How to find your arbitrage (from the guy who’s done it 3x) ft. Nick Kokonas

Shaan opens by describing Nick Kokonas as a founder who moved from options trading to building Alinea, one of America’s most celebrated restaurants, then founded Tock and sold it for hundreds of millions of dollars. Nick explains the quote that motivates him: “If you wake up every day feeling great, you’re not taking enough risk. If you wake up every day throwing up, you’re taking too much risk.” His former trading partner Keith Goggin gave him that advice while Nick was carrying a frightening short position in Plug Power; Keith’s test was whether Nick had actually thrown up yet. If not, the level of fear was supposedly right. Nick says he internalized the idea that comfort means he has stopped learning. In his household, he and his wife use “AT&A,” meaning “all talk, no action,” to challenge one another to act on plans. He gives their Napa property as an example: he and his wife had dreamed about owning it for decades, but she eventually asked whether he was going to buy it or remain “a TNA.” He submitted a very low offer, which the sellers accepted immediately, creating new anxiety because he knew nothing about agriculture, viticulture, irrigation, or pond management. He sees this recurring discomfort as a chosen “prison” or new mountain: every decade, he creates a difficult new challenge rather than remaining an expert in a familiar field.

Nick says he studied philosophy, especially language and logic, and spent years knowing only what he did not want. A salaried job felt like a prison of predictable upside, unlike his father’s grocery business, which gave his father control over his time and allowed him to attend Nick’s games. Growing up in Chicago, Nick saw trading as a distinct career from investment banking: Chicago was the place for traders, and he wanted to own his outcome. He started with only $60,000—$40,000 from a backer and $20,000 of his own—which he calls dramatically undercapitalized for a trading floor. To gain access to the Chicago Mercantile Exchange, he deliberately erased his college education from his résumé so he could be hired as a $5.25-an-hour runner. The runner physically carried orders from phones to brokers in the pit; later, Nick became a phone clerk and learned open-outcry hand signals after the close. His goal was to trade within a year, so he sought the “smallest, highest hoops”: difficult-to-understand markets with fewer competitors. He eventually found a quantitative trader who had studied at the University of Chicago and was using programmable HP calculators. Nick offered to pay him to work for him, and the trader instead hired him for $250 a week. Six months later, Nick had a rudimentary understanding of making options markets. Nick put up $20,000, his mentor $40,000, and they began trading Swiss-franc options almost exactly one year after Nick entered the arena.

Nick says he later required every new trader he trained to make a trade on the first day. The environment was physically loud, competitive, and intimidating, so the point was not merely technical learning: a new trader had to open his mouth, risk looking foolish, and “break the seal.” He compares this to Facebook’s former practice of requiring engineers to ship code to production on day one. Shaan relates the same lesson to his first sushi experience. Although sushi chefs traditionally make beginners mop floors and prepare rice for years, the chef he trained under put him behind the counter immediately. A customer from The Office sat down, announced that Nick was “up,” and Nick served soggy sushi because he did not yet understand that chefs clap their wet hands to leave the correct amount of moisture. The failure was useful because it exposed the gap between watching and doing. Nick says his repeated career changes are not about pursuing fear for its own sake. Anxiety is a signal that he has found a situation where he will learn. He enjoys being uncomfortable because a new project might lead somewhere unpredictable. Expertise, he argues, is a trap: once someone becomes an expert, a younger and hungrier person with fresher eyes and less respect for convention may replace them. His advice is to quit before being forced out, return to the bottom of a new mountain, and start again.

Nick describes arbitrage as finding a mispricing, but says he now believes every arbitrage is fundamentally about timescale. His first major opportunity involved ETFs such as the Triple Qs and Spiders traded in New York and their related NASDAQ futures traded in Chicago. A New York trade required information to travel by phone and paper to the Chicago floor, creating a delay of roughly 30 seconds. Nick believed that directly connecting the two sides could let his firm hedge before Goldman Sachs and other large firms could react. He read the CFTC’s thick regulations instead of relying on industry practice and found no rule preventing the same firm from communicating directly between New York and Chicago. To install a dedicated line, he had to get AT&T fiber through the exchange; when the exchange resisted, he bribed union workers with cases of Jameson. When the line first went live, the firm made a few hundred thousand dollars almost instantly with what Nick calls “hero risk.” He immediately shut the system down, fearing that making $2 million on the first day would cause powerful firms to destroy the opportunity. He reapplied for a pilot program, presenting the connection as a natural hedge, and then operated openly. Within six months, the firm handled a few percent of the American Stock Exchange’s daily volume. Nick says the firm made more than $100 million that year, although he personally owned only a small percentage and needed the capital to keep trading.

