I am aware this story was posted in another forum, but I think a discussion, if any, should be here.
The Wolf of Wall Tweet
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A Web-reading bot made millions on the options market. It also ate this guy’s lunch.
By Seth Stevenson
Illustration by Robert Neubecker
On the afternoon of Friday, March 27, as several news outlets reported at the time, somebody apparently made $2.4 million from a tweet. That tweet was a bit of breaking news from Wall Street Journal writer Dana Mattioli:* Over the next several minutes and until the end of the day, as humans digested Mattioli’s takeover rumor at human speed, Altera’s stock price rose. When all was said and done, those cheap options had resulted in a $2.4 million profit. Speculation immediately centered on the idea that an automated program (a “bot”) had scanned the tweet, interpreted its meaning, and instantly bought those options based on an algorithm. The robot had read the tweet and made a killing on it before anyone knew what was going on.
SETH STEVENSON
Seth Stevenson is a frequent contributor to Slate. He is the author of Grounded: A Down to Earth Journey Around the World.
On April 6, a Reuters report disproved the initial hypothesis. In fact, Reuters reported, the trade occurred 19 seconds before the tweet, and one second after a headline appeared on the Dow Jones Newswire.
I know a guy—a human guy—who was on the other side of that trade. And he says this wasn’t the first time it happened to him. He’s convinced someone’s figured out an algorithm that’s faster than anything he’s ever seen before. So fast, he fears, that it might eventually put him out of a job.
My friend is a stock options market maker on Wall Street. You can buy an option from him that gives you the right to purchase a stock at some point in the future for a price you agree upon now. Let’s say a stock is right this second selling at $30 per share. You buy a truckload of options that grant you the right to buy the stock at $35 per share any time within the next hour. Those options are worth peanuts at the moment—they’re “out of the money” and thus cost very little to buy—but if the stock somehow zoomed up past $40 in the next 10 minutes, they’d suddenly be worth a fortune.
Explaining exactly how my friend’s job works in the real world gets really complicated really quickly, but you can think of him as a bookie. He makes it possible for you to place bets that a stock will go up or down. Like a bookie, he’s essentially playing defense while the bettors are playing offense. He wants to set a betting line that reflects realistic odds. But if one bettor knows something everybody else doesn’t (say, that the team’s star quarterback won’t be playing on Sunday, or that Intel is about to buy the team), then my friend can get slammed.
On the afternoon of Friday, March 13, my friend noticed something strange. A rumor exploded that (as news outlets later reported) Exxon might buy a company called Whiting Petroleum, and in an instant—before any human could have possibly acted on it—someone had “lit up the options market.” Trading was halted, but by the time it reopened, the damage had been done. “I personally lost $100,000 in one second,” says my friend. His firm lost more. As for whoever or whatever it was that bought the options? “I’d guess they made between $1 and $2 million. Which is not bad for one second.”
the drugmaker Receptos was involved in takeover rumors, it happened again. Shares in Receptos leaped, but not before somebody had already bought a slew of options at lightning speed, banking another tidy sum. (My friend’s firm escaped dramatic damage in these instances, losing less than $30,000 between the two. Others were surely less lucky.) In each of these cases, the buyer appears to have responded within moments to a tweet, or possibly to a phrase posted in some other online venue—nailing down the precise trigger is difficult.
Could it be a human and not a bot making these trades? My friend doesn’t think so. The complexity of the orders would slow a person down too much to be feasible. “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. The speed is unbelievable. They’re buying everything within like 3 seconds of it coming out, which is not possible for a human.”
Could there be more than one single outfit behind these three trades? Again, my friend thinks no. He says that a firm called Lime Brokerage was named on all three trades. Lime wouldn’t have placed these trades directly; it facilitated them for someone else. But my friend is confident that whoever’s using Lime to place these trades is the same person. “My job is basically being a pattern reader,” my friend says, “and on these three trades the pattern was identical. It’s the same guy.”
When I spoke to Lime’s chief operating officer, Tony Huck, he said he thought it was unlikely one of Lime’s clients had made the trades. While he acknowledged it was possible, he said that options trading is a small part of Lime’s business and that with regard to these incidents, “It doesn’t fit the profile for how our clients trade and for the size that they trade.” I checked back with my friend. I then got in touch with Lime once more to tell the firm I’d seen a trade ticket suggesting it was the brokerage of record on one of these trades, made on the Miami Options Exchange (where Lime is one of 41 registered members). Lime asked for time to respond, but given several days and several more requests from me, the company did not comment further.
If you’ve read the Michael Lewis book Flash Boys, you know about the high-frequency trading wars. But the story here was a little different. Those HFT guys were detecting that someone had interest in buying a stock at $5 a share, and then, using technological hocus-pocus, jumping in to buy it first before immediately reselling it to the person at $5.01 a share—over and over, in tons of different stocks, making tiny gains at massive volume.
