Posts
6:30 – Arrive on the desk, market opens in 90 minutes so its really a countdown from here. 20 minutes is spent just turning on all the systems, with 4 computers and basically each running 10-15 different applications this is quite time consuming. Its inevitable, but you will every morning forget to log in into one crucial system and realize at the worst absolute moment.
6:50 – Start reading various new sources, generally FT, Bloomberg, City AM, and then the internal research that comes out. Finish off with a couple broker chats.
7:15 – look at the largest positions on the book and try to come up with a rough game plan for the day. I generally like to make a list of risks I don’t like, in order of priority, and then work down the list throughout the day. You want to make sure you know the biggest risks in every category (ie gamma, vega, delta, decay, skew, div).
7:30 – Morning meeting with sales and research, generally a hard time if you have had a rough night
7:50 – Just do a last glance over the stock news to make sure nothing has been missed before the open. Last thing you want is to be surprised by a big move on the open. One good thing to keep in mind is that you never want your boss to ask you a question and you cant answer. If you are running risk, you need to be aware of everything at all times.
8:00 – Market opens, watch any big movers on the day, cash equity prices find their levels fairly quickly, vol levels adjust a bit slower, generally within the first 10 minutes you get an idea of where vol is on most names.
8:15 – First wave of client requests comes in. I cover several of sectors so you can get a backlog of 7-10 prices pretty quickly. Prioritize them by clients and size. It is crucial that even when you only have a couple minutes for each price you make sure you have all your bases covered. With options because you have so many different risks, you need to make sure you are not being picked off on vol (so check if anything similar is in the broker market already trading, this is also a venue to hedge out risk and allows you to skew your price accordingly), make sure you aren’t being picked off on divs and make sure that you can find borrow on the stock if you are selling shares as part of the trade. With the rules on short selling in Europe this has become more of an issue recently.
8:30 – Finally send off last of the prices, and get some time to look at how the book is doing, start phoning up brokers and start working some trades. Options on single stocks in European trade a bit differently than in the US, the liquidity is not the same. The issue is that screen prices are kept very tight in extremely small size, and clients expect the same spreads in size that is 50x larger. Problem is that unless you can find someone to find the other side in the broker market, you will get wider prices with brokers than you give to clients.
This means to survive you need to be constantly aware of what brokers are working so that you can spot chances to offload risk. So when a client request comes in you can skew it appropriately. The best case scenario is when you know someone is a buyer in the broker market, buy it from a client at a vol from mids, and then offload it in the broker market at a vol above. However, this is very rare, so most of the time you need to make a price based on a prop view if you will. You need to price it according to your view of the trade, instead of where you can offload it
9:15 – On a typical day, this is around the time when things calm down, generally chat with co workers or use the time for a bathroom break. Always go when you have a chance and not when you need to, nothing unfocuses the mind more than having to go to the bathroom, and sometimes you just cant go for 30 minute stretches.
10:00 – Still fairly quiet, finally get to fire up Excel and work on some longer term projects. It gets difficult on a flow book because you need to find the balance between looking after the risk, but at the same time explore opportunities to move the business forward.
10:15 – spoke too soon, big client request comes in, good client so the price needs to be very competitive. Basically a double edged sword, you can take a lot of PNL upfront on the trade, but you know that getting out of the position is impossible and will take a couple weeks. Price it with the help of the senior guys on the desk and get back to excel.
12:00 – company announces a profit warning, unfortunately you have a short gamma position and the stock is down 5%. This is one of the situations you hate to be in. The stock is down 5% and because of the short gamma you are long a lot of delta. Now do you sell the shares 5% down or hold on and hope it rallies back. As a personal rule I like to keep my delta’s from my short gamma’s to a certain limit, and I hedge so that it never crosses that limit. You do not want to be stuck with a stock that drops 20% in a day and you just sit there watching it.
This is also important that you know everything about your short gamma’s, more so than your long’s, because if something gaps down you need to know what your pnl and delta is. With longs its fine because its positive pnl, but negative pnl always brings more senior attention. You also need to make sure you know not just your local risk, but your risk as spot moves. Because in a client flow book you have thousands of positions, your risk can quite easily flip as parameters move. That is why you need to look at your risk in three dimensions, time and spot. Its what makes derivatives more interesting than delta one products, but it also takes a bit more effort in terms of risk management.
12:30 – stock has calmed down so get back to excel, keep an eye on the chart in the corner of the screen though if it has any follow up move.
13:30 – Attend an IT meeting for 30 minutes, just really listen to updates on various projects that are being worked on.
0 comments:
Post a Comment