Sneakers MARCH 2022
THE SHAPE OF THINGS TO COME IN
ART& DESIGN
The booming art market is no longer just for the 1%
the control freak's guide to life, money & probability
Higher, faster, further. Why not more beautiful?
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PHOTOGRAPHY: (CANDLESTICKS) TOM ROSSITER; (SHOE) COURTESY O F CHRIS LAW; (JOHNS) PA ARCHIVE/PA IMAGES
March 2022
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ART & DESIGN 14 | State of the Arts
Less than a quarter of U.S. adults visit art exhibits, and even fewer ever get the chance to own fine art. But the art market is booming, and you should be paying attention.
18 | High Art
The market for fine art languished in the doldrums in 2020 but came roaring back last year. Physical art has recovered, and digital art has exploded from obscurity to reach heights unimaginable just months ago.
20 | The Art of the Guarantee
Christie’s and Sotheby’s make sure that the high-value art they sell at auction brings a predetermined minimum price. Both of those auction houses are giants in their industry, and one may soon become public again.
23 | Masterworks: Score a Piece of a Picasso Interested in high-end art but don’t have the cash to buy it at auction? Companies like Masterworks are purchasing and fractionalizing artwork to bring the market to the masses.
Check out this issue for the lowdown on paintings, sculptures, NFTs, Masterworks, sneaker design, album covers, auction houses, the golden ratio and the shape of things to come.
26 | Art, Design and the Golden Ratio
The number 1.618 recurs in mathematics and nature. But what’s its significance in the world of art and architecture? Luckbox searches for the answer.
30 | The Shape of Things to Come
Noted Chicago architect and designer Jordan Mozer shares highlights from his storied career and contemplates what the future holds for public and private spaces.
34 | A Bullish Case for NFTs
Blockchains ensure that no one can copy or compromise art that lives on non-fungible tokens. That’s one reason why the market has grown with mind-bending speed in the last year.
36 | Luckbox Leans in with Chris Law
The renowned footwear designer reveals how he helped transform gym shoes into fashion statements.
March 2022 | Luckbox
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editor in chief ed mckinley managing editor yesenia duran associate editors mike reddy kendall polidori editor at large garrett baldwin technical editor james blakeway contributing editors vonetta logan, tom preston mike rechenthin creative directors katherine bryja tim hussey contributing photographer garrett roodbergen editorial director jeff joseph
The Fibonaccis, an art rock band active in the ’80s, had a keen focus on artwork, including the cover for their Civilization and its Discotheques album. See p. 41.
trends life, luxury & the pursuit of happiness RECORD HIGH
41 The Art’s on the Outside, Too ARTS & MEDIA
46 Art Takes TRADER
48 Meet Dino Karahalios INSERT
CHEAT SHEET
Looking for Liquidity? Look to the Stars SENTIMENT
50 Is Amazon Good for Small Business? CALENDAR
IMAGE CREDIT TK
51 Margaritas, Madness & Pi
comments, tips & story ideas feedback@luckboxmagazine.com contributor’s guidelines, press releases & editorial inquiries editor@luckboxmagazine.com advertising inquiries advertise@luckboxmagazine.com subscriptions & service support@luckboxmagazine.com
trades&tactics
media & business inquiries publisher: jeff joseph jj@luckboxmagazine.com
actionable trading ideas GAME THEORY
53 Slot Machines
Luckbox magazine, a tastytrade publication, is published at 19 N. Sangamon, Chicago, IL 60607
BOOK VALUE
54 Be the House
Editorial offices: 312.761.4218
BUY THE NUMBERS
56 The Humble Story of Pi
ISSN: 2689-5692 On the cover: Illustration by Zohar Lazar
NORMAL DEVIATE
58 The Tick is the Trade CHERRY PICKS
60 Backtest Your Options TECHNICIAN
61 What’s Next for Retailing?
8
FAKE FINANCIAL NEWS
You’ll Never Believe How Luckbox’s Rockhound Got This Tattoo
THE LAST PICTURE
64 Metahype
Printed at Lane Press in Vermont luckboxmagazine.com
Luckbox magazine
@luckboxmag 2019 & 2020 Best New Magazine Folio Award for Custom Content
Luckbox magazine content is for informational and educational purposes only. and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. Tastytrade, Inc. (“tastytrade”), through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. Multi-leg option strategies incur higher transaction costs as they involve multiple commission charges. tastytrade is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities and/or futures products, please read the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastyworks.com. While luckbox magazine and tastytrade believe that the information contained in luckbox magazine is reliable and make efforts to assure its accuracy, the publisher disclaims responsibility for opinions and representation of facts contained herein. Active investing is not easy, so be careful out there!
March 2022 | Luckbox
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ART CLASS Well the girls would turn the color Of the avocado when he would drive Down their street in his El Dorado He could walk down your street And girls could not resist his stare Pablo Picasso never got called an asshole Not like you —Pablo Picasso, The Modern Lovers (1972)
C
entral banks have injected trillions of dollars into faltering economies to bolster financial markets in the face of the pandemic, but much of that cash has found its way to the few. Meanwhile, COVID-19 has widened the wealth gap. The world’s 10 richest people doubled their wealth from $700 billion to $1.5 trillion in 20 months—adding about $1.3 billion per day to their coffers. But supply-siders can rest assured that a healthy chunk of those riches will trickle down into trophy acquisitions like sports teams, megayachts and fine art. When LVMH Moët Hennessy CEO Bernaud Arnault isn’t competing with Elon Musk and Jeff Bezos for the title of No. 1 richest man alive, he’s buying fine art. In fact, the value of his collection has reached an estimated $2 billion. Capitalism is an aspirational economic construct, so it’s not the least bit surprising to see the mere millionaires follow in on the action. But true fine art is in limited supply. Enter non-fungible tokens (NFTs), the blockchain’s method of verifying ownership, safeguarding easily copied digital assets and disrupting the cushy duopoly (of Sotheby’s and Christie’s) that the fine art auction market has become. Consider the Bored Ape Yacht Club (BAYC), a collection of 10,000 unique ape-avatar NFTs. Anyone who buys one is invited to an online and in-person social club. The cartoonish BAYC apes have generated more than $1 billion in sales, surpassing the Cryptopunks, the 2017 collection that kicked off the NFT craze. The BAYC collection sold out in 12 hours for an ether price that was equivalent to $190 each. In January, the minimum price for an BAYC NFT exceeded $250,000. Celebrities drinking the cool kids’ NFT Kool-Aid include Snoop Dogg,
Prudent investors should know a bubble when they see one. So, instead of dropping six figures on a Bored Ape, we asked illustrator Zohar Lazar to mash up a simian-inspired version of Grant Wood’s American Gothic.
Email feedback@luckboxmagazine.com
Jimmy Fallon, Stephen Curry, Mark Cuban, Post Malone, Diplo, and DJ Khaled. Eminem paid $462,000 for one. Those of us outside the 1% may look askance at that conspicuous consumption. We’re reminded that Robin Williams once called cocaine “God’s way of saying you have too much money.” It’s even easier to question the quality of the art. (Frankly, we feel that most NFT art sucks.) But, we’re on a quest to separate the signal from the noise, set aside hypebeast-like consumption and repudiate the excesses of celebrity culture. It’s time to dispense with the irrational exuberance that’s forming a speculative bubble, pitting elite creators against ignorant consumers. Step back for a moment and look at NFTs as more than a digital canvas for art, and you’ll see the possibilities. An NFT can be minted (i.e. registered on a blockchain) from almost anything. They’re financial instruments that simultaneously prove ownership and guarantee scarcity. That’s no small feat. Sure, it’s easy to spread unauthorized copies of just about anything online. You wouldn’t steal a car, but copying and pasting image files is second nature to most of us. Still, in the eyes of the blockchain, an NFT has only one true owner and no one else has a right to it. In the future, every painting, whether digital or physical, will have an NFT attached. After all, NFTs are already replacing receipts for practically anything that’s sold. Despite the valuation bubble for NFT art, it’s here to stay. NFT trading volume totaled more than $23 billion last year, reflecting a staggering increase of more than 20,000% from less than $100 million in 2020.
Visit luckboxmagazine.com/survey A new survey every issue.
Ed McKinley Editor in Chief
Two ways to send comments, criticism and suggestions to Luckbox
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Jeff Joseph Editorial Director
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APPLE, DYSON AND TESLA HAVE EARNED THE PUBLIC’S PRAISE FOR GREAT PRODUCT DESIGN. WE ASKED LUCKBOX READERS TO IDENTIFY OTHER COMPANIES WITH BEAUTIFUL PRODUCTS, AND THEY CITED THE FOLLOWING:
Take our reader survey!
SCAN THIS
OPEN OUTCRY
> Razer > Ford > Porsche > Nike > Ferrari There’s more to Luckbox than meets the page.
A 2009 STUDY BY THE NATIONAL BUREAU OF ECONOMIC RESEARCH CONCLUDED THAT WEALTH DRIVES ART PRICES. WHAT DO YOU MAKE OF THOSE FINDINGS?
Look for this QR code icon for videos, websites, extended stories and other additional digital content. QR codes work with most cell phones and tablets with cameras.
Art should not be elitist, and I believe NFTs will democratize art beyond its current reach. Sadly, the thirst for money will result in speculation and will continue to drive prices up, but maybe we’ll see the rise of new underground players much more in the know. –Thierry Halbroth, Hong Kong Not surprising. It seems like markets like these only serve wealthy clients and do not allow regular folks to participate. It is similar in many other markets, including wealth management. Regular (non-accredited) people cannot participate in IPOs or private equity placements like wealthy people can. It’s the same old saying, “the rich get richer.” Art is not a market easily accessible to most people. –Andrew Plante, Rhode Island Thanks for writing, Andrew. It’s true that regular folks don’t usually fill the seats at Christie’s and Sotheby’s auctions, but that’s not to say investing in art is out of reach. Companies like Masterworks (see p. 23) fractionalize artwork by blue-chip artists like Banksy, George Condo and Andy Warhol to help mainstream investors gain exposure to the diversification benefits and appreciation potential of fine art. Your thoughts on this issue? Take the reader survey at luckboxmagazine.com/survey
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1 Open your camera
2
Prediction Perspectives
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Tell us what you liked or disliked about the Forecasting Issue or Luckbox generally. Luckbox is great. It’s not stuffy like Forbes, full of itself like Fortune or boring and irrelevant like American Banker. Luckbox is the Wired of finance publications.
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—John Dibling, Batavia, IL Lots of research and commitment to change the way people think about finance and investing. Changed my life for good. —Gabor Gyoergy, Hungary
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SHORT INTEREST
ART & DESIGN
SEE PAGE 18
Kanye West made us pay attention to the kicks he wore at shows. He made it cool to wear unbranded, obscure international labels … Anything Ye did on the footwear front created sparks, and once he partnered with Nike and Louis Vuitton, his influence ignited a wildfire. —Complex, a music and culture website
SEE PAGE 36
$1.66 BILLION
Revenue of U.S. footwear manufacturing industry in 2021 —Statista
Some of the used furniture and artwork we had made 20 years ago for $1,500 was selling at auction for $25,000. We had no idea that there was a market for it.
SEE PAGE 30
—Jordan Mozer, architect and designer
6
$787 million
Combined value of the 10 most expensive artworks sold in 2021, surpassing $453 million in 2020 —The Value
SEE PAGE 26
Scarlett Johansson’s eyes scored 95% (the distance between the eyes, divided by the length of her eye in proportion to 1.618) —Dr. Julian De Silva of The Center for Advanced Facial Cosmetic and Plastic Surgery in London on how beauty can be measured with the Golden Ratio; Forbes
SEE PAGE 23
86%
Wealth managers who recommend investing in art —Deloitte’s art and finance report
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“Permanent emotional distress”
SEE PAGE 8
$1.4 BILLION
SEE PAGE 41
Said Spencer Elden, speaking of the cover of Nirvana’s Nevermind album, where he is pictured as a baby naked in a swimming pool.
The tattoo industry’s revenue for 2021 —IBISWorld Market Research
16%
Luckbox readers with a tattoo —Luckbox Readers Survey
—BBC News
SEE PAGE 53
I don’t think most people understand how addictive these devices can be. They are designed to maximize the amount of time and money people put into them. —Gambling researcher Charles Livingstone on slot machines
SEE PAGE 54
THE PAST DECADE OF THE BULL-MARKET GENIUS IS COMING TO AN END. THE “CLOSE YOUR EYES” AND BUY CRYPTO OR TESLA STRATEGY TO BECOME A BILLIONAIRE IS NOT SCALABLE OR REPEATABLE. THE DEVIL WE KNOW IS FULLY PRICED. SO, FOR THE TIME BEING, AND MAYBE FOR THE NEXT ONE-TO-FIVE YEARS, WE ARE ENTERING A PURE TRADER’S MARKET … I’M GUESSING WE’RE ONLY A FEW MONTHS AWAY FROM A WALL STREET JOURNAL HEADLINE PROCLAIMING “ACTIVE IS THE NEW PASSIVE.” —Tom Sosnoff, options trader and co-founder and co-CEO, tastytrade
March 2022 | Luckbox
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FAKE FINANCIAL NEWS
You’ll Never Believe How Luckbox’s Rockhound Got This Tattoo Americans spend an estimated $1.65 billion annually on tattoos. Here’s how $60 was spent. By Vonetta Logan
I
t’s not super rare in these days of pandemicinduced isolation to work with someone for 11 months without meeting her in person. But it is super rare to see her face-to-face for the first time when she’s on her way to receive a “get-whatyou-get” tattoo. Yet, that’s how I had my first offline encounter with Luckbox’s very brave associate editor and resident music critic Kendall Polidori, aka The Rockhound (see p. 41). Kendall found a tattoo shop in Chicago called Dwelling Tattoo that offers a unique service: Roll the die and whatever number turns up corresponds to a tattoo in the artist’s sketchbook. For $60, the tattooer will etch this literally random image into the appendage of your choice. What better way to live the fever dream fantasy that bewitches Gen Z? Instagram? Check. Random variables? Check. Being able to start a story with “you’ll never believe how I got this tattoo…” Check. Kendall asked me to accompany her on this adventure that combines a penchant for probability, a taste for tattoo art and a feel for P.T. Barnum showmanship. We begin by sitting down for coffee at the Moonwalker Cafe in Chicago’s Irving Park neighborhood. Kendall, who’s 23 and has rosy cheeks and octagon glasses, enters wrapped in the accouterments of a Chicago winter. She seems normal, but she’s ensconced in winter clothes, so I have no idea if her entire body is covered with tats. She removes her hat and coat, and I’m disappointed to find she’s wearing a normal sweater and doesn’t even have any neck tattoos. Bor-ing.
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I’ve read her work in Luckbox’s Rockhound column and I ask how she got into it. “Music is part of my personality. I’ve studied and always admired music criticism, so The Rockhound is my version of that. [I’m] trying to get our readers to expand their interests and listen to new music because I find that once people get to a certain age they kind of stop listening to new music.” I take a sip of my snickerdoodle oat milk chai latte and admit that most of my Spotify Wrapped songs from 2021 were ’90s R&B and hip-hop bands from my youth. I don’t know anything about Wheezy Baby or Japanese Brunch or whatever today’s hip bands are called. But Kendall’s face lights up when she talks about the bands she’s gotten to cover for the magazine. Her big brother declares that her awesome job is “totally unfair.” And now she’s assigned to tat one for the team by getting a tattoo that will be random and forever. Because I’ve been unable to discern any visible tattoos, I ask her about them. “Yes, I have three,” she replies. “I’ve always been interested in tattoos, and my mom has a whole bunch of them. I want to say she has like 13. So, when I was growing up, I always saw her with tattoos and our family used to have little tattoo parties and stuff.” I almost spit out my latte as she explains that a family friend often set up shop in their garage to tattoo their party guests. And you thought the coolest kid on your block was the one with the trampoline. Asked about her very first tattoo, Kendall laughs. “My mom actually surprised me. We were out shopping before I went away to college, and on our way home, she pulled into the parking lot of a tattoo shop. I was like, ‘What are we doing here?’ And she was like, ‘Oh, we’re going to get matching tattoos!’” The delicate grayscale tattoo of the moon and a star has special meaning to her and her mom, and it’s located on her inner left wrist. Her second and third tattoos both reflect her love of music. One was made from a line drawing she drew and then gave to the tattoo artist to “make it his own.” She based it on the cover of an album she loves by a band called LANY, and it’s on her other wrist. Her third and most recent tattoo looks like an antique picture frame surrounding a butterfly. It’s an ode to another of her favorite bands,
Paramore. It’s on the inside of her upper left arm, and she says that one hurt the most and required more than one session. I ask about the get-what-you-get tattoos. “I think what’s nice about tattoo art today,” she says, “is a lot of shops let their tattoo artist kind of promote themselves. So, when you’re really looking to get a tattoo, you’re like seeking out a specific artist for it.” Kendall mentions that a friend of hers had gotten some art from Sara, the artist she’s seeing today for the random design. That’s how she became a huge fan of Sara’s style. “Sara posts most of the pages for
100 drawings 100 sides of the die 1% chance
the get-what-you-get. So I know what I’m getting into to a certain extent.” I ask if there’s a frontrunner, and she describes a drawing of a gramophone because she digs the vintage style and likes the way it ties into her job as a music critic. But this is a game of probabilities. Sara uses a 100-sided polyhedral die with each
26%
OF AMERICANS HAVE ONE OR MORE TATTOOS –Statista, September 2021
number corresponding to a page in her sketchbook. One hundred drawings, 100 sides of the die; 1% chance of Kendall landing her fave. But never say never. We finish our drinks, bundle up for the frigid weather and shuffle the three blocks to the tattoo shop. I ask what her tattoo-loving mom thinks about this experiment. “Funny enough, my mom was not super into it,” Kendall says. “She has a lot of tattoos, but all the ones she has are, like, very important to her. She took the time to think of them, and they have a very strong meaning to her. So, I think this was a little bit different for her. Like, I’m not necessarily choosing what I’m getting on my body.” I joke that her mom has Michelin tats and we’re getting the Chipotle version of body art. We arrive at the tattoo shop, which is set on a quiet block. The shop is light and airy with one wall painted a cheery bright yellow. Plants of all shapes and sizes decorate the front windows, and mid-century modern furniture in soothing sage green upholstery lines the waiting area.
