Posts tagged with trading

Flash Boys is deliberately set up to suggest a “perfect world gone bad” scenario: As if, prior to the advent of HFT, … nobody ever got bad fills and liquidity was provided by a fairy godmother who never skimmed. It is … irresponsible, … dumb and deceptive, … to … talk about HFT without talking about what HFT replaced.

… Why … did floor traders and market makers play a key role in the function of markets for multiple centuries? Because floor traders provide liquidity. Liquidity provision is a service, and it has a cost. A discussion of what HFT replaced—with examination of new systems, old systems, and continuity between the two, with attendant pluses and minuses [would have been better]. Yet for Lewis it barely [merits] a paragraph.

Liquidity has always been an issue. The more size you want to move, the more of an issue it becomes. There has always been a need for middlemen to provide it, and friction / incentive issues in doing so, ever since the fabled meeting under the Buttonwood tree.

In the late 1980s, the Justice department busted 46 traders and brokers in the Chicago trading pits. The stealing had gotten so bad, the FBI came onto the trading floor.

Flash Boys reveals itself as a tempest in a teapot on pages 52 and 64. (I speak here of the hardcover edition from Amazon.) When Lewis … uses real numbers, the frivolity of his case is revealed.

On page 52 … an HFT “tax” that amounts to $160 million per day on $225 billion worth of volume. That is significantly less than one-tenth of one percent.

's review of { Flash Boys by Michael Lewis }




@condoroptions Interviews Tadas Viskanta of Abnormal Returns - Part 1

  • brokerage model is broken. mutual fund model is broken. ETF’s are the wave of the future.
  • Minute 10. Did the U.S. equity premium dissolve during the lost decade of the aughties?
  • falkenblog
  • Minute 13. Do proper accounting. Many investors do not receive the headline equity premium due to tax, cost of intermediary services, etc.
  • Minute 15. We have to make decisions at some point. Let’s not count angels on pinheads.
  • Minute 17. First, second, third waves of ETF’s. (the most opinionated segment)
  • Minute 19. “It’s an ETF; how bad can it be?” You’re not getting spot natgas or spot oil. Watch out for the fund’s inefficient rolling of futures contracts.
  • "slow burn" approach to currency investing
  • Minute 22. The time cost of becoming an informed investor (currencies, options, futures, ETF’s, ….) 
  • "It’s really easy to blow up an account trading spot forex"
  • using options to sculpt your portfolio—trading what you understand to limit risk—rather than using leverage to take strong positions
  • liquidity an issue for less famous options
  • "Somebody who’s just trading $AAPL long and short is likely to get shook out of a trade"
  • "There are no good books"
  • PART 2
  • complexity — leverage — liquidity issues
  • cognitive biases & financial advisors
  • financial advisors as a buffer between your decisions and the market
  • advisors who mirror what their clients say
  • Minute 3. Higher turnover by those who hold higher-volatility asset classes.
  • Minute 7. There are a lot of things [non-UHNW] people can do with their lives that generate a lot better financial return than fighting for an extra 100 basis points per year. (e.g., saving). We have infinitely more control over our personal choices than over the markets or whatever products we invest in.
  • Minute 8. People chasing higher yield without understanding what they’re doing.
  • Minute 9. Josh Brown does a post every year reviewing what was the “hot thing” that year. You don’t have to be in it.
  • You’re your own portfolio manager. You get to define success for yourself. That does not mean you need to match the S&P.
  • media consumption — a “liberal arts” or “consilience” or “cross-disciplinary” approach to financial news
  • Minute 12. Individual investors are actually more free than institutional investors, in that their time horizons are quarterly, daily, and annual.
  • Minute 16. Viskanta: In 20 years, brokerages will have automated tools for individual investors. (algorithmic)
  • "the long march of indexing" — Viskanta: people either are or will over-index
  • fracking totally broke the long-run correlation between oil and natgas — an unforeseeable technology





