volatility

Ports in the Storm: US Options Exchange Rankings

 “It’s not bragging if you can back it up.” – Muhammad Ali   While so many seem to be pleasuring themselves with the Tiger King, some of us continue to geek out with the latest data. Now, with March so freshly in the review mirror, certain monthly and quarterly data updates are going to be among our first chances to benchmark the significance of what has just happened in capital markets. We started with a focused comparison of the volatility patterns of the GFC period to the unfolding CVP period here and here, and then detailed the first trading casualties of that volatility here, here and here. Below, is our latest visual of that volatility comparison, where we are beginning to break down the components of volatility represented by the gap and range... Among the more fascinating aspects of this perspective is the illustration that there have been 8 volatility spikes with intraday ranges greater than 20 VIX points since January 2008, and the greatest of these occurred on February [...]

By | 2020-04-02T23:55:23+00:00 April 2nd, 2020|Alphacution Feed|

Parplus Impersonates LTCM, Drags Ronin Down

"Knowing is not enough; we must apply. Willing is not enough; we must do." - Johann Wolfgang von Goethe   With a name like Parplus, it's difficult not to take the bait. Not quite as fruitful as Lev Parnas' company, Fraud Guarantee, but ripe nonetheless, given the circumstances... For instance, we may never know if the advice - as recounted by Carl Spackler - of the Dalai Lama ever entered Jim Carney's mind: Gunga galunga. And, we may never know for sure whether the Parplus crew received total consciousness as the reality of the situation became clear. In fact, we may never know - as the Arnold Palmer story goes - what par actually was for this hole... But, one thing's for sure: It all happened fast... Here's the setup: Seeking to satisfy some of the hunger for yield enhancement solutions (and, ideally, some downside protection) - typically offered of late in the form of structured notes, "smart beta" products, and other clever overlay strategies - Parplus Partners was established [...]

By | 2020-04-01T13:02:41+00:00 March 30th, 2020|Alphacution Feed|

ABN AMRO Clearing: Source of $200 Million Mystery Loss Revealed

“You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever." - Steve Jobs   In an article published today (March 26) by Risk.net based on a statement also released today from ABN AMRO (below), new details about the demise of Ronin Capital emerge - along with that of a "mysterious second default."  According to Risk.net, a spokesperson for ABN AMRO has repeatedly suggested Ronin was not the source - a US client - of the $200 million (net) loss. It's just a matter of time now before we learn of another potential victim of this latest volatility spike... ++++++ Update 9:59PM NYC: Well, that was fast! The source of $200 million loss revealed by Risk.net as New York-based Parplus Partners, an equity volatility hedge fund with close ties to Ronin... Until next time, stay safe out there...

By | 2020-03-26T22:45:45+00:00 March 26th, 2020|Alphacution Feed|

Implications: 2019 Payments For Order Flow Flat vs. 2018

"Historians study the past not in order to repeat it, but in order to be liberated from it." - Yuval Noah Harari, Homo Deus: A Brief History of Tomorrow   With three quarters worth of financial reports for calendar 2019 long in the bag, it is not much of a courageous leap for us to deliver an estimate for order routing revenue - otherwise more notoriously known as payment for order flow (PFOF) - for the full year. And, with the quarterly earnings season coming in the month ahead, it won't be long before we are able to test the accuracy of this estimate. In the chart below, Alphacution extends our prior analysis not only to include 2011 and 2012 but also, more relevantly, to include the year just completed; thereby extending to nine years from six our focus on five of the primary players in retail order flow for US equity markets who also disclose order routing data: TD Ameritrade (soon to be acquired by Charles Schwab); E*Trade; the [...]

By | 2020-03-01T22:37:59+00:00 January 15th, 2020|Alphacution Feed|

2020 Musings: In For A Penny, In For A Pound

Somebody may beat me, but they are going to have to bleed to do it." - Steve Prefontaine "Study the art of science. Develop your senses - especially learn how to see. Realize that everything connects to everything else.” - Leonardo da Vinci   Renowned columnist and author, Thomas Friedman often talks about unintended and unpredictable outcomes when tinkering with big systems. I am reminded of this thought as I drag myself, kicking and screaming, to write this next post. The source of my reluctance is this: I don't want to be in the prediction business mainly because the timing of the catalyst that dramatically alters the trajectory of prevailing themes is a fools errand. And, because we may be standing at such a consequential point in history that the events that await us along the journey in the months and years ahead are unimaginable. However, I do think it's important to start the year by reflecting out loud about the year ahead while leveraging what we have learned about those themes from [...]

