Q&A: Equity Derivatives Trader

Background:

  • Current Equity Derivatives Trader at an Amsterdam Market Maker Firm, previously quantitative analyst at IB for 2 years in the exotic business- Graduate in pure mathematics, with specialization in probability and finance
  • Highly skilled in derivatives pricing, trading, modelling, implementation.
  • Keen to talk about any of those subjects, from getting a job to living the job

 

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Comments (34)

 
  • Prospect in IB-M&A
Nov 17, 2020 - 2:04pm

How was your transition from the quant analyst role in the IB to your current role? How did you sell that to interviewers? Which majors do you think do best in quant trading roles cs, pure math, applied math, physics or engineering?  

 
Nov 17, 2020 - 5:06pm

I have always wanted to be a trader. Starting as a quant was more an entry point to me, as this is extremely educative. In particular, in the exotic business, technicity plays a major role. Most of the traders are previous quants, or at least have the background to be quants. I sold it by simply saying the truth: being a quant is nice and intellectually challenging, but it does not provide the feeling to trade. It is like being an engineer vs a formula pilot. It is useful to know how the mechanic works, but it is more interesting to experience it. For a quant trading roles, I guess applied math, physics and engineering are good. You would want to go in pure mathematics if you target pure quant position (research or exotic business).

 
Nov 17, 2020 - 5:19pm

Can you give me a bit of context for this trade ? It's not like there is one answer, as an accurate answer would necessitate to look at the cheapness (or not) of the skew, the ATM, along with many other things.

In the lack of other information, I am gonna assume it is initially a delta flat trade. Basically moving towards the short strike (delta 20) is really desired. The closer to it, the more premium you receive. That position then works much better on the downside, because if you move up you are just gonna stop receiving that premium. So you definitely want to keep some long delta against it (for instance the daily theta of that position seems reasonable to keep). That is even more the case 1 night before expiration, so it is actually a very nice position to have (this is actually something I do a lot). The only issue I see is moving downward fast. In  that case you might loose on the volatility coming up and short gamma. I guess I would be aggressive in buying back my short here. Any position has benefits and defaults.

 
Nov 18, 2020 - 11:12am

Thanks so much for responding!  What do you think about not delta hedging at all?  Plan is to buy back the spread if we rally or enough time passes to collect about 70% of the premium.  If we break, then its a pants pooping moment questioning if I hold through expiration or not...Buying the spread back at this point would lock in a large mark to market loss.

 
Nov 18, 2020 - 5:55am

Kind of interested in the following, but feel free to skip any for privacy purposes:

- are you an expat in the Netherlands? If so, how are you finding life in 020?

- your working hours/typical day

- anything you dislike about your job/field

Can be summoned to make fun of liberals at will. 

 
Nov 18, 2020 - 4:36pm

Indeed I am not dutch, I come from a different country so you can call me an expat. Life is actually better than I anywhere else I have lived and I highly recommend it. Also of course, due to the current situation, it is not what it would normally be.

Typical hours are 7.45-6.30. Depending on days, projects, motivation, tiredness I can expand to later. Also, if you are considering working in this field, you should not even think of working hours. Trading is a job that takes you entirely. It is extremely intense and demanding. But most of us do it because we love it, we just don't count the time there. If you are serious, you need to know what you are getting into.

There is honestly nothing I dislike about my job. This is what I have always wanted to do. This is even better than what I think. I love the challenge, excitement, competition, will to always do better and finally seeing your results in real time. From where I stand now, there is nothing else I could do.

 
Most Helpful
Nov 18, 2020 - 4:46pm

Finance is a comprehensive economic sector which provides countless products. Among those, you have what is called exotic (or structured) products. Those are the ones sold by investment banks to professional investors, mostly hedge funds, pension funds, asset managers, family offices, treasury groups, other banks ... The payoffs of structured products can be very complicated, as customers can actually ask the banks exactly what they want (I suggest you look for autocall, and then you look for some advanced autocalls). So the IB will create it for them. The challenge that comes with selling those products is the hedging. Most of those products are path dependent. Thus, they can not be priced with a simple black and scholes. Instead, IB use more advanced models, such as local volatility, or stochastic local volatility, using some numerical techniques as there is no closed formula. The challenge to price - hedge and monitor the risks of protfolios containing those instruments is significant. Then, IB need traders - financial engineers (in charge of the design of those products) - sales - it - risks managers - quants. I used to work as a quantitative analyst for IB. My job used to make sure the pricer of the bank would run smoothly everyday, add new payoffs in the system, debug codes, discuss technical aspects with traders, implement new models to improve the pricing.... The job would require high level of mathematics (especially stochastic calculus and statistics), IT (mostly in C# or C++) and finance (to understand and discuss topics with all the teams)

I hope that helps

 
Nov 21, 2020 - 3:28pm

Don't know what you expect me to tell you here.. Can you become a professional footballer it you don't know how to play with a ball ? I would be tempted to say no.  But if you want to do it, then obviously the best way to go is to start working hard. The question is then are you willing to work hard ? Nothing comes out of the blue.

 
  • Prospect in S&T - Other
Nov 23, 2020 - 1:39am

Thanks so much for creating this. 