Violin Memory Inc. (VMEM), a maker of high-speed data storage systems that’s partly owned by Toshiba Corp. (6502), plunged on its first day of trading.
The stock fell to $7.02, 22 percent below the offer price, in New York [on the first day’s trading]. Violin Memory raised $162 million….
Violin Memory … has booked losses every year since at least 2010 … Hewlett-Packard Co., a former customer, started selling its own storage product. …
Hewlett-Packard ended its deal to resell … Violin Memory’s storage … it favored its own 3PAR devices. …
In 2013, Violin Memory’s largest customers included Computer Security Solutions Inc. and Avnet Inc., which both resell the products to other clients.
The company had a net loss of $59.2 million in the six months through July 31, on revenue of $51.3 million, filings show.

“We are a company that is in the investment phase,” Don Basile, the chief executive officer of Violin Memory, said by phone today from the New York Stock Exchange. “For some investors, we’re a little early in our growth cycle.”

Violin Memory Inc. (VMEM), a maker of high-speed data storage systems that’s partly owned by Toshiba Corp. (6502), plunged on its first day of trading.

The stock fell to $7.02, 22 percent below the offer price, in New York [on the first day’s trading]. Violin Memory raised $162 million….

Violin Memory … has booked losses every year since at least 2010 … Hewlett-Packard Co., a former customer, started selling its own storage product. …

Hewlett-Packard ended its deal to resell … Violin Memory’s storage … it favored its own 3PAR devices. …

In 2013, Violin Memory’s largest customers included Computer Security Solutions Inc. and Avnet Inc., which both resell the products to other clients.

The company had a net loss of $59.2 million in the six months through July 31, on revenue of $51.3 million, filings show.

“We are a company that is in the investment phase,” Don Basile, the chief executive officer of Violin Memory, said by phone today from the New York Stock Exchange. “For some investors, we’re a little early in our growth cycle.”


hi-res




Follow-up: Herbalife $HLF hasn’t dropped yet. I wonder what the time frame for Bill Ackman’s shorts was?
(Did I mention I got google ads from Pershing arguing the short position?)

Follow-up: Herbalife $HLF hasn’t dropped yet. I wonder what the time frame for Bill Ackman’s shorts was?

(Did I mention I got google ads from Pershing arguing the short position?)


hi-res




Jim Simons, a hedge fund manager, to the US Congress: “Most culpable [for the crisis of 2008], in my opinion, were the ratings agencies.”

  • "Our strategies are usually contrarian."
  • "Medallion Fund is almost entirely employee-owned."
  • "We charge ourselves fees."
  • 'In my view hedge funds were not a major contributor to the [crisis of 2008]. Generally [they] have increased liquidity and reduced volatility in the markets.”
  • "Each hedge fund’s leverage is controlled by its lenders."
  • He’s in favour of more financial regulation.

CSPAN via NYT




sellthenews:

In May the Financial Times reported that Derwent Capital, the hedge fund that partnered with Johan Bollen and Huina Mao to trade the “Twitter Predictor” Strategy “shut down”. The official story is that Derwent’s Capital Markets’ Absolute Return fund opened for investments in July 2011, and…The official story is that Derwent’s Capital Markets’ Absolute Return fund opened for investments in July 2011, and shuttered after a single month, with reported returns of 1.86%.

There are a few oddities here:

  1. Why is the FT reporting in May 2012 that a hedge fund closed in August 2011?1 It would seem this is no longer news. To confirm this is not an error on the part of the Financial Times, I quote a ‘weekly sentiment email’ sent by Derwent Capital on June 6, 2012: “Some of you may have read about our Hedge Fund closing last year in press articles this week.” What? I just caught up on the news of this ‘moon landing’, and now you’re telling me there are more events happening in the world?
  2. As late as the end of March 2012, Derwent was posting performance numbers for managed accounts on their webpage. The reported performance was generally positive, but not consistent, with the spectacular performance promised by Johan Bollen. This period of Derwent’s existence has gone down the memory hole.