March 2022 | Luckbox
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It’s $60 to roll the die. If you don’t like the tattoo that goes with that number, you can throw down $20 and roll again. Kendall nods as solemnly as if she’s about to elect the pope and gives the die a roll. It lands on a sketch of a bull’s skull that’s done in a bold, black outline that brings to mind the work of Georgia O’Keefe. Sara gets busy prepping her materials and I’m fascinated by the whole process. She prints the design on skin-safe paper, lightly dampens it and then transfers the outline to
Flash art representing each of the shop’s tattoo artists is framed on the walls. The shop smells like patchouli, which I’m pretty sure is mandated in all tattoo shops. Are you burning patchouli? No? We’re pulling your permit. Sara greets us at the door, and she’s a stunning dark-haired beauty with sleeves of vibrant tattoos in classic “Sailor Jerry” style running down both arms. The work is bold, bright and captivating. Sara and her tattoo partner slash bestie, Natalie, opened their shop in August 2020 at one of the heights of the pandemic. I ask how she got into the tattoo scene. “I’ve been drawing since I was a kid,” Sara said. “I went to college for the fashion business, but I realized school wasn’t for me. I devoted time to finding my art style, finding what spoke to me and, in the meantime, I got tattooed quite a bit. I kind of just put the two together.” She says get-what-you-get has been attracting attention on social media and bringing in customers. “A solid percentage of my work is people who have initially found me through Instagram,” Sara says. “I have clients who come in for the die but then they see all of my flash on the wall, and they’ll end up booking with me later for a bigger piece— either flash or custom.” Kendall finishes filling out her new customer form. I imagine it’s just questions like, “Are you a screamer?” Sara gathers us around the front desk and pulls out a tray lined in red velvet. Then she produces a giant 100-sided die fit for the fanciest of Dungeons & Dragons game nights and gives Kendall instructions.
For $60, the tattooer will etch a randomly selected image onto the appendage of your choice. the client’s skin. Kendall has chosen the back of her upper arm, the triceps area. Once Kendall’s satisfied with the placement, she lies face down on a portable table. Sara gets to work preparing her tattoo gun and black ink. To her credit, Kendall remains remarkably calm throughout the procedure. I’m sitting next to the table and I can see her taking deep breaths. But other than that she’s quiet as a church mouse as the whine of the tattoo
gun echoes through the shop. Sara chats away as she works, confirming Kendall’s comment that it’s not about the shop. It’s about finding an artist who jives with your vision of body art. In the blink of an eye, less than 30 minutes, she finishes Kendall’s steer head. Kendall beams when she gets a look at the back of her arm. Sara sets up her iPad and ring light to get an optimal shot for her Instagram account. The new tattoo looks great. It’s all clean lines and bold design. Sara puts it best: “If you have a look that you’re going for, chances are there’s a tattoo artist out there that does work in that style. You just have to find them.” The tattoo scene in Chicago seems more cooperative than competitive, she maintains. Instead of protecting turf, artists recommend colleagues who work in the styles customers are seeking. “We just want to get the client the best tattoo that they can get,” she says. And just like that, with the swipe of an Instagram page, a roll of the die and the flick of a tattoo gun, you, too, can enter the bold brash world of get-what-you-get tattoo art. Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan
March 2022 | Luckbox
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Art, Design
and the
Shape of Things to Come Illustration by Zohar Lazar
14 >> State of the Arts
Luckbox takes the pulse of the booming market for fine art
18 >> High Art
The art market has recovered from its slump—and then some
20 >> The Art of the Guarantee
Auction houses have the house advantage
23 >> Score a Piece of Picasso
Masterworks fractionalizes fine art for the masses
26 >> Art, Design and the Golden Ratio
The questionable role of 1.618 in architecture and the arts
30 >> The Shape of Things to Come
Architect Jordan Mozer assesses revolution in design
34 >> A Bullish Case for NFTs
NFTs ensure scarcity, security, authenticity and transparency
36 >> Luckbox Leans in With Chris Law
A veteran fashion footwear designer on his love for design 12
L
ike the stories that form this issue’s feature section, the illustration on the right represents a thematic mashup of the art market’s old guard and newest players: Grant Wood’s American Gothic meets the blinged-out billion-dollar NFT collection Bored Ape Yacht Club. But if there’s one thing art traditionalists and NFT enthusiasts have in common, it’s a recent explosion in high-dollar sales. The following pages explain why you should care and how to get involved.
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State of the Arts Pablo Picasso’s Woman Sitting Near a Window sold for $103.4 million at a Christie’s auction last year. It marked the most expensive art auction of the year and the fifth Picasso work to sell for over $100 million.
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ART & DESIGN
THE ART MARKET IS BOOMING, BUT MOST PEOPLE CAN’T AFFORD A PICASSO OR A BASQUIAT. HERE’S WHY THEY SHOULD PAY ATTENTION ANYWAY. By Mike Reddy
PHOTOGRAPHY: (PICASSO) PA WIRE/PA IMAGES; (BOAFO) USATNSYNDICATION
D
on’t worry about understanding abstract paintings or learning to appreciate sculptures. Just think of the high-end art market as an economic indicator that no one really talks about. Indifference to the niche market isn’t wholly unreasonable. Less than a quarter of U.S. adults visited art exhibits five years ago, according to the National Endowment for the Arts. Considerably fewer ever get the chance to own fine art. In fact, despite tens of millions of art transactions each year netting tens of billions of dollars, Larry’s List research from 2015 put the number of worldwide art collectors—defined as people who regularly buy substantially priced artwork—between 8,000 and 10,000. For context, if every collector on Earth brought
BOTH SUPPLY AND DEMAND CAN BE INELASTIC FOR ART. IT’S BECOME A TROPHY PURCHASE.
two friends to the Boston Red Sox’s Fenway Park, there would still be close to 8,000 empty seats. With so few people dominating so much of one market with such a high barrier to entry, it’s easy to overlook the fact that the prices fetched by blue-chip art say a lot about the global economy. More specifically, because of the market’s unique supply-and-demand dynamics, surging art prices imply surging fortunes for the world’s most affluent. “It is indeed the wealth of the wealthy that drives art prices,” concluded a 2009 study by the National Bureau of Economic Research. “This implies that we can expect art booms whenever income inequality rises quickly.” How does that work? Unlike most assets, both supply and demand for art can be inelastic. Pablo Picasso painted only one Woman Sitting Near a Window. He can’t paint another, and there are no substitutes. A hopeful buyer hell-bent on owning it just needs more disposable wealth than everyone else who wants it, which, in the case of that painting, was $103.4 million when it sold last May. Art auctions set a $6.5 billion sales record last year, and buyers regularly paid prices that dwarfed auction
Joy Miessi, an oil on canvas by Amoako Boafo, resides at the Robert Fontaine Gallery in Palm Beach, Florida.
TRENDING
ARTISTS
The market for art can be fickle, and no one knows that better than Georgina Adam, a decades-long art market journalist and the author of three books on the subject. Luckbox asked Adam which artists have been gaining popularity in the art world’s recent boom, and she shared the following names. Lisa Brice Jadé Fadojutimi Ewa Juszkiewicz Nicolas Party Kwesi Botchway
Titus Kaphar Cinga Samson Flora Yukhnovich Loie Hollowell Amoako Boafo
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22%
o f Lu c kb ox r e a d e r s h ave s p e n t m o r e t h a n $ 5 ,0 0 0 f o r a wo r k o f a r t
house estimates (see p. 18). All signs point to an ongoing art boom that may have predated the pandemic. “It absolutely has been heating up in the last couple of years,” said Megan Fox Kelly, president of the Association of Professional Art Advisors. “In 2019 it was an extremely strong market. It was even more so in 2020, which, of course, surprised us.” The onset of the pandemic threw art advisors, gallerists, private dealers and auction houses into a panic, Kelly told Luckbox. All of those players in the art world doubted that
digital viewings and online auctions would spur high-level buying. In practice, the opposite proved true. New collectors were entering the market, established collectors were ramping up their buying and the market was expanding in Asia. In fact, collectors in China, Hong Kong and Taiwan accounted for 40% of the contemporary art market’s value in 2021, according to artprice.com’s Contemporary Art Market report. That amounted to an 8% edge over the United States. “I do think that there are more people participating at a very high
OPRAH’S ART OF THE DEAL High-end art costs too much for most people, but not for celebrities like Jay-Z, Madonna and Leonardo DiCaprio. Still, it was Oprah Winfrey who made headlines in 2017 when it was revealed that she made one of the biggest private art deals of the prior year. She sold Gustav Klimt’s Portrait of Adele Bloch-Bauer II for $150 million to an unidentified Chinese buyer about a decade after purchasing it for $87.9 million. Winfrey’s ownership of the 1912 painting marked just one chapter in its remarkable history. Stolen by the Nazis during World War II, it was displayed in Austria’s Österreichische Galerie Belvedere museum until a legal battle returned it to an heir of Adele BlochBauer, the painting’s subject, in 2006. Winfrey bought the work from the heir at a Christie’s auction a few months later. The struggles surrounding that painting, as well as four other Klimt works, were immortalized in the 2015 biographical drama Woman in Gold starring Helen Mirren and Ryan Reynolds.
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ART & DESIGN
PHOTOGRAPHY: (KLIMT) PUBLIC DOMAIN; (SELF) PA WIRE/PA IMAGES
INVESTORS CAN EXPECT A BOOM IN ART SALES ANYTIME INCOME INEQUALITY RISES QUICKLY.
level in the market, and so there is more competition for these lots,” Kelly said. “It’s competition that drives bidding that drives prices.” In other words, the art market truly reflects simple supply and demand. But why, especially amid a pandemic, is the art market booming? What artistic trends have emerged, and is the boom sustainable? “COVID has changed everything,” said Georgina Adam, editor-at-large of The Art Newspaper and author of The Rise and Rise of the Private Art Museum. “It’s sort of blown up the art market and, of course, it’s absolutely accelerated the fortunes of the richest, which I don’t think we expected when it started.” A special issue of Forbes drew attention to that phenomenon when it tracked a record 493 new billionaires last year, or about one new billionaire every 17 hours. The magazine cited initial public offerings, special-purpose acquisition companies, cryptocurrency and COVID-related healthcare as the most prominent new paths to wealth. “Art has become—and this has really been this century—a trophy purchase and a trophy acquisition,” Adam told Luckbox. “One of the things people don’t really realize is that if you’ve got a really enormous amount of money, there’s not much that you can actually spend it on that gives you bragging rights.” Enter blue-chip art Moreover, while cars, houses, jets and other luxury goods typically depreciate in value over time, art—albeit not in all cases—has a
well-founded track record of price appreciation. A Citi Private Bank report found that the art market as a whole produced an annualized return of 5.3% between 1985 and 2018. So, where’s the new money going? Kelly and Adam agree that historically underrepresented groups of artists have exploded in popularity—a trend Kelly said is “very conspicuous and overdue.” Although the top end of the market is still filled predominantly with the works of white men, the majority of living artists setting auction records over $1 million last year were women and artists of color, according to artsy.net. Among them were Avery Singer, Lisa Brice, Flora Yukhnovich and Stanley Whitney. But art booms are nothing new. History buffs are likely familiar with the vast art collections of American industrialists during the Gilded Age. More recently, the ’80s were marked by a boom in the arts. Now, many are wondering if the current boom can last. “If some event affects the world’s economy, it will inevitably affect the art market as well,” Adam said, citing natural disasters and geopolitical uncertainty. “If none of those things happen, I do think the art market is pretty secure at the top end for the foreseeable future.”
“BAD” ART RISING The art world has embraced styles as varied as surrealism, abstract expressionism, pop art and conceptual art. But now it’s making room for painting described simply as “bad.”
Tschabalala Self’s paintings Lenox, left, and Fade, right, were featured in the Radical Figures: Painting in the New Millennium exhibition at the Whitechapel Gallery in London.
Art market journalist Georgina Adam told Luckbox that figurative works and the conscious rejection of traditional art norms have been gaining traction. The emphasis is less on care and accuracy and more on “painting more as a child would,” she said. “Remember, Picasso said it took him a lifetime to learn to paint like a child,” Adam noted. Popular artists who embody the style include Rose Wylie and Tschabalala Self.
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High Art
work of art called Everydays—The First 5000 Days exists solely on the internet and has no presence in the physical world, yet it sold for nearly $70 million a year ago in online bidding at Christie’s. Observers heralded the jaw-dropping transaction as the first time a major auction house sold a solely digital image. But it wasn’t the last. Estimates vary widely as to how much buyers shelled out last year for non-fun-
AFTER A DOWN YEAR IN 2020, PRICES EXPLODED IN 2021 FOR PHYSICAL AND DIGITAL ART By Andrew Prochnow
Artist Damien Hirst adorned his sculpture For the Love of God with 8.601 flawless diamonds.
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gible tokens (NFTs) that reside online instead of on canvas or as sculptures. However, widely quoted data from DappRadar indicates that trading in NFTs reached $22 billion in 2021, up from just $100 million the year before. Buyers paid for most of them with cryptocurrency, which seems appropriate because—like NFTs—crypto arguably has no offline presence. Perhaps the explosion in NFT art purchases came as part of a larger trend, one that’s operating in the temporal world as well as in the metaverse. As of early November, sales for the year at the three largest auction houses set a new record of $15 billion, a CNBC report said. Several factors are at work. Wealthy, young first-time buyers are entering the market. Meanwhile, older patrons are not only buying more art
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PHOTOGRAPHY: (HIRST) REUTERS/PRUDENCE CUMING ASSOCIATES/HANDOUT/FILES; (BANKSY) REUTERS/TOM NICHOLSON
ART & DESIGN but also paying higher prices. Everyone has seemingly thrown caution to the wind, and they’re driving prices well beyond auction estimates. Consider the recent auction of For the Greater Good, by Reggie Burrows Hodges. The painting was expected to bring $50,000 to $70,000 but inexplicably sold for more than $600,000—roughly 10 times its estimated value. Hodges, who draws upon his childhood memories of the Los Angeles suburb of Compton, is extremely talented but wasn’t well known—at least not until that auction. The same type of frenzied bidding is happening elsewhere. A painting by the late Lebanese-American writer and painter Etel Adnan sold in November for nearly $500,000. That was five times higher than the estimated value. The extreme examples continue. The paintings of a famous pseudonymous British street artist called Banksy have arguably become the most coveted works by any living artist. In 2018, a mechanism mounted behind his Love is in the Bin began to shred the canvas immediately after it was auctioned for $1.4 million. In October of last year, the half-shredded painting commanded the astounding price of $25.4 million—the most ever paid for a Banksy work. For context, the all-time price record for a painting sold by a living artist was set in 2010 when a collector paid $110 million for Flag by Jasper Johns. The only other living artist to surpass the $100 million mark is Damien Hirst, whose For the Love of
God reached that milestone in 2007. But based on the current trajectory, Banksy may claim that record in the not-so-distant future. Other illustrations of the robust nature of the current market for fine art include two recent auctions of legacy family collections. In November, Sotheby’s auctioned works collected by New York real estate investors Harry and Linda Macklowe. The 35 pieces were expected to generate about $400 million in sales but pulled in closer to $700 million. The collection included works by Pablo Picasso, Mark Rothko, Cy
A PAINTING BY REGGIE BURROWS HODGES WAS EXPECTED TO BRING $50,000 TO $70,000 AT AUCTION BUT SOLD FOR MORE THAN $600,000.
Twombly and Andy Warhol. The lowest prices for any of their paintings were more than $1 million, and the highest was over $80 million. Sotheby’s referred to the sale as “the most valuable single-owner auction in history.” An auction at Christie’s, also in November, featured the Impressionist art collection of Texas oilman Edwin Cox. The high estimate for the collection was $270 million, but eager bidders paid a total of $350 million. Those auctions suggest traditional fine art and the emerging NFT niche have officially joined the “everything rally.” And in the event of a market correction, fine art could prove bulletproof. Collectors who can afford to pay tens of millions of dollars for a single piece of art can likely withstand a downturn—even of the extended variety.
