How prevalent is quant knowledge among the option traders here?

Discussion in 'Options' started by Aquarians, Nov 30, 2018.

  1. ajensen

    ajensen

    Here are some quotes from a Wall Street Journal story about how a successful hedge fund manager uses options. It is useful to be able to back out an implied distribution from a set of option prices that you can compare with your views and trade against if your view differs greatly.

    **********************************************************

    Mr. Talpins is a “macro” trader who uses options to try to capture the
    upside of—and limit potential losses from—strategies aimed at
    anticipating global economic shifts. Paying for stock and bond options
    can lead to losses in placid markets, but volatility over the past
    year has buoyed Element’s bullish wagers on U.S. stocks and the U.S.
    dollar. Mr. Talpin’s bearish bets on the U.S. interest rates and the
    euro also have paid off.

    “Element is great at using options in a thoughtful way, so they often
    make more money when they get it right than they lose when they’re
    wrong,” says Adam Blitz, chief executive officer of Evanston Capital
    Management, which manages portfolios that invest in Element.

    ...

    Mr. Talpins, a former Yale University math whiz who, people close to
    the firm say, logs into the fund’s computer system every day on
    vacation, spends much of his time focused on developing broad
    investment themes. His focus is on attempting to meld old-school macro
    bets with a newer, quantitative approach that features structured
    wagers in stock, bond and currency markets.

    An ideal trade might be one that yields gains only with a sharp rally,
    but keeps possible losses limited, rather than making outright wagers
    on the future of stocks or bonds. In late winter of 2017, for example,
    Mr. Talpins anticipated that Congress would pass a corporate-tax deal.
    Element loaded up on options on the S&P 500, a move that cost the fund
    for much of the year but led to huge gains when the deal came together
    and stocks climbed.
     
    #41     Dec 3, 2018
    ironchef likes this.
  2. ironchef

    ironchef

    Two questions for you:

    1. What do you mean by "implied distribution from a set of option prices"?

    2. Is he mainly a directional options trader then?

    I thought successful professional option traders mostly traded non directional?
     
    #42     Dec 3, 2018
  3. newwurldmn

    newwurldmn

    When I interviewed with Element (many years ago), they were looking to get long the SPX but to do it via risk reversals to monetize the skew.
     
    #43     Dec 3, 2018
    ironchef likes this.
  4. ironchef

    ironchef

    I tried NP. Most of the posts I read were incomprehensible, to me. :banghead:
     
    #44     Dec 3, 2018
  5. ironchef

    ironchef

    Thanks. So, mostly volatility trade instead of betting on the direction of SPX?
     
    #45     Dec 3, 2018
  6. ajensen

    ajensen

    1. See the paper Recovering Probabilistic Information From Options Prices and the Underlying or the article Estimating Option-Implied Probability Distributions for Asset Pricing .

    2. Looks like it. He is not market maker, and market makers are usually non-directional.
     
    #46     Dec 3, 2018
    MACD, tommcginnis and ironchef like this.
  7. ironchef

    ironchef

    What about hedge funds?
     
    #47     Dec 3, 2018
  8. ironchef

    ironchef

    #48     Dec 3, 2018
  9. ironchef

    ironchef

    #49     Dec 3, 2018
    fan27 likes this.
  10. fan27

    fan27

    You are not alone :) The good news is you do not need to understand it to make money trading.
     
    #50     Dec 3, 2018
    Nobert likes this.