31–40 of 66 posts
Oh how I hate these Medium posts that are not readable without doing something (registering/installing app/paying.. whatever) I feel like Medium is the new expertsexchange. I remember how much I hated the site always when I ended there and I seem to have very similar feelings towards Medium.
Paywalling gender change information seems weird indeed. Edit: docked for bad sense of humor (mine or of downvoters - of that I am not sure)
> Since its introduction in 1973 and refinement in the 1970s and 80s, the model has become the de-facto standard for estimating the price of stock options
The only contemporary use for BS by professionals is as a convention for quoting volatility. As a pricing model it does not account for key effects such as the permanent "volatility smile" appearing in the aftermath of the 1987 crash (significantly increased price of downside options), and well understood behaviours like jumps and volatility clustering.
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>This is sort of like throwing out physics because Newtonian mechanics don’t account for fluid dynamics. >having been shown, empirically, to work. What exactly do you mean by this? That they are correct most of the time? Or that the person that uses them won't go bust? This parallel between physical theories and assumptions about how the market works is bogus. In trading you can have strategies that are correct most…
> That they are correct most of the time? Yup. Options market makers, the critical mass of dynamic hedgers, don’t blow up any more [1]. I left the business ten years ago, and was probably among the last well-paid people to do it. There isn’t much risk anymore which means there isn’t room for ingenuity—it’s execution, mechanical. Between market circuit breakers limiting instantaneous price moves; the tremendous amount…
I wonder if that's true in insanely volatile stocks like GME? People were buying way OTM calls on that stock. Then the stock would move 50% in one day. A market maker would have to be very good at dynamic hedging to keep up with that.
Of course options market makers have one incredible thing going for them. While they have market risk for every individual option they write, their net exposure can potentially be very small. That only works for a market maker, not for someone making a directional bet because YOLO.
Edit: The few times I tried to study what was going on with GME options, I saw a lot of "no bid" on many OTM strikes. So it looks like the market makers were simply stepping away. Which totally changes the market dynamics. If there's no liquidity in an option, a punter's only choice is to hold to expiration? That's financially very risky and also counter to everything we've come to believe about an "efficient" market.
Former options trader here. This all checks out correctly, but there's maybe some intuition that enlightens it. BTW option traders are often called volatility traders, because when you look at the formula there's this one free variable (all the rest are somehow given by the market). So when you're trading options, you're trading vol and the actual price is just a sort of formality. Thoughts: - Since you have a right…
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This comment is really interesting. > There isn’t much risk anymore which means there isn’t room for ingenuity—it’s execution, mechanical What do you mean by ingenuity here? Like coming up with your own model that was better than other people's models, or new strategies, etc? Also, what the heck is an "aerospace investment banker"? Someone in IB who only works on aerospace stuff?
> What do you mean by ingenuity here? Creativity. What you said. No more 10x improvement opportunities. Just marginal adjustments. Maintenance. Running the same model a bit more efficiently, carving off minuscule edge cases here and there. > what the heck is an "aerospace investment banker" A made-up moniker. I raised money—and did deals, e.g. IP licensing, M&A, PPP, et cetera —for rocket, satellite, drone and adjace…
No creativity makes it sound like the market has been figured out. I know that isn't true, so does that mean that the risk/reward of strategies has flattened off (I.e. same risk for less reward) because there are less opportunities to exploit?
Earlier quoted context omitted.
Paywalling gender change information seems weird indeed. Edit: docked for bad sense of humor (mine or of downvoters - of that I am not sure)
Explain the joke plz
Earlier quoted context omitted.
> What do you mean by ingenuity here? Creativity. What you said. No more 10x improvement opportunities. Just marginal adjustments. Maintenance. Running the same model a bit more efficiently, carving off minuscule edge cases here and there. > what the heck is an "aerospace investment banker" A made-up moniker. I raised money—and did deals, e.g. IP licensing, M&A, PPP, et cetera —for rocket, satellite, drone and adjace…
Interesting job! No creativity makes it sound like the market has been figured out. I know that isn't true, so does that mean that the risk/reward of strategies has flattened off (I.e. same risk for less reward) because there are less opportunities to exploit?
> No creativity makes it sound like the market has been figured out
That was my bet. It has, so far, been a good one.
> does that mean that the risk/reward of strategies has flattened off (I.e. same risk for less reward) because there are less opportunities to exploit?
Your instinct was on point. You don’t need someone with a feel for volatility to make money (or not lose it) in options market making anymore. The work consists of, and will for some time, re-implementing existing ideas. There are still mis-pricings. But they aren’t inherent to the pricing model. The commodity component can be isolated and run with an eye towards costs and economies of scale.
(This has been a fun conversation, by the way. Thank you.)
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Explain the joke plz
"...Medium is the new expertsexchange". Experts Exchange used to be a popular site for q&a (the stack overflow of the olden days). Without the a proper hyphenation the site url expertsexchange could be construed to read something quite different which I believe the OP is referring to.
Earlier quoted context omitted.
> That they are correct most of the time? Yup. Options market makers, the critical mass of dynamic hedgers, don’t blow up any more [1]. I left the business ten years ago, and was probably among the last well-paid people to do it. There isn’t much risk anymore which means there isn’t room for ingenuity—it’s execution, mechanical. Between market circuit breakers limiting instantaneous price moves; the tremendous amount…
Options market makers, the critical mass of dynamic hedgers, don’t blow up any more I wonder if that's true in insanely volatile stocks like GME? People were buying way OTM calls on that stock. Then the stock would move 50% in one day. A market maker would have to be very good at dynamic hedging to keep up with that. Of course options market makers have one incredible thing going for them. While they have market risk…
Bingo. Self help [1] and circuit breakers [2] negate the unsolvable edge case: large, instantaneous price movements.
[1] https://www.reuters.com/article/usa-options-cboe-idUSL2N1H40...
[2] https://www.npr.org/2020/03/09/813682567/how-stock-market-ci...
Oh how I hate these Medium posts that are not readable without doing something (registering/installing app/paying.. whatever) I feel like Medium is the new expertsexchange. I remember how much I hated the site always when I ended there and I seem to have very similar feelings towards Medium.
Their fault for violating GDPR by trying to put cookies without my permission! Ha!