What kind of profits are we talking about ?

[alset]

Hi , what kind of profits are investment firms and quants looking at when doing Quant
trading in derivatives ?

Is it ordinary like a stock ( good result is 10% profit ) or are we talking about double/triple or 10 times your money and over what period of time ? Thanks .

 

[Stefan Zota]

Question is too generic. Depends on the instruments, strategy, risk factors, volume etc.

 

[alset]

OK , I thought that might be the case .

To be more specific :

1. Is there any benefit of Quant analysis to buying option calls and puts . No hedging ; just to profit from calls and puts if you think you know the underlying direction .

AND/OR
2. Is there any benefit of Quant analysis to predicting the underlying direction over any time frame .

 

[IlyaKEightSix]

1) The math of basic options is very basic, until you get to implied volatility, which can be easily computed through a basic algorithm (or Excel's goal seek). That said, find me a finance major that knows how to program, which has its uses even here.

2) Uh, YES. Anyone who says it's impossible, I would wager any amount of money any day against and then promptly point them to Jim Simons's Philosopher's Stone called Medallion.

 

[Stefan Zota]

OK , I thought that might be the case .

To be more specific :

1. Is there any benefit of Quant analysis to buying option calls and puts . No hedging ; just to profit from calls and puts if you think you know the underlying direction .

AND/OR
2. Is there any benefit of Quant analysis to predicting the underlying direction over any time frame .

You have a limited view on the market. Nobody can predict exactly the price at right time of financial instruments. If he/she would, then with right leverage, you would make billions in few days. Pure prediction is not the job of quantitative finance. This is not black magic.
Quantitative finance will provide some numbers, they can be VaR, greeks or convenience yields estimation. These are expectations, distributions, estimators but not exact instantaneous values.
Technical analysts or other fields may use math and some personal inference to draw some conclusions, that doesn't mean it is based on any model.

 

[alset]

All I asked Stefan is : is there a BENEFIT to quantitative analysis to the specified application .

I am limited . Whatever .

I don't care about hedging . If I want to hedge , I will buy a stock and a put at the same time . I don't see why I would need higher math for this simple trade . Explain to me then
what these large corporations are doing with all those quants ?

---------- Post added at 09:03 PM ---------- Previous post was at 07:44 PM ----------

We all know the big boys and market makers are always winning and 90% of the population is losing in the stock market .

So I ask again , what are the market makers doing and how much profit are they making ?

 

[Stefan Zota]

All I asked Stefan is : is there a BENEFIT to quantitative analysis to the specified application .

I am limited . Whatever .

I don't care about hedging . If I want to hedge , I will buy a stock and a put at the same time . I don't see why I would need higher math for this simple trade . Explain to me then
what these large corporations are doing with all those quants ?

---------- Post added at 09:03 PM ---------- Previous post was at 07:44 PM ----------

We all know the big boys and market makers are always winning and 90% of the population is losing in the stock market .

So I ask again , what are the market makers doing and how much profit are they making ?

Relax, take a deep breath. If you want an order of magnitude for revenue, then it is hundreds of millions/year for "big players".
Take the earnings from trading divisions of different banks. A significant percentage from that is from proprietary trading which is based on some quantitative models. In some cases, the numbers are used as reference, in others, trades are executed manually/automatically as a result of some price results.
This is just one area where quant models are deployed.

Number of quants is small compared to size of companies. A team may have 3 quants and 50 developers. So you should ask what are the companies doing with all developers?

 

[IlyaKEightSix]

Quants are developers to an extent. In any case, many quants start off developing. Now what kind of development varies far and wide. If you're working on valuation models or structured finance, I'm thinking that toes the line.