do you work for a hedge fund?
Spent 8 years at my first Chicago Prop trading firm, 3 years at my second stop, and now I just trade with my own money.
I trade in the 10-Year Treasuries Market, which is one of the most high volume and liquid markets there is. I can’t really take advantage of the bid/ask spread because I don’t have the technology to compete in that market, but my general approach is that the market makers are often putting out -EV bids or asks in their race to provide more liquidity and capture market share.
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So you’re bonus-whoring basically?
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Not at all. The bets (trades) that I’m making still have risk and don’t always pay off.
If there’s a poker analogy to be made, I’d say the fish are the big institutions or retail traders giving up edge by buying above or selling below the bid/ask spread. The +EV regs are the technologically advanced prop shops. They extract money from the fish, but by doing so are playing in a way I can exploit. But I’m largely banned from entering pots with the fish.
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Do you use leverage? Isn’t the bid/ask on the 10 year like 3-5 basis points or something?
Re: options zero-sum, I believe that being short vol is generally considered +EV.
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yeah I mean, you can look at any options chain for any ticker, doesn’t matter which, plug a long call or long put for it ATM at whatever expiration into a calculator like this for example Long Call Calculator | Options Profit Calculator see what it tells you (32-35% if you lucky). Your prob. of profit is always < 50%. it’s a zero-sum game in the sense that one side doesn’t want to either buy stock for more than it’s worth or sell it for less than it’s worth, but the short side has theta/time also working for it which is a real one and sucks trying to overcome. And that advantage increases, at an accelerating rate, as expiration approaches
eta otoh, the risk profile for option sellers is much different than for buyers, so that probably balances it out overall I mean, at least long your losses can’t exceed 100%
I’m trading on margin but not a significant amount. Basically my options position can’t consistently exceed $550k in Margin required at the end of trading day or the firm I partner with would start taking an issue with my risk.
The bid/ask spread on the future is I assume smaller than a basis point and is almost always very liquid on both sides. The CME Future for the 10-year is currently trading at 109 26.5/32, but I don’t really know what each tick or point translates to in basis points.
The options trade in points that trade in 64 tick increments. Each point on one option is $1,000, so each tick is $15.625. So even on an option worth 2.5 ticks, the bid/ask spread is basically $8 under and over.
It’s an incredibly liquid market which means for me that on the occasions when I’m executing through the bid/ask spread, I can do so relatively cheaply. Like let’s say I think there’s $1,500 of EV in collecting theta from 100 short term straddles given where the market is pricing it, I can usually find a way to execute 100 straddles in the market for around .2 ticks or $300 that I’m giving up.
I meant bonus-whoring in the sense that the big guys are intentionally giving up some $EV to build market share, and you’re on the receiving end of that lost $EV (not in the sense that it was risk-free).
Ok but profiting more than half the time doesn’t mean +EV. I mean +EV (not accounting for Tx cost and taxes).
When you are shorting vol you are writing an insurance policy, and there should be some theoretical return there.
Find me the state pension funds that beat vanguard life strategy. This is criminal.
https://x.com/ellliotttb/status/1758946311783821369?s=46&t=XGja5BtSraUljl_WWUrIUg
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Reminder: Nevada’s pension fund is run by one guy who basically just invests in index funds.
https://www.wsj.com/articles/what-does-nevadas-35-billion-fund-manager-do-all-day-nothing-1476887420
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Uh…
“If I could sit on the beach in Maui and phone it in every day, I’d do it,” says Mr. Chattergy, whose plan, which trails Nevada’s in returns, uses a variety of strategies. “But I don’t think that’s the way the world works. That’s why we have the approach we do.”
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You could pick a basket of stonks at random and do better than this 
FWIW Fidelity Contrafund, one of the only non-index funds I own, is up a shit ton since covid. Those particular dart-throwing monkeys have done well.
Canada’s public sector pension plans have a great track record of active management. It’s because they don’t just hire external managers to pick stocks, they have entire dedicated private equity and private real estate divisions that own their own assets.
As a resident of the great state of CT, this is moderately/highly infuriating.
