options

Cheap Volatility: A Lesson In Market Structure Mechanics

"The world breaks everyone, and afterward, some are strong at the broken places." - Ernest Hemingway   Alphacution has always been fascinated by the players. Unlike the world of sport, market players have unique potential to influence the field of play, and thus create a feedback loop that influences other players, and so on causing market ecosystem evolution. In this game, the rulemakers and overseers - the referees - are typically playing catch up... This is not to suggest that markets don't have naturally occurring limits in addition to those that are imposed by referees. They do. There are always capacity constraints, given performance requirements and performance expectations; and so, we are further fascinated by how players navigate - how they survive, thrive and scale (or not) - relative to the inevitability of market limitations, many of which are currently not well understood. Throughout these digital pages, Alphacution has plotted a journey to fill this unmet need for understanding -  presenting the output of our fascinations - the stories of [...]

By |2020-10-05T16:03:25-04:00May 1st, 2020|Open|
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

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

Virtu’s Optionality? Some Good News…

“That which does not kill us makes us stronger.” - Friedrich Nietzsche “We adore chaos because we love to produce order.” ― M.C. Escher   One intangible cost of being the sole US publicly-traded market making firm is the required level of financial and operational transparency - and the investor relations burden - that comes with that status. In this case, that cost may be unusually high because of the relative opacity of the competitors in this sector - what Alphacution typically refers to as the structural alpha zone of its asset management ecosystem map - coupled with the unparalleled use of technology and extraordinary magnitude of wealth generated by that small group of players. To compound this dynamic, recent dramatic shifts in the landscape for retail order flow sparked by the late 2019 moves - en masse - to $zero commissions by retail-oriented brokerage platforms, and the quick follow-on consolidations of TD Ameritrade (by Charles Schwab) and E*Trade (by Morgan Stanley), and given the pandemic-fueled volatility and volumes of [...]

By |2020-10-14T21:40:22-04:00March 12th, 2020|For Subscribers|
Read More

Goldman Sachs and the Long Arc of Hull Trading

"And the men who hold high places - should be the ones who start - to mold a new reality - closer to the heart." - Rush, "Farewell to Kings" Strap yourself in for this one, as we take a fascinating and detailed walk through some of Alphacution's recent modeling on one of the long-standing Kings of Wall Street; a story that is on the one hand, not widely known and on the other, not typically spoken of... It was among the most exciting one-two punches of financial markets deals from the late 1990's and very early 2000's; one where Wall Street - much like other financial centers across Europe had done in prior years - had reached out, once again, to LaSalle Street for their unique prowess in derivatives trading. (Alphacution detailed the roster of leading players who were part of this wave of acquisitions in a Feed post focused on Susquehanna International Group - SIG.) In this case, the mighty Goldman Sachs had reached out to acquire Blair [...]

By |2020-10-14T22:45:13-04:00September 26th, 2019|For Subscribers|
Read More