Paul

“Learn how to see. Realize that everything connects to everything else.” - Leonardo DaVinci How do listed markets actually work? And, how do players discover and capture opportunity from within that market structure? And, what impact - if any - does the proximity of certain players to the centers of market liquidity have to do with the capacity of opportunity that is left over for all others that operate downstream from these players? These are the kinds of questions that we ask ourselves all the time because if you were to adopt the perspective that markets - and the fortunes of market actors - are interconnected, then what happens in close proximity to liquidity is likely going to have an impact on those who operate farther afield from that liquidity. Layer on top of this the notion that all modern market ecosystems are in a constant state of evolution - whether by virtue of new products, new players, and/or new technologies and methods - and the puzzle-solving exercise for how [...]

If you've ever had the distinct pleasure of driving around downtown LA, particularly heading north on the 110 just past the famed Staples Center where the LA Kings hockey team and a couple little-known basketball teams play, then you can't help but be confronted by the sign at the top of the building just up ahead: Wedbush. Beyond the tony Wilshire Boulevard address, it is here - certainly more metaphorically than physically - that our fascination with the SEC's Form 13F reports truly began in the Spring of 2018 - and later, by extension, where our Hiding in Plain Sight (#HIPS) series was born in the Fall of 2018. Prior to stumbling over this data, I did not know Wedbush all that well beyond the fuzzy belief that it was mainly a brokerage operation. So, as a result, it did not dawn on me that brokerage firms would be accumulating positions that would ultimately trigger 13F filings. Of course, I was ill-informed about the scope of Wedbush's financial services offerings, [...]

"The problems are solved, not by giving new information, but by arranging what we have known since long." - Ludwig Wittgenstein Two brief teasers to share on our legendary friend, Izzy Englander and his Millennium Management trading operation. First, we modeled 72 quarterly 13F reports beginning Q4 2000 and ending Q3 2018, and the value of that piece of Izzy's portfolio puts him on the all-time buyside leaderboard in between Citadel and Jane Street: As per usual, we have stripped the numbers away from the vertical axis to focus in on the shapes for now. This picture brings up two additional thoughts: 1) How long are trajectories like these sustainable? - and, 2) Are there any players on the list below (of upcoming research targets) that will eclipse this current group? Our second teaser for now is an extension of the sustainability question above: In the exhibit below, Alphacution presents the time series of Millennium's average equity position value which is currently north of $24 million per: So, particularly given [...]

“Everything you need is already inside.” - Bill Bowerman, Track & Field Coach and Nike Co-Founder Apparently, there is this parallel universe wherein traders and asset managers are able to take each subsequent risk with the benefit of perfect information because there seems to be some implication in our feedback loop that relying on partial or even incomplete fragments of information is not worth the effort. Tsk tsk... Now, those of you who have been paying close attention at home already know how much I enjoy flogging my readers with the famed Al Pacino Game of Inches speech from the movie Any Given Sunday to within - uh - an inch of their attention spans, but the point should be fairly clear by now: There are tons of clues lying around in plain sight for those willing to occasionally perform the intellectual equivalent of a dumpster dive for new sources of intelligence... Maybe 13F reports just have a bad reputation for their poor impersonation of low hanging fruit. Anyway, here's [...]

“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 (2011) You've got to wonder if the founders of Jane Street Group, which began as a subsidiary of Henry Capital prior to 2001, had any inclination that the "dots" would connect as they have when they were first starting out. Certainly, looking backwards, what now amounts to 64 quarters of track record has produced a "shape" that we can confidently say is worthy of applause... Behind these scenes, Alphacution has nearly completed its initial modeling of Jane Street and the various legal entities that make up its track record, from a portfolio construction and positioning perspective. And, since we have done several of these modeling exercises so far among a roster of some of the more mythological managers and trading firms on record, it's natural that one begins to grow an intuition [...]

"Research is what I'm doing when I don't know what I'm doing." - Wernher von Braun In the hierarchy of preferred trade types, the riskless trade sits at the top. Capturing a perfectly hedged spread or pricing anamoly, or performing a round turn across the spread and back to flat in some temporal duration measured in micro- or even nanoseconds are examples of riskless trades. Like poker's rare royal flush hand, a mechanism to persistently discover and then capture ~riskless trades is the most coveted of the trading world. What comes next in this hierarchy is the directionless trade, where the trader essentially plays both sides of the trade and where success is achieved whether the target ultimately wins or loses. Like poker's next-in-line straight flush hand, the key caveat to the directionless trade is the requirement that the price of the target moves; that there is enough volatility during the life of the trade to cover the cost of entering and maintaining that trade. It is here that we [...]

“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, the just saw something. It seemed obvious to them after a while” – Steve Jobs For Mitch (1957 - 2018) Let's start this one close to where we left off in The Privatization of Alpha: "He’s a dubious character – and, he maintains specific distinction as my all-time strangest interview; sitting there in his personal office’s gymnasium – like an antechamber – as I sat there at the leg press machine in my Armani suit and him, as Tom Wolfe wrote in A Man in Full, eventually breaking out in “saddlebags of sweat” on his spin bike as we chatted. That was 1994 – and I did not get the job." If it had not been for the perpetually warm and generous teddy bear known as Mitch Lester - who I met and quickly befriended to become "the Wadster" in 1990 while he and brother, [...]