Who is Group One Trading?

“When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.” – Henry Ford

Please forgive me for trying to squeeze just one more reference to HBO’s hit series out of the tube, but it turns out that “GoT” is not the only G.O.T. In our current mission to focus on those notable players who thrive in closest proximity to the sources of market liquidity (in order to quantify their impact on the broader asset management ecosystem), we finally found time to explore and model the other G.O.T – Group One Trading, LP (GOT).

Now, for those of you who are just joining the thread, you might consider starting with our piece on the Top 100 Players in US Listed Market Structure where we place GOT as a member – and for the exceedingly ambitious, you might rewind further to our study, The Context Machine: Estimating Asset Manager Technology Spending, which ultimately supports the hypothesis that defines our ecosystem mapping framework that has galvanized the direction for much of our most recent research.

Anyway, allocating a significant portion of our modeling focus to the top market making and proprietary trading firms of late – and paying particular attention to the subset of players that display leadership in trading one or more of the key product classes for stocks, options and exchange-traded products (ETPs – or, ETFs) – we offer a first look at a key player in listed options, as follows:

If there is a single word to describe this group, that word must be consistency

Normally, we are looking for – and ultimately find – dramatic shifts in strategy that are exposed by dramatic shifts in the data we model. Sometimes, trajectory of a time-series is illuminating on its own. However, so far, it has been much rarer to find data that does not display dramatic shifts nor noteworthy trajectories, until now.

As simple as it may seem, shapes provide the clues for the stories we tell. In this case, we find ample evidence of the shape of consistency. Group One Trading specializes and makes markets in exchange-listed derivatives. In the exhibit below, Alphacution presents the position segmentation (by product class) of GOT’s 13F portfolio for the 45 quarters beginning Q1 2008 and ending Q1 2019.

Here you will notice that for most of that period, GOT has maintained total 13F positions of ~5,000 with both put and call options leading all other product classes with ~35% of total 13F position count each.

Now, if we were to drill down a layer, this idea of consistency still holds. In the exhibit below, Alphacution presents the time-series of largest and top 10 largest positions (as a percentage of total 13F portfolio value). Here, though the lines appear more variable than those of the position counts, we find incredibly consistent figures (where the largest position has average 1.8% and the top 10 largest positions have averaged 9.6%).

Our bottom line for now? Group One Trading has been successfully executing the same strategy for at least a decade. This is a significant feat given all the change in markets and players that have occurred over that decade – and a significant statement about this team given the likely allure to tweak those strategies.

Come to think of it, let’s expand to a two-word description by adding disciplined.

One more thing: We are not saying that there aren’t “trajectories” in the data worth exploring further. There are. We will bring that part of the story back to the forefront when it can be framed in the proper context.

Stay tuned…

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By | 2019-06-05T19:45:21-04:00 June 4th, 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.