For Subscribers

Peak6 Investments and the Baking Soda Index

"For every action in nature there is an equal and opposite reaction." - Sir Isaac Newton   The performance - or, health - of complex systems is difficult to measure. Typically, you need deviations from norms across numerous sensors - the analytics - converging to signal whether a complex system is functioning properly or not. Add the inevitability of change, and the task becomes exponentially more challenging as continuity of measurement over time decays... And then, there's the stuff that's difficult to measure, if it's measured at all. The intangibles. The slippage factors that don't come into play until they do. Like, a global pandemic - or when a frustrated segment of the population spills out into the streets in cities - big and small - across the landscape... The indicators most commonly used to signal the health of our complex markets may no longer serve their stated purposes. For instance, does the VIX still measure fear? Aside from today's notable spike, the equity markets appeared to have returned to normal volatility [...]

By |2020-08-17T07:14:01-04:00June 12th, 2020|For Subscribers|
Read More

Virtu Financial: Master Exploder, Part II

"Empty your mind, be formless, shapeless — like water." - Bruce Lee   In "Master Exploder, Part I," we presented a first pass at Virtu's Q1 2020 earnings release given the impacts of unprecedented volatility in March. If you're tracking closely - or merely fascinated by - this neck of the woods, be sure to check in on that one, and the one on Flow Traders' Q1 earnings that preceded. Both releases presented outstanding, one-of-a-kind results. As noted in the last Virtu post, we were waiting for some additional data to come out before wrapping our thoughts on the Q1 impacts, both specifically and more generally. After some of that additional data has come out, here we are - and the results are oddly surprising (as in, not what was expected). In the chart, below, Alphacution presents the components of net trading income (NTI). This is a rolling, quarterly view of the composition of NTI that we have updated from time to time here on the Feed. You may recognize [...]

By |2020-10-14T21:39:52-04:00May 21st, 2020|For Subscribers|
Read More

quantPORT: First Look at Jefferies Quant Spinout

"Do or do not. There is no try." - Yoda   Today, a post by efinancialcareers was first to report - followed by Bloomberg News - that Jefferies Group would be spinning out the quantPORT division of its Jefferies Investment Advisors (JIA) subsidiary. According to these sources - and regulatory filings - quantPORT (branded as such in 2018) began as a proprietary systematic equity trading team within Jefferies in 2006. As of January 2020, quantPORT claimed regulatory AUM of $3.7 billion. quantPORT's website lists $5 billion as a milestone in 2017. The bet? Better fundraising on the outside; better incentives (and more risks) for the guys behind the wheel... Now, given that Alphacution knows the key players in the story here, it's been on our radar to dig the stat arb data out of the Jefco filings for a long time, if possible. Today's news provided a catalyst to do just that... A few disclaimers before we get to a couple early samples of chart candy: As an "other reporting [...]

By |2020-08-17T07:14:01-04:00May 14th, 2020|For Subscribers|
Read More

Virtu Financial: Master Exploder, Part I

"As you think, so shall you become." - Bruce Lee   Like a one-legged man in an ass kicking contest, sometimes the scenario is grim. And yet sometimes, the tailwinds converge in your favor - like a three-legged man in an ass kicking contest - and the scenario presents itself very much to the contrary... Historically, Alphacution has not been shy about pointing out the former. Who can forget "Virtu Financial: The Frying Pan and the Fire" from August 2019; a favorite of @Dougielarge, for sure? But, to give credit where credit is due, this story is quintessentially about the latter scenario: Today (May 7), Virtu Financial reported Q1 2020 earnings and, given an extra appetizer of preview from the company on March 20, it was - to borrow a riff from Tenacious D - "The. Best. Quarter. Ever. Period!" Now, it's no secret to anybody on the planet why a strong Q1 was to be expected from Virtu because nearly everyone on the planet is directly impacted by the [...]

By |2020-10-14T21:40:04-04:00May 7th, 2020|For Subscribers|
Read More

Blast Off: First Look at Q1 First Responders

"It is action, not rest, that constitutes our pleasure." - John Adams   Amidst the doom and uncertainty of any unfolding saga, there are always bright spots, if you know where to look. After all, every problem can be an opportunity in disguise. And so, besides the uptick in all things online relative to most things not online during a pandemic lockdown, the expectation has been that there would be some bright spots for listed market first responders - the market makers and high-turnover arbitrageurs - given the unprecedented volatility that erupted in global markets in late February. This week, Alphacution has begun to confirm some of those expectations as critical data necessary to fill in the picture of what actually happened below the unprecedented volatility headlines began flowing... To create the proper gravity of perspective, let's start with average daily volume (ADV) in US cash equity markets for March arriving at more than 15.6 billion shares. This is an all-time high and a level not even remotely approximated since the [...]

By |2020-10-05T16:04:51-04:00April 23rd, 2020|For Subscribers|
Read More

“We” Were Wrong About Jane Street

"Two wrongs may not make a right, but a thousand wrongs make a writer." - Dennis Miller "If you're not making mistakes, then you're not doing anything." - John Wooden   In my last in-person meeting of the B.C. (Before Coronavirus) era, a noted Chicago hedge-fund-slash-market-making C-suiter told me: "You're just making this stuff up..." Answer: "Well, yes - yes I am. Based on an interpretation of an assembly of data supplied by you - and others..." There is no roadmap here, other than the one that is constantly being course-corrected in my head. No textbook. No lexicon. No Ivy League curricula to provide structure or Council of Elders to guide. Just the kind of seemingly unending puzzle-solving exercise to soothe a delusional level of puzzle-solving desire... And, the feedback loop supplied by you - Feed readers, subscribers and clients, alike - that informs a faint sense of navigation. With that, "we" are just making stuff up: Inventing language and pictures - and the stories that seem to fit well [...]

By |2020-10-05T16:07:36-04:00April 15th, 2020|For Subscribers|
Read More

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 |2020-10-05T16:10:56-04:00April 2nd, 2020|For Subscribers|
Read More

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 |2020-08-17T07:14:01-04:00March 30th, 2020|For Subscribers|
Read More

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 |2020-08-17T07:14:01-04:00March 26th, 2020|For Subscribers|
Read More

Poof! Legendary Ronin Capital Disappears (UPDATED)

“If it be now, tis not to come, if it be not to come, it will be now; if it be not now, yet it will come. The readiness is all." - Shakespeare: Hamlet Act 5, Scene 2   UPDATE HERE (3/26/2020) Last Friday, March 20, CNBC was first to report that "one of the CME’s direct clearing firms was unable to meet its capital requirements. The move forced the exchange to step in and invoke its emergency protocols to auction off the portfolios. Ronin Capital, based in Chicago, was confirmed to be the firm in question, according to sources. Additional sources said Ronin’s problems stemmed from positions in futures tied to the CBOE Volatility Index (VIX)." In concert with Alphacution's recent feed post, "Marketquake: The Volatility of Volatility," on unprecedented volatility levels that surpass that of the 2008-2009 Global Financial Crisis (GFC) period, I wanted to assemble whatever we could on Ronin. A story not well known outside of Chicago prop trading circles, John S. Stafford, Jr. - the founder of [...]

By |2020-08-17T07:14:01-04:00March 25th, 2020|For Subscribers|
Read More