3 ms·

I work at a fund and we discuss this Ad nauseam:) There are a few problems with this. 1) Forget execution and settlement risk, assuming you can get away with

I work at a fund and we discuss this Ad nauseam:) There are a few problems with this. 1) Forget execution and settlement risk, assuming you can get away with it, can you really make enough to make it worth your while. You only get one shot at this, how many times can you anonymously crater the market?, and if you get caught you'll never trade again so you need to make retirement levels of money on this one "trade". 2) Execution risk. Assuming you've got your short butterfly setup so that no one will know you now need to unwind your trade in a matter of milliseconds while making it look like you are reacting, rather than knowing this event was coming. Part of this is that like you said you'd do this over a basket of stocks. Looking at a butterfly option layout in wikipedia it seems pretty simple. Trying to get out of 30 or so of these trades in under 100 milliseconds isn't. 3) Settlement risk... You'd' be trading across multiple exchanges all with different timings and liquidity. There is a good chance that your trade gets busted by some but not all exchanges which means you go partial fills all over the place and you might end up partially short and long when all the accounting is done:(

minimax 14y ago
You don't need to time it, do you? If you have resting buy orders the market is going to come down and hit you at a favorable (to you) price. You can close the position when the market rebounds.
- chollida1 14y ago
  > You don't need to time it, do you? If you have resting buy orders the market is going to come down and hit you at a favorable (to you) price. You can close the position when the market rebounds. You are, of course, right if you know how far down the bottom is and that the market will rebound. Maybe I'm just a coward, but all I see is risk:) Here are the big questions to ask yourself before trying this. What if the market doesn't rebound, ie if you set your buy at a 1% drop and it drops 3% and then closes down 2.5%. That's enough to shut down alot of prop shops:) What if it doesn't drop low enough to hit your bid, ie the market just ignores your buy and shoots way up. Then your short position crushes you. Or if you use a short butterfly, what if the market just yawns, you've lost your one chance at moving the market but atleast you live to trade another day:)
  - Zimahl 14y ago
    Agreed. A strange game. The only winning move is not to play.
em70 14y ago
I know of at least 5 firms who would have the means to make a big profit in a rather stealth way and all of the infrastructure needed to minimize execution risk (to the point that it may be negligible)... Just because you cannot do it or that it is hard for you, do not assume it cannot be done or that it is (as) hard for everybody...
- kasey_junk 14y ago
  I do to, and all 5 of them make more money as part of the regular operation of the markets than they would as part of some Jerry Bruckheimer movie plot.
mseebach 14y ago
You don't need to make "retirement levels of money" on one trade, because if you're caught, you'll be paying it all back and spend your retirement in jail. In fact, isn't it fairly safe to assume that the SEC will spend a good deal of resources looking into any unusual trading patterns around this dip?

minimax 14y ago

You don't need to time it, do you? If you have resting buy orders the market is going to come down and hit you at a favorable (to you) price. You can close the position when the market rebounds.

chollida1 14y ago
> You don't need to time it, do you? If you have resting buy orders the market is going to come down and hit you at a favorable (to you) price. You can close the position when the market rebounds. You are, of course, right if you know how far down the bottom is and that the market will rebound. Maybe I'm just a coward, but all I see is risk:) Here are the big questions to ask yourself before trying this. What if the market doesn't rebound, ie if you set your buy at a 1% drop and it drops 3% and then closes down 2.5%. That's enough to shut down alot of prop shops:) What if it doesn't drop low enough to hit your bid, ie the market just ignores your buy and shoots way up. Then your short position crushes you. Or if you use a short butterfly, what if the market just yawns, you've lost your one chance at moving the market but atleast you live to trade another day:)
- Zimahl 14y ago
  Agreed. A strange game. The only winning move is not to play.

em70 14y ago

I know of at least 5 firms who would have the means to make a big profit in a rather stealth way and all of the infrastructure needed to minimize execution risk (to the point that it may be negligible)... Just because you cannot do it or that it is hard for you, do not assume it cannot be done or that it is (as) hard for everybody...

kasey_junk 14y ago
I do to, and all 5 of them make more money as part of the regular operation of the markets than they would as part of some Jerry Bruckheimer movie plot.

mseebach 14y ago

You don't need to make "retirement levels of money" on one trade, because if you're caught, you'll be paying it all back and spend your retirement in jail. In fact, isn't it fairly safe to assume that the SEC will spend a good deal of resources looking into any unusual trading patterns around this dip?