Synthetic Equity (Delta1 Desks)

Real Money

Real Money

Well, I've been doing some research again, and it's lead me back to the prime brokers (imagine that...)

So, this thread isn't really about vanilla equity vol, though maybe related. It's more a structured products thing.

I'm just trying to get an intuition for who I'm trading with (and against) when trading something like an index spread.

So, here's the question (and you're gonna have to be a true elite trader if you hope to answer it).

These guys making markets in index return swaps on US equities....

Are they doing stuff outside of RTH for the bank and clients? Does this stuff trade in off hours?

How should I think about the off hours for an index spread in terms of positioning and trading?

I'm just trying to understand how the liquidity picture changes based on the time of day.

For retail, something like an index spread can become very illiquid during off hours, but is that also true for the real big boys that have ISDAs and all that?

Thanks.
 
Market makers and they are trading 100s of thousands of contracts. If someone traded against you it’s because either 1. Their models saw edge in trading against you or 2. You are reducing risk against a position they don’t want.
 
Yes it trades.
Markets are not as tight.
As long as the CME is available and they have worldwide operation.
Since Virtu makes SPY markets 24/5 it's better, but not great.
Being an ongoing existing customer is a huge plus.
 
Real Money said:
Well, I've been doing some research again, and it's lead me back to the prime brokers (imagine that...)

So, this thread isn't really about vanilla equity vol, though maybe related. It's more a structured products thing.

I'm just trying to get an intuition for who I'm trading with (and against) when trading something like an index spread.

So, here's the question (and you're gonna have to be a true elite trader if you hope to answer it).

These guys making markets in index return swaps on US equities....

Are they doing stuff outside of RTH for the bank and clients? Does this stuff trade in off hours?

How should I think about the off hours for an index spread in terms of positioning and trading?

I'm just trying to understand how the liquidity picture changes based on the time of day.

For retail, something like an index spread can become very illiquid during off hours, but is that also true for the real big boys that have ISDAs and all that?

Thanks.
More...

Are you eligible to trade these as a retail investor? Or are you an institutional Investor? What are the prerequisites to trade these Swaps? Can't imagine that there is a Market for Retail Investors if CFDs are banned
 
Retail/Institutional is just a demarcation of size. You'll need an ISDA agreement and a relationship with the bank. Generally not retail, but I've seen it done for larger retail.
In Europe you'll see a lot of retail structured notes that the banks create. Figure at least $10 million, but some of the notes that may give you what solution you're looking for trade retail. and are even listed some in as small as 1000Euro size. Goldman will talk to you at $5 to $10 million for existing structured. For ISDA think bigger. The French and Asian banks offer their existing structured products to retail, generally with derivative suitability. No one size fits all answer.

This week there were lots of Hertz structured products based on the new (expected) company. Curious how they assembled the raw materials. I suspect there may be some DIP warrants.
 
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Atikon said:
Are you eligible to trade these as a retail investor? Or are you an institutional Investor? What are the prerequisites to trade these Swaps? Can't imagine that there is a Market for Retail Investors if CFDs are banned
More...

Hi. I'm just a lowly retail with net worth in the six figure range.

The delta1 desks are making markets in return swaps and so that is influencing price discovery in things like index spreads. The spreads are somewhat illiquid during off hours thru GLOBEX, but stay active in a smaller range around the clock.

Thanks @ajacobson. I can't trade the swaps, but understanding what's influencing this market helps me figure out what's going on. I'm familiar with some of the other players who are active in this space.
 
A huge opportunity if your retail is to buy the structured stuff and trade around it. Retail size in the US is widely available. Fidelity generally has a couple of pages of structured notes every week - curious they are mostly GS issues in the US.
 
ajacobson said:
A huge opportunity if your retail is to buy the structured stuff and trade around it. Retail size in the US is widely available. Fidelity generally has a couple of pages of structured notes every week - curious they are mostly GS issues in the US.
More...
Are you talking about buying Put options hedging with d1 and take advantage of gamma?
 
@Atikon I'm going to give you, regrettably, a terrible answer.

First, what will your broker recognize as good collateral?

Most of the listed structured stuff is built as a note with some optionality - especially the stuff built for the broad retail and that's not a lot of what we trade. Mostly we'll have them craft a custom structured to fit performance we need and we try to keep them honest in pricing/ Most of the stuff is structured converts, Asians, buy writes, reverse converts, knock-ins and kos sometimes is just a strange exotic to facilitate or rescue customers. French banks love vol performance and everybody loves the S&P 500 and EUROSTOXXX. It's poorly priced so the last month or so has been like coining money. A lot is D1 trading - we almost never buy outright puts against structured simply because it's too expensive when you need it and often the other side of the desk is selling it. We also have a software tool the makes an effort to learn correlations and we'll often try to enhance by trading the cheapest correlation.
You should know it doesn't always work, liquidity can be a myth.
French banks never miss an opportunity to lose money - SoGen(The old Newedge) almost drowned this month.
 
ajacobson said:
@Atikon I'm going to give you, regrettably, a terrible answer.

First, what will your broker recognize as good collateral?

Most of the listed structured stuff is built as a note with some optionality - especially the stuff built for the broad retail and that's not a lot of what we trade. Mostly we'll have them craft a custom structured to fit performance we need and we try to keep them honest in pricing/ Most of the stuff is structured converts, Asians, buy writes, reverse converts, knock-ins and kos sometimes is just a strange exotic to facilitate or rescue customers. French banks love vol performance and everybody loves the S&P 500 and EUROSTOXXX. It's poorly priced so the last month or so has been like coining money. A lot is D1 trading - we almost never buy outright puts against structured simply because it's too expensive when you need it and often the other side of the desk is selling it. We also have a software tool the makes an effort to learn correlations and we'll often try to enhance by trading the cheapest correlation.
You should know it doesn't always work, liquidity can be a myth.
French banks never miss an opportunity to lose money - SoGen(The old Newedge) almost drowned this month.
More...

I might respond to this answer way down the road, but I will.
 
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