Start trading career as an equity option trader?

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Old Dec 20, 2008, 6:36am   #1
Joined Jul 2008
Start trading career as an equity option trader?

Hi all,

What are the skillsets that will be developed from starting my career as a trader on the equity option trading floor in a bank?

And what are the exit opportunities in the future for further career developments?

I aspire to be a successful hedgefund manager/owner in the future.

Are there any star hedgefund managers that are from equity option/derivative background?

I have heard that star hedgefund managers/owners come from the following backgrounds:
(1) Stock picking & timing;
(2) Commodities;
(3) Fixed income markets;
(4) Quant & high frequency algorithm programing trading;
(5) M&A, corporate finance and distressed.

I cannot seem to find star hedgefund managers/owners who started from equity (index) option traders...

I am wondering if those skills such as greeks, straddles, etc. are useful for building my own fund successfully.

I am weighing between the career as being a sell-side equity option trader vs. a (high frequency) quant trading strategy analyst in a top 10-20 quant hedgefund (I enjoy equally both C++/Java programming, as well as econ/finance and math/stochastics).

Any thoughts? Thanks!
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Old Dec 20, 2008, 10:20am   #2
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There is no "right" path to take if you want to realise your goal of running your own hedge fund. The qualities you need are committment, contacts and luck, not necessarily in that order.

I would suggest to anyone just starting out to try and take a job in a large investment bank. I joined a good graduate program after leaving university and spent my time in the bank learning how finance works, who the customers are and what motivates them. It's also an invaluable time to make good contacts, most of the people working on the trading floors in the big banks are very wealthy (or know very welathy people) and they are exactly the kind of backers you need if you manage to get as far as launching a fund.

Ultimately, I would highly recommend taking the investment bank path, but dont concern yourself too much at this stage with the technicalities of the role but use the experience to learn as much as you can and meet the right people.
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Old Dec 20, 2008, 4:01pm   #3
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Originally Posted by adamscj View Post
There is no "right" path to take if you want to realise your goal of running your own hedge fund. The qualities you need are committment, contacts and luck, not necessarily in that order.

I would suggest to anyone just starting out to try and take a job in a large investment bank. I joined a good graduate program after leaving university and spent my time in the bank learning how finance works, who the customers are and what motivates them. It's also an invaluable time to make good contacts, most of the people working on the trading floors in the big banks are very wealthy (or know very welathy people) and they are exactly the kind of backers you need if you manage to get as far as launching a fund.

Ultimately, I would highly recommend taking the investment bank path, but dont concern yourself too much at this stage with the technicalities of the role but use the experience to learn as much as you can and meet the right people.
It's great to hear from some one who had experience with the IBanks. Thank you oadamscj. In the past two summers, I worked on trading floor at a reputable IBank, and got the same feeling as yours. So you are saying that I should take the option trader position to start my career, and say bye to Citadel and DEShaw, etc.? How about a quant role at Goldman Sachs or Morgan Stanley as a career start?

You mentioned about "committment, contacts and luck", I am a bit surprised that you didn't even mention about investment skill and market sense. Could you please elaborate here?

Thanks again for your advice!
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Old Dec 20, 2008, 4:12pm   #4
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Obviously things are a little different at the investment banks at the moment and may take some time to settle down, but in general companies like GS and MS offer an interesting and challenging career. I would definitely go for them over the like of DE Shaw etc - I'm not sure how old you are or what your educational background is, but I would strongly recommend trying to get on a graduate scheme at one of the above if you can.

As for your ultimate aim, I wouldn't worry too much about strategies at the moment. Ask anyone on these boards and I'm sure they would have gone through 50 different strategies before they found one that they are hapyp with (if at all!). Just try and use your work experience wisely, make friends with smart people and use them to bounce ideas off.

The truth about the investment industry is that very few strategies actually work. So either you find one that does work and copy it, or you find one that suits the current environment and make your money while it works. As an example, look at the likes of Citadel or Renaissance - people thought they had some magic strategy that could do no wrong, but are now some of the biggest losers of 2008. Essentially they were not different to the rest - just had an idea that worked over certain type of market. Fair play to them though - they made themselves very rich in the meantime and now it's the clients picking up the bill, not them.
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Old Dec 20, 2008, 4:47pm   #5
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Originally Posted by adamscj View Post
Obviously things are a little different at the investment banks at the moment and may take some time to settle down, but in general companies like GS and MS offer an interesting and challenging career. I would definitely go for them over the like of DE Shaw etc - I'm not sure how old you are or what your educational background is, but I would strongly recommend trying to get on a graduate scheme at one of the above if you can.
Hi Adamscj,

Thanks a lot for your advice.

