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 a brief teaser from that modeling: In the chart below, Alphacution presents the total 13F position count for Jump for the fully available sample of 30 quarters beginning Q1 2011 and ending Q3 2018.

But, wait a sec! Why are their so many equity-related positions at Jump? And, what is the story behind the spike to over 8,000 positions from Q4 2014?

For the first question we will bookmark an answer for a minute. The answer to the second question is this: Option positions are almost always reported in aggregate on the put and call sides. Individual positions in strikes and months are summed up to total puts and calls. So, in a sense, this filing is a mistake. It rarely happens – but when it does, we find new nuggets of gold and forge greater understanding of the space. (We’ve only seen this particular “mistake” one other time in a report by Parallax Volatility Advisors.) It’s definitely worth further exploration. For instance, this report from Q4 2014 had 97 individual option positions on the call side in Apple.

Here’s another one:

In the chart below, Alphacution presents the 13F reported gross notional US long market value for Jump’s book for the full sample of 30 quarters beginning Q1 2011 and ending Q3 2018.

To be brief, this is a picture of a grand experiment with an equities-centric strategy that started in 2013, peaked in late 2015, was unwound throughout 2016 and then restarted in 2017. This second phase into growing a new source of capacity in equities has been sustained for almost 2 years. The Q4 2018 13F report will tell us if this piece of the operation is still performing well enough to keep growing. If it does, firms with similar or “neighboring” strategies should pay closer attention. If you are wondering why, refer back to When Market Makers Ate Their Own and the recent piece on Two Sigma’s market making book.

Going back to the first question above, our initial reading of these efforts (and repeated efforts) into an equities strategy suggests core futures capacity – while still profitable – may be maxed out…

Lastly, here’s one more for now:

In the chart below, Alphacution presents total assets (not to be confused with assets under management) for the 17 years beginning 2001 and ending 2017.  These data are among the required disclosures “of brokers and dealers pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17A-5 thereunder:

Now, trading strategies with extremely short, intraday holding periods will not show up on the balance sheet until capacity goals cause accumulation of positions. Broker-dealer balance sheets grow mainly because of accumulated positions, either concentrated into a single asset class or across asset classes.

In the case of Jump, Alphacution believes that the higher yet shifting asset levels that persist from 2007 and beyond are due to experiments in trading strategies requiring accumulated positions in US Treasuries, equities (including ETFs), and options (including ETF options) – plus occasionally stuffing excess cash into money market funds. Shifts in product concentrations over the years (2007 and later) confirm this idea that there has been experimentation into various asset classes and strategies beyond the core futures product strategy.

We will stop here for now and expect to share more on this – in isolation and in aggregate with other prop and market making firms – as it is developed…

Alphacution Support Options

Note: Business credit cards and bank accounts can be used via our PayPal payment portal.

Alphacution is in the intelligence business.

We are uniquely focused on harvesting, packaging and distributing intelligence about the impacts of technology in financial markets and on the businesses of trading, asset management and banking. Our growing model library is our intelligence asset. Today, this intelligence asset primarily supports written research content, which can be accessed via standardized subscriptions and customized engagements. Occasionally, this core asset also supports video, audio and live presentation content. In time, Alphacution’s intelligence asset will support a broader platform of products and services, like data feeds and software.

For the past year or so, Alphacution has been publishing most of its research content on its Feed for free, and promoting that content via periodic newsletter. The purpose of this strategy has been to assess the interest in and demand for a unique perspective and a new level of intelligence on the financial markets ecosystem.

And, based on the growth in network and activity around that research, it seems that we have struck a cord with many of you – a network of senior executives representing some of the most advanced players in the global financial markets arena and their stakeholders.

The recent trajectory of pageview metrics on our site is symbolic of this claim, as shown below:

Now it’s time to take that level of engagement and direct it towards a more viable long term economic support model that ultimately allows us to scale our team and enhance the quantity and quality of our intelligence.

So, here’s what we are going to do about that:

For those of you who are eager to derive greater value from this work and apply that intelligence to your own business interests, Alphacution is offering individual introductory subscription options priced at $275 per year or $25 per month, cancellable at any time. Both of these options include a rebate on purchases of deeper, more substantive reports and case studies.

In other words, the entire value of an individual subscription paid up to the point of purchasing a single report will be deducted from the purchase of that report. (Rebates not to exceed the maximum value of an annual subscription.)

Examples of upcoming reports – that fall within our 2019 research strategy, outlined in the post Alphacution’s Book: Not Hiding, In Plain Sight – that will be available via the aforementioned subscription rebate mechanism include:

  1. Case Study: Citadel, LLC (~ Q1-2019)
  2. Case Study: All-Time Top 10 Hedge Fund Managers, Ranked by Profits (~ Q2-2019)
  3. Case Study: Top Proprietary Trading Firms (~ Q3-2019)
  4. Case Study: Goldman Sachs Group, Inc. (~ Q4-2019)

Enterprise subscription packages and custom content/service engagement options are available upon request at info@alphacution.com.

Alphacution Support Options

Note: Business credit cards and bank accounts can be used via our PayPal payment portal.

Now, for those of you who don’t expect to take advantage of the offers outlined above but want to continue to enjoy the insights, intelligence and occassional entertainment that remain openly available on the Feed, I want to make this specific plea:

Free doesn’t mean there are no costs. In fact, in this case, there have been extraordinary costs in the accumulation of experience and sight, meticulous curation and assembly of data, and creative visualization of and storytelling around our findings.

So, if you value quality content – here or anywhere else – then you need to find a way to support that content at some level simply because you want it to continue to exist. Our post, In Support of Digital Content – which was adapted from other notable digital era content developers – makes a more expansive case for this perspective.

Bottom line: Your efforts to support via one-time or recurring contributions will help guard against this content needing to move from the currently preferred audience-driven model (for its level of independence) to a sponsorship-driven model (which can be found on most other industry media outlets).

So, if none of the subscription options suit you, one-time and recurring support contributions can be made at any level here:

Of course, as always: If you value this work, please continue to “like it,” share it, comment on it – or discuss amongst your colleagues – and then send us feedback@alphacution.com.

As our “feedback loop” becomes more vibrant – given input from clients and other members of our network, especially around new questions to be answered – the value of this work will accelerate.

Don’t be shy…

Unsubscribe from prior subscriptions without further obligation, at any time, here:

By | 2019-02-12T15:33:24-05:00 January 24th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.