Equity Derivatives Trader $200k base + bonus

[LoosenUp]

Quote from steve46:

Loosenup:
If we are talking about derivatives, the trader is subject to exposure limits. He/she gets a daily sheet that maps out exposure. and lists inventory. This is your "book". The general program is written and/or developed by the quant (the guy with the Phd) then the traders execute within the limits of the program. "Within the limits" means that they try to keep exposure to the greeks (delta/vega for instance) within a certain allowable boundaries. At the end of the day, your positions are reviewed by your manager and you had better be within limits. Losses are expected periodically. At the end of the year the bonus is calc'd from the bottom line. Hope this helps. Steve46

steve46,

Thanks. So, you are saying traders in big firms are actually only executing a predetermined program written by quants? Can you tell me a little bit about what these programs try to achieve? Do they mostly try to capture arbitrage opportunities by exploiting pricing differences across all kinds of derivatives? Do so called traders in big firms employ technical analysis at all? If they just follow the given quant programs, is it fair to say that traders in big firms are really not required to be good traders? Rather, they must be good program follower, maybe try to execute better to save a bit of slippage and execution costs.




Thanks a lot.

 

[steve46]

All good questions. Actually my understanding is that there are a lot of approaches to this type of trading. I am just mentioning one that I know of. Think about it for a minute. You have to pay the PHd quant a lot of money for his time, but if his program is sharp, and you have well trained grad students executing within certain boundaries, you get a lot of bang for the buck at a reduced cost. This works for certain markets, but not all. For instance in the OTC options markets where exotics are traded with institutional counterparties, the trader has to know how to value at least a couple of kinds of very complex tradeables. He has to be able to replicate value and offer a market to a knowledgeable counterparty who will not pay up because he or she knows what the instrument should be trading for. If on the other hand we are talking about equities, bonds or vanilla options, then the book trader has more leeway. He or she has to have a broader background, and many firms train them the way they want them to operate. As I said before, there are quite a few approaches depending on the institution and the market. I know the broad strokes but not the details. Regards, Steve46

 

[omcate]

Quote from spongebob:

LTCM is still surrounded by mystique and inspires a general feeling of awe for many in this industry. With legends like Merriwhether, Scholes and Merton on the staff, its not difficult to see why.

As to why they really went broke, I think it is a combination of factors. But the general lesson to be learnt from LTCM, IMHO, is that you need real traders, people who realise that something is not right and that the model is not working. Cut your losses, get out, sort out your stuff and get back in when your edge is back (or you realise that under such extreme market conditions correlations tend to go to 1).

After all, the quant models are just that. Models of the real world, and we are not talking about chaos theory weather systems either, but people and mass psychology.

I did see the Nova program "Trillion Dollar Bet". It was interesting to hear Scholes questioning the inputs to the models....

It is entertaining to read these reports. However, it is nothing like to talk to the people at LTCM in person, and/or work with them in 1997(when the hedge fund was at its peak). You might be amazed by their arrogance. In addition, the mentality and attitude of the founders and senior partners of LTCM before the collapse might be very different from that after the
bailout organized by the Fed.

Just my two cents.

 

[Hello_Dollars]

It is amazing how as soon as words like "Ph.D" and "quant" appear on a thread, all the most obnoxious windbags on ET crawl out from under their rocks. If nothing else, I think we may have discerned a clear correlation between having a deep quantitative background and having an anti-social disorder.

 

[spongebob]

Quote from Hello_Dollars:

It is amazing how as soon as words like "Ph.D" and "quant" appear on a thread, all the most obnoxious windbags on ET crawl out from under their rocks. If nothing else, I think we may have discerned a clear correlation between having a deep quantitative background and having an anti-social disorder.

ahh, yeah, thats constructive. Apart from the small reference to cash by the originator of the thread - and quite frankly that person was simply being honest, I see nothing that would qualify any of the posters as 'obnoxious' as you so put it. If anything, the posts have been informative and no-one has been slammed as is so often the case on ET.

If you have had some crap dealings with Quants and PhDs in the past, because they laughed at your trading approaches, TA, etc, then thats too bad. Just don't generalise and think every one who is a Quant PhD thinks the same.

Yeah so we might assume Markov properties and GBM to price options, or whatever, but I can assure you that when I trade my own personal equity account I still use TA and FA as well as any edge my 'rocket science' can give me.

Of course this is merely a guess on my behalf. Who knows, you could have a thing for PhDs.

