Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

A web-reading bot made millions on the options market

slate.com

Post reply on HN
Print view View original

91–100 of 134 posts

Re: A web-reading bot made millions on the options market

#91

Post by facepalm »

xyzzy123 wrote: post #2

Interestingly, they don't discuss the possibility that someone just has a radically better UI for acting on market gossip. "“It would be impossible for me to do. By the time you could read the news, process it, and press the ‘buy everything’ button, it would take too long." I'm picturing the context switch between reading a tweet or news article and some rocket ship of a program which gives you enormous power but tak…

Interesting idea, just show the gossip, extract the involved companies, and provide buy/see buttons for the companies involved.

Is it possible to also bet directly on whether some piece of gossip is true or not?

Re: A web-reading bot made millions on the options market

#93

Post by noir_lord »

x0054 wrote: post #57
def_illiterate wrote: post #42

Earlier quoted context omitted.

I imagine there would be pretty good money in licensing an API. That's probably where the real money is--let the idiots make the trades, and you sell them the software.

Yep, it's like the someone else said in one of the other comments, don't dig for gold, sell buckets and the shovels to those who do. :)

Always heard that as "In a gold rush, be the one selling pickaxes"

Re: A web-reading bot made millions on the options market

#94

Post by michaelgrosner2 »

I've spoke to a few people who's jobs are to be on top of these sorts of trades and they said the most interesting part of these trades are that the moves precede the jump in the stock. You look at the market data, the options prices pop before the stock price. This is interesting because the options market is almost by definition slower than stock markets (not just because of the presence of HF firms in the underlying markets, but think of Black-Scholes - one of the inputs to the model is the stock price). Many firms aren't yet prepared for this sort of activity, but they'll plug that hole.

Re: A web-reading bot made millions on the options market

#95

Post by encoderer »

patio11 wrote: post #7

This touches on several of the Big Issues with being a market maker, shopping large orders, and HFT. Sadly, it's exactly as detailed as you'd expect a Slate article to be. It doesn't matter that it is a bot. The controller of the bot happens to be, in this instance, directional order flow : unlike the overwhelming majority of market volume, he actually has an edge . The options market maker is, unusually for market m…

Floor traders are not there to take the other side of a trade. The minute your market maker completed his option trade he hedged it by buying or shorting shares at the equiv delta risk. This is one reason spreads widen on option sales when the market gets busy, and the reason there is put side volatility skew. In both cases it's covering the risk that the price will move before they can hedge their position.

Re: A web-reading bot made millions on the options market

#96

Post by encoderer »

runeks wrote: post #59

'It also feels pretty far from the theoretical purpose of options trading. Options are meant to provide insurance (a “hedge”) against potential losses in a stock position. Market makers like my friend create the environment in which to buy the insurance. This bot instead treats that market like a roulette wheel—except it knows exactly where the ball will land. “If someone else has what we call the ‘future script,’ ”…

Anybody that thinks the primary purpose of the options market is "insurance" is ignoring their history. Among other things, calls were introduced 4 years before puts. They are derivatives. They serve many purposes.

Re: A web-reading bot made millions on the options market

#97

Post by darkxanthos »

runeks wrote: post #59

'It also feels pretty far from the theoretical purpose of options trading. Options are meant to provide insurance (a “hedge”) against potential losses in a stock position. Market makers like my friend create the environment in which to buy the insurance. This bot instead treats that market like a roulette wheel—except it knows exactly where the ball will land. “If someone else has what we call the ‘future script,’ ”…

I can see why it could be viewed as robbing. The person selling options assumes there is no information asymmetry. The bots that do this aren't betting, they have new information that shows that the current options price doesn't reflect yet.

I wouldn't say this is necessarily a bad thing myself just pointing out this is definitely not the spirit of what options are for.

Re: A web-reading bot made millions on the options market

#98

Post by jim_greco »

There is a whole class of point and click trader out there that brings up the Bloomberg NEWS function (scrolling news), waits for the red flash (breaking important news), and steamrolls over unaware market makers. Most of those market makers are electronic.

It's been happening forever and of course it's now going to get automated. And the electronic market makers will use the same techniques to cancel orders so they don't get run over. The only people worse for wear will be the human market makers and the human point and click traders who can no longer compete.

Re: A web-reading bot made millions on the options market

#99

Post by consz »

darkxanthos wrote: post #97
runeks wrote: post #59

'It also feels pretty far from the theoretical purpose of options trading. Options are meant to provide insurance (a “hedge”) against potential losses in a stock position. Market makers like my friend create the environment in which to buy the insurance. This bot instead treats that market like a roulette wheel—except it knows exactly where the ball will land. “If someone else has what we call the ‘future script,’ ”…

I can see why it could be viewed as robbing. The person selling options assumes there is no information asymmetry. The bots that do this aren't betting, they have new information that shows that the current options price doesn't reflect yet. I wouldn't say this is necessarily a bad thing myself just pointing out this is definitely not the spirit of what options are for.

But the information is public -- anyone can read the tweet as soon as it comes out, a computer just happens to do it a lot faster and better than a human.
Post reply on HN