Recovering From The Quant's Graveyard
I fell victim to the biggest killer of quantitative traders. Nevertheless, I recovered.
The job of a quantitative trader is simple: you use your programming skills and knowledge of finance to discover new ways of making money.
But somewhere along this pipeline, quants often get lost and eventually leave the field entirely. It’s the reason why you see so many seemingly knowledgeable quants who were once quite active and vocal, but over time, just disappear completely. Recently, I was at-risk of falling to this phenomenon, but perhaps by sheer luck, I had a revelation which pulled me out of the pit and back into markets.
So, let’s go over a first-hand, inside look at where in the pipeline quants go wrong and what I did to fix the problem.
Background
What kicked off my revelation was taking a rather spontaneous trade. On Friday morning, February 3rd, 2023, news broke of a suspected spy balloon hovering over the U.S. directed by China, causing a planned diplomatic meeting to be canceled. This soured sentiment of Chinese stocks across the board:
So, I figured: “This news is pretty bad, but it’s now priced-in, so Chinese stocks probably won’t go down further, but they definitely won’t go higher or positive, at least for today.” The best way to a trade this belief was to collect a premium since you’re making a bet on what a stock won’t do, as opposed to buying an option when you have an expected move in mind.
So, I looked for the most liquid stock for exposure to China, and landed on Alibaba (BABA). Then, I opened up 10 bear call spreads with 0 days to expiration for a $70 premium, you can see the exact trade and time here.
By market close, I had collected the full premium and my perspective on quantitative trading changed fundamentally.