When Banksy’s Girl with Balloon sold at auction in 2018, the painting shredded itself.
Andrew Prochnow, a regular contributor to Luckbox and other publications, has been trading and investing professionally since 1998.
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The Art of the Guarantee
THE TWO BIG AUCTION HOUSES ARE EARNING RECORD PROFITS AS THE INCREASINGLY WEALTHY TOP 1% SPEND MORE ON ART. HERE’S WHAT INVESTORS NEED TO KNOW AS ONE OF THE SCENE’S PROMINENT PLAYERS CONTEMPLATES ITS RETURN TO THE PUBLIC MARKETS. By Garrett Baldwin
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n June 2019, French-Israeli entrepreneur and art collector Patrick Drahi took the Sotheby’s fine art auction house private in a deal worth roughly $3.7 billion. Drahi arranged to pay $57 per share, a premium of 61% over Sotheby’s closing price on June 14, 2019. About 91% of shareholders approved the offer. Domenico De Sole, then chairman of Sotheby’s, called the offer a “significant premium to market” for shareholders. But some of those former owners may now be looking back and wondering if it was such a good deal after all. Are they right to dream of a do-over and wish they had held out for an even higher price? Yes. Based on recent developments in the art and auction world, it appears that Drahi might have made the deal of a lifetime.
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In 2021, Sotheby’s chalked up the healthiest numbers in its 277-year history, thanks to an explosion in global wealth, innovation in digital artwork, a keen interest among millennials in acquiring art and a profitable sales strategy known as a “guarantee.” So with no auction houses currently trading publicly in the United States, an outcry could arise for one of the two big ones to return to the public markets. That could offer investors a way to take part in investment trends now limited to members of the top 1%.
A 13-FIGURE ASSET CLASS
Art itself is considered an alternative asset class, marked by illiquidity, exclusivity and opaque business practices. But the size of its market might surprise investors new to the sector. It surpassed $1.7 trillion in value in mid-2021, according to the Chartered Alternative Investment Association (CAIA). But the association notes that for years a lack of quantitative research has made it difficult to assign a precise number to the art market’s size. However, recent technological advances and newfound interest in alternative investments have helped create a more accurate valuation profile and fueled increased securitization of artwork. To put that $1.7 trillion figure into perspective, compare it with other alternative markets. CAIA said in 2021 that artwork comprises about $60 billion in annual transaction volume and represents about 75% of the total collectibles market, which also includes jewelry, watches, cars, wine and sports memorabilia. Art as an asset class is more than double the size of the $800 billion market for private debt and half the size of the $3.4 trillion private equity market, the July 2021 CAIA report said. Art has more value than the world’s $1.6 trillion in private real assets. And the art market stands to get even bigger.
A STRONGER DUOPOLY
It’s hard to overstate the strength of the art auction world in 2021. Sales for the three biggest players—Christie’s, Sotheby’s and Phillips—reached $6.5 billion in 2021, surpassing the record set in 2018, said art market research firm ArtTactic. They were also up roughly 74% year-overyear from COVID-plagued 2020 and up 21.7%
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ART & DESIGN CHRISTIE’S AND SOTHEBY’S RUN THE FINE ART AUCTION H O U S E INDUSTRY AS A DUOPOLY.
PHOTOGRAPH: PA WIRE/PA IMAGES
in 2019 when Sotheby’s went private, the researchers said. Art was responsible for a large part of the houses’ success, but they also sold plenty of other luxury products ranging from bracelets to diamond bags. In a world where the wealth divide continues to widen, it seems only appropriate that Marie Antoinette’s bracelets sold at an auction for $8 million. In 2021, the three largest auction houses reached a record $15.5 billion in combined sales of art and other merchandise, reports said. Sotheby’s set a company record of $7.3 billion, which didn’t include the proceeds from the company’s final 20 auctions of the
year. Christie’s placed second on the list at $7.1 billion in sales. Do the math, and it becomes obvious that the auction industry operates as a duopoly. Phillips, the third-largest auction house, reported $1.2 billion in sales, yet its market share declined from 8.7% in 2020 to 7.6% last year. Meanwhile, Christie’s market share increased from 40.9% in 2020 to 42.6% last year, ArtTactic said. Because all three companies are private, no would-be stock market investors could tap into those strong sales figures or into the underlying trends that have helped auction houses ascend to new heights.
NFTS’ GROWTH SPURT
$1.7T
E s t i m a te d s ize o f t h e gl o b a l a r t m a r ke t
Global wealth set new records in 2021, accelerated by central bank intervention. That powered a surge in asset prices around the world, with the spoils largely ending up in the holdings of the top 1%. They had more to spend on everything from artwork and non-fungible tokens (NFTs) to watches and collectible sneakers. First-time buyers that included newly minted million-
aires and billionaires flocked to auction houses or sat down in front of screens for online auctions. Christie’s reported that 35% of recent buyers were new to the company’s auction house. Sotheby’s said new clients accounted for 44% of the revenue from its auctions. One-third of the new buyers, according to records, were millennials, ages 26 to 41. A younger audience helped increase demand for contemporary works by emerging artists. Creations by artists under 45 became the fastest-growing category of art at auctions last year, ArtTactic said. Stars included Adrian Ghenie, Matthew Wong and Beeple. Meanwhile, cryptocurrencies were recording highs and became the coin of the realm for buying NFT art. Christie’s sold $150 million in NFTs last year, notably including the $69 million sale of Beeple’s Everydays. It bested the $100 million sold through Sotheby’s NFT marketplace “Metaverse.” The auction houses also experienced strong “private sales.” Through that process, buyers purchase goods directly from the auction house without an auction. Christie’s private
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NO FINE ART AUCTION HOUSES ARE TRADED PUBLICLY IN THE UNITED STATES. BUT SOTHEBY’S COULD GO PUBLIC THIS YEAR. sales reached $1.7 billion, while Sotheby’s recorded private sales of about $1.3 billion. Private sales are related to one of the most important drivers of auction houses’ success: the commitment to a largely misunderstood practice known as “guarantees” that ensure a floor for the price of a work that’s heading into a live auction.
EVOLUTION OF THE GUARANTEE
It might seem that a new piece of art or a French aristocrat’s jewelry collection might go up for auction and just sit there on the stage without attracting a single bid. Attendees might find the reserve price too high. But the auction houses use a little-known hedging strategy that ensures a sale. The “guarantee” means that before the auction takes place, the auction house has already found a buyer willing to fork over a certain amount of cash for the merchandise. Think of it as insurance for the art house and the seller. It’s akin to a call option on art. Guarantees, introduced in 1971 at Sotheby’s, started as a minimum bid in an auction of 47 Kandinskys and other works from the Guggenheim Museum, according to The Art Newspaper. Similar deals followed
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over the next two years on Ritter and Scull art collections. That was in the days before houses instituted a buyer’s premium. Instead, the art house risked its own capital and bet on a higher commission from the seller or bigger profits over the guaranteed purchase level. Those guarantees disappeared for a while and re-emerged during the 1980s as Japan’s burgeoning wealth created a new set of buyers, The Art Newspaper said. Guarantees have come and gone over the years with the ebb and flow of buyer interest and broader economic conditions, according to a report written last year by Nathan Krasnick, an investment operations associate at Masterworks.io. Krasnick also noted that guarantees have returned in grand style. In fact, in today’s auctions, nearly everything is pre-sold. Megan Fox Kelly, president of the Association of Professional Art Advisors, noted that “it’s just a question if somebody steps in with a higher offer.” Kelly offered the example of a collector who wants $100 million for a Picasso. Christie’s may be willing to guarantee that the seller receives that price regardless of how or where the piece sells. The auction house would then attempt to sell the work for more than $100 million and keep the difference. It could sign a contract with a speculator who guarantees the purchase and splits the profits with the auction house. Suppose the two parties agree to a 50-50 split, and the painting sells for $110 million at auction. Each gets $5 million. In effect, the seller and auction house held a private auction before the public auction. Guarantees provide auction houses a lower-risk way to ensure a profitable sale for expensive artwork while capitalizing on the frenzy in a market marked by exclusivity. It’s a brilliant business model, even if it frustrates new entrants to the market who want to win auctions.
GOING PUBLIC?
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No auction houses trade publicly in the United States, but that could change. Sotheby’s could return to the market with a higher valuation as soon as this year, according to Bloomberg News. In fact, Drahi is already exploring a potential initial public offering, reports said.
If Sotheby’s does go public, investors who sold their stake for that 61% premium might be paying even more to own a piece of the company again. Chalk it up to the new mania for owning fine art and the resulting boom in auction houses—plus a momentous deal by a prescient entrepreneur.
THE PERFECT TRADE The two largest fine art auction houses employ a mechanism called a “guarantee” that ensures a seller receives the desired price. Notably, the guarantees also happen to provide investors with a foolproof way of turning a profit. “It’s like a perfect options trade that doesn’t exist,” noted Luckbox Technical Editor James Blakeway. Imagine buying 100 shares of stock at $9 each for a total of $900 but owning a $10 strike put option for free. That means you may choose to sell the stock for $10, but you don’t have to. It’s guaranteed that the owner can sell the stock at $10 per share regardless of subsequent price action. “No matter what, you have a ‘guaranteed’ $100 profit ($1 x 100 shares),” Blakeway said. If demand is strong, sellers don’t have to part with their shares for $10 each. Instead, they can sell at the going rate in the market, whether it’s $12, $13 or even more. The only caveat is that the seller splits the profits with the guarantor that “sold” the put option. Essentially, it’s a risk-free, no-lose trade.
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Masterworks
PHOTOGRAPH: CHRISTIE’S IMAGES LTD. 2022
ART & DESIGN
Score Your Piece of a Picasso
DON’T HAVE MILLIONS OF DOLLARS TO INVEST IN ARTWORK? A PRIVATE INVESTMENT PLATFORM FRACTIONALIZES HIGH-VALUE ART SO NEARLY EVERYONE CAN GET A PIECE OF THE ACTION. B y M i k e R e d d y
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Masterworks flipped Banksy’s Mona Lisa for an annualized return of 32% in about a year. During the same period, the S&P 500 rose 15.6%.
uying and selling high-end artwork has been a tradition among the world’s wealthiest few, but fractionalization aims to bring the art market to the masses. Masterworks is paving the way for that to happen. Founded in 2017 by Scott Lynn, an art collector of over 15 years, Masterworks’ mission is to “democratize art investing” by enabling retail investors to participate in bluechip art deals. For that to be feasible, Masterworks buys artwork outright, sells shares of the works to its users and, after reselling the pieces at a later date, divvies up the profits proportionally to shareholders. “If you wanted to buy really high quality art, for a very long time you were going to have to spend millions of dollars on just a single painting,” said Allen Sukholitsky, Masterworks’ chief investment officer. “What we’re doing is we’re making art accessible to mainstream investors all over the globe.” Because “accessible” has different meanings to different people, the Masterworks sales team talks one-on-one with investors who request an invitation to the platform, Sukholitsky told Luckbox. Risk tolerance, time horizons and investment goals are all discussed, after which sales team members help identify asset allocations appropriate for individual investors’ portfolios. More than a quarter of a million people have already signed up for Masterworks, with
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The art market is booming, but is that sustainable? Art prices are correlated with wealth creation on a global basis. We continue to see more and more billionaires created at an unprecedented rate, and historically that means more players in the art market. This most recent influx of investors comes as the supply of great paintings declines. More works are being donated to museums, creating true scarcity in the market. What are the biggest challenges facing the art market? Aside from the number of the works available, the biggest risk to the art market is anything that hurts the top 1%. Historically, these tend to be things like wealth taxes, capital controls or general tax policy (such as the removal of art from 1031 like-kind exchanges).
PHOTOGRAPH: (LYNN) COURTESY OF SCOTT LYNN
Luckbox had a couple questions for Masterworks CEO Scott Lynn (above, right). Here’s what he said:
shares for some artwork going for as low as $20 a piece. Of course, shares cannot be redeemed for physical portions of paintings—shareholders enjoy all the benefits of buying and selling fine art except the art itself. But investing in fractionalized art is nonetheless compelling. The contemporary art market’s high appreciation rate and low correlation with other asset classes mean it would add diversification to most portfolios. Art and the S&P 500 Index, for instance, have a long-term correlation coefficient of just 0.12, according to Citi Private Bank calculations. For context, the closer a correlation coefficient gets to 1.0, the more highly correlated two assets are— meaning it’s more likely their price fluctuations will move in similar ways. The S&P 500’s correlation coefficient with bitcoin, by comparison, was 0.35 as of Jan. 3, nearly three times as correlative as the contemporary art market. “You want investments in your portfolio that don’t move similarly to each other,” Sukholitsky noted. “If you had a whole bunch of invest- George Condo’s Staring into Space was Masterworks’ second exit when it was sold for $2.9 million, representing a net annualized return of 31.7%. ments and they all moved similarly to each other, why would you own all of them?” Contemporary art enjoyed an annual appreciaAdd to that the appeal of the contemporary tion of 13.6% over the same 25-year period that art market’s outperformance of the S&P 500 the S&P 500 saw 9.5% annualized returns, and it becomes hard to write off the asset class. according to Masterworks research. One of the most daunting hurdles to entering the contemporary art market, however, may be a lack of knowledge about contempoBattle of the Indexes Masterworks’ Contemporary Art Index paints a rary art. That said, would-be investors can rest vivid picture when compared with the S&P 500 easy knowing they don’t need to become art Index, namely that the two have performed very aficionados to get involved. Masterworks is differently since 1985. highly selective about the pieces it buys and the prices it pays. Masterworks “We are one of the only institutions out there S&P 500 Index that actually went into old auction catalogs Best 120.5% 34.1% and hired a large team of interns to transfer all performing year (1989) (1995) of the information from all of those old auction Worst -57.9% -38.5% catalogs into a computer, digitizing all of it,” performing year (1991) (2008) Sukholitsky said. “We now have data on the art Average annual 18.3% 9.9% market that goes back decades.” return The universe of art Masterworks could focus on is staggeringly large, but its decades Standard 34.5% 16.0% deviation of of auction sales research helps identify what annual returns trends have the most staying power in the Source: Masterworks
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ART & DESIGN M A K I N G
B A N K S Y
Not much is known about the British street artist who goes by Banksy, but his works were among the most prominent in the art market last year. Around 320 Banksy pieces sold at auction in 2021, more than doubling the pseudonymous graffitist’s 2020 auction count while outselling every other living artist.
an office that serves as the sole point of contact for Banksy. There, a detailed database of artwork records is used to authenticate Two of his works, Love is in the Bin and Game Banksy originals Changer, fetched last year’s two highest prices for and screenprints. post-2010 paintings when they sold for $25.4 million W o r k s a l r e a d y and $23.2 million, respectively. It’s hard to discount authenticated can Banksy’s impact on the art world, but one can’t help also be checked but wonder: How does an unidentified artist interact against the database with auction houses, and how do prospective buyers to make doubly sure they’re legitimate know they’re bidding on the real deal? before a sale.
PHOTOGRAPHY: (ALL ART) CHRISTIE’S IMAGES LTD. 2022
“Well, his dealer knows who he is,” said Georgina An online form—and a fee if the art is Adam, a journalist and art market expert. “He’s very genuine—are all that stand in the way of clever because he has his own authentication.” authenticating Banksy works, and the process is free if the art in question is That authentication is handled by “Pest Control,” deemed fake. market. In the hedge fund world, that type of proprietary data is referred to as a “unique identifiable edge,” providing Masterworks and its investors with the advantage of information asymmetry. The result is a shortlist of artists and paintings that the company uses to make purchasing decisions. In total, Masterworks has 86 offerings amounting to over $300 million at press time. The platform has a lot of incentive to make money for its users. It collects an annual 1.5% asset management fee regardless, but its 20% commission on profits when a piece of art sells aligns Masterworks’ interests with those of its users, and its track record is telling. Masterworks has completed two sales so far: Banksy’s Mona Lisa and George Condo’s Staring into Space. Mona Lisa sold for $1.5 million with a net return of 32%, and Staring into Space sold for $2.9 million with a net return of 31.7%. Although impressive, sales like those can be few and far between. Asked what investors ought to know before signing up with Masterworks, Sukholitsky said expected holding periods can range from roughly three years to 10 years, with the possibility of being longer or shorter.
While investors don’t know when Masterworks will choose to sell a particular piece of art, the company offers a secondary market where shareholders can sell their positions early—something Sukholitsky emphasized isn’t meant to be the primary reason for investing. So, what does the future hold for Masterworks? After raising $110 million in Series A funding last year, the company reached a valuation of over $1 billion. It’s been profitable for quite some time, too, Sukholitsky
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Banksy’s Game Changer was donated to Southampton General Hospital in Southern England before being sold to support National Health Service charities.
noted, something that’s rare for a startup. The goal now is shifting toward broadening Masterworks’ distribution channels and offering more art products with more diversity in more places, including financial intermediaries and institutions. “My vision is that every investor in the world is going to at least consider whether art is worthy of investment—at least consider whether it’s worthy to put in their portfolio,” Sukholitsky said. “Of course, we’re not there yet, but we will be. We most definitely will be.”
