Disclaimer: I used to work there years ago as a programmer and got a lot of exposure to this stuff. My opinions are my own and that's all these are.
I think this article is a bit over-hyped. I know in my circle we sorta joke that trump trades on his tweets, or has cronies/staffers/friends that do, and he probably does. I'm sincerely not sure how anyone would know for sure, that's beyond me.
In any case, by the time things hit the exchange it's mostly just brokers and market makers. There's few "people" that trade directly on exchanges. Some big firms, sure. But I doubt any one person profited heavily from this. Another thing to remember, you've gotta have the money to actually buy all these in the first place and that's a lot put on the table. 82k contracts at the money, about a month out right now would cost me ~$84mm. I'm sure insiders get better margin rates than me but that still gives some idea as to the barrier of entry for this kind of trade.
If the traders expected a large move, why trade all at the final hours? Why not spread the volume over a few hours or, hell, even days like the article alleges they had on occasions?
There's entire teams of people at large brokerages and banks that work specifically on hiding their large trades among the normal volume, so competitors don't intentionally try to ride the large, incoming volume. Any coordinated effort would've probably participated in such a process or done something similar.
The article also mentions just the futures, but doesn't say what strike and expiry. Depending on these, it greatly effects the actual outcome and cost of entry. These would also be interesting bits of journalism as it would speak to the level of risk assumed in these bets: way in the money = safe, way out = risky, short-dated=risky, far-out=safe. This suggests to me that the author doesn't really know how these contracts work?
Similarly, these types of securities are a more of a zero-sum game than equities, someone was on the losing side of those trades and they thought whatever position they took was worth the premium paid to them. There's really no "averaging down" in derivatives in the same way as equities, they expire and so does their value. Again, how quickly this happens depends on the contract expiry which the author omitted.
Lastly, derivatives traders love volatility. This presidency and recent world events have created lots of volatility. It's no surprise these contracts are seeing lots of activity.
I guess I just don't really see the plausibility to this and the article itself is painfully uninformative.
Somewhat related story time:
I used to sit and watch the pit the e minis traded in close on occasion--always kinda quiet towards the end of the day until the very end when things picked up. E minis still got quite a bit of volume through the pits at the time. Trading in my own time years later--much of the volume is on the open and the close electronically as well.
Going to meetups with pit traders, I remember a few here and there getting blitzed and rambling about market makers front-running them somehow and being able to out compete them because "AI" and "algorithms." But really they just moved faster and could act on more data than small shops or retail.
The CTO of a market-maker gave a talked I attended and he described how people yelling and arguing in the pits was such an obvious battle at the "forefront of capitalism" and people sort of understood and accepting of that. However, the fear the silence and all that they don't know about the computer and it's algorithms.-- I think all people somewhat fear finance, derivatives especially, in the same sort way. What you don't understand or see regularly can be strange or unsettling.
Obviously I have somewhat rose-tinted glasses on the subject.
I think this article is a bit over-hyped. I know in my circle we sorta joke that trump trades on his tweets, or has cronies/staffers/friends that do, and he probably does. I'm sincerely not sure how anyone would know for sure, that's beyond me.
In any case, by the time things hit the exchange it's mostly just brokers and market makers. There's few "people" that trade directly on exchanges. Some big firms, sure. But I doubt any one person profited heavily from this. Another thing to remember, you've gotta have the money to actually buy all these in the first place and that's a lot put on the table. 82k contracts at the money, about a month out right now would cost me ~$84mm. I'm sure insiders get better margin rates than me but that still gives some idea as to the barrier of entry for this kind of trade.
If the traders expected a large move, why trade all at the final hours? Why not spread the volume over a few hours or, hell, even days like the article alleges they had on occasions?
There's entire teams of people at large brokerages and banks that work specifically on hiding their large trades among the normal volume, so competitors don't intentionally try to ride the large, incoming volume. Any coordinated effort would've probably participated in such a process or done something similar.
The article also mentions just the futures, but doesn't say what strike and expiry. Depending on these, it greatly effects the actual outcome and cost of entry. These would also be interesting bits of journalism as it would speak to the level of risk assumed in these bets: way in the money = safe, way out = risky, short-dated=risky, far-out=safe. This suggests to me that the author doesn't really know how these contracts work?
Similarly, these types of securities are a more of a zero-sum game than equities, someone was on the losing side of those trades and they thought whatever position they took was worth the premium paid to them. There's really no "averaging down" in derivatives in the same way as equities, they expire and so does their value. Again, how quickly this happens depends on the contract expiry which the author omitted.
Lastly, derivatives traders love volatility. This presidency and recent world events have created lots of volatility. It's no surprise these contracts are seeing lots of activity.
I guess I just don't really see the plausibility to this and the article itself is painfully uninformative.
Somewhat related story time:
I used to sit and watch the pit the e minis traded in close on occasion--always kinda quiet towards the end of the day until the very end when things picked up. E minis still got quite a bit of volume through the pits at the time. Trading in my own time years later--much of the volume is on the open and the close electronically as well.
Going to meetups with pit traders, I remember a few here and there getting blitzed and rambling about market makers front-running them somehow and being able to out compete them because "AI" and "algorithms." But really they just moved faster and could act on more data than small shops or retail.
The CTO of a market-maker gave a talked I attended and he described how people yelling and arguing in the pits was such an obvious battle at the "forefront of capitalism" and people sort of understood and accepting of that. However, the fear the silence and all that they don't know about the computer and it's algorithms.-- I think all people somewhat fear finance, derivatives especially, in the same sort way. What you don't understand or see regularly can be strange or unsettling.
Obviously I have somewhat rose-tinted glasses on the subject.