Alphacution Feed

Jump (Experiments In) Trading, LLC

In the riverfront level of the 600 W. Chicago building (which is in Chicago) - the famed concrete fortress originally home to Montgomery Ward's mail order business - there used to be the trendy, over-priced hotspot known as Japonais. Japonais is gone now - after an eviction lawsuit from 2015, which apparently means they weren't high-priced enough - but, I was just thinking how much I could go for one of their blueberry saketini's about now, which is odd for a bourbon guy... Anyway, an elevator ride to the 8th floor of that very same building - past the old Thinkorswim, now TD Ameritrade, offices - brings you to the global headquarters of Jump Trading, LLC - the legendary and mythological prop shop known mainly for its prowess and longevity in high-speed futures trading, and little else (except among a small group of Chicago quant cognoscenti). With this as a brief backdrop, we found our tour of their 13F and X-17A-5 reports illuminating, both on absolute and relative bases. Here's [...]

By | 2019-02-12T15:33:24+00:00 January 24th, 2019|Alphacution Feed|

Bridgewater Associates: Modeling Ray Dalio’s Modeling

Image Credit: Brad Trent / The Times "Treat your life like a game." - Ray Dalio Before we get to the overview of our recent modeling of famed hedge fund leader, Bridgewater Associates and its founder, Ray Dalio, we need to set the stage for why this particular profiling is so important. It starts with what we have been calling personal alpha... Personal Alpha Ray Dalio is a singular phenomenon in the modern financial world. For starters, he's performed the feat of building the world's largest hedge fund (with $160 billion AUM as of latest count) and delivering "stellar gains" in its flagship Pure Alpha fund of 14.6% for 2018 while most others struggled. In Alphacution's asset management ecosystem map, Bridgewater defines the boundary between active and passive management zones due its role as the largest hedge fund. But more than stretching AUM boundaries and strong performance, Ray Dalio is a singular phenomenon because he has built an amazing business culture, and has recently set out to share his wisdom [...]

By | 2019-02-12T15:34:38+00:00 January 23rd, 2019|Alphacution Feed|

Q4 2018 Update: US Stock Market Made Of These!

Last week, in timely fashion, the SEC published the 13F securities list for Q4 2018. Here is our breakdown of the quarterly change in product categories. Refer to the original US Stock Market Made of These! (or below) for the full history:   In August 2018, I did what I rarely do anymore: Cut an article out of a newspaper. The title and topic caught my eye, and eventually became the catalyst for some of the analysis presented here. Amongst all the digital gear, I still needed a physical marker to remind me... "The Stock Market Is Shrinking. That's a Problem For Everyone." (Jeff Sommer, New York Times, 8/4/2018) It turns out that if you search on a title like this, the story comes up several times over the past couple years. Forbes actually did a similar story after the NYT did the one above. Barron's did one before that, in mid-2017. In any case, the articles from 2018 are both based on a report by Rene Stulz of the [...]

By | 2019-01-17T00:57:16+00:00 January 17th, 2019|Alphacution Feed|

2σ’s Market Making Book: Hiding in Plain Sight

Image Credit: Liu Bolin, Museo Enzo Ferrari ~ There is infinitely more than just the devil in the details. ~ Ludwig Mies van der Rohe It is so often said, offhandedly and seemingly without much regard for the underlying meaning, that the devil is in the details. Ever wonder about the origin of this saying? I suppose this might be a silly question for those of who commonly say things without thinking, but it's still one worth pondering... Famed architect, Mies van der Rohe, is credited with the origin of the quote, but this is not his original version. The original quote, which I have further paraphrased in our opening for purposes that you will soon understand, was: "God is in the details."  Now, as someone who has always thrived on the value of details - and sometimes criticized for getting stuck in the weeds - this last version of the quote, which I reinterpret for my own purposes as "opportunity is in the details," has always come naturally. I [...]

By | 2019-02-12T15:35:18+00:00 January 16th, 2019|Alphacution Feed|

Optiver, IMC, and a Shout Out to AmsterdamTrader

It has been almost exactly 2 years since "Jack" - the mastermind behind the Amsterdamtrader blog that chronicled a ton of insider's knowledge about the high-frequency trading and market making world from about 2009 thru 2016 - posted his closing submission. Despite that, I still wanted to pause for a minute to give props where they are due. The contents of the Amsterdamtrader still sit out there in the blogosphere, open for any particular puzzle solver to stumble onto. It was here that I found several missing pieces to Alphacution's modeling puzzle belonging to Optiver and IMC. Here's a first sample (or two) of what has come of that discovery: Alphacution typically looks through a technology lens to see how various players operate around the global financial landscape - and what those findings may foreshadow for other players in neighboring regions of the ecosystem. Often labeled "technical leverage," we are quantifying - wherever possible - the impacts of technology in and around the trading and investment management arena. In practice, [...]