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n As an asset class, fine art has performed well over time and particularly in recent years, but trends in the art market are unpredictable. n Fine art investments should be considered generally illiquid longerterm holdings. n While fine art has demonstrated a low correlation to U.S. equity markets, fractionalized ownership of a single piece of art does not replicate the portfolio characteristics of art as an asset class. There’s no guarantee that an individual Masterworks offering will be profitable. n While Masterworks’ 1.5% asset management fee and 20% carried interest fee are similar to hedge funds and higher than more traditional mutual funds, the profit incentive fee aligns Masterworks’ interests with its investors. March 2022 | Luckbox
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Leonardo da Vinci’s Vitruvian Man supposedly captured the perfect human dimensions, which some believe correspond to the golden ratio.
Art, Design and the Golden Ratio HERE’S THE CASE FOR BASING ART AND ARCHITECTURE ON NUMBERS FROM THE FIBONACCI SEQUENCE—AND THE CASE AGAINST IT B y E d M c K i n l e y 26
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ART & DESIGN
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he golden ratio has been capturing the imagination of scholars for more than 2,000 years. Countless mathematicians, physicists, botanists, chemists and psychologists have pondered its meaning. Painters, sculptors, architects, composers and poets have embraced it for the structure it can provide. There’s little doubt that it appears in the principles of geometry, the pattern of a sunflower’s seeds and the angles formed by the branches of a tree. Some insist they see it reflected in the beguiling beauty of the Mona Lisa and embodied in the graceful architecture of structures as diverse as the Parthenon, the pyramids and the United Nations Secretariat Building. They profess to perceive its presence even in the dimensions of the human face and body. True believers choose to understand it as the simple pattern that underlies the complexity of the universe. They’re in on the secret, and they see its almost magical qualities all around them. But is any of this really true?
DISCOVERING GOLD
PHOTOGRAPHY: (ALL) SHUTTERSTOCK
The golden ratio is related to the Fibonacci sequence of numbers, which begins with one
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b
a
a+b The ratio of length to width in a golden rectangle equals about 1.618, which is the golden ratio. Or think of it this way: (a+b)/a yields 1.618.
and continues with the sum of the two preceding numbers. Thus, it starts with 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and goes on to infinity. Mathematicians in India knew about the sequence as early as 200 B.C., and Leonardo of Pisa, who was later called Fibonacci, introduced it to the West in the 13th century. Its relationship to investing was addressed in detail in the January/February issue of Luckbox. Then there’s that ratio. Two numbers are in the golden ratio if their sum divided by the larger number equals the ratio of the larger number divided by the smaller number. That
comes out to about 1.618, and the decimal places continue forever without repeating. Now it happens that the ratios of Fibonacci numbers (2/1, 3/2, 5/3, and so on) approach the golden ratio. The higher the Fibonacci numbers, the closer they are to the golden ratio of 1.618. And there’s more. Divide a line into two parts in such a way that the longer portion (a) divided by the smaller one (b) equals the sum of (a) + (b) divided by (a). Both then equal 1.618. The golden ratio yields the golden rectangle, which can be of any size so long as the ratio of the sides is 1.618. That’s all fine, but what does it mean?
MIXED RESULTS
The Fibonacci numbers and the golden ratio often appear in mathematics—in the geometry of pentagons, for example. They crop up in nature with surprising frequency—as in the number of petals in a flower. Meanwhile, there’s nothing to stop musicians or poets from basing rhythm on the Fibonacci numbers. But what about using the golden ratio and golden rectangle as the basis for painting, sculpture and architecture? After all, this issue of Luckbox is devoted to art and design. Promoters of the golden rectangle are convinced that people find its shape more pleasing than other rectangles. But psychological experiments demonstrate that people don’t exhibit a stronger preference for that configuration over others. Most test subjects just pick a random rectangle somewhere near the middle in dimensions, says Steven Strogatz, a professor of applied mathematics at Cornell University. He’s at a loss to explain why people proselytize for the golden rectangle. “It has some kind of appeal that I can’t explain,” he says.
IN MATH, THE GOLDEN RATIO IS A VERY REAL THING WITH VERY WONDERFUL PROPERTIES.
An arc drawn through golden rectangles yields a curve some see in the nautilus shell and elsewhere in nature.
IN BOTANY AND PHYSICS, THE GOLDEN RATIO IS REAL. March 2022 | Luckbox
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LEONARDO MAY HAVE THE GOLDEN E X T E N S
Do superimposed rectangles indicate Leonardo da Vinci laid out the Mona Lisa according to the golden ratio?
“It’s something psychological, and I think it’s related to Western culture. I don’t think they believe in this stuff in India or Japan.” But adherents tend to see their golden ideal everywhere. Take the example of the Parthenon, the ancient Greek temple atop the Acropolis in Athens. Those who promote the golden rectangle’s place in architecture are fond of superimposing the shape over photos or diagrams of the Parthenon. They hold that up as proof that the building was based on the golden rectangle. Yet, nothing in the historical record indicates that Phidias, the artist who directed
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DA VINCI EMPLOYED RECTANGLE I V E L Y .
construction of the Parthenon, employed the golden rectangle on the job site. What’s more, acolytes of the golden rectangle draw the shape over images of the Parthenon with such broad, heavy lines that they distort the contours of the building, forcing it to conform to the formula, says Keith Devlin, an emeritus mathematician at Stanford University who’s devoted three of his books to Fibonacci. Actually measuring the building can prove even more damning to the notion that the golden rectangle or golden ratio dictated the dimensions. John Ronan, a Chicago architect who teaches at the Illinois Institute of Technology, points out two facts that he says contradict the golden theory. First, the columns at the front of the Parthenon aren’t evenly spaced. In absolute defiance of the golden rectangle, the outer columns are closer together than the inner ones. “Undoubtedly, they drew it up with all the spaces being equal and then found it just didn’t look right,” Ronan says. “So, they scooted in the end columns.” Moving those columns toward the center would not have improved the structural strength of the building because the outer columns bear less load than the inner ones, he notes. Second, the builders intentionally curved the columns. Bowing the bottom third outward— just slightly—makes them appear straight to the human eye, Ronan maintains. Moreover, the creators of the Parthenon sidestepped just about every possible optical illusion by designing the building without a single straight line or right angle. “Do you trust your eye? Or do you trust the numbers?” Ronan asks rhetorically. “This is the age-old question.” But compensating for the quirks of human vision isn’t the only constraint in architecture. Practitioners already face enough challenges without adding a strictly proportioned rectangle to the mix, Ronan notes.
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ART & DESIGN The size of the lot and the height of the building have a lot to do with the shape of the rectangles in the design, he says. Other impediments include building codes, the limits of technology and manufacturing, and conventional thinking that’s tethered to the familiar. But just because the golden rectangle holds no special power in art and architecture doesn’t mean creative types don’t use it.
PHOTOGRAPHY: (MONA LISA) PUBLIC DOMAIN; (ALL OTHERS) SHUTTERSTOCK
NOTABLE RECTANGLES?
One of the most creative people who ever lived, Leonardo da Vinci, may have employed the golden rectangle extensively, according to some observers. The very definition of a Renaissance man, da Vinci worked at the genius level as a painter, engineer, scientist, sculptor and architect. One of his many projects was illustrating a book by Franciscan friar and mathematician Luca Paioli on using the golden ratio in architecture. So, da Vinci was certainly aware of that possibility, Devlin says. Some claim da Vinci used the golden rectangle in his paintings, including the Mona Lisa and The Last Supper. Others remain unconvinced by the rectangles drawn over photos of the paintings. Then there was Vitruvian Man, a drawing da Vinci created to capture the ideal dimensions of the human body. Many have believed that bodily measurements, like height compared to the distance from the naval to the ground, conform to the ratio. It’s also been surmised that the most beautiful human faces adhere closely to spacing dictated by the ratio. Experiments show neither supposition holds true.
Some see the golden rectangle in the design of the Parthenon. Others don’t.
In botany and physics, the golden ratio is real. It just gets increasingly implausible as people try to stretch it to those other domains. That’s mostly mythology and culture.” For Stanford’s Devlin, there’s nothing wrong with using the golden ratio in architecture as Le Corbusier so often did, but it just doesn’t work for art. “If you build artistic creations using the Fibonacci sequence, they look terrible,” he maintains. “There’s just not enough subtlety. For art, it really doesn’t work.”
Sunflower seeds grow according to a shape dictated by the golden ratio. Botanists theorize that chemicals in the seeds make them repel each other and thus cause the pattern to form.
NOT SO GOLDEN
Overall, skepticism rules among the experts who spoke with Luckbox about the value of the golden ratio and golden rectangle in art and design. “Renaissance architects were known for starting with those proportions because they thought there were quasi-magical qualities— if you hit the numbers that was a recipe for good design,” Illinois Tech’s Ronan says of the golden rectangle. “There are very few architects practicing that way in modern times.” Cornell University’s Strogatz puts his thoughts on the golden ratio and rectangle this way: “In math, the golden ratio is a very real thing and has very wonderful properties.
March 2022 | Luckbox
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The Shape of Things to Come THE JOURNEY OF A NOTED DESIGNER-ARCHITECT SHOWS WHAT MAY LIE AHEAD FOR ALL OF US B y E d M c K i n l ey
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CHICAGO-BASED JORDAN MOZER + ASSOCIATES LTD. BEGAN OFFERING AN UNUSUALLY BROAD RANGE OF INTEGRATED SERVICES IN 1984.
With acclaimed designer and architect Jordan Mozer at the helm, the firm creates buildings and everything that goes into them. So, it’s not just the often curvilinear exterior walls. It’s also the tables, chairs, sofas, rugs and artwork—most of them seemingly arising from a mind-bending freeform dream. Then Mozer and his company make the dream real by managing construction and manufacturing.
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ART & DESIGN A sketch of the rolling Minnesota countryside surrounding the 7,000square-foot Copper Bleu restaurant inspired a curvy departure from Frank Lloyd Wright’s Prairie style. Locally sourced copper and Douglas fir were used in the construction. Inside, a chandelier made of 36,000 test tubes pays homage to the state’s Mayo Clinic.
PHOTOGRAPHY: (COPPER BLEU) PHOTO BY DOUG SNOWER, DRAWING BY JORDAN MOZER; (FURNITURE) AARON CHICANO/JMA
BEYOND CHICAGO
In his earlier days, Mozer converted lofts into offices, stores and residences. He worked on multi-family residential projects until that market went soft in the recession of 1989, prompting him to concentrate on designing spaces for businesses. But not just any businesses. One client was Rich Melman, whose Chicago-based Lettuce Entertain You restaurants were among the first to offer upscale casual dining— great food in informal settings. Melman’s restaurant chains had taken Chicago by storm, partly because each bore its own unique, whimsical, theatrical theme. Each required a look that embodied its persona. But Mozer’s work wasn’t limited to a single restaurant operator, or even a single continent. His designs for restauranteurs soon began appearing in Germany and Japan. Then there were the boutique hotels. He worked with Bill Kimpton, an early proponent of that hospitality niche, and later joined forces with Claus Sendlinger, Christoph Strenger and Bill Marriott. In Las Vegas, Mozer collaborated with Steve Wynn on Bellagio, Bobby Baldwin on Beau Rivage and Treasure Island, and Sheldon Adelson on the Venetian. In the world of entertainment, he designed stage sets for The Rolling Stones and worked with Universal Studios and Disney. He plotted with movie producer and director George Lucas to convert shopping malls into entertainment destinations, a plan derailed by recession.
TELLING A STORY
With all of Mozer’s projects, he endeavors to breathe life into a theme. He calls it turning a narrative into a business plan.
In other words, he says a building and its contents should tell the story of a family, neighborhood or business while giving form to aspirations. Examples include a Cheesecake Factory in Chicago where the international cuisine suggested a psychedelic Alice in Wonderland look. The curves in the facade of a Minnesota restaurant reflect the rolling prairie that surrounds it. In another example, the finishes and decor of The East Hotel in Hamburg, Germany, pay homage to the building’s origin as a foundry. But the design also reflects the establishment’s Asian cuisine through design that invokes the wonder of a Westerner’s first visit to Asia. In a world that rushes to throw up too many modernist structures—destroying the soul of cities in the process— Mozer strives for idiosyncrasy that he says brings meaning to everyday life.
A free-form table, chair and mirror come to life in Mozer’s quest to imbue everyday artifacts with meaning.
DESIGN THINKING
Mozer came up with an approach to architecture that he now calls “design thinking.” But he began practicing the discipline before he thought to give it a name. Design thinking begins with defining goals and documenting existing conditions. It proceeds to preparing alternative designs based upon those goals. Along the way, it makes allowance for limitations that can include budget, schedule, law, functionality and marketing. It continues with testing and refining the designs and concludes with execution and analysis.
NEW URBANISM CALLS FOR WALKABLE CITIES WITH HOMES, BUSINESSES AND PUBLIC SPACES IN PROXIMITY. March 2022 | Luckbox
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Mozer uses design-thinking as a catalyst for innovation. It helps set goals based on theories. It can encourage playfulness and engineering focused on culture. Besides preparing new projects for the future, design thinking can help Mozer reimagine stale older buildings and repurpose them for the future. “Business operators become very accomplished at managing their business but remain linear as the world around them changes,” he observes. “Design thinking can help break existing patterns to create new solutions.” It can help transform the entire urban landscape. “We have applied design thinking methods to creating a new city concept, converting defunct shopping centers, rethinking outdated department store and grocery store models,” Mozer says.
Pedestrians take precedence over vehicles vehicles in cityscapes redesigned according to the tenants of the new urbanism.
FINDING
THE
PATH
After graduating early from high school, Chicago native Jordan Mozer stood at a metaphorical crossroads.
knife. The patterns slashed onto the surface brought a new dimension to the painting.
He could become a doctor like his late father—or he could mix art and commerce the way his mother did in advertising and retailing.
“Next time you see a cypress tree, you’ll recall that pattern of strokes and see the tree as Van Gogh did,” Mozer recalls his instructor saying.
He also thought about a career in architecture and design but felt alienated from what he viewed as the cold and sterile contemporary buildings that surrounded him.
The second experience arose from some lines in a play. It happened when Mozer saw Equus during a trip to New York. One of the characters reminds the protagonist, a hesitant psychiatrist, of his professional obligation to help a disturbed boy see the world as others do.
So, he studied painting and sculpture for a couple of semesters at the Art Institute of Chicago. After that he transferred to the University of Wisconsin at Madison, where he took classes in writing and pre-med while working for two years in a psychiatric ward. Summers, he split his time between carpentry and art class.
The curving creations that predominate in much of Jordan Mozer’s work surround the renowned architect and designer in his Chicago studio.
Finally, he juxtaposed two p r o f o u n d e x p e r i e n c e s a n d Van Gogh and noted that the brought his future into focus. artist had hurried to finish the painting before the sun went down. Mozer had the first experience when his class was touring the In his haste, Van Gogh put aside exhibits at the Art Institute. His his brush and scraped pigment professor paused in front of a onto the canvas with his palette
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It dawned on Mozer that the artist and the psychiatrist were walking the same path in opposite directions. Psychiatrists help people see things normally. Artists helped them see things differently. He realized he preferred the latter. Thus, he turned away from psychiatry and the practice of medicine to complete his first degree in industrial product design and his second in architecture.
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ART & DESIGN
PHOTOGRAPHY: (MOZER) MONICA KASS ROGERS; (RENDERINGS) JORDAN MOZER & ASSOCIATES, LTD.; (ABSOLUT MOZER) IMAGE BY JMA; (HOTEL) JMA
COVID-19 IS FOREVER ALTERING THE WAY PEOPLE LIVE, AND THEIR BUILDINGS AND FURNISHINGS WILL REFLECT THAT.
In an image commissioned for the Absolut Vodka architect series, Mozer renders Chicago’s River North neighborhood as a surreal landscape filled with bottle-shaped pets and objects—plus a bottle-like submarine dodging giant ice cubes and lemon slices.
THE NEW URBANISM
Much of Mozer’s work centers on the new urbanism, an approach to living that would return city centers to a human scale that’s been lost with the rise of the automobile. It calls for walkable cities with homes, businesses and public spaces in proximity. The new urbanism began attracting adherents in the early ’80s, so it’s not really that new. But it continues to hold promise in the quest to create a sense of place instead of a series of buildings created as “machines” serving limited functions. Often, creating a future predicated on the new urbanism requires finding a new role for a building that no longer serves its original purpose. Offices are reinvented as play labs, department stores are transformed into hotels, factories become restaurants, malls become entertainment destinations.
