Equity Delta One Desks

So I've done some online research before posting this topic and am still unfulfilled. I interned right next to a Delta 1 desk last summer but never really inquired much about what they did since I was usually too busy with my own desk.

From my understanding, an Equity Delta One desk trades derivatives that have a delta of 1 with respect to the underlying, i.e. the change in price of the derivative is directly related to the change in price of the underlying. This is a so-called linear-equity-derivatives desk.

The only problem is, I can't recall any linear equity derivs off the top of my head other than an equity swap (right?). In that case, is the delta-1 desk simply an equity swaps desk? Also, what are some other linear equity derivs (if any)?

Lastly, are there any non-equity delta-1 desks?

Jimbo, I'm expecting you to grace us with your pearls of wisdom on this one.

 

odd.... I know with equity options even the most ITM option will never have a delta of 1. You can get close as you go deeper and deeper into the money but a delta of 1? As to other special derivatives outside of the realm of vanilla options (i hate that term) im not sure. Hopefully someone can clarify.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
trade4size:
odd.... I know with equity options even the most ITM option will never have a delta of 1. You can get close as you go deeper and deeper into the money but a delta of 1? As to other special derivatives outside of the realm of vanilla options (i hate that term) im not sure. Hopefully someone can clarify.

well i know they didn't trade vanilla equity options because thats what my desk did. you're right about even highly in-the-money options never really going to 1. from my understanding, the idea is that the product(s) the delta one desk trades is a derivative whose price directly relates to the price of the underlying stock.

i mentioned equity swaps because a) i think i remember being told that a while back and b)the nature of the equity swap instrument would imply a delta of 1 from my understanding of equity swaps.

but thanks for trying. anyone else have any thoughts?

------

"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."

------ "its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."
 

I think most delta one desks trade swaps, but not single stock swaps. They trade swaps on custom equity indices created by the desk. These are more focused and specific to the exposure that the client wants than the s&p or qqqq or other things that most etfs track. You can also have swaps for areas some clients can't invest in directly (but the ibank can), like restricted foriegn markets.

The delta one desk hedges their risk by taking the actual positions in the underlying stocks. They make money on the financing spreads.

 

they trade the stock!!!!!!!!!! in big ass blocks from huge institutional investors like fidelity that don't want the execution risk of waiting for the orders to clear electronically (dark pools of liquidity)

come on people - you worked a whole summer and couldn't figure that out??

 

hey retard, i know what dark pools are and the delta one desk may well do that as well but i know sure as hell that they trade equity swaps (possibly in conjunction with the big blocks, that would make sense). and the fact that you are currently at columbia business school and couldn't even verify that, makes you the idiot.

i always thought that when people discuss intelligent things, name-calling tends to erode, apparently i was wrong.

if anyone has anything CONstructive to add, i'd love to hear from you.

anonymouse:
they trade the stock!!!!!!!!!! in big ass blocks from huge institutional investors like fidelity that don't want the execution risk of waiting for the orders to clear electronically (dark pools of liquidity)

come on people - you worked a whole summer and couldn't figure that out??

------

"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."

------ "its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."
 

Now i may be going on just a bit of a hunch here.... but if you worked on the equity options desk.... im pretty damn sure equity land wasnt too far away. You sure this wasnt a fancy name for their Equity desk?

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

as told by the WSJ

Jerome Kerviel, who surrendered to French police over the weekend, avoided detection because -- even as he allegedly built up massive exposures -- he always managed to square his books as a low-level trader in the "Delta One" desk. Last week, when one trade caught the attention of a supervisor, and the system collapsed, the myriad of small losses were exposed, adding up to a huge financial hole for the bank.

As David Gauthier-Villars and Carrick Mollenkamp report, had Mr. Kerviel been one of the A-league traders in Societe Generale's most prestigious perch -- the desks that handle complex equity derivatives -- his actions would have likely drawn more attention. To run that award-winning section of its business, Societe Generale spends fortunes on luring talent from France's elite engineering schools who can develop so-called exotic derivative products. The bank has an army of highly skilled computer experts to develop in-house software to allow these products to trade and to keep them in check.

But the Delta One desk on the seventh floor of the bank's headquarters in western Paris deals with the boring corner of the equities derivatives market: It is a low-risk division where Societe Generale and its clients can place basic bets on whether a stock market index will rise or fall. Profits are generated through massive amounts of transactions. Lawyers for Mr. Kerviel didn't return calls for comment Sunday.

 

an equity swap is an equity derivative but the delta 1 desk was definately separate from the equity derivatives desk i was on. we were next to each other but were still 2 different entities.

from what i've rummaged through online, i think the delta one desk is its own thing at every major bank. for example, if you were following the whole SocGen fiasco, you'd have noticed that it was explicitly mentioned that jerome kerviel was a trader on their delta 1 desk.

------

"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."

------ "its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."
 

exactly.

------

"its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."

------ "its the running joke now, we now have fair trade with china so they send us poisoned sea food and we send them fraudulent securities."
 

maybe your bank was organized differently, but i was at a top bb (going buyside) and equity swaps were their own desk, same with ETFs, baskets, - index trades were part of derivs)

delta one = stocks, 99% of the time. you might see a single stock swap for some int'l, like china where qqii's comes into play, but that was a one off

shocked you didn't go over and ask.

 
Best Response

Delta one trading desks also known as synthetics, special product group, equity finance, synthetic prime brokerage, are facilitation desks which trade equity delta one derivative products. This would include equity index swaps, single stock swaps, contracts for difference (CFD's), trackers, ETF's, equity forwards. They also work very closely to equity repo desks, which is also a part of equity finance, as sec lending is at the core of what a delta one desks does. Hedge Funds and Institutions will call a dealer to quote a specific delta one product, the facilitation desk will provide a price based on what their costs are to hedge that product. If the client transacts, the dealer takes the other side and will hedge their exposure in a variety of ways. Hedging could be done through physical equities, broker swap markets or futures. If the dealer goes short equities they will lend the securities in the repo market and recieve the borrow for additional income. If they are long synthetic exposure they need to borrow stocks to short the physicals. Some banks may have an axe in this market if their internal inventory consists of these equities on the books. For some indexes the broker swap market is very liquid, so risk can be laid off to other dealers in the swap market whereas other indexes may need to be hedged through futures which incorporates the mispricing in the implied financing of the futures. This is why the relationship between swap financing, roll mispricing and repo borrow rates are driven in tandem as their is a distinct arbitrage relationship between these products. Some dealers specialize client facilitation while others are active in the broker markets and actively partake in index arbitrage.

 
patpat:
no
Hi Patpat,

I was kind of curious as to the reasoning behind your reply? - I have a decent maths and stats background with some matlab under my belt - does that change the situation or leave me at square one

 

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