When it's normal to have no idea what your returns are
Friends,
The lingua franca of asset management regardless of strategy is returns. But this is not necessarily true in trading. In my own 21 years of trading, it was never even brought up internally. It gets mentioned somewhere far in the background. In vague terms at best. And even then, the context is more of a hurdle than a target.
We’re going to talk about this in 2 parts.
Today
I’ll walk through what this meant in the 3 phases of my career (with plenty of color interspersed):
Being a market maker at SIG
Running my own market-making group financed by a Chicago firm that backs traders
As portfolio manager within a relative value volatility trading hedge fund. This last job was for an entity that was backed by LP money and therefore beholden to the concept, language, and delivery of returns. And yet, the idea of returns was alien to how I ran my business there.
Next week
I’ll connect this back to a reader question that got me thinking about all this in the first place:
How important is (il)liquidity in options when making risk-defined trades such as credit/debit spreads or buying single call/put options?
Hmm.
I can feel the doubt.
“Bruh, those lily pads are in different ponds, how we makin this leap?”
We gonna make it. Off we go…