The Wolf of Wall Tweet
1.5k
368
92
A Web-reading bot made millions on the options market. It also ate this guy’s lunch.
By Seth Stevenson
Illustration by Robert Neubecker
On the afternoon of Friday, March 27, as several news outlets reported at the time, somebody apparently made $2.4 million from a tweet. That tweet was a bit of breaking news from Wall Street Journal writer Dana Mattioli:* Over the next several minutes and until the end of the day, as humans digested Mattioli’s takeover rumor at human speed, Altera’s stock price rose. When all was said and done, those cheap options had resulted in a $2.4 million profit. Speculation immediately centered on the idea that an automated program (a “bot”) had scanned the tweet, interpreted its meaning, and instantly bought those options based on an algorithm. The robot had read the tweet and made a killing on it before anyone knew what was going on.
SETH STEVENSONSeth Stevenson is a frequent contributor to Slate. He is the author of Grounded: A Down to Earth Journey Around the World.
On April 6, a Reuters report disproved the initial hypothesis. In fact, Reuters reported, the trade occurred 19 seconds before the tweet, and one second after a headline appeared on the Dow Jones Newswire.
I know a guy—a human guy—who was on the other side of that trade. And he says this wasn’t the first time it happened to him. He’s convinced someone’s figured out an algorithm that’s faster than anything he’s ever seen before. So fast, he fears, that it might eventually put him out of a job.
My friend is a stock options market maker on Wall Street. You can buy an option from him that gives you the right to purchase a stock at some point in the future for a price you agree upon now. Let’s say a stock is right this second selling at $30 per share. You buy a truckload of options that grant you the right to buy the stock at $35 per share any time within the next hour. Those options are worth peanuts at the moment—they’re “out of the money” and thus cost very little to buy—but if the stock somehow zoomed up past $40 in the next 10 minutes, they’d suddenly be worth a fortune.
Explaining exactly how my friend’s job works in the real world gets really complicated really quickly, but you can think of him as a bookie. He makes it possible for you to place bets that a stock will go up or down. Like a bookie, he’s essentially playing defense while the bettors are playing offense. He wants to set a betting line that reflects realistic odds. But if one bettor knows something everybody else doesn’t (say, that the team’s star quarterback won’t be playing on Sunday, or that Intel is about to buy the team), then my friend can get slammed.
On the afternoon of Friday, March 13, my friend noticed something strange. A rumor exploded that (as news outlets later reported) Exxon might buy a company called Whiting Petroleum, and in an instant—before any human could have possibly acted on it—someone had “lit up the options market.” Trading was halted, but by the time it reopened, the damage had been done. “I personally lost $100,000 in one second,” says my friend. His firm lost more. As for whoever or whatever it was that bought the options? “I’d guess they made between $1 and $2 million. Which is not bad for one second.”
the drugmaker Receptos was involved in takeover rumors, it happened again. Shares in Receptos leaped, but not before somebody had already bought a slew of options at lightning speed, banking another tidy sum. (My friend’s firm escaped dramatic damage in these instances, losing less than $30,000 between the two. Others were surely less lucky.) In each of these cases, the buyer appears to have responded within moments to a tweet, or possibly to a phrase posted in some other online venue—nailing down the precise trigger is difficult.
Could it be a human and not a bot making these trades? My friend doesn’t think so. The complexity of the orders would slow a person down too much to be feasible. “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. The speed is unbelievable. They’re buying everything within like 3 seconds of it coming out, which is not possible for a human.”
Could there be more than one single outfit behind these three trades? Again, my friend thinks no. He says that a firm called Lime Brokerage was named on all three trades. Lime wouldn’t have placed these trades directly; it facilitated them for someone else. But my friend is confident that whoever’s using Lime to place these trades is the same person. “My job is basically being a pattern reader,” my friend says, “and on these three trades the pattern was identical. It’s the same guy.”
When I spoke to Lime’s chief operating officer, Tony Huck, he said he thought it was unlikely one of Lime’s clients had made the trades. While he acknowledged it was possible, he said that options trading is a small part of Lime’s business and that with regard to these incidents, “It doesn’t fit the profile for how our clients trade and for the size that they trade.” I checked back with my friend. I then got in touch with Lime once more to tell the firm I’d seen a trade ticket suggesting it was the brokerage of record on one of these trades, made on the Miami Options Exchange (where Lime is one of 41 registered members). Lime asked for time to respond, but given several days and several more requests from me, the company did not comment further.
If you’ve read the Michael Lewis book Flash Boys, you know about the high-frequency trading wars. But the story here was a little different. Those HFT guys were detecting that someone had interest in buying a stock at $5 a share, and then, using technological hocus-pocus, jumping in to buy it first before immediately reselling it to the person at $5.01 a share—over and over, in tons of different stocks, making tiny gains at massive volume.
