Many folks claim that financial math, market knowledge, and engineering are the triumvirate quant skills. I argue that unless you have direct PNL to your name, those skills merely help past the post. In a highly politicized environment such as a bank, successful quants are those who have vision and are able to sell their … Continue reading Day 24: Mini-Startups at the Bank
Markets
Day 20: SPY Puts
A few weeks ago, I rolled my SPY put into SPY 200529 P 260, entering at $6.49 mark ($280 SPY). Since then, SPY has done me the favor of consistently moving sideways, even testing a $290 SPY regime. The mark on this position is currently $2.02 ($283 SPY). $-447 PNL can be explained by ~-$300 … Continue reading Day 20: SPY Puts
Day 19: The Intrepid Spirit of US Markets
The front cover of this week's Economist highlighted the growing gulf between the stock market and the real economy. Over the past two months, many of us have watched US equity's rip-your-face-off rally with significant disbelief and nontrivial FOMO. Personally, I'm still waiting for another correction, but I'll admit maybe my mental markets model is … Continue reading Day 19: The Intrepid Spirit of US Markets
Featured
Day 8: Riding the Esports Wave
2019 ESL CS:GO Grand Finals in the Barclays Center. Image Source: ESL. There's a universal belief, from gamer fans to Wall Street analysts, that Esports is going to be massive. This becomes acutely self-evident during the Corona lockdown as inevitably we play more video games. Recently, I've seen an incredible resurgence of League of Legends … Continue reading Day 8: Riding the Esports Wave
Featured
Day 7: Risk Tools
I've noticed some glaring deficiencies with ThinkorSwim's risk platform. Relative to the risk ecosystem at my previous job, ThinkorSwim offers only a barebones conceptual understanding of risk. While undeniably UX friendly, the risk platform lacks some obvious analytics and un-intuitively organizes other risk data. Every morning when I start my trading day, I need to … Continue reading Day 7: Risk Tools
Featured
Day 3: My USO Chagrin
Crazy week for oil - negative front month WTI prices and the near implosion of USO. Lots of retail investors started piling into USO, betting on an oil price recovery. Given the surfeit of "USO Bad" news articles, it's become fairly clear why a long term bet on USO is a bad idea. Here's a … Continue reading Day 3: My USO Chagrin
Featured
Day 2: Options Are Hard
At Goldman, I observed that the closer you worked to markets, the more boring your personal trading account. Most folks on the trading floor (myself included) just jammed it into US equity, with some tech and crypto bias. A combination of trading restrictions and the zeitgeist of unbeatable markets leads most people to just passively … Continue reading Day 2: Options Are Hard
The Index Business
Earlier, we talked about indices from the consumer's perspective. Now, let's take a closer look at how we'd operate an index trading business. To begin with, we'll need to create a set of flagship products. These will be the off-the-shelf indices that form our core business via scale and convenience. Additionally, these products will act … Continue reading The Index Business
Index Trading 101
Pretend you're an asset manager that's decided to increase your commodities exposure. You don't have the commodity picking experience to effectively deploy $500M so instead you call up your favorite commodities index salesperson. They show you some lovely indices, help you choose one, and charge you a small flat fee to maintain your index. For … Continue reading Index Trading 101
Getting Paid – Part 2
Earlier we took a look at how sales and trading get paid. Now we'll take a closer look at how these incentives can be misaligned. To recap: Jack the salesperson gets sales credits for getting clients to do more trades with the bank. Jane the trader gets paid to manage the risk from client trades. When … Continue reading Getting Paid – Part 2
Getting Paid – Who Does What?
Let's talk about how securities folk get paid at big banks. First, a toy example of trading with the client: Jack the salesperson convinces the client to do a trade with the bank. Jack the salesperson asks Jane the trader for a price. Jane the trader hems and haws for a bit, before quoting a … Continue reading Getting Paid – Who Does What?
Economy Simulator 2000
Let's pretend your name is Jerome Powell. You have the difficult problem of figuring out how much to raise interests rates by. Whatever you decide, there will be profound and propagating effects throughout the economy, so choose wisely! What monetary policy analysis tools do you have in your toolbox to help you? Until recently, you … Continue reading Economy Simulator 2000
Market Maker Hero (TM)
Pretend you are a natural gas market maker hero (TM). Your goal is to buy gas from producers and sell it to consumers. "Aha!", you think, "I'll just use my magic teleportation and time machines to facilitate that transaction!" Unfortunately, real life is a little more complicated. First, there's often a tenor and size difference … Continue reading Market Maker Hero (TM)
Teleportation and Time Machines
Usually, the producers of natural gas aren't in the same physical region as consumers. For example, the Marcellus Shale gas producing region is far away from urban centers like New York and Washington DC, which consume natural gas for both electricity and heating homes. This results in regional differences in physical natural gas markets. An … Continue reading Teleportation and Time Machines
Natural Gas Markets
Relative to equity markets or other well behaved markets, commodities markets are like the wild wild west. Suits, utilities, wholesalers, mom & pop consumers exchange pieces of paper that represent physical commodities like barrels of oil or bushels of corn. Consumers then take delivery of these pieces of paper and later use them in the … Continue reading Natural Gas Markets
Erick's Blog 