The following year, other traders discovered the opportunity, the timescale shortened, and the firm added computation. Nick and his partners expanded by merging with a New York firm and acquiring distressed trading operations, including one in Boston. But they did not know how to build management, accounting, or organizational layers. Some partners who had made $2 million in one year became dissatisfied when they made $800,000 later, creating what Nick calls “rock band syndrome.” Nick’s father died in 2001, and the events of September 11 made him reconsider what he was doing. He also recognized that he was not being a good parent, husband, or person. He felt the whole world was moving too slowly compared with the trading floor. His wife eventually delivered what he calls a slap rather than a nudge, and Nick decided he was done. When Keith objected that Nick could not simply take six months off while being paid, Nick walked into a group meeting and announced that it was his final week. He admits he handled the departure poorly, even though he had been communicative with his partners. Nick tells a story about bringing a multimillion-dollar tax check to his father. His father’s response was not congratulations but, “Is what you’re doing legal?” followed by “No boats, no women, no drugs.” He told Nick that paying taxes was a patriotic duty connected to the sacrifices of their immigrant family. More broadly, his father taught him that consistent attendance matters: arrive early, be prepared—or honestly admit you are unprepared—and follow through.

Nick says he carried the arbitrage mindset into restaurants. At Alinea, he saw the restaurant host stand and phone as the equivalent of the paper order that slowed trading. A customer would walk in, hear the phone ring, and watch staff prioritize an unseen caller; Nick considered that terrible hospitality. OpenTable, in his view, also offered a poor version of inventory: like a sweater store where a customer asks for a specific item and is told to guess among hundreds of unknown alternatives. Tock was built around knowing who was walking through the door and understanding the value of that customer at a particular time. A table on a Tuesday at 9 p.m. in Chicago is not economically equivalent to a table on Saturday at 7 p.m., but restaurants generally price them identically. Nick argues that businesses should use localized, dynamic pricing rather than treating menus and reservations as fixed. He objects to Uber’s phrase “surge pricing,” saying the underlying idea was simply to raise supply to meet demand; “dynamic pricing” would have communicated the concept better. Nick believes geofenced, localized, dynamic pricing for time-slotted businesses could eventually produce hundreds of billions of dollars in value. Restaurants resisted because they printed menus quarterly and did not want to think like revenue-management companies. Nick says the necessary product is a “big dumb button” that lets an operator choose “make more money,” with software and AI handling the complexity behind it.

Nick credits chef Grant Achatz as the person who could make Alinea great. He recognized Grant because every bite he prepared was extraordinary, but also because Grant showed up, stayed until four in the morning, and repeatedly worked through difficult details. Nick compares this to Wilco’s Jeff Tweedy, who said he had to write two or three songs every week to end the year with twelve good ones. The same principle applied at Alinea: while preparing a 1906 Paris menu, Grant made roughly twenty versions of a lamb sauce, each adjusted along a different flavor dimension, because no one could simply look up what the original should taste like. Greatness required making mostly bad work until the good version appeared. Before Alinea opened, Nick published the “Alinea Project” on the eGullet forum. He posted the naming process, menu development, business-plan thinking, and even a universal restaurant calculator with roughly eighty input cells. The public process attracted hundreds of thousands of views, press attention, and future customers; Sean Brock became the first customer through the door. Nick says the more openly and authentically a business explains why it exists, the more people feel connected to it. He designed Alinea like theater, using callbacks and controlled attention. The restaurant began with an intentionally empty “stage,” avoided conventional tablecloths and excessive cutlery, and introduced objects whose purpose became clear later. Nick studied magicians because they control where guests look, stand beside rather than across from customers, and create a desired effect through carefully practiced presentation.

Nick and Shaan end with Strange House, a proposed 90,000-square-foot immersive magic and human-connection experience beneath Wall Street. The idea began when Nick watched magician Nate Staniforth perform a lottery-ticket trick. Nick admired the effect but noticed that the numbers appeared in the audience’s spoken order rather than the normal ascending order on a lottery ticket. He reverse-engineered how the ticket could be produced and emailed Nate. Nate called five minutes later and explained that he had intentionally chosen the less technically perfect version because the audience could follow it more easily. Their correspondence turned into a larger concept: a purpose-built experience where small groups move through rooms and encounter close-up illusions, borrowing the throughput model of Disney’s Haunted Mansion and the immersive structure of Sleep No More. Nate later sent Nick a detailed proposal with hundreds of pages, videos of scale models, spreadsheets, and a proof-of-concept plan. Nick set a minimum target of $20 million in gross revenue, arguing that the concept would need substantial throughput to work economically. Nick says the project is difficult because it cannot be meaningfully tested at small scale; rooms must be built before their effects can be judged. He and Nate are assembling a team that includes people who built Taylor Swift’s stage and game designer Elan Lee. Nick believes in-person experiences will become more valuable as AI makes more interactions impersonal. The intended effect is to make strangers feel wonder and connection, even if they disagree politically. He frames Strange House as his next boulder: not a question of whether it can happen, but whether he will find the next step and make it happen.