For Subscribers

Blast Off: First Look at Q1 First Responders

"It is action, not rest, that constitutes our pleasure." - John Adams   Amidst the doom and uncertainty of any unfolding saga, there are always bright spots, if you know where to look. After all, every problem can be an opportunity in disguise. And so, besides the uptick in all things online relative to most things not online during a pandemic lockdown, the expectation has been that there would be some bright spots for listed market first responders - the market makers and high-turnover arbitrageurs - given the unprecedented volatility that erupted in global markets in late February. This week, Alphacution has begun to confirm some of those expectations as critical data necessary to fill in the picture of what actually happened below the unprecedented volatility headlines began flowing... To create the proper gravity of perspective, let's start with average daily volume (ADV) in US cash equity markets for March arriving at more than 15.6 billion shares. This is an all-time high and a level not even remotely approximated since the [...]

By |2020-10-05T16:04:51-04:00April 23rd, 2020|For Subscribers|
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“We” Were Wrong About Jane Street

"Two wrongs may not make a right, but a thousand wrongs make a writer." - Dennis Miller "If you're not making mistakes, then you're not doing anything." - John Wooden   In my last in-person meeting of the B.C. (Before Coronavirus) era, a noted Chicago hedge-fund-slash-market-making C-suiter told me: "You're just making this stuff up..." Answer: "Well, yes - yes I am. Based on an interpretation of an assembly of data supplied by you - and others..." There is no roadmap here, other than the one that is constantly being course-corrected in my head. No textbook. No lexicon. No Ivy League curricula to provide structure or Council of Elders to guide. Just the kind of seemingly unending puzzle-solving exercise to soothe a delusional level of puzzle-solving desire... And, the feedback loop supplied by you - Feed readers, subscribers and clients, alike - that informs a faint sense of navigation. With that, "we" are just making stuff up: Inventing language and pictures - and the stories that seem to fit well [...]

By |2020-10-05T16:07:36-04:00April 15th, 2020|For Subscribers|
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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|
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Parplus Impersonates LTCM, Drags Ronin Down

"Knowing is not enough; we must apply. Willing is not enough; we must do." - Johann Wolfgang von Goethe   With a name like Parplus, it's difficult not to take the bait. Not quite as fruitful as Lev Parnas' company, Fraud Guarantee, but ripe nonetheless, given the circumstances... For instance, we may never know if the advice - as recounted by Carl Spackler - of the Dalai Lama ever entered Jim Carney's mind: Gunga galunga. And, we may never know for sure whether the Parplus crew received total consciousness as the reality of the situation became clear. In fact, we may never know - as the Arnold Palmer story goes - what par actually was for this hole... But, one thing's for sure: It all happened fast... Here's the setup: Seeking to satisfy some of the hunger for yield enhancement solutions (and, ideally, some downside protection) - typically offered of late in the form of structured notes, "smart beta" products, and other clever overlay strategies - Parplus Partners was established [...]

By |2020-08-17T07:14:01-04:00March 30th, 2020|For Subscribers|
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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|
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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|
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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|
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Gearing up for Jane Street

“Two roads diverged in a wood, and I—I took the one less traveled by, And that has made all the difference.” - Robert Frost   Jane Street is one of the most exciting players among the roster of proprietary market making firms in the entire trading ecosystem. What began in 2000 as Henry Capital, with memberships on the American Stock Exchange and Midwest Stock Exchange, today sports a broad global footprint and continues to solidify its legendary status among those that trade for their own account. As such, Jane Street is the subject of our next comprehensive case study to be published in the coming weeks. This post is an appetizer for that... Until next time...

By |2020-08-17T07:14:02-04:00March 10th, 2020|For Subscribers|
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Renaissance Technologies: Discovering the Omnitrade

"There's a point, seven thousand RPM, where everything fades. The machine becomes weightless, just disappears. And all that's left is a body moving through space and time. Seven thousand RPM." - Carroll Shelby   In the early days of Quantlab, we suspected that there were stock trading signals in option data. Our futures program had waaaay too much slippage in it, and we needed to make a shift into a strategy with far less position concentration if we were ever going to survive. It was 1996 - or maybe it was 1997 - and the biggest challenge we faced in making such a shift was finding clean historical option data. That's when we met Sandor Strauss, Renaissance Technologies' first data guru... My brother recently gave me a copy of Greg Zuckerman's book, "The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution," for Christmas. Not being someone who allocates much time to reading hard-bound books, it sat at the corner of my desk, beckoning for the right moment to [...]

By |2020-10-14T22:26:55-04:00March 4th, 2020|For Subscribers|
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A Flock of Canaries: From Allston to XTX

"You don’t lead by pointing and telling people some place to go. You lead by going to that place and making a case." - Ken Kesey   If you believe - as we do - that everything is connected to everything else, then it stands to reason that all events have potential to be seen as the proverbial canary in the coal mine. Therefore, what we really need to do is notice stuff and connect dots. Here's a few of our latest observations... On February 10, 2020, Bloomberg reported "high-frequency firm Allston cuts employees amid low volatility," and further noted that this move follows XR Trading's 10% headcount reduction in late 2019. This got us thinking about the tier of smaller to mid-sized proprietary trading firms and if any of the available data (which currently tends to be US equities-centric) provide clues as to the health of those firms - as well as that space in the market ecosystem (where prop firms and market makers reside) that we typically call [...]

By |2020-08-17T07:14:02-04:00February 20th, 2020|For Subscribers|
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