By | 2020-03-01T22:47:35+00:00 January 8th, 2020|Alphacution Feed|

Tower Research Capital: The Joy of Spoofing

On November 7, 2019, the U.S. CFTC (Commodity Futures Trading Commission) announced that it was ordering proprietary trading firm, Tower Research Capital, LLC (TRC), to pay $64.7 million in restitution, disgorgement and penalties for what amounts to the "largest total monetary relief ever ordered in a spoofing case." Apparently, this is all due to activity in equity index futures (at least) between March 2012 and December 2013. Now, this is one of those slippery - and potentially toxic - topics where someone ends up getting pissed off by whatever I say next. But, hey, it's Thanksgiving season, the Arctic blast has arrived 3 months early, and someone's likely to get pissed off anyway... Actually, this is a topic I have much to say about, and maybe even more questions than answers. For instance, why is so much of the spoofing / layering litigation on the futures side? (Is there no spoofing in equities? Or, just harder to find?) And, why does it take so long? We're nearly six years past [...]

By | 2020-03-02T17:05:43+00:00 November 14th, 2019|Alphacution Feed|

@VirtuFinancial: Yes, There Are More Acquisitions on the Way!

No problem can be solved from the same level of consciousness that created it. - Albert Einstein On October 4, news broke on all the major market news outlets that - after feasting on a meal formerly known as KCG Holdings, Inc. (KCG) in 2017, which itself was a combo platter made up of GETCO and Knight Capital - Virtu Financial, Inc. (Virtu) was returning to the all-you-can-eat buffet to consider the total consumption of multinational agency brokerage and financial markets technology firm, Investment Technology Group, Inc. (ITG). Of course, this news generated a chuckle around here because it seemed that it was not too long ago that someone was predicting that this kind of pairing would make sense for Virtu - if conditions were such that they needed to bolt something else onto their expanded frame. Oh, wait a sec, that was us... To wit, from Alphacution's post "Virtu Financial: More Acquisitions on the Way, If..." (March 27, 2018): "One other notable move for significant growth for a firm [...]

By | 2018-11-01T18:53:18+00:00 October 31st, 2018|Alphacution Feed|

Virtu: Q1-2018 Update on Extremes

With volatility spiking in Q1 of 2018 - and the successful porting of KCG's intellectual property (IP) prior to that in late 2017 - VIRT earned a welcomed reprieve from the conditions of recent quarters, as we predicted here (and elsewhere prior to that). In the exhibit below, Alphacution's as-if modeling of the combined entity - Virtu + KCG pre-Q3 2017 - yields a level of net trading income that would not have been seen since Q1-2016. Meanwhile, Alphacution's tracking of adjusted net trading income per employee - a proxy for our common look at revenue per employee (RPE) - starkly illustrates the path through the most recent maneuvers: Persistent declines in top line "productivity" since its most recent peak in early 2015 ultimately led to the acquisition of KCG, which closed in July 2017. Swift transfer of KCG's IP onto Virtu's infrastructure along with elimination of redundant technology and human capital allowed this productivity measure to bounce off its lows in Q3 2017 to finish the year as strongly [...]

By | 2018-06-21T20:28:30+00:00 May 15th, 2018|Alphacution Feed|

Virtu Financial: More Acquisitions on the Way, If…

When we launched our first trading program at Quantlab in the late 90's, we didn't have direct market access yet. We generated an order list (overnight) that was worked throughout the subsequent market session at the discretion of an algo-equipped executing broker; some of whom now roam the halls at Jefferies / Leucadia. This was the era when 1- to 3-day portfolio turnover was considered fast - SOES bandits were still a thing - and Schwab would soon acquire electronic trading pioneer, CyBerCorp, from Philip Berber - a short drive down the road from our Houston headquarters in Austin, TX. Of course, everyone had nicknames then - as I suspect they still do now. Ed Bosarge, founder of what eventually became Quantlab (after at least 3 prior related incarnations that began for me around 1996), was known as Dr. Evil. Let's just say it's a hair-raising story about a swashbuckling pioneer of applied math involving a hideous toupee... I was known as Mr. Bigglesworth - or, "Bigsy" for short. No [...]

By | 2018-10-31T16:48:33+00:00 March 27th, 2018|Alphacution Feed|

The State of Speed: A Virtu-KCG Post-Mortem

When the deal between Virtu Financial and KCG Holdings was announced in March 2017, we offered the following read of the motivations behind the announcement: Average daily adjusted net trading revenue for Q4-2016 has returned to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 has caused these figure to fall back to pre-2013 levels. A situation like that needs a good distraction; something that can change the narrative and allow for lots of financial restructuring and restatements.  Voila! Try to take out one of your nearest competitors… Now, with the deal completed as of July 2017, and Virtu now reporting full year 2017 highlights, we took some time to update and combine our Virtu and KCG models. Here's what's notable about this latest update: The combined financials show some signs of improvement (or, at least, stabilization), however, the market landscape has continued to deteriorate: Over the 28-year life of CBOE's volatility index (VIX) - aka the "fear gauge" - 2017 [...]

By | 2018-03-25T16:18:31+00:00 February 8th, 2018|Alphacution Feed|