Could someone enlighten the world of equity derivatives for me..

I recently had the pleasure of networking with a BB trader and one of the things he told me is that he thinks one of the best seats to get on a trading floor is a position as an equity derivatives trader, especially if you're interested in transitioning to a macro fund.

Any idea why/if this is true?

I have a rough idea what the job entails; trading of non-linear equity products and ETF's. I have also read that this desk is normally filled with extremely bright and quick witted individuals and that there is quite high turnover. But that is essentially the extent of my knowledge.

So I was hoping someone would elaborate on the job as a whole.
Specifically, why it is a good place to get a macro skill set, compared to FX or Rates?
Is there any opportunity to take risk?
Is it becoming more automated? (I know allot of HFT firms that specialise in being a MM in ETF's, are they the major players in the market?)
Do people normally move to buy sides from this seat? If so, is macro most common and is it usually a PM role or just execution trader?
And do you think it's the best seat on the floor? (I know, controversial!)

(PM me if necessary)

And in advance, thanks for any input into this discussion.

 
Best Response

Incoming equity derivs guy here - personally I would like to know the answers to some of these questions as well. Of what I do know though based on my limited time with the desk thus far, if you have a good understanding of volatility as a proxy for market conditions and how to deal with non-linear products in general, you probably have the type of skill-set that is transferable to a position that deals with many ways of expressing risk - something certainly inherent in macro-oriented trading, which can be rather open-ended. I also believe the non-linear nature of derivatives allows for more risk-taking, simply by virtue of there being more risk to manage- risks which you may choose to either hedge or keep.

I think it's intrinsically a very interesting role and although it's impossible to say whether it's the best seat it is the one I was the most keen on joining after spending a summer at a BB.

 

I'd say the best role for a macro role at a fund down the road would be a fixed income S&T role. When you're in fixed income, you're forced to look at geopolitical issues around the world, central bank announcements, economic data releases that drive equities and fixed income, oil, inflation, GDP, CPI, etc.

 

growing b/c all the other equity stuff is being standardized and exchange-traded. equity derivs. can still be customized into having unique payoffs, etc. as long as it can be hedged, then banks will trade it.

 

The market is growing, I've mentioned elsewhere that equity derivs are dominated by french banks - Soc Gen especially - with Citi also being pretty good. The treand is for more and more complex exotic products - with accompanying high fees - so lots of money in it.

 

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