POST-PANDEMIC
COVID-19 is forever altering the way people live, and their buildings and furnishings reflect that. For Mozer, the changes don’t come as a surprise. “I’ve been re-reading [F. Scott] Fitzgerald’s portraits of the roaring ’20s—The Great Gatsby and Babylon Revisited—which describe a cultural revolution in response to the Spanish flu pandemic 100 years ago,”
he says. “It seems we have already begun a contemporary cultural shift.” He provides the example of COVID-induced changes in boutique hotel design. Before the pandemic, hoteliers had begun combining lobbies with upscale destination restaurants that attract diners who aren’t staying the night. The idea was to give travelers an authentic local experience as they mingled with natives over a meal prepared by a noted chef. The trend de-emphasized the hotel’s guest rooms. But COVID will bring the focus back to the hotel rooms, Mozer says. Quarantines, lockdowns and social distancing have made people leery of crowds, and that trepidation will linger after the pandemic eases. Hence, they’ll spend more time in their rooms instead of venturing into the hotel’s public spaces. They’ll want rooms with more space for room-service meals and in-room exercise equipment. Guests will appreciate the option of reaching their rooms without passing through lobbies. In another example of the plague altering lifestyles, the shift to online shopping is becoming even bigger and more ingrained, Mozer notes. Changes in store design seem certain to follow, including an acceleration of the fairly recent trend for supermarket designers to group food into areas that resemble small, European-style storefront shops. Meanwhile, supply-chain disruptions are pushing more businesses to source materials locally, a trend already underway for some time among restaurants. Mozer has availed himself of local manufacturers for years and welcomes others to the practice because he believes it’s environmentally and socially sustainable. For him, the change the pandemic is bringing is reflected in a quote from writer William Gibson, who puts it this way: “The future is already here. It’s just not evenly distributed.”
The finishes and decor of The East Hotel in Hamburg, Germany, pay homage to the building’s origin as a foundry. But they also reflect the establishment’s cuisine by invoking the wonder of a Westerner’s first visit to Asia.
March 2022 | Luckbox
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A Bullish Case for NFTs COLLECTORS ARE BEGINNING TO EMBRACE ARTWORK THAT RESIDES ON COMPUTERS B y M a r k H e l f m a n
A
t some point in the 20th century, adding machines became so sophisticated that they crossed a line and became computers. Their progression was all about numbers, practicality and programming. But the rise of the computer hasn’t dominated the human spirit or dulled the need for human expression. In the form of non-fungible tokens, or NFTs, the visual arts are beginning to thrive in the digital world.
D I G I T A L
D I V E R G E N C E
“NFTs are not a new artistic medium in the way that oil paint, printmaking, photography or video art were ... NFTs are financial instruments.” Sebastian Smee, Pulitzer Prize-winning Washington Post art critic
“I am bearish in the short term on crypto asset valuations but bullish long term on DeFi.” Tom Sosnoff, co-CEO of tastytrade “Bubbles burst and prices collapse to the fundamental value. As NFTs have no earnings, or historic values and not much intrinsic value, it seems that the markets for them are driven rather by the greater fool theory.” Paul Hallwood, professor of economics, University of Connecticut “Next year [2022] is really going to be the year of NFTs.” Jesse Powell, CEO of crypto exchange Kraken 34
Artwork in what some consider a new digital medium is bringing tens of millions of dollars at auction, and some critics are lauding the best NFT artists as the Picassos of Generation Z. What’s more, NFTs offer more security than paint on canvas because the technology documents their digital authenticity and ensures their scarcity by preventing unauthorized duplication, proponents say. Those advantages are combining to attract artists, collectors and speculators who buy or sell high-dollar NFT creations. Let’s take a closer look.
PERKS OF OWNERSHIP
For owners, the advantages begin with the right to use a mobile phone to license the work of art to anyone, anytime, anywhere. But the potential benefits don’t end there. Owners sometimes share in revenue from the sale of merchandise related to their artwork, receive a cut in the artist’s royalties from subsequent creations or qualify for a line of credit tied to the value of the art. Possessing an expensive and acclaimed NFT can also enhance the owner’s status in some social circles. Placing the winning bid at a high-profile auction, for example, can bring invitations to attend exclusive events and join private clubs. Owners also enjoy the peace of mind that comes with knowing that the blockchain validates the artwork’s authenticity and ensures its
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ART & DESIGN
PHOTOGRAPHY: (BEEPLE) CHRISTIE’S IMAGES LTD. 2021
Non-fungible tokens, or NFTs, exploded into the mainstream a year ago when Christie’s auctioned its first solely digital piece of art, Everydays: the First 5000 Days, for nearly $70 million.
security. Because no one can change the digital record of NFT art, owners can fix their own terms and conditions, screen for unlawful use, and block copies and counterfeits. The technology tracks benefits and privileges that accompany purchases, and neither side in a purchase, sale or licensing agreement can break the terms and conditions specified in the smart contracts that accompany the transfers of rights. Besides, a pirate copy of an NFT has little value, in the same way that there’s only one genuine Mona Lisa, and a picture of a concert ticket won’t get anybody into a show. As observers note: Seven billion people can own a screenshot of an NFT, but only one person can own the NFT itself.
BENEFITS FOR ARTISTS
For artists, NFTs offer a new way to monetize their handiwork and protect their intellectual property. Minting their works as NFTs gives them permanent, immutable, public proof that they own all rights and privileges associated with that work. Once that’s established, artists can program NFTs to collect royalties on secondary sales, entitle buyers to add-ons or secondary benefits, sell equity in their works, and lock the NFTs into binding contracts for display in galleries, websites, businesses and homes. Buying and selling NFTs has gone mainstream with highly publicized auctions at
VIRTUAL ART AND VIRTUAL COLLECTABLES COULD BECOME EVEN MORE VALUABLE AS LIFE ITSELF BECOMES MORE VIRTUAL. Christie’s and Sotheby’s. Artists can also connect with buyers by listing NFTs on global marketplaces like AtomicHub, Rarible or OpenSea. The online technology can eliminate shipping, customs, middlemen and even the auction houses. Yet, despite all the enthusiasm for NFTs, some artists and critics don’t consider digital creations art and doubt the motives of the people involved. (See “Digital Divergence,” left.) But whatever some members of the art world think of digital images, artists aren’t the only people with expensive NFTs to sell.
OTHER BENEFICIARIES
Nearly anyone who owns something scarce has an opportunity to cash in with an NFT. In fact, entrepreneurs are using them to create value out of thin air. In one example, Golden State Warriors
point guard Steph Curry sold his sneakers as an NFT. Others have hawked everything from badges to uniforms as collector’s items. Whether they’re virtual collectibles or virtual art, NFTs could become even more valuable as life itself becomes more virtual. The metaverse is taking shape as a massive digital playground that emulates the real world—like a giant Star Trek holodeck. That’s pushing big business online. Officials at Microsoft (MSFT) and Meta (FB) expect the metaverse to generate $1 trillion in revenue in the coming years and trillions more in spillover economic activity. Think of it as a new world order where NFTs seem right at home. Mark Helfman, crypto analyst at Hacker Noon, edits and publishes the Crypto Is Easy newsletter at cryptoiseasy. substack.com. He is the author of Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency. @mkhelfman
March 2022 | Luckbox
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Sneaker Culture 36
LUCKBOX LEANS IN WITH
CHRIS LAW
ON THE ART OF F O O T W E A R D E S I G N AND THE IMPORTANCE OF CREATING WITH PASSION By Kendall Polidori AS A CHILD, CHRIS LAW BECAME FASCINATED WITH THE HIP-HOP CULTURE OF THE BRONX EVEN THOUGH HE GREW UP 3,400 MILES AWAY IN BEDFORD, ENGLAND.
From afar, he witnessed hiphop’s coming of age in the ’80s by immersing himself in the music, art and fashion. One aspect of the scene left a particularly profound impression. To him, the sneakers he saw in images from across the sea seemed like more than just footwear. So, he combined his passion for sneakers with his love of graphic arts to forge a career as one of the world’s preeminent self-taught shoe designers. Along the way, he helped transform sneakers from gym shoes to fashion statements. Law, who’s worked with Adidas, Nike, Vans, Converse and Clarks— just to name a few—notes that hip-hop album covers fueled the enthusiasm he brought to his work. His inspirations include the covers for The Rock Steady Crew’s Uprock, designed by member Doze Green, and Afrika Bambaataa and the Soulsonic Force’s Renegades of Funk!, designed by comic book artist Bob Camp. The influence of those covers is reflected in Law’s work. In one example, he recreated the Adidas Superstar from the Uprock era. Law sat down with Luckbox to discuss his journey and accomplishments in footwear design. He even shared his secret for success: passion.
Luckbox | March 2022
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ART & DESIGN
PHOTOGRAPHY: (LAW) GUY FEATHERSTON; (SHOES) COURTESY OF LAW
You’re a self-taught footwear designer. How did you approach that from a graphic design standpoint? I left school when I was 15 but ended up going back when I was 21 to do graphic design. I knew that somewhere inside me there was a love for design and record covers. I studied graphic design for six years, and when I left college I took on some website design jobs. I was also working at a streetwear shop with my flatmate, and we met another guy there. We ended up getting together to start an online cultural site called Spine Magazine. We wrote a feature on sneakers because we love sneakers, and it got a lot of traffic. There wasn’t anything online at the time that really spoke to sneakers. So, we created Crooked Tongues based on that idea. We combined selling shoes and writing features about shoes and culture. We talked to brands that we wanted to work for, and eventually our work got noticed. It still blows my mind, but one day we had a knock on our door. Three people from Nike were there: Mark Parker, Trevor Edwards and Sandy Bodecker. We had a candid conversation about shoes and what drove us to do the work we were doing. It was a pretty cool introduction to that world. We had Adidas turn up in the same way. Then I started doing collaboration work with brands like Puma. Adidas eventually approached me and I came in as a category designer. That’s where I learned how to sketch properly and how shoes are made.
How did sneakers evolve from a sports shoe to a cultural trend?
In the footwear design world, there are two types of designers. There are those who are driven by purpose—they want to design a shoe
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that can make you run faster or be comfortable working out. And there are those who are driven by style. I’ve only ever worked in the lifestyle sector. I think the beauty is when you can get those kinds of teams to work together. Then they’re building a silhouette for performance, but they’re also taking care of colors from a style perspective. Recently, those worlds have blended more, whereas maybe 10 years ago they were very separate. There was a time when sneakers were seen as scruffier than dress shoes. But as sneakers became more refined and the price points went up, people began to look at them as luxury items. Over time, they became more than just sports shoes. They are style icons.
Are some of the current footwear trends unsustainable? Will newer ideas replace them?
For some time, we’ve seen sneaker culture get pretty flat. It was all about retro. Everything that wasn’t retro didn’t sell. Then all of a sudden we started to get some really interesting designs outside of the retro world. Ultraboost is an example. It goes back and forth to the classics in waves. There was a time maybe three years ago when Vans were gigantic, and it was all about simple canvas shoes. Brands are now more open to using open-source web design. They’ll talk to consumers and partners and look outside of the brand for ideation. And that brings a different perspective. Take Kanye [West], for example. He manages to create spikes of disruption. And the sneaker community is more open to disruption nowadays. They want it. Some of the stuff Kanye did in the beginning will eventually come back around in 10 years and may be very iconic classics. Nowadays, you can create something modern that becomes classic in the future.
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N u m b e r o f d e s i gn s e a s o n s f o r L aw
D e s i gn s L aw h a s wo r ke d o n in 1 5 ye a r s
Can smaller footwear companies come up with breakthrough designs?
In this time of reflection during the pandemic, people are looking for less corporate direction and don’t want to be told what to wear. It seems like some people are more open to looking beyond big corporations. It can be an interesting time for smaller brands to get attention. It’s hard to create new silhouettes that really push the needle, so smaller companies have to determine what makes them different—whether it’s price, sustainability or point of view on design.
Chris Law takes on freelance shoe-design projects and works on sneaker-related books and NFTs.
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ART & DESIGN Chris Law (bottom left) often takes a hands-on approach when designing shoes, physically drawing on a shoe model.
something you don’t have. The worst thing you can do is look at other brands’ shoes and designs. And, to be honest, a lot of the time you shouldn’t be looking at shoes to design shoes because you’re going to design things that are already there. So, get inspiration from other places and go outside of the footwear world.
classically trained, expensive college route. It’s easy for sneaker design brands to teach people how to build things, and you can teach them the technical side of things. But you cannot teach someone passion. The gems of the future of footwear design are waiting to be discovered in the culture and in the attitudes of consumers. The passion has to be there.
What are your thoughts on using StockX to buy and sell shoes?
PHOTOGRAPHY: (LAW) NICK LOCOCK; (SHOE) COURTESY OF LAW
How do you balance your own tastes in footwear design with the need to conform to current trends?
It’s interesting because I’ve never owned a pair of Jordans in my life, and that blows people’s minds. If you’re a sneakerhead, Jordans are like peanut butter and jelly. It feels like it has to go together. But for me, none of these brands design the perfect shoe that I want. I know the perfect shoe because it’s in my head, but no one makes them. So, I generally don’t buy modern brands’ new designs. I tend to wear iconic or classic shoes because they are so much easier to do.
How do you get ahead of footwear trends?
It’s part of the process at a brand, where you are briefed on a new design and you have a product marketing team that looks at the market, trends, websites, what consumers are wearing, as well as the current lineup of what you have in the range. And they try to fill the gap when there’s
I think reselling is fine, as it allows you to get what you need if you missed it the first time around. Reselling has been part of sneaker culture since the early 2000s—it’s just become more of a big business nowadays. It changed from a side hustle to a career. I’m not, however, a huge fan of some of the seriously inflated prices. I know roughly how much they cost to make, and it all becomes a bit silly. I’m not one to pay big prices at all for shoes. I never have. But if someone is doing their thing and making their living, then that’s cool for them.
What would you recommend for sneakers that depreciate in value?
Even with a lot of the rare shoes that used to go for big money, the compounds of their sole units break down over time and literally disintegrate. So, I recommend you wear them and enjoy them now. Don’t hoard them for later unless they’re rubber, leather or canvas— things that stand the test of time.
What are your thoughts on the future of footwear design?
I want to emphasize the importance of brands looking beyond the
LAW’S KEY MOMENTS IN THE EVOLUTION OF SNEAKERS 1917 >> Converse Chuck Taylor All Stars make their debut 1979 >> Nike introduces “Air” technology to sneakers 1984 >> Michael Jordan signs with Nike and begins collaborating with Tinker Hatfield 1986 >> Run-DMC becomes the first music group to get a footwear sponsorship when they sign with Adidas 2015 >> Adidas introduces “Parley,” the first sneakers created from ocean waste 2015 >> Ye, the artist formerly known as Kanye West, rocks the world of fashion with his white Adidas Ultraboosts
March 2022 | Luckbox
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life, luxury & the pursuit of happiness
C released their English band XT 1978 album, G2, in io ud st nd co se um cords. The alb Re in rg Vi h ug thro Hipgnosis, by d ne sig de cover, t essay on how provided a shor nies use album pa m co of recording ct the attention tra at cover art to buyers.
S
RECORD HIGH
The Art’s on the Outside, Too The most iconic album covers help listeners connect with the music inside
By Kendall Polidori
tanley Mouse was in his 20s when he started creating psychedelic posters for the likes of the Grateful Dead and Journey. Later, he designed album covers for Styx and the Steve Miller Band. George Hardie was 25 when he gave birth to his first album cover for an up-and-coming Led Zeppelin. Stanley Donwood was 26 when he began producing album covers for Radiohead and the band’s lead singer Thom Yorke’s solo work. Andy Warhol was in his 30s when Columbia and RCA Records hired him to design album covers. He came up with some of the greatest ever, including the one for The Velvet Underground’s The Velvet Underground & Nico. Some of the greatest rock and punk album covers were young artists’ first stabs at creating art to accompany music—and it seemed to work in their favor. Well-known pleasures Take the case of 22-year-old Peter Saville, who designed the cover for Joy Division’s album Unknown Pleasures in 1979. The cover would become one of the most recognizable designs in pop culture. It’s on band T-shirts in nearly every clothing store, hanging next to the ones for Pink Floyd, the Grateful Dead, The Rolling Stones, AC/DC and The Beatles. But the phenomenon doesn’t end there. The design graces coffee mugs. People have it etched into their skin
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as black tattoos. It appears as a poster on the wall to set the mood for critically acclaimed films. The cover even survives in the era of “meme art.” The cover art became a symbol for Joy Division’s first studio album and its last with lead singer Ian Curtis, who took his own life in 1980. Yet, the design did more than that. By the late ’80s, it helped define the punk era—it represented a generation of kids who went against the grain. Saville accomplished all that because he experiences music through his eyes as well as his ears. His art adds to an album’s sound and success. Unknown Pleasures is a surefire hit album on its own, but it’s hard to picture it without that cover. Part of the genius lies in omitting the album’s title, the name of the band and the record label. But ubiquity has its downside. Unknown Pleasures serves as an example of what happens when art takes on a life of its own: The importance of the album artwork eclipsed the reach of the music. Saville once told The Washington Post that use of the cover has become “gratuitous and tedious and insincere.” Still, the cover helped make Saville’s reputation. He’s an icon for artists like Julia Fletcher, a music-based designer and photographer in Brooklyn who also cites Barbara Kruger and Warhol as influences.
