shooting the moon

IBKR recently released results, here is what Petterfy had to say about market making:

Market Making continues to underperform. Besides the usual complaints about low volatility with an average VIX of 13.5 and a low actual versus implied volatility ratio and tight competitions in bid offer spreads, we must admit to an ever increasing disadvantage.

As more and more institutional traders are coming to the option market, we find ourselves making dumb two-sided markets to people, who are acting upon thoroughly researched and timely predictions. They know when news is going to break and set up their positions for quick bounces in volatilities and having been prepared they react ever faster and more correctly than we could adjust our markets.

In other words, we provide two-sided quotes to anyone who comes to market with the idea that we are straddling the most probable equilibrium price and are likely to earn part of the difference between our bid and offer. However, the unfortunate fact is that we find ourselves accumulating positions on the wrong side of the market more and more often than we used to. This means that our estimate of the equilibrium price is off and our trading counterparts have a better one than we did. While our markets were more volatile and spreads were wider and our counterparties less sophisticated, we could make up for these disadvantages, but we now see that we are holding the wrong end of the stick more often.

I wouldn't be surprised to see Petterfy take the MM business private soon.
 
Looks like some of the retail commodity traders got closed out for being long gold. Should have been reading my journal!


"Secondarily, are you seeing any particular stress with some of your commodities focused traders, and then if there is fallout from this down draft, what might be some of those negatives?
Thomas Peterffy - Chairman & Chief Executive Officer

I do not know. I listen to the same commentators you do, so I don’t have anything special to say as to what would cause it, except that I started my business career in the gold business, and always thought that gold has no intrinsic value. So it could go to $1 an ounce, it could go to $1 million an ounce, I don’t know.

As to the impact of these last few days on customers, it hasn’t been good. Customers have lost a lot of money, our customers have and I assume everybody else’s has. We have taken some very small losses on certain accounts who didn’t have sufficient funds in their accounts to make up for their losses, but of course as you know, we have all automated closeouts when the markets are open, so we have liquidated many accounts and as I say, our losses were, so in the total our losses are in the $100,000 range.
 
After IBKR, curious how it compares to other banks. Here is MS.

http://finance.yahoo.com/news/morgan-stanley-reports-first-quarter-111500438.html

Tje ROE at MS is 7.5%. That includes the wealth management, asset management, and advisory (m&a and equity underwriting, etc) businesses, which are all higher margin. (To give an idea how high margin the wealth management business is, the average rep has assets of $110M and avg. revenue per rep this quarter was $850,000. That means the MS fee per $1 is about 3%).

So anyway, the ROE at MS is 7.5%, despite these low capital, cash cow businesses. That must mean that the institutional sales and trading businesses are in the same range as IBKR, about 4-5% ROE.
 
I don't imagine anybody wants to hear about successful positions, so I'll go over a really bad position from the last week.

http://stockcharts.com/h-sc/ui?s=pcmi

weekly

http://stockcharts.com/h-sc/ui?s=PCMI&p=W&b=5&g=0&id=p56811207767

PCMI is a stock I had held recently for a gain, but when it declined to $7.8, I bought some shares. This was a lazy and undisciplined buy for many reasons, but a quick look at the chart shows support at $6.5, which is a long way from $7.8. But it gets worse, because instead of selling my original position and admitting the mistake, I bought more shares. I entered the trade with no plan and was unwilling to admit I was wrong, so I made the position larger.

As I look at the chart, the right place to enter a position is $6.5 and below, where there is well-established support. I wittled the average price down to $6.75, as a result of averaging down, which violates my rules.

This was another case where I had been successful in the stock before, which may have made me more complacent (and arrogant). In any case, this is a stock that I m willing to hold as an investment, so despite the poor buy discipline, it is a long term position.
 
ssi_spx500_body_Picture_15.png


Trade Implications – Our retail sentiment data shows that the number of orders short the SPX500 contract has surged 41 percent since last week, while long orders have fallen by a similar 32 percent. Indeed, our sample shows that there are currently 5.8 traders short the SPX500 for every long. We see little choice but to favor fresh record highs.




Ah, the good old trend fighting shorts.
 
A cult stock is one that has a large following and perennially disappoints its cult followers. I wouldn't define say NFLX as a cult stock, because there are two sides to NFLX and AMZN and so on. Cult stocks are obscure stocks with fans and really no detractors, and the cult followers believe that their stock has unrecognized greatness. Yahoo's "People viewing also viewed" feature is a good way to find them. DRYS was a huge favorite a couple of years ago. Sandridge Energy is still popular. ATPG was another favorite that predictably went into BK. Often these stocks have lots of debt, which attracts the gamblers (some pretty sad stories from people who sunk their life savings in ATPG, it was pretty funny actually . . . ) Virtually every patent and IP company (is RMBS still around?). The former Lucent was inexplicably on lots of "People also viewed" lists, even though it's a boring old telecom stock. Faced solely on the "People also viewed" criteria, FB seems to be the cultiest of the cult stocks, and the chart is also looking like it's about to fall off a shelf.

http://stockcharts.com/h-sc/ui?s=fb

Earnings on May 1.
 
good trading !

i burnt myself with small stocks back in tech bubble and instead playing major markets swings only for convenience reasons.

You probably right that smaller markets better. Do you feel any heat from HFT ?
 
It can be difficult to buy and sell positions when the bid and ask are 100 shares and, like me, you have no idea where bid and offers are (I suppose I should pay for that data, but I don't). And the computers always drop the big or raise the ask if I put out an order. So I certainly get chiseled on every trade, that's for sure. But I don't know who to blame for that.
 
thanks.

fb is big enough so no issues there.

it has institutions support and lots of connections looks like. i am still waiting right shot to play this one. do 1 trade or so a year in stocks.

lnkd moving up, hard to see fb falling a lot.
 
You must log in or register to reply here.
Back
Top