You think a quant's job at GS/MS is better than DEShaw? GS/MS's quant positions are mostly pricing exotics, etc. No much about trading strategies... I am not sure if the skill sets will seamlessly transit to a successful fund manager's toolkits in the future...

Quote:
Originally Posted by adamscj View Post
As for your ultimate aim, I wouldn't worry too much about strategies at the moment. Ask anyone on these boards and I'm sure they would have gone through 50 different strategies before they found one that they are hapyp with (if at all!). Just try and use your work experience wisely, make friends with smart people and use them to bounce ideas off.
Very good idea thank you!

Quote:
Originally Posted by adamscj View Post
The truth about the investment industry is that very few strategies actually work. So either you find one that does work and copy it, or you find one that suits the current environment and make your money while it works. As an example, look at the likes of Citadel or Renaissance - people thought they had some magic strategy that could do no wrong, but are now some of the biggest losers of 2008. Essentially they were not different to the rest - just had an idea that worked over certain type of market. Fair play to them though - they made themselves very rich in the meantime and now it's the clients picking up the bill, not them.
What happened to Renaissance and Citadel and DEShaw this year?

Any details? :=)
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Old Dec 20, 2008, 5:08pm   #6
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You can search on Bloomberg for reported losses, but as an example Citadel have closed at least 2 funds this year after losing over 50% of investors money.

The point I was trying to make is nbot to get too obsessed with your strategy just yet, there is no "secret formula" out there.
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Old Dec 20, 2008, 6:00pm   #7
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You can search on Bloomberg for reported losses, but as an example Citadel have closed at least 2 funds this year after losing over 50% of investors money.

The point I was trying to make is nbot to get too obsessed with your strategy just yet, there is no "secret formula" out there.
I heard that's largely due to the two short bans, which affected their convertible bond fund severely... and of course, their distressed fund is also under water due to temporary mark-to-market loss. So these are temporary conditions and setbacks, aren't they?

Am I right?
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Old Dec 20, 2008, 6:08pm   #8
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I heard that's largely due to the two short bans, which affected their convertible bond fund severely... and of course, their distressed fund is also under water due to temporary mark-to-market loss. So these are temporary conditions and setbacks, aren't they?

Am I right?
The problem for them (and other hedge funds) is whether they can prevent clients withdrawing money long enough to wait for the recovery. How confident are you that these conditions are "temporary"? And are you thinking weeks, months, years? I dont think anyone would be happy to predict a recovery at the moment. I expect a lot of funds have a window at year end for redemptions so lets see how they are looking in January. Remember, for these guys a fund or strategy that makes money is secondary, they primary business is in attracting capital, on which they can earn management fees (and yes, sure, a winning strategy helps this).
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Old Dec 20, 2008, 6:25pm   #9
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The problem for them (and other hedge funds) is whether they can prevent clients withdrawing money long enough to wait for the recovery. How confident are you that these conditions are "temporary"? And are you thinking weeks, months, years? I dont think anyone would be happy to predict a recovery at the moment. I expect a lot of funds have a window at year end for redemptions so lets see how they are looking in January. Remember, for these guys a fund or strategy that makes money is secondary, they primary business is in attracting capital, on which they can earn management fees (and yes, sure, a winning strategy helps this).
Citadel has 3-yr lock-up period, no?
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Old Dec 22, 2008, 9:23am   #10
 
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Originally Posted by mizhael View Post
Hi all,

What are the skillsets that will be developed from starting my career as a trader on the equity option trading floor in a bank?

And what are the exit opportunities in the future for further career developments?

I aspire to be a successful hedgefund manager/owner in the future.

Are there any star hedgefund managers that are from equity option/derivative background?

I have heard that star hedgefund managers/owners come from the following backgrounds:
(1) Stock picking & timing;
(2) Commodities;
(3) Fixed income markets;
(4) Quant & high frequency algorithm programing trading;
(5) M&A, corporate finance and distressed.

I cannot seem to find star hedgefund managers/owners who started from equity (index) option traders...