Without an album cover, music has no physical place in the world. FAMOUS ARTISTS AND ALBUM ART Jean-Michel Basquiat: The Strokes’ The New Abnormal Andy Warhol: The Velvet Underground & Nico’s self-titled album Painting by Henri Fantin-Latour and art direction by Peter Saville: New Order’s Power, Corruption & Lies Banksy: Blur’s Think Tank Salvador Dali: Jackie Gleason’s Lonesome Echo Howard Finster: Talking Heads’ Little Creatures
Cross-pollination Album artwork reflects and expands upon the music, lyrics and attitude of what’s inside the packaging, Fletcher said. “It’s very hard but necessary work for designers to communicate that voice properly.” Although difficult, it’s essential. “It’s the first image that a listener is presented with when listening for the first time, so you want that connection to be there and for it to make sense,” she said. Another designer, Leo Horton, is studying at Rhode Island School of Design but has been collaborating with musicians on cover art since he was 16, including indie pop-rock collective Lunar Vacation. Horton works to capture the person-
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In 1969, a young George Hardie showed up at RAK Records in London to meet with the intimidating 300-pound Peter Grant, manager for the then-emerging rock band Led Zeppelin. Hardie, still a student at the Royal College of Art in London, had yet to win acclaim as an artist and designer. But the typography he had contributed to the cover of Jeff Beck’s album Truth attracted the attention of the four young English rockers looking to design the cover of their first album, Led Zeppelin I. Hardie brought cover art sketches to the meeting, but a curly headed Jimmy Page had other ideas. Page, Led Zeppelin’s guitar hero, presented Hardie with a photograph by Sam Shere of the 1937 Hindenburg airship disaster. The photo embodied the band’s name, which had allegedly originated with Keith Moon, drummer for The Who. Moon reportedly joked in 1966 that a band that included some of the musicians who went on to form Led Zeppelin would go down like a lead balloon. Using lots of dots, Hardie made a stipple tracing of the photo and was compensated $80 for creating the image that came to define Led Zeppelin. Half a century later, the original cover art sold for more than 10 times its estimate at Christie’s, landing at $325,000 and setting the record as the most expensive piece of original album cover art ever sold. After his work on Led Zeppelin I, Hardie went on to design covers for Pink Floyd, Black Sabbath, Wings and Sammy Hagar.
24% 15%
LIKE A LED BALLOON
11%
Dollars and sense Calculating the compensation for album cover art always presents a challenge. It’s often determined case-by-case, and artists are typically brought on as freelancers. The emergence of indie artists has been accompanied by more indie art on album covers. Some musicians are creating their own cover art. Without the backing of a major label—like the early Led Zeppelin had—it’s hard to find and to pay for outside designers. For someone like Fletcher, compensation depends upon the project and how long it takes to complete the work. She typically charges $200-$325 for a poster, $325 per merchandise design, $325-
$500 for digital/single album artwork and $1,500 for vinyl packaging design. “These are all things covered in my contract and discussed prior to doing the work,” she noted. “But it’s important that we talk about pricing publicly because young designers won’t know what to charge otherwise.” Compensation aside, designers can reach for album-cover glory. Take the example of a classic like The Beatles’ Sgt. Pepper’s Lonely Hearts Club Band cover. Paul McCartney dreamed it up, and Peter Blake and Jann Haworth designed it. In 1967, it cost $3,000 to produce, making it the era’s most expensive design, but it won a Grammy for Best Album Cover. In 2012, the original collage sold for $87,000 at Sotheby’s in London. In 2013, a signed copy of the album sold for $290,000. Fletcher noted that the more successful and historic an album becomes, the higher the value for the art associated with it. Horton said prices rise because
WE ASKED LUCKBOX READERS TO PICK THEIR FAVORITE ICONIC ALBUM COVER. HERE’S HOW THEY VOTED:
alities and aesthetics of the band by talking extensively with the members, listening intently and repeatedly to their music, and experimenting with numerous drafts of the cover. He finds that creative freedom and having enough time to hone in on a design help the most.
50%
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BY 1893 INSPIRED
F E W H A S T H E S P I C E . H A N D - M A D E I N S M A L L B ATC H E S, U S I N G A M A S H-B I L L INSPIRED BY WHISKEY ’S PRE-PROHIBITION GOLDEN ERA. F E W COMBINES
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Luckbox | March A H2022 IGH RYE CONTENT & PEPPERY YE A ST TO MAKE A UNIQUELY SPIC Y BOURBON.
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exactly what you’re talking about. Fletcher mentioned that the cover for The Clash’s London Calling began as a riff off one of Elvis Presley’s album jackets but became even more iconic than the original. Countless parodies and recreations pay tribute to the source. Although she’s not developing parodies, Fletcher’s design work reflects the music she listens to—primarily from the ’70s and ’80s. It inspires her clashing colors, stretched type and cluttered compositions. Packaging for recorded music has changed since Saville designed Unknown Pleasures. CDs, vinyl records and cassettes still exist on the physi-
Vinyl is back For the first time in 30 years, vinyl has outpaced CDs in physical music sales. According to MRC Data and Billboard, vinyl is now the leading format for album purchases in the United States, thanks to the indie sector. The authors of Billboard’s annual report noted that vinyl albums were responsible for 38.3% of all album sales, physical and digital, in the United States. Vinyl also accounted for 50.5% of all physical albums, with 41.72 million vinyls records sold, up 51.4% from 27.55 million in 2020. More than half of vinyl albums sold came from the indie scene. Taylor Swift’s Red (Taylor’s Version) came in at No. 3 with 114,000 copies sold. Olivia Rodrigo’s Sour was No. 2 with 268,000 copies. And finally, Adele’s 30 was the No. 1 vinyl seller with 318,000 sales.
the public cherishes groundbreaking albums like Sgt. Pepper’s. “They become kind of these cultural landmarks and symbols that everybody understands or recognizes,” he said. Every week, record labels release albums with beautiful or at least interesting covers. In time, some will become iconic, Horton maintained. So far, the only latter-day cover that rivals Joy Division’s Unknown Pleasures as a cultural—rather than just musical—phenomenon has been the Arctic Monkeys’ AM. The album, released in 2013, quickly developed a community in the way Unknown Pleasures did: The black and white cover, displayed on T-shirts, became a symbol for goth girls on Tumblr who weren’t your “average girl.” So, what makes an album and its artwork iconic? Fletcher suggested it starts with originality and ends with being reproduced and referenced time and time again. Their designs feel timeless decades later. Everyone still knows
Arctic Monkeys’ AM cover was designed by freelance illustrator and graphic designer Matthew Cooper.
cal plane, but images also take digital form as JPEGs, PNGs and NFTs—all in different scales. Designs now work in a plethora of media and may end up with a longer lifespan than a painting. “Without an album cover, the music has no kind of physical place in the world,” Horton concluded. “Music is formless.” But the cover provides form. “Until an album cover gives someone something to recognize a song by, there really isn’t anything they can tangibly hold on to,” he said. Kendall Polidori is The Rockhound, Luckbox’s resident rock critic. Follow her reviews on Instagram @rockhound_luckbox and Twitter @rockhoundlb.
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ARTS & MEDIA
Art Takes
A wealth of books, documentaries and podcasts chronicle the news and events of the art world. Here are some of Luckbox’s favorites.
BOOKS Stanley Donwood: There Will Be No Quiet By Stanley Donwood
As an art student at the University of Exeter in the U.K., Stanley Donwood befriended Radiohead singer Thom Yorke. It wasn’t long until Yorke asked Donwood to produce the cover art for Radiohead’s 1994 single My Iron Lung. Donwood continued to work with the band after that, often sitting in on their recording sessions to allow the music to seep into his art. His book, Stanley Donwood: There Will Be No Quiet, reveals the creative processes that have earned him respect in the art world. He peppers the book with deserted ideas, excerpts from his personal notebook, and the photographs and sketches that led to Radiohead’s iconic album covers. The chapters are arranged chronologically and each details an individual project—from album covers, to promotional pieces of art, to personal projects. But he presents each story in the same fashion—as a step-by-step case study that begins with speculative sketches and leads to the final artwork. The book is a must-read for Radioheads and anyone else who’s interested in artistic accidents, the creative process and visual art created in response to music. Sneaker Freaker: The Ultimate Sneaker Book By Simon Wood
Simon “Woody” Wood has always been fascinated with sneakers and loves to get his hands on free ones. In 2002, that passion led him to become the owner of Sneaker Freaker, reputedly the first and only international footwear magazine. From its roots as a punk-style fanzine it grew into an established print and online publication. Along the way, the writers at Sneaker Freaker endeavored to document every collaboration, custom, limited edition, retro reissue, Quickstrike, Hyperstrike and Tier Zero of the past 15+ years. The Ultimate Sneaker Book highlights the best of Sneaker Freaker’s coverage and shows Wood’s commitment to duality. He wanted the magazine to seem both funny and serious, and he wanted it to be both meaningful and pointless. His obsession with sneakers, his inside knowledge of the industry and his attention to historical detail all shine through in the book. Don’t miss his takes on personalities that have made a difference in the the evolution of sneakers, including Michael Jordan and the former Kanye West, who’s known these days as Ye. And don’t forget Wood’s commentaries on the shoes themselves, from Converse to Air Max and Air Force.
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Math Art: Truth, Beauty, and Equations By Stephen Ornes
In his latest book, Stephen Ornes explains how understanding the intersection of math and art can help readers discover the beauty in numbers. He does it by drawing upon his
FILMS Made You Look: A True Story About Fake Art
Chronicling a story that’s fascinating to general audiences but frightening to art collectors, Made You Look: A True Story About Fake Art quickly trended on Netflix when it was released in 2020. The documentary, written and directed by Barry Avrich, spins the tale of one of the largest art frauds in American history, when more than 60 forged paintings were sold for over $80 million over the course of 15 years. Some of the most elite collectors and prestigious museums were duped along the way, including New York City’s Metropolitan Museum of Art. The film, shocking in all the best ways, shows a scarcely seen side of the art market: its criminal underbelly. Exit Through the Gift Shop
background in science writing. Besides math, his previous subjects have included physics, astronomy and cancer. From geometry in motion, to the boundless possibilities of pi (see p. 56 for more on pi), Ornes reveals how mathematical principles have inspired artists. Detailing more than 80 works, the book offers a glimpse of how the worlds of visual art and math collide. Each piece of art featured in the book is accompanied by an interview with the artist and an explanation of the mathematical connection to their art. It’s much more than just angles and numbers. Ornes explores math-driven art and explains how artists and artisans use pi to create everything from paintings to quilts. He even shows how Andy Warhol can help solve the Traveling Salesman Problem of finding the shortest routes between cities. Every inch of the book is filled with art that expresses mathematics in fabrics, sculptures, paintings, weavings and other media.
The popular British street artist known as Banksy swapped outdoor murals for the silver screen when he directed 2010’s Exit Through the Gift Shop. The Academy Award-nominated documentary—which marked Banksy’s directorial debut—follows Thierry Guetta, a Frenchborn but Los Angeles-based videographer, as he documents the underground world of elusive street artists. The film offers a behind-thescenes glimpse into the creative process of prominent artists, including Shepard Fairey, Guetta’s pseudonymous cousin “Invader,” and even Banksy himself, albeit with his face and voice obscured to protect his identity. As Guetta becomes engrossed in the graffiti art scene, he eventually becomes a part of it, adopting the moniker “Mr. Brainwash” in the process. Some question the film because it simply seems too good. It nonetheless lays the groundwork for one of the art world’s fastest-growing genres.
PODCAST Last Seen
In 81 minutes, two thieves stole 13 masterpieces worth a combined $500 million in what’s often considered the most famous art heist in history. The target was Boston’s Isabella Stewart Gardner Museum, and the year was 1990. Despite three decades of investigations and a $10 million reward for information leading to the recovery of the works, not a single one has been found. Among the pieces missing are Rembrandt’s Christ In The Storm on the Sea of Galilee and A Lady and Gentleman in Black. So, what happened? An acclaimed podcast called Last Seen—created by The Boston Globe and WBUR, a National Public Radio station in Boston—seeks to answer just that, featuring a bingeworthy combination of exclusive first-ever interviews and hardhitting investigative reporting. Casual podcast listeners, armchair detectives and art aficionados will all find themselves drawn into the compelling story of one of the art world’s most infamous unsolved mysteries.
March 2022 | Luckbox
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2
7
4
1. Tony Battista head and lucky Greek beads
6
2. tastyworks’ most liquid stocks list 3. Journal for notes
5
4. Main daily/weekly graphs and key indicators 5. Pen, iPhone SE, calculator and clock 6. Notes/preparation for trading week 7. Screen showing six time frames: Daily, 4-hour, hourly, 15-minute, 5-minute and 2-minute; and my four other most-used watchlists
MEET
DINO KARAHALIOS
3
Home/Office location
1
Wauconda, Illinois
How did you start trading?
I attended a presentation by Tom Sosnoff, who was then CEO of thinkorswim. He spent a very generous amount of time answering individual questions and sharing his trading knowledge. I was ready to take more control of our savings from a broker, so I moved money to thinkorswim and started learning to trade for myself. Favorite trading strategy for what you trade most?
FAVORITE TRADING BOOK The Most Important Thing Illuminated By Howard Marks $15.76, Hardcover 248 pages
48
Delta neutral trading with calendars or unbalanced (broken wing) butterflies, depending on where volatility (VIX) is relative to a 30-day range. If volatility is below its mean, then I like putting on index and ETF calendars of various durations. When volatility is above its relative range, I like unbalanced butterflies. When
Age
68
Years trading
16
VIX is around its range, I do both. I like to keep the trades as delta neutral as possible with adjustments and watch the theta grow as both premium decay (theta) and volatility (vega) work in my favor. Average number of trades per day?
Two
What percentage of your outcomes do you attribute to luck?
This is tough to answer because my goal as a delta neutral trader is to take luck and emotion out of my trading by maintaining good mechanics. I focus on planning my trades and using my mechanics to keep my deltas and other Greeks in line with my profit targets. This way, I can trade the trade, instead of the market. My market awareness mechanics include identify-
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ing support and resistance areas where adjustments would be necessary, so I’m prepared to just execute those mechanics. When the market arrives there, I execute my plan. At least 70% of my trades are profitable using this method.
was following them rather than his emotions. I was off to a bad start too that year. But Tony’s words led me to reevaluate my mechanics and “repair” them. It worked! Following my mechanics helps me keep my emotions out of trading and that leads to more success.
Favorite trading moment?
I’ve had many favorite trading moments over the years, but my absolute favorite ones come at the end of the months where I’ve made my monthly target. I have a plan. I make sure to maintain good mechanics because it’s the surest way to meet your plan. I learned that from watching Tony Battista on tastytrade. It was a new year, and Tony’s losses were piling up after the first few weeks of trading. He confessed on the air that he needed to review his mechanics and make sure he
Worst trading moment?
Luckily, my worst trading moment turned into one of my best. In August 2015, I experienced the real power of volatility for the first time. I opened an SPX Index calendar on Aug. 19, after the market had dropped 25 points and regained about half its losses. Volatility was still relatively low, so it made sense to me. The next two days, the SPX dropped another 90 points. Thirty on Thursday. Sixty on Friday. That’s when I finally tried to adjust by rolling my calendar.
The market was moving too fast for the order to fill. So, I did the only thing I could to flatten my deltas— I bought puts, twice that day at different strikes. Monday, I was in a panic when I woke up to find the futures dropped 90 points on Sunday night, and the futures were in lock limit. I couldn’t hedge! It was going to be a disaster! But to my surprise my P&L [profit and loss] was positive when the market opened. The two puts I bought, complaining all the way, were eight times the price I paid for them. They cancelled out the losses from the short puts—and then some. Eventually, I sold the original calendar, after the market had settled and rallied into the close. I made my best profit to date on that day and learned the real power of volatility without needing emergency surgery.
Want to be featured as the next issue’s trader? Have story ideas? Let us know: tips@luckboxmagazine.com
Listen Here Truth or Skepticism
Tom Sosnoff, entrepreneur, options trader and co-CEO of tastytrade, joins Dylan Ratigan, businessman, author and former host of MSNBC’s The Dylan Ratigan Show, for a weekly podcast covering everything from sports and investing to politics and monetary policy. One’s an iconoclast, and the other’s a contrarian. Tune in each week to find out who is who. It’s unscripted and unpretentious—some like to think of it as rants, but refined.
The Prediction Trade
If you can trade it, or bet on it, you can bet they will talk about it on The Prediction Trade—the only podcast for gamblers, traders, investors, math freaks, data geeks and superforecasters devoted to the intersection of probability, prediction and profit. Each episode features expert guests with proprietary forecasting models and insights into the outcomes of prediction market events. So whether you live to bet or bet to live, check out the next episode of The Prediction Trade.
Truth or Skepticism and The Prediction Trade are available on your favorite podcast platform.