By | 2019-02-12T15:35:53+00:00 January 10th, 2019|Alphacution Feed|

Citadel Securities’ Book: Hiding in Plain Sight (Teaser #2)

Image Credit: Liu Bolin “The problems are solved, not by giving new information, but by arranging what we have known since long.” – Ludwig Wittgenstein It is said that the best way to eat an elephant is one bite at a time. And, since the aggregated 13F filings of Citadel Securities represent such an elephant-sized trove of delicacies - not to mention the contextual value it brings relative to so many other players - we are only going to chew on a couple new bites for right now. First, we recently made a splash about the product composition of the US "stock" market, and the fact that it's mostly made up of derived products, in the post, US Stock Market is Made of These! More specifically, it should come as no surprise that the product class with the highest growth (since we started our indexing in Q1 2010) is ETFs - followed predictably by ETF options (see chart below). So, one factoid that may be worth further contemplation is the point at [...]

By | 2019-02-12T15:36:21+00:00 January 9th, 2019|Alphacution Feed|

The Incredible Disappearing Financial Advisor?

"Tug on anything at all and you'll find it connected to everything else in the Universe..." - John Muir One of our favorite trends to track around here is the pace of change in workflow automation for trading and investment management processes. It is likely the one monumental driver of change that few are paying attention to (as a measure of success) - and even fewer are developing methods to quantify... So, several months ago, when FINRA (the Financial Industry Regulatory Authority) published its very first "industry snapshot" - the eponymous 2018 FINRA Industry Snapshot - we decided to see if we could use it to enhance any of the components of the broader financial ecosystem that we had previously modeled. After all, Alphacution's initial asset manager study (April 2018) had already highlighted a very healthy 7.3% 11-year CAGR in assets under management growth since 2005 for the sample of 60 large managers in that study (see below)… ... and, we had already made some fairly clear rumblings prior to [...]

By | 2019-01-08T23:22:46+00:00 January 8th, 2019|Alphacution Feed|

US Stock Market is Made of These!

"Study the science of art. Study the art of science. Develop your senses — especially learn how to see. Realize that everything connects to everything else.” — Leonardo Da Vinci (~1500) "The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes." - Marcel Proust (1923) In August 2018, I did what I rarely do anymore: Cut an article out of a newspaper. The title and topic caught my eye, and eventually became the catalyst for some of the analysis presented here. Amongst all the digital gear, I still needed a physical marker to remind me... "The Stock Market Is Shrinking. That's a Problem For Everyone." (Jeff Sommer, New York Times, 8/4/2018) It turns out that if you search on a title like this, the story comes up several times over the past couple years. Forbes actually did a similar story after the NYT did the one above. Barron's did one before that, in mid-2017. In any case, the articles from 2018 are both based on a report by Rene Stulz of [...]

By | 2019-01-11T16:20:12+00:00 January 3rd, 2019|Alphacution Feed|

Flow Traders’ Book: Hiding in Plain Sight

Image Credit: Liu Bolin “The problems are solved, not by giving new information, but by arranging what we have known since long.” – Ludwig Wittgenstein Launching ourselves right into a new year with a continuation of our curiosity with all the delicious clues lying around in plain sight, we give you a morsel of Flow Traders' book. Perhaps not the precise bromide for your hangover, but one that may end up tickling your intellect and soothing a need for a creative distraction at the same time... In the chart below, we present the shape of Flow's long portfolio value for the 28 quarterly snapshots beginning 12/31/2011. (For a little background on why we present this chart without the numbers, see our recent example on Citadel.) As of now, Alphacution interprets an upward sloping long portfolio value as a sign of success from either position count scaling and/or average position size scaling. Now, since I've already had the debate with a few of the high-speed, market-making types (on the potential illusions of 13F [...]

By | 2019-01-04T11:08:48+00:00 January 2nd, 2019|Alphacution Feed|

Open Access Library Archive

The purpose of the Open Access libraries, and the solicitation to register for access to that library, was to openly share certain research output as examples of what could be found in the Premium Access Library, and to assess levels of interest in various themes. The Open Access libraries originally contained traditionally-formatted reports (i.e. - PDF documents) and various exhibits (i.e. - Powerpoint slides). The Open Exhibit Library was an assembly of all the exhibits that had been published in the various Feed posts. For technical and administrative reasons, Alphacution has temporarily discontinued updates to these libraries until such time as the functionality and security of the various site components can be enhanced for ease of maintenance and navigation. For those of you who have registered to access these components of Alphacution's research archive via our original login functionality, we have assembled those documents that were made available for download as follows. For the foreseeable future, additional document downloads will be found in specific Feed posts: 1) Executive Summary: The [...]

By | 2019-02-12T22:31:40+00:00 December 31st, 2018|Alphacution Feed|