I'm also a Math & Statistics major, and an incoming 2021 S&T SA at a BB in NYC. My biggest issue is that I just don't know what I wanna do on the Trading floor. I'm very extraverted and love public speaking & networking, but also am very quantitative, data-driven, and risk-averse (good at coding Python/R/SQL), given my Data Science background.

Do you have any advice on how to pick between Sales, Trading, and Quant? I am leaning Quant due to exit opps to HFs and Tech, would love to hear your opinion. I'm looking for a role that's mostly technical and analytical but also allows for people with good communication/social skills to advance further.  

 
Nov 23, 2020 - 2:17pm

It is a bit hard to tell you, as I don't know you. Also those jobs require different skills for sure.

Technicity is not required at all to be sales. You "simply" need to be a good vendor. So banks could use some extraverted and loving speaking. But it is a true job, and I guess selling is not something you can pick up just like this. I technicity is a must for you, then you might end up being bored pretty soon.

There are many types of quants. I suggest you to look into the different ones. As a quant within an IB, you will most likely not interact a lot with trading, so you will be far from the business, and involved into highly technical problems that require intensive mathematics/it skills. Very likely, your colleagues will have a high level, you will take no risk in your job, and will be intellectually challenged. As it used to be my job, I can tell you that I disliked being far from the business, not being able to know if my job was of any help, being seen as a "technical" guy which, is the end, does not make money

If you go for trading, there will be technicity obviously, but much much more intuitive than a quant. And also communication is of primary importance, even though it is gonna be mostly between traders. Also, this is kind of "free" job, meaning you can dive into any subject you believe is worth it and will make money in the end. So you can make your studies as technical as you want.

But, in the end, if I read your message, then it is clear to me that the job that would fit you the best is structuration. This position combines exactly the 3 previous and makes you learn tons of things. Most of the times, people that start here figure out what they like  the most, and end up picking up trading or quant or even something else. I think you should get some information about it and consider it.

 
Nov 23, 2020 - 7:34pm

Hi, thanks so much for making this. I'm currently a sophomore at a non-target studying Finance and IT, heavily interested in Equity Derivs. I'm very passionate about the markets, have been trading options since high school and have been an athlete all my life. Do you happen to have any advice for undergrads currently going through the interview & networking process, trying to break into the S&T? Thanks!

 
Nov 24, 2020 - 2:40pm

Hi,

Only thing I can say is interviews are quite challenging. They require preparation, just as a sport competition (as an athlete you must understand that).

I suggest you not to rush, and spend time to prepare yourself. Work your mental calculation, brain teasers, statistics, algorithm and options skills. Anyone can do it. You just need to have the will.

I recommend "Heard on the Street Quantitative Questions from Wall Street Job Interviews" .

 

Good luck

 
Nov 25, 2020 - 1:04am

I wanted to ask as someone who is highly interested in trading and want to make a living out of it. What would you say is the best thing about the job? What sort of things do you walk away with? Also what is the competition like are you all fighting for the same client/ or next best stock? Do you analyze the stocks you will pick and learn about the companies in way that makes you want to buy into them? Also do you get a lot of client facing time?

I am a student currently and want to learn as much as possible while at the time same time being versatile how much of that is an asset to the trading desk? 

Thank You for taking the time to respond!

 
Nov 25, 2020 - 1:55pm

Hi,

As a derivatives equity trader, I mostly trade options. I am a market maker and send my quotes to the different exchanges for a set of underlying. Despite also trading through brokers, I have no contact with any customer. Trading option is delta neutral, meaning you have no view on the stock. Obviously I am aware of their actuality, but I don't do any fundamental analysis. Basically what I trade is volatility, so I am little interested in the stock itself.

Best thing of my job: every day is different, everyday is a challenge, being in competition with the best, using quantitative/financial and it skills, seeing the results of your work in live, feeling free in my decision.

 

I hope that helps

 
Nov 25, 2020 - 4:42pm

What is it like being a market maker? I know of the guys at the exchange and working the phones and boards. When you deal volatility how do you plan for that? Like in the last 2 months it was rough and then just yesterday was a good day. How does someone become a market maker and is the pay just as good as someone who works on the bank trading floor? What are some other differences to market makers and traders?

 

Thank You!

 
Nov 25, 2020 - 12:38pm

Hello! 

Thank you for making this post! I will be doing Equity Derivatives trading at a BB next summer, specifically rotating between the Warrents desk and the Delta One desk. Just want to ask what are some of your suggestions on preparing for these specific desks and how do you think the desks are evolving against the market trends (e.g. is it worth it to stay at these desks suppose I get a return offer)?

Thank you so much!

 
Nov 25, 2020 - 1:49pm

Hi,

I don't think to be the right person to answer your question, as I have no experience in trading warrant and delta one. I mostly trades options. From a payoff point of view, warrant and options are the same, but I don't know anything about the market here. I guess, as an intern the best you can do to prepare yourself is to go through financial markets books in general. I recommend "The Hull" (classic) and "Trading and Exchanges Market Microstructure for practitioners". The later is extremely practical and provide insight you usually figure out after some experience. It can only help you.

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