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SENTIMENT
IS AMAZON GOOD FOR SMALL BUSINESS? invites some of the world’s brightest thinkers
59%
to debate issues of the day. The organization
–AUDIENCE OPINION BEFORE THE DEBATE
I N T E L L I G E N C E S Q U A R E D U.S. was founded in New York in 2006 to promote intellectual diversity by fostering respect for differing opinions.
AGAINST
FOR
200 MILLION
UNDECIDED
THE NUMBER OF AMAZON PRIME SUBSCRIBERS AS OF 2021
–THE HOLLYWOOD REPORTER
The debates are organized in the traditional Oxford style. The side that convinces more audience members to embrace its arguments wins. The excerpts below come from a debate in December about Amazon and its impact on small businesses.
$1,400
AVERAGE AMOUNT SPENT ON AMAZON BY PRIME MEMBERS IN 2019
–STATISTA
FIVE
THE NUMBER OF PRODUCT CATEGORIES WHERE AMAZON OWNS A MARKET SHARE GREATER THAN 90%
More Debate
–TECHJURY
FOR JAMISON: Starting a business now is much faster, much cheaper and much easier than it used to be. And a lot of that is because of Amazon, which has led the way in creating that opportunity and still does lead that way. We know that because if you look at surveys— different surveys give different answers, but this tends to be about right—almost 25% of all small businesses use Amazon. That’s pretty close to how many use eBay, which serves about the same number of small- and medium-sized businesses. But Amazon has created a different environment than eBay. For different types of products, a lot of people find Amazon more valuable. CHOPRA: We tend to focus a lot on Amazon as a business and less on Amazon as a platform. Think about Amazon as a digital mall. How much access to information do you have if you’re a store owner in a mall? But that mall owner has access to all the stores, knows traffic data that’s coming in and out of the mall, and can share that information with the different store owners. They use that to better products and services, maybe give some information to the store owners on how they should be thinking about what’s next, what products and what kinds of consumers are walking into the mall. So, Amazon is collecting information to be able to build the platform for the future to serve small businesses better.
50
25% 16%
AGAINST
See who won the debate
FOROOHAR: I think Amazon is bad for small business for three reasons. First and foremost, it offends the rules of normal capitalism: fair and free markets. If you go back to Adam Smith, the father of modern capitalism, he would have said that you need three things in order to have a fully functioning proper market. One is equal access to information on both sides. The second is a shared understanding of the transaction that’s being made. And third is a common moral framework. You have none of those things when you are a small business dealing with Amazon. That creates information asymmetry, and that’s a problem for markets. They simply don’t function fairly and efficiently by the rules of economics and capitalism when those things are in effect. MITCHELL: More than two-thirds of Americans, when they want to buy something online, no longer go to a search engine. Instead, they start their search right on Amazon. This means that if you’re a small business and you make or sell anything and you want to reach the online market, you have two options and they’re both bad: You can continue to sell on your own website, but that’s basically like hanging your shingle out on a dirt road that no one is walking down. Or, you can become a seller on Amazon. But if you sell on Amazon, you’ll be handing over the fate of your business, your livelihood, to your biggest and most aggressive enemy—an enemy that has every intention of eating your lunch.
Mark Jamison: Senior fellow at the American Enterprise Institute
Rana Foroohar: Columnist for the Financial Times and author of Don’t Be Evil: The Case Against Big Tech
Kunal Chopra: Former Amazon general manager
Stacy Mitchell: Co-director of the Institute for Local Self-Reliance and author of Big-Box Swindle: The True Cost of Mega-Retailers and the Fight For America’s Independent Businesses
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CALENDAR
FEBRUARY 16-18 TradeTech FX 17 The Art of Banksy Boston 20 Daytona 500 Daytona Beach, FL
America’s favorite cocktail The secret is in the salt. The original margarita contained only three ingredients: 1 ounce of Cointreau, 2 ounces of blanco tequila and 1 ounce of fresh lime juice—with salt around the rim and a lime garnish. Subtle sips of salt sweeten the sourness of the drink. Margaritas are easily customizable to cater to any taste and season. With Margarita Day falling in February, try our recipe with a seasonal twist:
The Luckbox Winterita 2 oz. pomegranate juice 2 oz. cranberry juice
22 National Margarita Day 24-26 MoneyShow + TradersExpo Las Vegas 27 Screen Actors Guild Awards
MARCH
PHOTOGRAPHS: PI, MARGARITA) SHUTTERSTOCK; (SNEAKERS) JOHN ANGELILLO
1 Christie’s 20th & 21st Century Art Auction London 4 Sotheby’s Sneakers Auction Paris 11-20 SXSW Conferences & Festivals Austin, TX
2 oz. gold tequila 1 oz. Licor 43 (or orange liqueur) ½ oz. lime juice Coarse salt for the rim and lime garnish
No, not the food The decimal form of the irrational number pi is never-ending and nonrepeating—it goes on forever. In 2015, Guinness World Records recognized Rajveer Meena from Vellore, India, as the record holder for reciting the most digits of pi. He went up to 70,000 digits while blindfolded. But pi isn’t just an infinite decimal. In 2005, artist and mathematician John Sims set out to find a way to balance math and art by creating quilts that speak to the power of patterns in pi.
14 Pi Day 15-16 NCAA March Madness Begins Dayton, OH 22-24 MoneyShow Virtual Expo 22-25 NFT.Land Las Vegas 23 Freeman’s 20th Century Art and Contemporary Design Auction Philadelphia 23 Trading Options with Tom Sosnoff tastytrade.com 27 94th Oscars
Wearable art London-based Sotheby’s held its first auction in 1744, making it the oldest fine art auctioneer in the world. These days, it embodies the latest trends and brings in more than $4 billion annually. In 2019, the auction house began holding online sneakers auctions, and it now operates an online sneakers tab with a collection ranging from Nike limited editions to shoes worn and signed by big-name athletes. Its site includes Adidas Yeezys and Louis Vuitton. In May of 2020, Sotheby’s set the world record for a sneaker sale with Michael Jordan’s game-worn, autographed Nike Air Jordan 1s from 1985 for $560,000. The sale surpassed the previous sneaker auction record of $437,500 set at Sotheby’s in July 2019 for the Nike Waffle Racing Flat “Moon Shoe.” Sneakers may soon bring millions of dollars at auction. Experts estimate the value of the earliest known Michael Jordan regular-season game-worn shoes, a pair of Nike Air Ships, at $1.5 million.
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Cheat Sheet #20
Rem o and ve s this ave page !
Looking for Liquidity? Look to the Stars Liquidity is essential to successful trading By Mike Hart
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raders think of price discovery— an essential characteristic of any market—as the process that sets spot prices. It’s a matter of buyers and sellers making transactions. Having lots of participants results in a liquid market that sets prices efficiently and promotes quick execution of trades. In the world of fine art, some unusual dynamics set the tone. While art objects possess inherent value, the markets for them tend to remain relatively illiquid. As a result, selling high-end art can be a slow process with only a small number of participants and a long time between sales. That makes price discovery unpredictable. In contrast, modern equity trading is usually built on information provided by hordes of traders coming together to bid and offer contracts. That creates liquidity that ensures a fair price. Successful options traders identify which liquid stocks to trade and steer clear of illiquid ones. Luckbox built this cheat sheet with that in mind.
Mike Hart, a former floor trader at the Chicago Stock Exchange and proprietary futures trader, specializes in energy markets and interest rates. He’s a contributing member of the tastytrade research team. @mikehart79
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First, look to the bid/ask spread in the options chain. The tighter the spread, the better. Use caution or avoid trading underlyings with spreads wider than 20 cents. Here’s a snapshot of a liquid put option in the S&P 500 ETF (SPY) compared with a less-liquid option in the Dow Jones ETF (DIA). At-the-money Put Option: Symbol
Bid
Ask
Spread width
SPY
$8.56
$8.57
$0.01
DIA
$7.60
$7.90
$0.30
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Most trading platforms display volume and open interest, two useful metrics for establishing liquidity. Look for strikes with thousands of contracts, and avoid those with none or only a few. At-the-money Put Option:
Symbol
Volume
Open interest
SPY
3,250
19,100
DIA
366
1,836
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The tastyworks platform has a star meter that measures liquidity. Use it as a fast and simple way to determine tradability. In general, look to trade 3- and 4-star underlyings, and avoid or exercise caution with any that have one or two stars.
Stars
Liquidity
★
Poor
★★
Low
★★★
Medium
★★★★
Highest
March 2022 | Luckbox
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trades&tactics actionable trading ideas & strategies
GAME THEORY
RAT I O N A L C H O I C E & U T ILIT Y O PT IM IZAT IO N
Advantage: House Casual gamblers love slot machines. But what if they knew the numbers behind the bells and whistles?
PHOTOGRAPH: UNSPLASH
By Jeff Joseph
lot machines attract new or casual gamblers to the casino because they offer a low-friction entry point for anyone intimidated by chips, craps, cards, dice, blackjack tables or roulette wheels. Plus, they’re cheap to play and they carry the allure of huge jackpots. So, casino operators have plenty of good reasons to position slots near the entrances. But they have another motivation, too. It probably escapes most slots players that they have only about a one in 50-150 NOW THAT’S A LUCKBOX million chance of winning a big jackpot. The odds get even worse for so-called “mega” A lucky Clearwater, Florida, jackpots of over a million dollars—they can resident visited Seminole be as long as one in 250-500 million. Hard Rock Hotel & Casino So, it should come as no surprise that Tampa on Jan. 9 and won a casinos recognize the one-armed bandits $1,045,153 jackpot as their real money-makon a progressive slot game. ers. December 2021 revenues It came just 18 days after weren’t available as of this she won a $1,241,642 writing, but gaming revenue jackpot on a similar progresreached $48.34 billion by the sive slot machine at the end of November, the American same casino. Gaming Association reported. That shattered the indus–WFTV, Tampa try’s full-year record of $43.65 billion set in 2019, and it was tracking 21.3% ahead of the same 11-month period in 2019. Gross revenue from slot machines accounted for $29.8 billion (62%) of casinos’ 2021 revenue. What’s more, the numbers seem likely to keep increasing. Casino operators refer to the “hold” as the portion of each wager they expect slot machines to retain over time. A machine with 5% hold produces $5 in revenue for every $100 in wagers. The same machine can be described as having 95% “RTP,” or return-to-player. Average hold has risen considerably, from approximately 5% to more than 6.5% over the past 30 years, with some as high as 15%, according to Global Gaming Business, a trade publication. “Slot zombies” may not even notice. In a recent study, researchers in Mexico placed two slot machines next to each other—one with a 4% hold and the other with a 15% hold. Over a 180-day period, the machines each had the same amount of play and the same number of wins. Players didn’t figure out that they should switch to the machine with the smaller house edge. Don’t expect that message to be lost on casino operators.
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BOOK VALUE
BET the HOUSE It’s common knowledge that casino games favor the house. A new book teaches active investors how to be the house by trading options, and betting small and often, to shift the odds to the trader’s advantage. By Julia Spina
able games at a casino typically have maximum bet sizes. By capping bet sizes, the casino aims to increase the number of occurrences from a single gambler so the house is more likely to reach long-run averages for each game, a consequence of the law of large numbers and the central limit theorem. When a small number of events is randomly sampled from a probability distribution repeatedly and the averages of those samples are compared, the variance of those averages tends to be quite large. But as the number of occurrences increases, the variance of the averages decreases and the sampled means converge to the expected value of the distribution. Just as the casino aims to realize the long-term edge of table games by capping bet sizes and increasing the number of plays, short premium traders should make many small trades to maximize their chances of realizing the positive long-run expected averages of short premium strategies.
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JULIA SPINA, a tastytrade research team member, says her background in physics, signal processing and data analysis informs her work as a financial educator and options strategist. @financephoton Julia’s column, The Unlucky Investor, is scheduled to debut in the next issue of Luckbox.
Luckbox | March 2022
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Trading Slots for Options Buying options for profit is like playing the slot machines. Gamblers who play enough times may hit the jackpot and receive a huge payout. However, despite the potential payouts, most players average a loss in the long run because they are taking small losses most of the time. Investors who buy options are betting on large, often directional moves in the underlying asset. Those assumptions may be correct and yield significant profits occasionally, but underlying prices ultimately stay within their expected ranges most of the time. This results in small, frequent losses on unused contracts and an average loss over time. Selling options for profit is like owning the slot machines. Casino owners have the long-run statistical advantage for every game, an edge particularly high for slots. Owners may occasionally pay out large jackpots, but as long as people play enough and the payouts are manageable, they are compensated for taking on this risk with nearly guaranteed profit in the long term. Similarly, because short options carry tail risk but provide small, consistent profits from implied volatility (IV) overstatement, they should average a profit in the long run if risk is managed appropriately. Long premium strategies have a high profit potential but cannot be consistently timed to ensure profit in the long term. This is because outlier underlying moves and IV expansions that benefit long premium positions are strongly linked to external events (such as natural disasters or political conflict), which are relatively difficult to predict reliably. Short premium strategies, on the other hand, profit more often and have the long-term statistical advantage if investors manage risks appropriately. Similar to the slot machine owner, a short premium trader must reduce the impact of outlier losses to reach a
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large number of occurrences (trades) and realize the positive long-term averages. This is done most effectively by limiting position size and by adjusting portfolio exposure according to current market conditions. Excerpted with permission from the publisher, Wiley, from The Unlucky Investor’s Guide to Options Trading by Julia Spina and Anton Kulikov. Copyright © 2021. All rights reserved. This book is available wherever books are sold and at tastytrade.com/investorsguide.
PROMISE FOR UNLUCKY INVESTORS I truly believe this is the most logical, informative and comprehensive book on strategic options trading ever compiled. Unlucky investors can rejoice. No book will ever be a one-size-fits-all holy grail for options trading, but The Unlucky Investor’s Guide to Options Trading is the closest thing we have. —Tom Sosnoff, co-CEO of tastytrade, from the book’s foreword
Options trading and cards for money aren’t for fools hoping for luck. This is a serious but easy-to-read introduction for those ready to try constructing options trades. —Aaron Brown, author of The Poker Face of Wall Street and Red-Blooded Risk
1/28/22 9:49 AM
trades& tactics
BUY THE NUMBERS
M AT H M E E TS MO NEY
The Humble Story of Pi Luckbox is fascinated by pi. It’s irrational, transcendental and non-repeating— plus it’s getting some competition from another Greek. By Stephen Ornes he Secret Ingredient in Pi Pi, defined as the ratio of the circumference of a circle to its diameter, yields a number between 3 and 4, but closer to 3. In the late 18th century, Swiss mathematician and astronomer Johann Heinrich Lambert published a proof that pi is irrational, which means you can’t write it as a ratio of two whole numbers. (Since then, mathematicians have found a raft of ways to prove the same thing. Not because they needed to, mind you, but because they could.) If you can’t write pi as a ratio of two whole numbers, then that means you can’t properly write it as a terminating decimal. If it’s not a terminating decimal, then its digits go on forever, never repeating. They can never be calculated completely and precisely, and pi explorers search for patterns and signals in its infinite digits. (In Carl Sagan’s book Contact, aliens reach out to earthlings by sending a signal composed of the digits of pi.) Even before Lambert, mathematicians spent centuries trying to approximate pi. Archimedes famously tried—and came close—by inscribing a regular polygon in a circle, which means all its vertices touched the circle. He then circumscribed a regular polygon around the circle, which means the circle touched the midpoint of every segment. As he increased the number of sides in the polygons—from six-sided hexagons, to 12-gons, up to 96-gons—the perimeters of the shapes got closer together as they fit more snuggly around or in the circle. Archimedes used the perimeters of those shapes to estimate the circumference of the circle. He was able to estimate pi as somewhere between 3 1/7 and 3 10/71, which is pretty good.
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quence that went beyond a better understanding of pi. It managed to answer a question that mathematicians had been trying to answer for centuries. Namely, can you square a circle?
