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A web-reading bot made millions on the options market

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

#121

Post by amelius »

pjlegato wrote: post #117
amelius wrote: post #113

Earlier quoted context omitted.

What purposes exactly? If you'd ask me those derivative products are a convenient alternative to casino style gambling and mostly add instability to the market. I would love to hear an informed opinion, though. What do these products solve, why are they essential? Also, what would happen if we would tax them more heavily, perhaps incrementally over a period of time?

Options and many other derivatives are not merely a casino game. Their unique role as financial instruments is to allow the transfer of risk from those who have risk and don't want it (hedgers) to those who don't have any risk and do want it (speculators). This is different from gambling because gambling by definition involves the creation of entirely new risk for the purpose of wagering; derivatives transfer pre-exi…

That's a great explanation, thanks!

However, I still don't see the necessity of these instruments.

For example, wouldn't it be more natural for a pension fund to just spread the risks by buying different stocks?

Also, I'm not convinced that derivatives would decrease instability. Like I said, I would guess they do the opposite.

Perhaps there is some theory that can show this (something akin to e.g. the fact that passive systems are always stable, for some definition of "passive"). Or perhaps there exist empirical simulation-models that can shed a light on this?

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

#122

Post by vasilipupkin »

amelius wrote: post #121
pjlegato wrote: post #117

Earlier quoted context omitted.

Options and many other derivatives are not merely a casino game. Their unique role as financial instruments is to allow the transfer of risk from those who have risk and don't want it (hedgers) to those who don't have any risk and do want it (speculators). This is different from gambling because gambling by definition involves the creation of entirely new risk for the purpose of wagering; derivatives transfer pre-exi…

That's a great explanation, thanks! However, I still don't see the necessity of these instruments. For example, wouldn't it be more natural for a pension fund to just spread the risks by buying different stocks? Also, I'm not convinced that derivatives would decrease instability. Like I said, I would guess they do the opposite. Perhaps there is some theory that can show this (something akin to e.g. the fact that pass…

Imagine you have a very diversified portfolio of stocks. You are concerned with a very real possibility of a big market drop. Sure, you could start selling off stocks from your portfolio, incurring various transaction fees, capital gains taxes, plus you know have to reoptimize your portfolio on the fly because since you sold off some stocks, it's now probably out of balance. Or, you could just buy puts on S&P 500 and you don't have to deal with any of those issues. It's much more convenient and efficient to do that. It's really the same thing as going to a supermarket and seeing a wide variety of products instead of just bread, meat and apples. Is it a must have? no. Is it useful, though? yes

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

#123

Post by vannevar »

onewaystreet wrote: post #37
Turbo_hedgehog wrote: post #9

My bet is insider trading with someone writing a simple bot to make the trade once they see the trigger words made public.

It's no longer insider trading if the information has been made public. There would be no advantage to doing this either. There are thousands of firms and individuals running keyword based trading bots. You would be competing with all of them.

Those competitors would likely have protections built in to filter false rumors---more than one source, some kind of scoring algorithm, etc. An insider wouldn't need any of that since he knows the rumor is true.

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

#124

Post by needhelpplz »

toxicFork wrote: post #61
needhelpplz wrote: post #40

Earlier quoted context omitted.

Well, if everybody started doing it, won't the returns fall to zero? Sort of like if arbitrage opportunities are present (in this case its a technological one), this would go away. I bet since writing this article the opportunities has pretty much slipped. Now anyone living close to the exchanges will do this.

What if many people are not doing it because they think that many people are already doing it, and actually as a result of this, very few people are doing it?

they would lose money and only to be replaced by others who think the same thing?

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

#125

Post by encoderer »

amelius wrote: post #113
encoderer wrote: post #96

Earlier quoted context omitted.

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.

What purposes exactly? If you'd ask me those derivative products are a convenient alternative to casino style gambling and mostly add instability to the market. I would love to hear an informed opinion, though. What do these products solve, why are they essential? Also, what would happen if we would tax them more heavily, perhaps incrementally over a period of time?

One purpose: leverage

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

#126

Post by MichaelCrawford »

pjlegato wrote: post #118
MichaelCrawford wrote: post #51

Earlier quoted context omitted.