 

[Hello_Dollars]

Quote from spongebob:

ahh, yeah, thats constructive. Apart from the small reference to cash by the originator of the thread - and quite frankly that person was simply being honest, I see nothing that would qualify any of the posters as 'obnoxious' as you so put it. If anything, the posts have been informative and no-one has been slammed as is so often the case on ET.

If you have had some crap dealings with Quants and PhDs in the past, because they laughed at your trading approaches, TA, etc, then thats too bad. Just don't generalise and think every one who is a Quant PhD thinks the same.

Yeah so we might assume Markov properties and GBM to price options, or whatever, but I can assure you that when I trade my own personal equity account I still use TA and FA as well as any edge my 'rocket science' can give me.

Of course this is merely a guess on my behalf. Who knows, you could have a thing for PhDs.

Hey piker, I'd wager I pay more in commissions than you have in your "rocket science" strategy (LOL) account. So now that you've proved my point for me, you can go back to playing Dungeons and Dragons, okay nerdlick.

 

[spongebob]

typical pre-programmed neanderthal response as expected. The 'highly-creative' name calling in particular indicates a 'certain level of maturity' if not some cluster-B DSM-IV personality disorders.

 

[kashmir]

I've been working for the past eight years in the trading application software business, specifically creating systems for options market makers, hedge fund, & clearing firm risk management. I've had the opportunity to develop applications closely with a handful of such people that would fall into the 'quant' label, and their experiences are very similar to what has been previously mentioned in this thread. The Ph.D. requirement for these jobs acts as a filter - if you can prove you can do what it takes, (except at big name firms) then you can get in.

There are constantly opportunities at that level, but the market currently isn't supporting 'fresh' entrants. From the openings I know about in the Chicago & west coast market, all are asking for people that have prior experience in this type of role.

Finally, be well aware that these positions can easily turn into contract work - develop the model, help build in trader's requests (ex: some guys need theta decay over trading hours, others want it until expiration on a 24/7 schedule), make certain the bank or fund can prove results, and then the expensive position can be dissolved into two or three good coders - to clean up, maintain, and speed up code written earlier.

This is from my experience, at least.

However, I personally feel that the market for more sophisticated software is a great place to be, and wouldn't discourage anyone from getting in. I would simply warn to not make financial decisions (such as very large school loans) based on the glittering promise of 200k+bonus a year out of school.

Best of luck.

 

[misctrader]

Quote from steve46:

Interesting to hear people who (claim they) have multiple advanced degrees miss the point so completely regarding LTCM. Those that are interested should try to get a copy of Nova's program on the subject. They researched the subject thoroughly and in the segment, interviewed Merton, and other principals in order to develop an accurate picture of what really happened. As it turns out, what they "failed" to understand was how differently markets act when everyone is trying to get to the exits at the same time. Dynamic hedging works fine in theory but in an emergency, you still have to have someone to sell to. VAR (value at risk) suffers from the same problem. Hedging has become a complex subject that is discussed in detail at sites like (Paul) Wilmot's. Alternatively folks with the background to understand it can read Philippe Jorion's books on VAR or Neil Chriss books. Because they have had big problems managing derivative risk exposure, JP Morgan developed their own system called RiskMetrics. The training catalog deals with some of the same subjects. Clients with a wrap account might be able to get access to that info. Good luck. Steve46

steve46,

I think it was Hello_Dollars who claimed to have multiple advanced degress and was about to get a phd in quant finance. Yet, at the same time, he bashes quants. Ironic. I think it's sour grapes.

Anyhow, yes, I read Lowenstein's book "When Genius Failed". It was a great read. LTCM failed for a number of reasons:
1) overleverage at one point 100:1
2) taking huge positions
3) no stop loss?
4) diversifying into areas they have no expertise in - risk arb, equities, etc.
5) NO LIQUIDITY during time of crisis.



misc

 

[Hello_Dollars]

Quote from misctrader:

steve46,

I think it was Hello_Dollars who claimed to have multiple advanced degress and was about to get a phd in quant finance. Yet, at the same time, he bashes quants. Ironic. I think it's sour grapes.

Anyhow, yes, I read Lowenstein's book "When Genius Failed". It was a great read. LTCM failed for a number of reasons:
1) overleverage at one point 100:1
2) taking huge positions
3) no stop loss?
4) diversifying into areas they have no expertise in - risk arb, equities, etc.
5) NO LIQUIDITY during time of crisis.



misc

WTF are you talking about? "Sour grapes" about what? And thanks for stating the obvious with the cliff notes summary of a book everyone's read. Another faux expert trying to hide the fact that he's an imbecile. This thread has attracted 'em like flies to shit.