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Instruments: Futures Options/Futures and launching Equity Options/Equities later this year Assets: Proprietary Account and IA Structure: LLC Location: San Francisco, CA Program: Quantitative/Market-Making Platform: Proprietary

In the macro context, applying a "buy and hold" methodology to option purchases will in all likelihood have a negative expectation. You can anticipate that the options are fairly priced, and that therefore transaction costs will erode any returns you might generate with these purchases in the...

Dave, Firstly, there is an excellent masters program at the Stuart Graduate School of Business IIT. The program works directly with the exchanges and many trading firms, and offers an extesive education in the markets and trading strategies...

Hello again, Lasner. Have they asked you directly if you have ever filed for bankruptcy? If so, you should answer the question honestly. -segv

http://www.chicagotrade.com http://www.chicagotrade.com/c5eduinst.html -segv

Shelly? As in Shelly Natenberg? Brian, you are getting some very sound advice indeed. I also live in San Francisco, have an engineering background (software), and trade for my own account. I have found my engineering and quantitative background to be directly applicable to trading in the...

Uh oh, two segvs on the same thread. I didnt think that was possible. :) -segv

JSwift, Is having the limit order resting in the book a critical part of your strategy? In reading your description, it seems as though you could simply take the market when your criteria are reached. I assume that you already have a software solution to generate this quantity of orders...

That scenario depends on the size of the event in question, the correlation/cointegration of the markets in question, et cetera. It is well worth it to buy the wings, or even ratio the wings and have a profit in these scenarios. -segv

Lasner, I will try to highlight the risk: You assumption here is that you will be able to exit the position if the price of the option doubles. Under everyday trading circumstances that may very well be true. However, markets are not always rational environments. The market can...

Lasner, You were not asking for trading advice in this thread, but I wanted to chime in with the others to say that a blowup is inevitable with uncontrolled risk. Yes, the probabilities are in your favor, and you can win on 95% of trades or better. The 1% catastrophe will wipe you out, and...

I am not sure that we are in disagreement here, Nitro. If we view trading as a voluntary action, of which the feedback event is the consequence (profit or loss), then the process resembles operant conditioning. In that model, as you said, the frequency of trades increases with positive...

I see, it is known and accepted risk, then. I am also coming from a futures perspective, where the risk is much more imperative when the underlying contract is different. Hey, in the world of market-makers, I am a cupcake. :) -segv

Coming from you, that really surprises me, Don. Wasn't there still a healthy edge in boxes and other vanilla "single-minded" strategies when you were on the floor? What about Merrill's old stat arb program in the 80s? What about the opening-only and order enveloping strategies you have...

I have been trying to follow the calendar/diagonal spread side of this thread, but forgive me if someone brought this up earlier. Does this spread not leave one vulnerable to a vega blowout if the IV spread between the front and back month changes? Am I missing something? -segv

Actually, market-making is not as complicated as a lot of people think. It can also have a much longer time horizon than is often assumed, especially in the electronic markets. I used to joke that people's perception (bias) of time advantage would eventually approach the sampling error for...

This is way off the topic of the original post, but Sharpe's definition and your definition are not equivalent. I think Sharpe's definition is quite succinct, although it is still very broad. You said: The key point of contention for me is your assertion that using price in any way to...

As a comparision against someone punting stocks or futures intraday? No, not really. I replied because I thought that the posters universe of "intraday" was particularly narrow, and I wanted them to know that the price action they base their decisions on intraday is a very complex creature...

That assertion is ridiculous. The moment a trade happens it is "in the past". Under your definition, noone would know the price of the market without being a "technical analyst". The common and classical definition of "technical analysis" obviously refers to the "chartist". Just look at the...

I make markets in options on futures and the underlying futures. I use proprietary algorithms and software that estimate volatility and fair value to quote and hedge these instruments automatically. I think your view of the markets is extremely narrow. That depends on how you define...