Pi isn’t only irrational; it’s also what mathematicians call a transcendental number. That means it’s not algebraic. And that means that when you solve algebraic equations, expressions, such as y = x2 or x3 + y3 = z3, the answer will never, ever, ever be pi. (Short aside: Even though transcendental numbers may seem special, they’re not, really. They’re rather humdrum. Most numbers are transcendental. In fact, familiar numbers like whole numbers and terminating fractions are, statistically speaking, highly unlikely. If you picked a number at random, out of all the real numbers, which includes all integers and all decimals, you’d almost definitely end up with a transcendental number. You’re much more likely to win the lottery—or even every lottery yet to be played—than to select a whole number when you’re choosing numbers at random from the number line. The probability of picking a whole number is zero.) German mathematician Ferdinand von Lindemann proved that pi was transcendental in 1882. That proof had an astonishing conse-
Slicing pi “Squaring the circle” is a problem that’s plagued mathematicians for millennia, and it’s tightly linked to the character of pi. There is evidence that ancient Egyptians, Mesopotamians, and Indians worked on it in some form, and Greek mathematicians formally started pursuing the question thousands of years ago. It asks: If someone gives you a circle, can you use a compass and straightedge to draw a square with the same area? For thousands of years, no one could, but not for a lack of trying. (Crockett Johnson, whose work is featured in this book, captured an attempt to square the circle in his painting Squared Circle.) Even before Lindemann, mathematicians knew that if pi were transcendental, there would be no way to construct a square with the same area as a given circle. Lindemann’s proof established, once and for all, that it’s mathematically impossible. But impossibility was not a deterrent to many would-be solvers. In the late 18th century, a deluge of alleged proofs—none of them valid—prompted both the French Academy of Sciences and the Royal Society in London to announce they would no longer consider manuscripts claiming to square the circle. The case was closed, they said. Stop trying. In the United States, Lindemann’s proof didn’t stop one ambitious circle-squarer. Edward J. Goodwin was a physician in Posey County, Indiana, who fancied math. In 1888, Goodwin announced that he’d successfully squared the circle, overturning thousands of
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years of frustration and in direct defiance of Lindemann’s proof. He offered to spread the good news through lectures at the 1893 World’s Fair, in Chicago, but the fair organizers, who had originally welcomed his presentation, ultimately declined his invitation to exhibit. Undaunted, Goodwin published his approach in 1897 in a math journal, the American Mathematical Monthly, under the title “The Quadrature of the Circle.” At this point, the story evolves from a curious but forgettable anecdote into a tale for the archives of absurdity. Goodwin drafted a bill for the Indiana House of Representatives to introduce “a new mathematical truth” that would, he argued, benefit the children of Indiana. A local legislator introduced the bill, and it passed the House. It stalled in the Senate, though, after the head of the Purdue University Math Department, through a lucky coincidence, saw the bill and
convinced politicians of its absurdity. The crucial fault of Goodwin’s proof? Pi would have to be redefined—as 3.2. The bill characterized the other claimed value of pi, with its infinite, laborious strings of decimal digits, as “wholly wanting and misleading.” Forget Archimedes and Lindemann, Goodwin said. (One has to admit, though, that if pi were 3.2, it’d be a lot easier to memorize. And easier to square the circle.) The Tao of tau Pi has its loyalists; it also has detractors. Many mathematicians argue each year that pi is less important than τ, or tau, the irrational and transcendental number you get by multiplying pi by 2 (6.28 . . .). Some say tau is more useful: Mathematicians care more about the relationship between a circle’s circumference and its radius— not its diameter. So, if we used tau, you’d learn that the circumference of a circle is equal to its
THE FIRST 100 DIGITS OF PI:
3.141592653589 7932384626433 8327950288419 71693993751058 2097494459230 7816406286208 9986280348253 421170679 radius times tau. Many equations in far-flung mathematical realms require you to multiply pi by 2; these would be simplified, argue tauists, if you just used tau from the outset. In a concession to the validity of the tau movement, in 2012 MIT began issuing its Pi Day admissions letters at 6:28 p.m. Which is, you notice, tau-time. And in 2014, the University of Oxford confronted the debate head-on with a conference titled “Tau versus Pi: Fixing a 250-Year-Old Mistake.” Excerpted from Math Art: Truth, Beauty, and Equations by Stephen Ornes. (See “Arts & Media,” p. 46.)
A mathematician attempts to “square the circle” from the book Atalanta Fugiens (1618) by German physician Michael Maier.
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NORMAL DEVIATE
The Tick is the Trade ... and Other Essential Trading Advice A pro trader dissects the three pillars to successful active investing By Tom Preston veryone who trades options wants to make money doing it. But how does someone reach that goal? A lot of strategies, techniques and products might work. Or not. Yet, three ideas can tilt the odds in favor of becoming a profitable trader, and they apply to everyone—no matter the strategy or product. Let’s call them the “Three –itties:” liquidity, volatility and probability.
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Liquidity The worst advice for a new trader usually comes in the form of a question: “What do you want—the tick or the trade?” The idea is that if a trader feels bullish on a stock and wants to short a put that has a bid price of $2.00 and an ask price of $2.02, an order to sell it for $2.01 might not get filled. If the stock rallies, the put’s price might drop from $2.00, to $1.50, to $.75 and lower. Fighting for a $.01 advantage could cost profits. So, why not just hit the $2.00 bid and get in the trade? In 30 years of working as a floor trader, hedge fund manager, and now retail trader, I learned that the tick is the trade. The bid/ask spread in a stock or
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option is a measure of the “edge,” or advantage, that a market maker has when a customer buys something at the ask price or sells something at the bid price. The edge to a market maker is a cost to the retail trader. So, an order to sell that put for $2.01 would keep that edge, that cost, to a minimum. For perspective, selling an option for .01 less amounts to $1.00. The same is true for 100 shares of stock. That doesn’t sound like much, but over the course of a year, a retail trader who’s engaged with the market might make more than 1,000 opening and closing options trades. Giving up .01 edge on each option would amount to giving the market $1,000. That’s $1,000 shaved off your account that has nothing to do with the quality of your trade decisions Liquidity is a measure of how efficiently a trader can execute trades and keep the edge to a minimum. Narrow bid/ask spreads and high trading volume and open interest mean a trader can work an order to buy or sell an option in between the bid/ask and have a good chance of getting filled. Trading liquid options lowers the edge a trader pays, which increases the overall chance of making money.
With high volatility, the reward for taking risk becomes magnitudes higher.
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Volatility Wall Street and traditional financial media try to teach people to fear volatility, but it can be one of an options trader’s most important tools. High volatility rewards traders for taking risk. Risk is present in any trade, even when market volatility is low. But when volatility is high, options premiums can be much higher. For example, a 95 put with 60 days to expiration on a $100 stock is theoretically worth $0.66 when its volatility is 15% but $2.64 when its volatility is 30%. Volatility doubled, but the put’s premium increased four times. Options sellers have a statistical advantage over options buyers. And when volatility is high, that advantage is increased by the elevated option prices. When the market is nervous or uncertain about the future, volatility tends to go up. But more often than not, the market or a stock doesn’t move as much as the increased volatility predicts. When that happens, the trader selling that option captures more reward for taking risk than if they took risk when volatility is lower. Every trade has risk, but shorting options when volatility is high means the reward for taking risk is magnitudes higher.
Probability Quantifying the probability of making money is one of the most important parts of trading options. After all, a high probability of profit is better than a low probability of profit. But if a trade with a 70% probability of profit is good, isn’t a trade with an 80% probability of profit better? Not always. Probability and potential profit have an inverse relationship. The higher the probability of making a profit, the lower that potential profit is. For example, with the SPX index at $4,700, the 4510 put with 50 days to expiration had a 70% probability of profit at expiration and was worth $64.20. The 4325 put in the same expiration had an 80% probability of profit at expiration and was worth $37. Further, the 4100 put had a 90% probability of profit at expiration and was worth $19.50. As the probability of profit increases, the potential profit from shorting one of those puts decreases significantly. Moreover, while the capital requirement to short the 4510 put is about $74,000, the requirement for the short 4325 put is $56,000, and for the short 4100 put is $41,000. The credit from the short put drops faster than the capital requirement and gives the higher probability trades a lower potential return on capital. And if the SPX crashes, all those short puts will lose money, and selling a put for a much smaller credit doesn’t necessarily reward a trader for taking risk. Choose high probability options trades, but balance probability with capital requirements and potential profit for the risk a trade presents.
As the probability of profit increases, the size of the potential profit decreases significantly.
Tom Preston, Luckbox contributing editor, is the purveyor of all things probability-based and the poster boy for a standard normal deviate. @fittypercent
March 2022 | Luckbox
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CHERRY PICKS
R I PE & J U I CY T RA D E IDEAS
Backtest and Forward Test with Lookback See how a strategy performs before risking money on a trade By Michael Rechenthin ookback, a free options analysis tool from tastytrade, provides two ways of examining the profit and loss around an options strategy: the backtest and the forward test. Type in the strategy, and lookback will review up to 15 years of data to uncover the strategy’s track record. But historical results are just that: history. A backtest would “prove” that a bullish 35-delta short put has outperformed a less-bullish 15-delta short put in the S&P 500 over the past 10 years. But with the market’s tremendous rise, simply noting outperformance of bearish strategies doesn’t provide actionable insight. For traders who want to bet on a future market decline, a backtest might not be relevant. Instead, they may want to try another feature of lookback: the forward test. Forward testing helps traders see the probabilities of a particular outcome. For example, under the “Forecasted Profit/Loss” tab, the user can see the results of an options strategy all the way to expiration. Hover the cursor over a price estimate for a particular date, and lookback uses an options pricing model to calculate the projected outcome of profit and loss and the current probability of reaching that price. Here’s an example: For an S&P 500 (SPY) short 445 (35 Delta) call option with 53 days to expiration, lookback projects a 64% probability of landing below 445 by expiration, meaning a full profit of $888. Not convinced forward testing is important? Check out the “Analysis” tab and see the hockey stick graphic. This flipped graph shows stock price on the horizontal axis instead of in its more usual vertical position. By moving the cursor to an estimated outcome, traders can clearly see the theoretical performance along with an estimation of options’ Greek values. To take trade examination to the next level, use the “Advanced” button on the “Analysis” tab. By moving the red line from left to right, traders can change the date from present day all the way to expiration. The upshot? Traders can check their options ideas at tastytrade.com/lookback to find out how those strategies perform before allocating their capital.
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Michael Rechenthin, Ph.D. (aka “Dr. Data”), is head of research & development at tastytrade. @mrechenthin
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Forward testing The lookback tool indicates probabilities of future stock movement. Chain
Forecasted Profit/Loss
March 23
6 MONTHS
Analysis
Backtest
1 DAY
Price: $445.00 Expected return: $887.76
552 534 516 499 481 36% 64%
463 446 428 411 393 375 358 340 322
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Source: slopecharts.com
Advanced analytics Advanced features in lookback allow for detailed probability analysis. Chain Beginner
Forecasted Profit/Loss
Advanced
Cumulative %
Analysis
Backtest
Select date
P/L Bell Curve
100 February 17 P/L: $445.63 Cumulative %: 50% P/L Standard deviation: 1.05K
Move along the curve to show specific profit and loss and associated probability on a chosen date.
90 80 70 60 50 40 30
See the standard deviation of profit and loss.
20 10 0
$-10.5K $-9.88K $-9.23K $-8.57K $-7.92K $-7.27K $-6.62K $-5.96K $-5.31K $-4.66K $-4.01K $-3.35K $-2.7K $-2.05K $-1.4K $-743.45K $-90.87K $561.71K
Source: tastytrade.com/lookback
Sign up for free cherry picks and market insights at info.tastytrade. com/cherry-picks
Luckbox | March 2022
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trades& tactics
THE TECHNICIAN
A V E T E RA N T RADER TAC K LES T EC HNICALS
Boom or Bust— What’s Next for Retailing? Over the years, some retailing-sector equities have posted staggering gains By Tim Knight
ircumstances—like inflation or the fickle tastes of consumers—can whip valuations of retailers up or down by thousands of percentage points over the long haul. The wildest high-stakes sectors, such as biotechnology, can move more dramatically than retailing, but staid industries, such as equipment manufacturing or banking, are no match for the movement in store-related stocks. So, let’s look at some high-end, publicly traded retailers and some of the manufacturers that supply them. Fifteen companies with histories of at least a decade in the markets come to mind: Big Five Sporting Goods (BGFV), Dick’s Sporting Goods (DKS), Birks Group (BGI), Charles & Colvard (CTHR), Fossil Group (FOSL), Hibbett (HIBB), Haverty Furniture (HVT), Interparfums (IPAR), Kirkland’s (KIRK), Movado Group (MOV), PVH Corp. (PVH), Restoration Hardware (RH), Signet Jewelers (SIG) and Tapestry (TPR). In recent years, most of these stocks have increased in value, and a few have posted absolutely eye-popping returns. Let’s judge them on their performance over the last 10 years.
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Standouts and laggards The biggest winner, Restoration Hardware, returned about 1,500%. But it hasn’t achieved a steady ascent, and bad timing has caused plenty of investors to lose money on the stock. Yet, over the long haul of a decade, particularly in the past few years, the stock enjoyed an
The champ With a return of 1,500%, Restoration Hardware had the biggest 10-year gain in a group of 15 retailing-related stocks. 2100% 1900% 1700% 1500% 1300% 1100% 900%
TPR RH IPAR HVT FOSL
700% 500% 300%
100%
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: slopecharts.com
Interparfums has posted a breathtaking return of 13,000% over its life as a publicly traded entity. March 2022 | Luckbox
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absolutely scintillating run. (See “The champ,” p. 61.) With a return of almost 700%, Interparfums takes the second-place spot. This fragrance maker has been pushing to lifetime highs recently, and its ascent has been steadier than Restoration Hardware’s climb. The COVID-19 bear market in April 2020 took its toll on the perfume manufacturer, but those losses were swept aside quickly and the stock had an amazing run through the end of 2021. Setting aside the decade-long time stricture, Interparfums reigns as the biggest
Restoration Hardware soared 1,500% in the last decade. overall winner with a breathtaking return of about 13,000% over its life as a publicly traded entity. Havertys, a furniture retailer, gained about half as much as Interparfums in the last 10 years, but a 370% return is still quite good. One cautionary note on this stock: Almost all of the gains for Havertys occurred in the span of just a few months. It happened just once and then the stock languished for years. Some of the group’s stocks require even more caution. Sally Beauty has declined by about 10% over the 10-year period, and so has Tapestry, purveyor of the Coach, Kate Spade and Stuart Weitzman brands. Last place among the stocks tracked here belongs to Fossil Group, Inc., a watch manufacturer that lost about 90 percent of its market cap and has spent most of the past decade as one of very few stocks consistently working its way lower, year after year. Correlating all 15 Using the same 10-year time period, a correlation analysis was performed against the 15 ticker symbols in the original set. (See “Matchup,” above.) In the correlation grid, the bright green diagonal simply shows the perfect “1.0” correlation of each ticker to itself, which is obvious and uninteresting. The other colors are easier to interpret:
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Matchup A correlation analysis compares 15 retailing-related stocks.
Overachiever Interparfums has consistently outperformed XRT, a retailing-heavy exchange-traded fund. 1000% 900% 800% 700% 600%
IPAR XRT
500% 400% 300% 200%
100%
0%
2006
2008
2010
2012
2014
2016
2018
2020
Source: slopecharts.com
Greener indicates a more positive correlation, and redder means a more negative correlation. Relative performance Because Interparfums has remained especially strong over its entire history, let’s compare its performance with XRT, an exchange-traded fund for retailing. XRT began trading in 2006, so the comparison is confined to that timespan. (See “Overachiever,” above.) As shown in the graphic, Interparfums
tracked XRT and consistently outperformed XRT in general. That indicates Interparfums’s powerful performance wasn’t a fluke or outlier. Its outsized performance has been consistent over the years, compared end-to-end with retail stocks in general. As one last analysis, the broad retailing fund is reflected in a ratio chart, with XRT as the numerator and SPDR S&P 500 ETF Trust (SPY) as the denominator. SPY has traded much longer than XRT, so the ratio chart
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Beating the market? XRT, an exchange-traded fund composed of volatile stocks in retailers, sometimes dramatically outperforms the overall stock market. XRT/SPY
.25 .24 .23 .22 .21 .20 .19 .18 .17 .16 .15 .14 .13 .12
.11
2006
2008
2010
2012
2014
2016
2018
2020
Source: slopecharts.com Source: slopecharts.com
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commences in 2006, when XRT began. (See “Beating the market?” left.) This ratio chart clearly shows the high volatility of the retail sector. It’s the proverbial “feast or famine,” either dramatically outperforming the overall stock market (2009 through 2013, inclusive) or severely underperforming (2014 to early 2020). The nadir came in the spring of 2020 when the COVID-19 lockdown battered the retail sector. There’s ample room for more “softening” to the downside before retail stocks represent a true bargain again. When they do reach that point, it will pay to focus on companies that have performed well over the long haul. Tim Knight has been using technical analysis to trade the markets for 30 years. He’s the host of Trading the Close on the tastytrade network and offers free access to his charting platform at slopecharts.com. @slopeofhope
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THE LAST PICTURE
Metahype Is it still real life when a $69 million piece of art can’t hang on the wall? Perhaps it’s the beginning of something else— something called the “metaverse.” At least, that’s what the people at Google and Meta—the company formerly called Facebook—would have everyone believe. Meta’s CEO Mark Zuckerberg rammed the word into the vernacular last year when he described his vision for the metaverse at the Connect 2021 conference. According to him, it’s where the future of business, entertainment and humanity at large will reside. Microsoft apparently got the memo, as evidenced by their $69 billion acquisition of Activision Blizzard—
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no doubt the first of many billion-dollar metaverse-conscious power plays. But what exactly is the metaverse? That question isn’t easy to answer. It doesn’t exist yet. It could be interconnected immersive virtual worlds inhabited by digital avatars bidding on digital art (like Decentraland, pictured above). Or, it could be the latest in a string of overhyped trends like Peloton, Google Glass, socialism, space tourism, hoverboards, hybrid work, Clubhouse and Cathie Wood. Yeah, Cathie Wood. Whatever the metaverse is—or isn’t—it’s a subject ripe for the next issue of Luckbox, which we’re calling The Issue with Hype.
Luckbox | March 2022
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