I was enabling an already wealthy man to become even richer, at the expense of unsophisticated investors.

Isn't it rather patronizing to dismiss "unsophisticated investors" as unworthy of full agency in the stock market? Doesn't "unsophisticated" in this case just mean "they wound up losing money," in a game they voluntarily and without coercion signed up to play? Suppose instead that the hedge fund had lost money. It happens every day. Would you suddenly start to pity the unsophisticated hedge fund managers being exploi…

I'm not doing anything to prevent unsophisticated investors from making poor choices with their money.

However I do not wish to contribute to making their misfortune even worse than it would otherwise be.

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

#127

Post by forthefuture »

amelius wrote: post #121
pjlegato wrote: post #117

Earlier quoted context omitted.

Options and many other derivatives are not merely a casino game. Their unique role as financial instruments is to allow the transfer of risk from those who have risk and don't want it (hedgers) to those who don't have any risk and do want it (speculators). This is different from gambling because gambling by definition involves the creation of entirely new risk for the purpose of wagering; derivatives transfer pre-exi…

That's a great explanation, thanks! However, I still don't see the necessity of these instruments. For example, wouldn't it be more natural for a pension fund to just spread the risks by buying different stocks? Also, I'm not convinced that derivatives would decrease instability. Like I said, I would guess they do the opposite. Perhaps there is some theory that can show this (something akin to e.g. the fact that pass…

I think the real answer is that things don't need to be necessary to exist. Options are just another way to structure investment. They exist because someone decided to create them, and they continue to exist because humans don't like losing things they already have.

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

#128

Post by giarc »

dannnn wrote: post #108
giarc wrote: post #104

Earlier quoted context omitted.

>wait until the 3rd business day to act on that information? Definitely no. Just watch the news and see that the stock price of any company changes after pretty much any news.

That's because of the NON-insiders trading.

Sorry, I didn't catch that part. I thought the commenter was referring to anyone.

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

#129

Post by darrin »

amelius wrote: post #121
pjlegato wrote: post #117

Earlier quoted context omitted.

Options and many other derivatives are not merely a casino game. Their unique role as financial instruments is to allow the transfer of risk from those who have risk and don't want it (hedgers) to those who don't have any risk and do want it (speculators). This is different from gambling because gambling by definition involves the creation of entirely new risk for the purpose of wagering; derivatives transfer pre-exi…

That's a great explanation, thanks! However, I still don't see the necessity of these instruments. For example, wouldn't it be more natural for a pension fund to just spread the risks by buying different stocks? Also, I'm not convinced that derivatives would decrease instability. Like I said, I would guess they do the opposite. Perhaps there is some theory that can show this (something akin to e.g. the fact that pass…

Options are sometimes more liquid than the underlying stocks, allowing you to hedge when you wouldn't be able to directly. Consider a case where you want to short a particular stock. Shorting a stock requires borrowing it first, but some stocks may simply not have many people willing to lend. Often you can still get puts on hard-to-borrow instruments to hedge your position. There will be a premium for that insurance, but it may be worth it depending on your position.

Options also allow you to bet on more specific stock movements. Maybe there's a merger rumor and you think the stock will either go up (merger goes through) or down (merger fails). You couldn't make that bet with a static position on the underlying, but you could buy a put and a call (straddle).

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

#130

Post by jackgavigan »

nostrademons wrote: post #35
jackgavigan wrote: post #31

Earlier quoted context omitted.

What's probably happening is they have a "bot" that does the sentiment analysis, readies the trade, then pops a big message up in front of the trader: New WSJ Headline: Intel in Talks to Buy Altera ALTR Stock: Trading within 30-day range {ALTR 30-day stock graph} March 2015 Call Options available ..and a live-updating, clickable GUI displaying, in a linear manner (i.e. low risk, small bet at one end; high risk, large…

There's no way that there's a human in the loop. You're talking one second from the newswire hitting the Internet to a trade being executed on the exchange. More likely, the human prepares a list of scenarios of the form of "If a news story with these keywords appears, it will affect the valuation of this company in this way, perhaps plugging these numbers from the article into some model." News story hits the wire,…

> You're talking one second from the newswire hitting the Internet...

I expect they'd be getting the newswire in real time via Bloomberg or Reuters, instead of off the Internet.

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