Interview question: how do you make money with options?

N

newguy05

i went on an interview recently, it's a senior tech position in a team that owns the firm's proprietary options trading platform or some type of blackbox system. (they were being vague, on purpose i think)

was there for 5 hrs! grinding through the rounds,a lot of coding questions and option greeks / black scholes formulas, iv/std etc...

Everything was going really well, then finally got the final round, which was just suppose to be a bullshit round before they make the offer as it's the head guy and he doesnt know the details, just to meet/greet type deal.

Anyway he asked me 1 question

"so how do you make money with options?"

that stopped me in my track, so just to get something out i said you can buy a put and if the market drops etc.. or write the contracts to collect premium, right away i knew that's not what he was looking for, so i reversed and started talking about gamma scalping since that's something the pros do use. But now i just lost him in the details, so then i went to recite the different strategies like calendar spread/straddles etc..and how one can be profitable under each in different market conditions.

Anyway at that point, i know i lost, as none of them are the answer he was looking for. He was very nice, but i knew i wasnt going to get the job.

so lonnnng story short, if you were asked "how do you make money with options?" by a large ibank trader/tech that deals with options daily. How would you answer that question? in not so many words.
 
Quote from newguy05:

i went on an interview recently, it's a senior tech position in a team that owns the firm's proprietary options trading platform or some type of blackbox system. (they were being vague, on purpose i think)

was there for 5 hrs! grinding through the rounds,a lot of coding questions and option greeks / black scholes formulas, iv/std etc...

Everything was going really well, then finally got the final round, which was just suppose to be a bullshit round before they make the offer as it's the head guy and he doesnt know the details, just to meet/greet type deal.

Anyway he asked me 1 question

"so how do you make money with options?"

that stopped me in my track, so just to get something out i said you can buy a put and if the market drops etc.. or write the contracts to collect premium, right away i knew that's not what he was looking for, so i reversed and started talking about gamma scalping since that's something the pros do use. But now i just lost him in the details, so then i went to recite the different strategies like calendar spread/straddles etc..and how one can be profitable under each in different market conditions.

Anyway at that point, i know i lost, as none of them are the answer he was looking for. He was very nice, but i knew i wasnt going to get the job.

so lonnnng story short, if you were asked "how do you make money with options?" by a large ibank trader/tech that deals with options daily. How would you answer that question? in not so many words.
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Is a tech guy supposed to know how to make money with options? Are you sure those people wanted to hire someone and not just steal the ideas from interviewees. Maybe the last question was all their interviews were about.
 
Quote from gkishot:

Is a tech guy supposed to know how to make money with options? Are you sure those people wanted to hire someone and not just steal the ideas from interviewees.
More...

Serious reply. You should have told him.

"You research a bunch of strategies. And you follow it. After that, you make sure that the strategies are up-to-date."

or...

"I should ask the firms Quant. / Trading desk."
 
It's hard to know what was the right answer for this particular guy. But I assume the best answer would be one that shows you understand options as a vehicle for trading premium and volatility rather than as a means to trade the direction of the underlying.
 
I think the answer was one of two things depending on the personality of the "guy"



1) Have a good pricing model, buy below theoretical, sell above theoretical, hedge delta's as cheaply as possible (slippage& market impact.

2) Quants and traders do that, my job is to make sure their shit works. If no one is screaming at me, I am doing my job.
 
you guys are been too cynical, this is a large ibank not some small prop firm, i dont think they want to steal your trading plans, not that mine would do them any good :p

i guess he was really trying to test my understanding of how the market makers make their money (to see how much experience i had with institutional option trading), and he got me. As my professional experience is not in derivatives, everything i know about option i learned as a hobby on my own.

oh well, frustrating because i know i can do the job very well, and it's actually something i like for once.

dmo, yes i think that is the key. I should answered along those lines, instead of start by saying make money by directional, that right off the bat got me dismissed.
 
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