options

HAP Trading’s Book: Hiding in Plain Sight

"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change, that lives within the means available and works cooperatively against common threats."Charles Darwin Consider that the capital markets are like an evolving ecosystem wherein the players - from market makers to hedge funds to the largest asset managers, among others - are like various species of creature. Depending on environment conditions and levels of adaptability, some species thrive and some don't... On the extinction front, just today Bloomberg reported that York Capital Management's founder, Jamie Dinan, announced that he would be existing the firm's hedge fund strategies thus joining other high-profile hedge fund exits for the year, including John Paulson of Paulson & Co and Louis Bacon of Moore Capital Management and a growing list of legends and luminaries who have already retreated from the hedge fund business. In parallel, this event strengthens Alphacution's core thesis about the finite capacity of alpha, the [...]

By |2020-11-24T20:08:01-05:00November 24th, 2020|For Subscribers|

Alphacution Press: Crain’s Chicago Business on the Surge in Option Trading

"Stock options trading has skyrocketed 31 percent this year to an annual record, lifting the fortunes of the firms in Chicago that specialize in them."Crain's Chicago Business reporter, Lynne Marek Alphacution contributes analysis to the Crain's Chicago Business story on how local firms have pocketed profits and expanded operations in a record boom after several tough years in "It's a great time to be an options trader" with mentions of Chicago-based firms, all of which Alphacution has touched upon (or more) here on the Feed, including Citadel Securities, Wolverine Trading, Old Mission Capital, Simplex Investments, Dash Financial Technologies, Chicago Trading Company (CTC) and Akuna Capital. Recent related analysis on option markets in Alphacution Feed posts include: Pennies and Locomotives: Hypothesis for Virtu's Next AcquisitionSummary: 2020 Order Routing Revenue Expected to Exceed $2 BillionOptions Powerhouse IMC Financial Markets: Stung by Pandemic Volatility?Simplex Trading: Against the Odds Runaway Concentration Risks in US Option Markets

By |2020-11-16T22:26:02-05:00November 14th, 2020|Press|

Pennies and Locomotives: Hypothesis for Virtu’s Next Acquisition

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking."John Maynard Keynes Back in the day, we called it picking up pennies in front of locomotives. Today, that locomotive is one nasty beast... Virtu is having a banner year in 2020, with 9-month net trading income (NTI) at an all-time high of nearly $2 billion. Virtu also appears to be well-positioned to benefit from periods of heightened volatility and volume in its core US cash equity strategy going forward. In other words, there is no specific need for Virtu to do anything dramatic. So, our hypothesis here is this: If there was a dramatic move to be made by Virtu that would cause a material uptick in growth potential, what could it be? Note: If you haven't already done so, our recent Feed post, "Trading Strategy Secrets: Hiding in Plain Sight" is worth reading as a detailed setup for this post... Right out of the gate it needs to be said that we [...]

By |2020-11-16T20:17:00-05:00November 13th, 2020|For Subscribers|

Robinhood: Q3 Order Routing Revenue Continues to Break Records

"Do not go where the path may lead, go instead where there is no path and leave a trail."Ralph Waldo Emerson The juggernaut that is the Robinhood commission-free trading app has accumulated some dents and bruises over the year, along with a number of truly breathtaking successes. One of the more overexposed stories in a year engorged with superlatives, system outages, a customer suicide and, most recently, the hacking of thousands of accounts has challenged Robinhood's meteoric rise along the way. Together, these headwinds have delayed Alphacution's prediction of the timing of an oncoming IPO. All that said, one aspect of the Robinhood juggernaut - certainly among the more important aspects to its key stakeholders - is persistent growth in order routing revenue; the largest component of total revenue. After two quarters of blockbuster, pandemic-fueled numbers showcasing the inner workings of Robinhood's order flow firehose, the Q3 2020 order routing figures have recently been made public. The headline is that after the second quarter's monstrous $180.3 million in payments for [...]

By |2020-11-02T22:38:42-05:00November 2nd, 2020|For Subscribers|

Options Powerhouse IMC Financial Markets: Stung by Pandemic Volatility?

“The best way to differentiate the good from the bad is to look at economic incentives. Companies that sell you a physical product or a subscription are far less likely to abuse your trust than a company with a free product that depends on monopolizing your attention.Robert McNamee, Zucked: Waking Up to the Facebook Catastrophe Amsterdam-based International Marketmakers Combination BV - more commonly known simply as IMC - is one of the most legendary proprietary option trading powerhouses in the world today; one of only three remaining independent prop firms - behind Optiver BV (1986) and Susquehanna International Group, LLP (1987) - founded in the 1980's during an era known for other pioneers like O'Connor & Associates, Hull Trading and Cooper Neff: IMC has a very successful Chicago-based unit representing roughly 40% of global headcount of ~800 known as IMC Chicago, LLC (d/b/a IMC Financial Markets) that was established on April 27, 2000 - originally under the name, Holland Trading House, LLC - to engage in proprietary trading in securities, [...]

