What are the top Volatility Trading Desks at JPM & GS and what differentiates them?

I know this question is asked a lot on here and it varies from year to year, firm to firm, etc.


However, I am trying to find out more information about the different volatility trading desks as most people that trade options tend to come from similar-ish backgrounds and, from my experience, just end up on their particular desk by luck, team fit, and headcount requirements - not due to the nature of the product. Therefore, I am looking for information on the following to help educate myself as to some of the differences between these volatility tradings desks, based on the nature of the product.


1) What differentiates different volatility trading desks in terms of skillsets/educational backgrounds? Specifically, what sort of person might enjoy Equity vol (single stock or index) vs FX vol vs Rates vol vs Commodities vol vs Credit vol?

  • Equity single stock vol is obviously more micro, whereas I would say index vol has some aspect of macro in it as well. Someone with data science skills here might find use for them?

  • FX (vol): seems to be better suited to people with economics backgrounds that are interested in global macroeconomic events. In contrast to equities, the people I know in this area suggest there isn't much use for data science/analysis and that the work is really just macroeconomic fundamentals driven. 

  • Rates vol: suited for people with quant and/or economic backgrounds as the product is more mathematically complicated, but people with quant background find it easier to acclimate as usually focused on one or two economies only. Seems to be more scope than FX vol for coding/data science, but less than equities.

  • Commods vol: can't really get any general trends from the people I know in this area. However, given the number of quant HFs and prop firms in the space, I think it is safe to assume this area caters to a range of personalities and skillsets - from more fundamental/discretionary through to data-driven/systematic. Lots of scope for data science usage in this area.

  • Credit vol: don't know enough people in the space. I got the feeling it was approximately the same blend of micro/macro as equity index vol.


2)  Roughly speaking, what are the 'top' (volatility) trading desks at JPM and GS? Let us define that as: the ones that the best interns tend to go to; smartest people on it; etc. (left PnL out of it as that tends to vary with market cycles, but I would assume there is a bit of a culture at both of these firms as to which desks are more selective and harder to get into)

  • JPM: seems to be strong in credit, rates, and FX; not as strong in equities 

  • GS: seems to be strong in equities, rates, and commodities; not as strong in FX and credit


Any input on the above would be greatly appreciated.

 

I can speak to JPM. What you stated is true and the equity business has steadily been getting better as they beat out MS and GS recently in revenue.

Equity vol is becoming a lot more automated, however if your exotics EDG then I’d say you’re pretty safe.

Typically, anything with FICC JPM is strong in. Rates vol is very math heavy and if you have a CS background it will help you on the job for sure. Took one intern last year and very competitive spot of course. Same goes for FX vol they also took one intern. the thing about FX vol is that you are working with not just FX but you are also working with rates and hedging your interest rate exposure.

Both desks require very high level of math and good acumen of macroeconomics. CS will help you more for rates vol rather than FX, however CS in FX will also benefit you. Both desks are fast paced and as with any desk things can get very intense especially in times with central banks raising rates globally.

After speaking with people on buy-side think (bridgewater, citadel, BAM) I’ve been told the top three most complex, technical products you can trade is Rates vol, FX vol, and SPG this goes for every bank. Hope this helps.

 

Sure.

1.) definitely go for rates vol over vanilla swaps. Swaps is still very active but vol gives you more exit opportunities to a macro fund. You also develop more of a skill set that are transferable to other market divisions than plain vanilla swaps.

2.) you can use pandas, r, C++, etc. you can develop multi variant linear regression models to see what pairs are expensive vs cheap and put in an RV trade. Such as looking at the 2s10s vs 5s30s and then see what data comes out to where you can put in a trade. FX is much less automated than many other asset classes but it’s still used and being developed. You can apply same coding skills to FX vol. There are full quant teams for this.

3.) FX vol gives more free time to “trading” as you put it. Every desk has there own views and trades that they put on but some more than others. From what I’ve heard and experienced FX vol provides more freedom in that regard. Flow there is always constant markings, gamma boosts, etc. however, RENTD and prop are more prevalent on some desks than others.

4.) I can’t really answer that. I would say any vol desk produces great poker players. The vol aspect brings in probabilities, a different way of thinking, hedging, just aspects in total. Your risk is constantly changing and you have to be able to read people, the market, your surface, etc. ultimately, I don’t think there is a one beats the other kind of scenario. I think any vol desk would be good.

 

Your questions are very high quality and helped me learn some additional stuff about the different desks! Also curious about most of the typical CS skills for a vol desk just to compare with what I've really seen our traders use? Mainly data analytics/Python scripting or a bit more involved than that? I am trading crypto vol and our traders use Python a lot for pricing and some other automation on the desk, and our quant team calibrates our curves.

 
Most Helpful

Interned at JPM this summer:

  1. Skillset was all over the place. Most interns on vol desks (trading track, not quant research) had taken basic stats but not everyone could code. 
    • Didn't know the FX options intern, also got switched up halfway through summer since there's 1 chance for redoing desk placement
    • Rates interns were a rotational group, the intern who ended up on the most vol heavy desk could code and understood rates theory well. Coding helps, not absolutely required for return offer. Finance majors for the most part.
    • Energy derivs has been making a killing, interns are expected to know basic python and will use it, but pretty long hours. Mostly discretionary trading from what I saw. Lost a trader to citadel this year.
    • Didn't know the macro credit intern but lots of traders with econ backgrounds
  2. Can't rank fellow interns in good conscience so will only speak on the difficulty of coffee chats during desk placement
    • Equity derivs: Asked multiple brainteasers. Pretty easy by prop trading standards, but unexpected for S&T
    • Energy derivs: Only interviewed STEM-background candidates in the first place, more time spent explaining "why commodities" since its rather niche
    • Rates desks: Basic rates math from more complex desks, generally more focused on macroecon
    • Macro credit: Talk about global events, how credit markets are modeled in a fundamentally different way than other assets

If you want to trade vol for out of a desire for complexity and aren't necessarily locked-in on the concept of being a flow trader constantly quoting clients trying to scalp you, there are also e-trading, quant strats, XVA, and lots of quant research teams. All of these teams were much "nerdier" than the vol desks and culture was closer to "tech/quant HF" rather than "trading floor". Some of them recruited from the same pool of trading track summer analysts and would ask leetcode easys during coffee chats if they were hesitant about your coding abilities.

 

So couple things. You definitely don't need a finance background to trade vol products as you have already stated.Of course pattern recognition is a huge part of the desk. Finding a pattern within the markets is valuable and you can then proceed to place trades. As Dalio said history is your best friend and a lot of the time history repeats itself which why things look familiar. When it comes to STEM, engineering, math, any quant field and why they are successful within trading but more specifically vol products is for many reasons. I'll give my two cents and you can feel free to disagree.Good at math/good with numbers. Definitely need to be good at math in order to price, know what's a good price, find arb opps etc. learn quickly. A lot of people in these fields are able to adapt and learn quickly. Like complex challenges that require brain power and see those challenges through until solved. Entrepreneurial spirit, able to do things on their own and want to take initiative. Out of the box thinking to solve these problems, always questioning things, maybe we can do this more efficiently, this is a better structure, allows you to find better trades hidden in the depths of the market. Those are the main points that's come to mind as to why these fields generally are attracted to vol products

I can say from experience and people I know FX Vol is suited for people like this.

 

Coding skillset is needed because you are often tweaking parameters and need to have an extremely strong grasp as to how your trading software interacts with both the micro and macrostructure of your market. Another big use case is automation a la providing runs and updating prices. Remember that you'll be managing a book with up to thousands of positions.

 

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