I am wondering if those skills such as greeks, straddles, etc. are useful for building my own fund successfully.

I am weighing between the career as being a sell-side equity option trader vs. a (high frequency) quant trading strategy analyst in a top 10-20 quant hedgefund (I enjoy equally both C++/Java programming, as well as econ/finance and math/stochastics).

Any thoughts? Thanks!
One solution of the many

OXFORD UNIVERSITY -> MAJOR in ECONOMICS--> Internship in an IB -> CFA
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Old Dec 22, 2008, 3:18pm   #11
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One solution of the many

OXFORD UNIVERSITY -> MAJOR in ECONOMICS--> Internship in an IB -> CFA
yep, that's what I've been doing...

but still, i need opinions
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Old Dec 22, 2008, 3:38pm   #12
 
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yep, that's what I've been doing...

but still, i need opinions
if you are doing this why do you need more options?
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Old Dec 22, 2008, 5:28pm   #13
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if you are doing this why do you need more options?
Quants can go to stat-arb, or high frequency shops. The stat-arb guys research on finance literature and design trading strategies, which can be fun too. The high frequency guys are essentially market-making, using speed as an advantage. And they can make consistent and stable return even in bad days, due to their short term nature of risk taking. It can be fun too.

I will have to find out more about the position. What's the difference between sales-trading vs. market making vs. directional trading?

I am weighing among all these possible directions, each will equip me with a different skill-set.

The ultimate question is: given the same guy, and the same amount of intelligence and devotion, which direction and skill-set should we start with and build upon, in order to lead to the maximum future investment gain and fun?

After a certain threshold, personal money is not something we are concerned much any more. It's the joy of beating the market and taming a wild beast that matters. That's why I ask these questions. If you are a shark, you like deep water, right?
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Old Dec 22, 2008, 10:06pm   #14
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Originally Posted by mizhael View Post
Quants can go to stat-arb, or high frequency shops. The stat-arb guys research on finance literature and design trading strategies, which can be fun too. The high frequency guys are essentially market-making, using speed as an advantage. And they can make consistent and stable return even in bad days, due to their short term nature of risk taking. It can be fun too.

I will have to find out more about the position. What's the difference between sales-trading vs. market making vs. directional trading?

I am weighing among all these possible directions, each will equip me with a different skill-set.

The ultimate question is: given the same guy, and the same amount of intelligence and devotion, which direction and skill-set should we start with and build upon, in order to lead to the maximum future investment gain and fun?

After a certain threshold, personal money is not something we are concerned much any more. It's the joy of beating the market and taming a wild beast that matters. That's why I ask these questions. If you are a shark, you like deep water, right?
I think you're missing he point of my previous replies. What I'm trying to say is that you're concerning yourself too much with the detail right now. Get yourself a good education, meet some smart people and then worry about how you're going to make money. There is no "right" path. Trust your instincts.
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Old Dec 22, 2008, 10:20pm   #15
 
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Originally Posted by mizhael View Post
Quants can go to stat-arb, or high frequency shops. The stat-arb guys research on finance literature and design trading strategies, which can be fun too. The high frequency guys are essentially market-making, using speed as an advantage. And they can make consistent and stable return even in bad days, due to their short term nature of risk taking. It can be fun too.

I will have to find out more about the position. What's the difference between sales-trading vs. market making vs. directional trading?

I am weighing among all these possible directions, each will equip me with a different skill-set.

The ultimate question is: given the same guy, and the same amount of intelligence and devotion, which direction and skill-set should we start with and build upon, in order to lead to the maximum future investment gain and fun?

After a certain threshold, personal money is not something we are concerned much any more. It's the joy of beating the market and taming a wild beast that matters. That's why I ask these questions. If you are a shark, you like deep water, right?
I WAS in the same situation like you and I was given the opportunity to go around departments and see what fits me, what I found thought was a bit of shock. What you like doing might not mean that will give you the options and the amount of rewards to help you reach your dream to be in the board of directors,etc. or even CEO and president status.

You must understand that no one likes to study for CFA's level 1 ,2 or 3. Failure should not be an option. You should prioritize your time to the thinks that really matter.

Example if you have 10 points which represents effort I would distribute them as follows:

5: Education
3: Career services boost up from university
2: Network


The only way though to find out what path suits you must be through videos, books and an intership.
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