By |2020-10-25T23:29:55-04:00October 25th, 2020|For Subscribers|

Simplex Trading: Against the Odds

“When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”Henry Ford On occasion, we have framed the world's leading proprietary trading firms with the following graphic: And, as many of you know, this is the terrain upon which we have focused a notable component of our attention to date - and likely where we will place a disproportionate share of our attention going forward. This is partly due to the fact that this group bears out-sized responsibility for a quiet cascade of impacts throughout the global markets ecosystem, and partly because there are so few others that have managed to marry such scale with such creativity. This dynamic is made more notable by the idea that winner-take-all market dynamics that tend to reinforce an "incumbency of incumbents" make such an ascension less likely than the previous unlikeliness from all the yesterdays before... That said, based on our ongoing surveillance of the broader landscape, there are always exceptions. If you watch [...]

By |2020-10-16T23:50:57-04:00October 16th, 2020|For Subscribers|

Alphacution Press: Wall Street Journal on Susquehanna, ByteDance, TikTok

“No matter the outcome of the struggle between China and the U.S. over video-sharing app TikTok, an unlikely winner will be a secretive trading firm based outside of Philadelphia.” – by Wall Street Journal reporters Rolfe Winkler, Jing Yang and Alexander Osipovich. Alphacution contributes analysis to Wall Street Journal story on legendary option-trading powerhouse, Susquehanna International Group’s ownership interest in ByteDance, the Beijing-based owner of video-sharing social media app, TikTok, “Secretive High-Speed Trading Firm Hits Jackpot With TikTok” (October 1, 2020). Additional related analysis on share of option markets in Alphacution’s Feed post, “Runaway Concentration Risks is US Option Markets.”

By |2020-10-02T16:28:29-04:00October 2nd, 2020|Press|

SoftBank: Nasdaq Whale Files First 13F Report

“Entrepreneurship, you will only understand it if you experience it for yourself. It’s not something I can explain in words.” – Masayoshi Son On September 4, the Financial Times was first to report that “SoftBank is the ‘Nasdaq Whale’ that has bought billions of dollars’ worth of US equity derivatives in a series of trades that stoked the fevered rally in big tech stocks…” Since then, a consistent drumbeat of other articles and podcasts have been published; some of them tying SoftBank in with Robinhood and other retail brokers as leading factors that may explain the (concentrated) run-up in US equities from the March lows to the early September highs. For those of you who don’t speak options as a first or second language, the logic of SoftBank’s potential impact on cash equity markets based on equity derivatives positions goes like this: Derivative markets are zero sum. For every unit long there is a unit short. Customers, like SoftBank, typically buy options – outright or via spreads – to be long deltas of the underlying security. Market [...]

By |2020-10-05T21:37:00-04:00September 17th, 2020|Open|

Robinhood’s Trailing Stop Orders: Extreme Profitability, By Design

"They make it so easy." - Richard Dobatse, Robinhood user (via New York Times) "A fool and his money are soon parted." - Thomas Tusser, poet   Imagine if you knew, ahead of time, exactly what bait to use? Not only which bait to attract and influence the behavior of specific customers, but how to package the output of those behaviors - into an additional form of bait - in such a way as to leverage US listed market structure and maximize the probability of financial windfall. If so, chances are, you would share some of the vision that the founders of retail trading app and rising zeitgeist symbol, Robinhood, did circa 2013... Now, the fact that Alphacution has been beating this drum for four weeks in a row (starting here, here and then here) is unintentional and unrehearsed. Certainly, we much prefer that our riffs come with a level of variety - and we will return to that variety shortly. However, as we have been grinding the numbers around order [...]

By |2020-08-17T07:14:01-04:00July 15th, 2020|For Subscribers|

Phenomenon: On This Score, Robinhood Now Exceeds E*Trade, Others

"It is a mistake to look too far ahead. Only one link of the chain of destiny can be handled at a time." - Winston Churchill   The holidays, with all of its gift-giving elves, came early this year with new data; data that I have been crunching non-stop for the past week - and will likely continue to crunch in the week ahead. The exercise has yielded one "I-shit-you-not" revelation after another after another, almost as if such a trove could not exist in the public domain lying around for free. However, rather than fully unwrap any of these gifts right hear and right now (and go through the instructions in detail), I'm just going to set this one down under the tree for the weekend... Until next time...

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