How do I "play" this without the options, again?
Can a HF manager do this?
- Thread starter Pekelo
- Start date
Valid concern, but the manager doesn't always have to buy/sell all the stocks. He plays it as price moves.
Nope. Let's say price went up to 40.5 when he flips selling his calls, and later he sells the puts when price fell to 39.5. But the puts were for the 39 strike so they are all still OTM.
You just keep buying, pushing up the price, then flip and start selling pushing down the price. At least one of the links I provided described the same scenario.
Ok....now calc the theoretic PnL on that strategy! If you get anything other than 0 you did it wrong. And that's before slippage.
1. Except your average fill level is going to be worse than the VWAP through that period. If you're outsizing the market, you can't expect to flip your position on a dime, you usually can't even flip back to flat at no cost. One doesn't have to be a quant to understand that, simply think through it.
2. No, the only credible link (the academic study) says that they are trading a small fraction of their positions to paint the tape and MTM their books. While it's hard to prove, that certainly happens a fair bit, especially in illiquid products.
1. Per unit of time, it's certainly riskier to trade a position back and fourth vs holding a static long or short - in addition to to market risk, you are taking on transaction costs and market impact.1. How is it riskier than going long because you want to hold the stock for 1 year? At least he has the calls to provide buffer. So it is actually LESS risky than a buy and hold.
2. I know, so we agree. That is what Cramer said, back in the days 5 mm was enough.
3. This thread is stock manipulation by size, not by false rumours.
4. At the first paragraph would be fine. Or you can just check the stock prices (I did) if they moved up 8 days ago in the last 20 minutes. They did.
5. Look, your math is irrelevant. The manager doesn't have to commit all his 100 mm, he plays it as price moves. After a significant move and profits he switches sides and profits from the shorts.
6. A fresh example would be Bitcoin's price where the market is rather thin at the brokerages and now they even have options for it.
4. Could you differentiate that effect and other things that are happening at the quarter end (e.g. passive rebalancing)? Think of the statistical significance of their study - how many quarter-ends has happened since HFs appeared on the market?
5. I responded above, it's a zero expectation strategy net of transaction costs and negative expectation gross.
6. Again, it's a different approach - painting the tape is very different (for variety of reasons).
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I will add something regarding the whole fascination with "size" that seems to persist on this site.
Being big capital-wise has it's advantages - you get better access (both in terms of instruments and markets) and you get to work with better tools (software, data etc). You also get to develop structural edges like customer flow, financing rates or access to physical markets.
However, in terms of being able to produce returns on capital, smaller players are at a massive advantage. Your market impact is negligible and you can trade your full clip in a single order. You can get involved in instruments that don't have the liquidity profile or market cap needed for larger players. Also, you don't attract the regulatory scrutiny that comes with "size".
Being big capital-wise has it's advantages - you get better access (both in terms of instruments and markets) and you get to work with better tools (software, data etc). You also get to develop structural edges like customer flow, financing rates or access to physical markets.
However, in terms of being able to produce returns on capital, smaller players are at a massive advantage. Your market impact is negligible and you can trade your full clip in a single order. You can get involved in instruments that don't have the liquidity profile or market cap needed for larger players. Also, you don't attract the regulatory scrutiny that comes with "size".
I think sle addressed this already... This doesn't work and I am sure you will be able to see why if you just think about it a bit.
Fast Answers
"Manipulation
Manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security. Manipulation can involve a number of techniques to affect the supply of, or demand for, a stock. They include: spreading false or misleading information about a company; improperly limiting the number of publicly-available shares; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for a security. Those who engage in manipulation are subject to various civil and criminal sanctions."
The headline risk and the fines for a fund would probably put them out of business.
"Manipulation
Manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security. Manipulation can involve a number of techniques to affect the supply of, or demand for, a stock. They include: spreading false or misleading information about a company; improperly limiting the number of publicly-available shares; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for a security. Those who engage in manipulation are subject to various civil and criminal sanctions."
The headline risk and the fines for a fund would probably put them out of business.
They actually filed criminal charges. Get you out even if it takes 20 years.
"Press Release
SEC Files Charges in $26 Million Stock Manipulation Scheme
FOR IMMEDIATE RELEASE
2016-261
Washington D.C., Dec. 12, 2016—
The Securities and Exchange Commission today charged two New Jersey-based traders with manipulating more than 2,000 NYSE- and NASDAQ-traded stocks and reaping more than $26 million in profits from their successful trades.
The SEC alleges that Joseph Taub and Elazar Shmalo utilized dozens of accounts at various brokerage firms to carry out their scheme undetected, typically using two at a time to engage in a flurry of manipulative trading activity that usually lasted less than five minutes. According to the SEC’s complaint, they would use one account to buy a position in a stock, and then use a second account to place a series of small buy orders to walk up the price for the first account to sell its larger position into the market at an artificially high price for significant profits. In some instances before the first account purchased its position in a stock, they had the second account place a series of smaller sell orders to drive down the price of the stock, allowing the first account to buy its larger position in that stock at the artificially lowered price.
“As alleged in our complaint, Taub and Shmalo schemed dozens of times per trading day to artificially move stock prices for their personal benefit,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Taub and Shmalo.
The SEC’s complaint filed in federal court in Newark, N.J., charges Taub and Shmalo with violating and aiding and abetting violations of the antifraud provisions of the securities laws. The complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.
The SEC’s continuing investigation is being conducted by Michael Ellis, Janna Berke, and Wendy Tepperman in the New York office. Assisting the investigation are Artur Minkin, Jonathan Hershaff, and Scott Walster in the SEC’s Division of Economic and Risk Analysis and Jim Flynn in the New York office. The litigation will be led by Jack Kaufman, Ms. Berke, and Mr. Ellis, and the case is being supervised by Lara Shalov Mehraban. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority. "
"Press Release
SEC Files Charges in $26 Million Stock Manipulation Scheme
FOR IMMEDIATE RELEASE
2016-261
Washington D.C., Dec. 12, 2016—
The Securities and Exchange Commission today charged two New Jersey-based traders with manipulating more than 2,000 NYSE- and NASDAQ-traded stocks and reaping more than $26 million in profits from their successful trades.
The SEC alleges that Joseph Taub and Elazar Shmalo utilized dozens of accounts at various brokerage firms to carry out their scheme undetected, typically using two at a time to engage in a flurry of manipulative trading activity that usually lasted less than five minutes. According to the SEC’s complaint, they would use one account to buy a position in a stock, and then use a second account to place a series of small buy orders to walk up the price for the first account to sell its larger position into the market at an artificially high price for significant profits. In some instances before the first account purchased its position in a stock, they had the second account place a series of smaller sell orders to drive down the price of the stock, allowing the first account to buy its larger position in that stock at the artificially lowered price.
“As alleged in our complaint, Taub and Shmalo schemed dozens of times per trading day to artificially move stock prices for their personal benefit,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Taub and Shmalo.
The SEC’s complaint filed in federal court in Newark, N.J., charges Taub and Shmalo with violating and aiding and abetting violations of the antifraud provisions of the securities laws. The complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.
The SEC’s continuing investigation is being conducted by Michael Ellis, Janna Berke, and Wendy Tepperman in the New York office. Assisting the investigation are Artur Minkin, Jonathan Hershaff, and Scott Walster in the SEC’s Division of Economic and Risk Analysis and Jim Flynn in the New York office. The litigation will be led by Jack Kaufman, Ms. Berke, and Mr. Ellis, and the case is being supervised by Lara Shalov Mehraban. The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the Federal Bureau of Investigation, and the Financial Industry Regulatory Authority. "