You can follow @shabbychef on twitter as well.




The classic red/green colouring scheme for trading screens seems too alarmist.

http://media.dailyfx.com/illustrations/2012/04/30/AUDUSD_Trading_the_Reserve_Bank_of_Australia_Interest_Rate_Decision_body_ScreenShot100.png

http://graphics.moneyshow.com/traders/TipsCharts/March2012/daytraders07_1_med.gif

http://i.istockimg.com/file_thumbview_approve/7204532/2/stock-photo-7204532-stock-market-financial-trading-screen-in-green-and-red.jpg

http://accuratestocktrading.com/wp-content/uploads/2010/01/screenshot-when-email-alert5.jpg
http://media.dailyfx.com/illustrations/2012/04/30/AUDUSD_Trading_the_Reserve_Bank_of_Australia_Interest_Rate_Decision_body_ScreenShot100.png
http://4xlounge.com/wp-content/uploads/2011/07/tbconsolelive.png

Conceptually, the red/green distinction makes sense as corresponding to stop/go in traffic signals. But traffic signals need to be neon and striking in a hectic 3-D environment where it’s paramount for everyone to definitely not-miss the stop command.

But in a sheltered 2-D environment where goals commonly include to master emotion, to control passive reactivity, to keep a long-term head in the middle of short-term volatility, and to digest (calmly) massive amounts of information en simultáneo, neon red/green seems too grating.

yellow and blue trading screen (GVZ)

I made the above picture with R of course, like this:

    require(quantmod)
    getSymbols("^GVZ")
    chartSeries(GVZ)
    reChart(up.col="light blue", dn.col="yellow")

(GVZ is the gold volatility index.)

It’s not a perfect colour scheme—I would use Lab to do better—but it already improves on #FF0000 versus #00FF00.

 

One theory of the evolution of trichromacy in primates says that

  • red/green dichotomy tells us whether meat or fruit is rotten or ripe (especially in dappled light)
  • blue/yellow dichotomy tells us how cool/warm something is
  • light/dark (value) is the most basic kind of vision.

If we take that as a starting point, a less alarmist colour scheme for trading software could use the blue/yellow dichotomy to indicate whether a security price went up or down. Use a neutral chroma for “small” moves (this depends upon one’s time-frame, but properly the definition of “big move” should be calibrated to an exponential moving average with some width depending on one’s market telescope). Intensity of the move could be signalled with lightness, so that most figures on a screen are a readable lightness of a neutral colour, but “big moves” are tinged with convexly more chroma and very-convexly more lightness.

XSTRATA

The definition of “up/down” might be refigured as whether the trader is short/long the security in question, or perhaps redness/greenness could be used in conjunction with the “market view” of cold/hot, to indicate whether a security is moving for/against one’s strategy. That too could be seen as overly alarming, but a (pseudo)convex coding of red-ness might again solve the problem again, only invoking the “panic mode” when there’s really something to worry about.

(Source: twitter.com)




This is how much people love to talk about and speculate on $AAPL.

The CBOE puts out a volatility index specifically on Apple stock. (Google has one too.)



Crikey.




Black Monday, 1987


(the original VIX [VXO] hit 172 on Black Monday. The average VIX is 20 and otherwise the high is 90. See kurtosis and 5th moment.)

Black Monday, 1987

http://upload.wikimedia.org/wikipedia/en/d/de/S%26P_500_index_around_the_time_of_the_crash.png

(the original VIX [VXO] hit 172 on Black Monday. The average VIX is 20 and otherwise the high is 90. See kurtosis and 5th moment.)


hi-res




George Soros: “I would have bought even more Italian bonds.

  • At 6% or 7%, it’s a very attractive speculation. It won’t stay up there forever. If things go wrong it could go up to 10% and you would lose a lot of your money.
  • But at 5%, it would be a very nice, stable, long-term investment”.

Filed under #nonlinear and #nonmonotonic.