First of all, I never said or implied that: 1.) Options floor traders can't sell volatility. 2.) Options floor traders are undercapitalized. 3.) Options floor traders only hold positions for one day. For some reason Maverick, you have a tremendous fascination with bashing equity-derivative traders at an investment bank, or a market-making firm like Susquehanna or O'Connor. What's wrong, did you not get accepted to an Ivy League school? Were you not able to obtain an MBA? Why all the hate? Yes, perhaps I should not have used the absolute term, "no one" in a previous post, as in "no one had the (capital) to sell S&P puts near the lows." Of course there were locals on the CBOE that were selling vol. I simply wished to state that a market-maker ( with a quant-background ) on an investment bank's equity-derivatives desk had a TON MORE CAPITAL as well as opportunity to sell puts at the lows in 1987. In fact, I believe that I provided a pretty significant example of a trader on an equity-derivatives desk who had learned the options business at Susquehanna that made the firm $45 million during the Asian currency crisis of 1998. Maverick, you say that the equity-derivatives desks of investment banks don't breed that kind of a trading "culture"? How else was my friend able to make $45 million in one week had it not been for PROVIDING the opportunity to take on risk and THAT kind of culture that goes with supporting and being committed to such risk? As for my previous post and my experience on a stock-index futures exchange, I certainly did not see many futures pit locals running over to the options pit selling futures puts in 1987 or 1998 for that matter. The fact of the matter is that MANY market-makers do in fact go to the big institutional banks that FACILITATE TRADE ( hello, can you say DEUTSCHE BANK? can you say MORGAN STANLEY? ). They are attracted to these firms because the firms that facilitate trade and (not just agency trades) are the ones that can put a tremendous amount of capital behind someone with great market-making talent, and thus an opportunity at a huge bonus at the end of the year. As for the IQ of the majority of stock-index futures locals, I'm not even going to go there . . . That's too easy!
Waggie, I'll stand by my original post on this thread. Neither market making nor speculation in options requires anything remotely involved as a background in quantitative physics. You seem to be making the leap in logic that since i-banks only hire highly degreed traders, and i-banks have deep capital resources, only smart traders at i-banks can be meaningful participants in options. Granted the increased margin requirements on premium selling after the 1987 crash "priced out" many independent market makers. Even still, here in the Chicago trading environment, no exchanges's population made the kind of money as the CBOE's. Future's traders get the ink and glory, after all any reader understands buying a bunch of S&P's on the low of the move. However the OEX was littered with guys, from the humblest of backgrounds, who made million's scalping options, and as hard as it is to believe, they actually managed their risk, without a graduate degree!! In fact the CBOE, the nations FIRST, listed option's exchange, wasn't started by a bunch of guy's from MIT with background's in the space program, but instead the CBOE was an offshoot of a bunch of trader's from the CBOT's SOYBEAN PIT! Wow there's a bunch of rocket scientist's at work. The O'Connor's behind the firm of lore were GRAIN LOCALS! Their combined net worth...perhaps half a billion. Ain't many highly degreed guys sitting around CSFB, or Morgan with that kinda bread. Yes there are OTC strats so complex that quants have a tremendous leg up on understanding and structuring. But options..as we speak some Big Ten dropout from Chicago's South Side is selling a 1000 lot ATM strangle and bidding on the wing's to get it all locked in.
As a former floor trader of futures for 10 years, I AGREE WITH YOU 100% regarding the CBOE, and once again I really enjoy your insight on the topic, Pabst. Great story about the Soybean crowd! I was simply trying to defend the firm Susquehanna, which was the original question posed on this thread. They are a class firm, with some really good people there. I just have a hard time understanding why some people need to make "grandise" statements concerning equity-derivative traders at I-Banks. As for the REAL rocket-scientists, I will cast my vote for the locals on the COMEX. Back in the old days they were able to "cross" customer paper and take the other side of a customer order. And during the big run up to $850 in gold, the quote boards were so late it wasn't even funny . . . Many orders got executed in the booth, if you know what I mean! :eek:
yea it's called f*cking the customer just like a specialist does to us all day. if you're in that position, how much brains does it take to do that? middlemen all have an unfair advantage, whether a local, specialist, marketmaker, all the same to varying degrees. Why are you guys glorifying guys on the floor???
OK, Waggie, let me post your quotes here in reference to those statements. "While I would agree that there were locals such as myself and others that had some very good days and a GREAT MONTH in October of '87, I would also argue that no one had the capital to sell S&P Puts near the lows with an expectation that volatility would come in." This is in reference to number 1 and 2. "Since you seem to have a hard time understanding "volatility" trades, they usually last for more than ONE DAY." This is in reference to number 3. "Again, if anyone thinks that traders on an equity-derivatives desk come into the week of Triple-Witch shooting from their hip, I would suggest that you are sadly mistaken." This is just an idiotic statement implying that market makers on the floor do shoot from the hip? Unreal. "There are hundreds of trades on the books from facilitating trade with customers in the BKX, BTK, SOX, XOI, OSX, not too mention all sorts of volatility plays involving futures and futures options, index-arbitrage, etc. that need to be unwound via a mathematical premise. That premise is a thorough understanding of the markets based on volatility" Back to number 1 again. Waggie, it's fun to have to eat your words isn't it? Oh and BTW, I have no hangups with ivy league schools. How did this get brought into the mix? Most quants don't even go to ivy league schools, they go to University of Chicago, MIT and CalTech. I have no problem with Susquahanna either, my market making firm took a lot of money from them standing next to us in the pits. We owe a great deal of gratitude to them.
Noone is begging me and I'm fine with trading NYSE, in fact I like it. His point is that being on the floor is a tremendous advantage whether you are a low level runner or a 2-dollar broker or specialist. Plain and simple, it takes a complete retard to actually lose money yearly being a specialist (or the equivalent on any other floor). It's really hard to actually lose money, you basically have to go out of your way to do so. And that is completely ignoring any screwing done to the day trader because thats really small potatoes. Thats why glorifying any position on the floor is BS. I would kill to work on the floor. In fact many people would. It's all about who you know because many many many traders are more than qualified to work the floor.
Mecro, As you know, there are no absolutes in life. In the 1987 crash, some specialists were net short! However several firms blew out. Same in any pit or crowd. Some choose to shamelessly leach and eek out a good living. Other's aspire for greatness, those on the floor who truly jam have mortality rates commiserate with their level of risk.