I am prospecting the possibilities of furthering my career in the field of trading. What kinds of trading are there, actually? It might seem like a dumb question, especially coming out of someone who has spent a few rather successful years as an option market maker. I have to be honest with myself and others, sitting behind the screens, sending options prices all day long and trying to arbitrage and scalp is quite some fun and earns money. But the upside has a limit in terms of profits. And most importantly, that job is not at all that intellectually challenging. The pricing is essentially dictated by the volatility market as well as that of the underlying. Put a monkey behind the screen, he will make some money. Put me, I will make a lot more. It takes little insight into the fundamentals that drive the market, mostly a lot of guts and a feel for when you have to retreat and when to take a position. After a while, I feel, you get it and it's kind of a status quo. So I am looking into doing something else in trading. But having done my thing has sort of closed me to the outside. What are the types of trading other people do? Who are those amazing counterparties of mine who once in a while will bid up or offer down the in the money puts or calls and it will go their way. Or who will simply load or unload a ton of premium. Are they funds? Banks? Portfolio managers? What skills does it take to become one of them? Right now I am the one who amasses pennies in front the bulldozers that move the market. I want to drive the bulldozer. Any hints or advice? Is there a lot of stuff going on in London? Or elsewhere in Europe? (i am aware most of it happens in the US...)
"The pricing is essentially dictated by the volatility market as well as that of the underlying" What is the volatility market?
well there is swing trading stocks, index futures stock day trading index futures day trading real futures trading (gold, crude, interest rates etc etc) arbing stock mergers(!) futures spread trading PLUS.... mutual fund timing strategies for the rich etc. etc. lot of people including me avoid options 'til it's the last resort.....
Dantes: i was imprecise. By volatility market I mean supply and demand for premium as well as the amounth of nervousness and fear.
oil_trader: what do you mean by 'mutual fund timing strategies for the rich'? Is it the strategy applied by the fund, or that of other players who anticipate it and front run? Also, do you avoid options because of the relatively wide spread? or something else?
Your question has no easy answer, any financial market of decent size has many and diverse agents operating in them. For listed US stock options I would say these are some of the important people taking outright vol positions, i.e. they don't just buy vol in one stock and sell it in another: 1. Hedge funds that speculate on the absolute level of vol 2.Hedge funds that trade vol versus realized vol in the stockmarket 3. Mutual Funds that sell calls and buy puts versus their portfolios 4. Structured Products desks at Investment Banks that hedge their order flow in the plain vanilla market 5. Aunt Joanna in Peoria, IL who buys an options combination of some sort, probably on the recommendation of a 23 year old broker (there are many Aunts so together they make quite the bulldozer) But I don't understand how you can say the being an options market maker is boring and easy. To figure out how vol levels and skews in different months and in different stocks are related and how the all relate to the indices are very challenging indeed. But, of course there are many other types of trading.
To do it cheaply with Rydex you need to have $25000 for each and every purchase. So to scale in you need 25K multiples, with fund supermarket brokers you can go with $2500 but pay a $17 commission. PLus the rich was frontrunning before the scandals...no more however. Profunds is only 10-15K - can't remember... OPtions I avoid due to the spreads and diminishing value and exchange MM's overpricing volatility.
Dantes: the reason I find market making not so challenging is that in most respects I find myself a price-taker and not a price-maker. That is, I have a generally good idea of what the vols should look like accross a skew surface (the key word is smooth, with a few explainable complications). For the rest, you trade, you retreat, you retreat and you trade out. Of course, you can set up some small positions, but the liquidity that goes through your market is so much larger than you, that on the long run there is not much you can do to contain it - you end up sitting back enjoying the profitability of the bid-ask spread.