Author Topic: Trader builds a $5 billion position on accident  (Read 2254 times)

ScottHall

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Re: Trader builds a $5 billion position on accident
« Reply #10 on: June 22, 2018, 07:21:23 PM »
What would you do if you had access to $1b margin for a month? Let's assume the cost of capital is similar to what IB charges, 2.5%. What trade will you make?

Put it all on red SPY same month calls. YOLO!  8)



Seriously, IRL I'd probably do nothing. Even with special situations, there is no guarantee they'd work out in a month and they likely won't be big enough to put in $1B.

The best trade would be one where you are likely make a little, but have a tail risk of losing a lot. I think this can be structured by selling out of the money calls and puts simultaneously (forgot how this is called). The thinking is that even make a little percentagewise with a high likelihood is worth quite a bit with this huge sum and blowing up with $1B is somebody else’s problem.

This, IMO.
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JRM

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Re: Trader builds a $5 billion position on accident
« Reply #11 on: June 23, 2018, 05:32:33 AM »
What would you do if you had access to $1b margin for a month? Let's assume the cost of capital is similar to what IB charges, 2.5%. What trade will you make?

Put it all on red SPY same month calls. YOLO!  8)



Seriously, IRL I'd probably do nothing. Even with special situations, there is no guarantee they'd work out in a month and they likely won't be big enough to put in $1B.

The best trade would be one where you are likely make a little, but have a tail risk of losing a lot. I think this can be structured by selling out of the money calls and puts simultaneously (forgot how this is called). The thinking is that even make a little percentagewise with a high likelihood is worth quite a bit with this huge sum and blowing up with $1B is somebody else’s problem.

The problem is most trading strategies don't work with that much money.  I know of a $100M AUM fund that only does theta decay trades similar to the short strangle trade you mention.  Even at that size they have difficulty getting into and out of positions. 

Other trading strategies don't work well at scale because instead of coat-tailing the market movers you become the market mover. 

I know an engineer who day trades and has been successful for over a year.  I don't know if the strategy will work for all markets, but he has traded it long enough that if it was scalable he should be worth quite a lot of money.  He is not worth a lot of money because: 1. his strategy is not scalable, and 2. he spends a lot of money.

I decided a few years ago it wasn't worth my time to "get good" at trading even though I dabbled with a short theta trade for about a year.  If you look at the wealthiest people none of them got there (and stayed there) by trading options. 

Rant over.

Jurgis

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Re: Trader builds a $5 billion position on accident
« Reply #12 on: June 23, 2018, 06:09:11 AM »
What would you do if you had access to $1b margin for a month? Let's assume the cost of capital is similar to what IB charges, 2.5%. What trade will you make?

Put it all on red SPY same month calls. YOLO!  8)



Seriously, IRL I'd probably do nothing. Even with special situations, there is no guarantee they'd work out in a month and they likely won't be big enough to put in $1B.

The best trade would be one where you are likely make a little, but have a tail risk of losing a lot. I think this can be structured by selling out of the money calls and puts simultaneously (forgot how this is called). The thinking is that even make a little percentagewise with a high likelihood is worth quite a bit with this huge sum and blowing up with $1B is somebody else’s problem.

I know ScottHall agreed with you ... and it's all for fun anyway ... but I disagree with you guys.  8)
IMO, under the conditions given you really do a binary YOLO trade. I really would like bet-on-red. I.e. 50% you double, 50% your $1B margin is gone - and as you said then it's someone else's problem.  ;)

But yeah you could decide what is an acceptable outcome for you and bet accordingly. E.g. if you are fine with getting $100M out of it, then bet on 90% chance you get 100M, 10% you lose $1B.

The problem I have with strategies that generate $10M 99% time and blow up 1% time is that ... why bother? If you risk to blow up, at least risk it for obscene amount of money, not for some 10M.  :P  8)  ;D

I am ignoring what JRM said that you might not be able to find 50/50 or 90/10 strategies because of the money involved. Although if you went for very liquid investments, you might.

And to repeat once more: this is all for fun, in reality I would very very likely do nothing.
« Last Edit: June 23, 2018, 06:14:28 AM by Jurgis »
"Before you can be rich, you must be poor." - Nef Anyo

rolling

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Re: Trader builds a $5 billion position on accident
« Reply #13 on: June 23, 2018, 08:03:25 AM »
What would you do if you had access to $1b margin for a month? Let's assume the cost of capital is similar to what IB charges, 2.5%. What trade will you make?
it wouldn't matter if the end result was a 10M or 100M profit. Both are insane amounts. What matters is what you risk losing if you go into bankrupcy.

In other words:
a) If I had nothing to lose: "heads I win, tails I don't loose much" - Pabrai.
b) If I had something to lose: "why risking what you have and need for what you don't have and don't need?" - Buffett.
My usual portfolio: Highly concentrated (up to 3 or 4 positions) in smallcaps and microcaps.