Fixed Income Options Trading at BB vs Prop Trading Firm?
what do you guys think about starting out of college at a BB FI options trading desk vs starting at a prop firm? in the case of receiving an offer from both, what are the pros/cons, which would you guys choose?
What kind of prop firm/what will you be trading? Are they also a market maker?
It depends not just on what you want to do, but also the prop firm we're talking about. Topically, I'd take FI options trading at a major firm. Firstly, there's a chance that your prop firm is going to be a market-maker anyway. If that's the case, the name recognition associated with trading options at a major firm trumps the potential upside of (perhaps) slightly higher remuneration in the short-run through working at the prop shop.
If you're going to get a chance to be trained as a discretionary trader (which I deem to be less likely than being an options liquidity provider), and you're dying to be a big punter, then it might be worth taking the prop offer over the BB options role.
It's important that you talk with people on the desk at each firm to determine how they treat juniors. If either shop is just looking for a jubb to get them coffee for a year, you should probably go with the other firm. Having a good mentor makes a difference. Regardless, you're probably not going to be trading much within the first year on the options desk because it takes a while for the bank to trust you to take complicated risk. It also takes several months to understand the nuances of the products in which you'll be dealing. Can you build a swaptions pricer right now? Probably not, right? Like I said--it's going to take some time.
The plus side to the BB, though, is that options traders make MUCH more money than flow traders. If you're a successful swaptions dealer (I'm assuming we're taking about swaptions, and not exotic or light derivatives), you're going to have a set of skills that VERY few people possess. After, say, 2-3 years at a big-name bank on a (good) options desk, you should be making 400-500k USD at least. When you're running your own books, you can easily break $1MM. As a discretionary trader at a prop shop, you could be making that (or more), or you could get fired before you ever make it that far. I think that's less likely to happen on an options desk so long as you're not a mathematical moron, because it's going to take a longer time for you to get responsibility.
I'm a prop trader, and I'd still take the BB options role, but I don't know you, so you have to make that call for yourself. If you couldn't do this sort of critical analysis on your own, though, it doesn't bode well for your chances as a prop trader. Maybe that should be part of your considerations.
think directionality --
prop shop -- you will be trading the very liquid stuff, in a very specialized way, that has low barriers to entry. if you are successful, you will make $ but if you aren't you are fired.
bb FI options -- specialized skill set, oligopolistic practice of a few banks, so everyone knows who you worked for ... handling specialized trades for asset managers, HFs, corporates, macro-view of the world ... exits -- you will be eligible, in my opinion for buy side, HFs, etc, have a brand name on the resume, AND though it will be a touch more of a struggle, eligible for prop trading at your BB firm... hey you could even try to rerecruit at the prop shops if you wanted a totally different change, they are always always burning through ludicrous amounts of people, and you will have been pre-vetted as smart, etc. it's much harder to go the other way..
but at the end of the day, you have to wake up each morning and do it. so do what you find fun.
simply put, the prop is way more risky
go with BB without a doubt in my mind
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Without a shade of a doubt, the BB role. I don't know about Fixed Income options specifically, but chances are you will most likely employ some prop trading in addition to risk managing the flow you see. No one makes their budget from flow trading, which seems to be a common misconception on this forum. If they do, it will just get raised the following year - comprehende?
Fixed Income options would be a lot of fun too!
I'm very interested in FI options. What would you recommend reading to get knowledge up to scratch. Fabozzi fixed income, Hulls options and derivatives - any other recommendations?
You guys are talking interest rate options/exotics only, not including fx options, credit options, etc. right?
Seconded...are we including currency and commodity options under the label "FI options"? Because I'm pretty sure those are on par with equity options in terms of mathematical complexity...credit/bond options can get pretty involved though I think...
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