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A Traderís Guide to "How to Trade" (really)


Objective: a comprehensive programme available as a fully customisable in-house seminar providing not only rules and conventions for trade idea generation, trading styles, and position management, but also providing detailed rebalance-by-balance calculations of position keeping issues which illustrate real world "on-the-trading floor" practices and implications as well as holding period P&L and risk and comparison to real world trading results.  

Please note that this seminar assumes that the audience is already quite familiar with the contracts and at least standard valuation methods that are used in the case studies, as the intention is to focus on how to trade and the real world implication to P&L, rather than on the description of securities/derivatives and pricing models (which are available in other ARTSchool Seminars).


        Market makers, prop traders, structurers

        Risk Management

Table of Contents

This is a fully customisable programme that may include any and all aspects as you require, and the following is only an illustration of one of the possibilities.

1)     Examination of the Trade Cycle: This section covers all of the basic components of the trade cycle:

Trade Idea Generation: Technicals, fundamentals, statistical, and other methods, and importantly covering "trading discipline" such as setting exit conditions (and sticking to them) etc., "know your contract", dynamic vs. static strategies, and risk/return/funding criteria.

Structuring and Execution: once a trade idea is accepted, how is it best implemented?  What are the best strikes/expirations etc? What size to trade, how to implement exit conditions and limits, and alternative strategies and implications for capital, funding, credit, etc.

Position keeping: the detailed (and real world) account of the actions required once the position is established, and all of the details associated on rebalance-by-rebalance basis both with market convention methods, and alternative methods.

Audit: did we make/lose money? Why/where did we make/lose money?  Were these gains/losses consistent with the original plan? If not, how to improve?  Did we make more money than expected, and if so is this a good thing?  Are these profits consistent with the risk expected vs. the actual risk?  What was the risk adjusted return on capital, and will management let me do this trade again, and under what conditions?

2)      Case Studies: each case study applies a detailed look at the Trade Cycle for a specific trade, and includes three components: 

a) a detailed step-by-step "work-through" of a real position with real market conditions including detailed rebalance assessment and calculations at any number of rebalance dates. 

b) Forward testing the trade against other possible strategies to examine the impact on the entire holding period risk/return. 

c) Backward testing the trade against real market data to see how it would have actually performed on those real market conditions for the entier holding period of the trade.

The case studies focus on trades specific to your needs.  Just a few of the  possibilities are:

(i) A directional view on the US 30 yr yield:  generating the "view", considering alternative structures (bonds, futures, total return swaps), examining contract implications (delivery, balance sheet, credit etc), planning the rebalance strategy, detailed examination of running the trade, forward/backward testing of results and alternate strategies.  Review and audit of P&L, and where it might have been done "better" on a holding P&L/risk and ROC basis.

(ii) Directional view on the S&P Index under volatile conditions: generating a view based on large movements in price and volatility, structuring the trade (SPYDERS, futures, vanilla options, exotic options), managing the position with delta/gamma vs., profile rebalances, auditing the strategy with forward/backward testing and reviewing the holding period P&L/Risk and ROC for the directional trade and also for "volatility arbitrage", and how certain trading styles can result in transforming this trade from a predominantly equity position into a predominantly interest rate position.

(iii) Market making vanilla swaps: setting return criteria (how much of your bid/offer spread can you "give up"), examination of alternative strategies (swaps, bonds, futures) with a look it specific implications for capital, short squeeze on roles, short end rebalances vs. long rebalances with detailed rebalance calculations, and importantly what "product" does the hedged position actually behave like.  Auditing the performance of the market making book via forward/backward testing and reviewing holding period P&L/Risk and ROC, and did we actually run a hedged book or a punt on the spread(s).

(iv) Convertible Bond Trading: generating a view of long dated equity markets, structuring a CB position (stripping the bond, asset/default swapping the bond), creating synthetic long dated options with short dated options and replication.  Detailed look a rebalance points including both equity and bond rebalances with examination of bond/equity correlation, bond/LIBOR spread/correlation, and synthetic long dates options vs. strips of short dated options.  Auditing the performance of the market making book via forward/backward testing and reviewing holding period P&L/Risk and ROC from not only the total P&L/risk perspective, but also from the P&L/risk of the equity and bond legs as well as considerations of "volatility arbitrage".

(v) Model arbitrage in FX options: comparison of market convention assumptions to real world observation for FX options to arrive at alternative options valuation/rebalance strategies. Structure the "position" by comparing synthetic dynamic replication of the real world traded option with the "arbitrage model" delta/gamma process, and examine the rebalances in detail.  Review the resulting holding period P&L and examine the "true" nature of this "arb", and compare to forward and backward testing holding period P&L/risk results.


811 Pages of comprehensive and extensively illustrated Handout Notes (see samples here)

Plus copies of relevant TG2 Books/e-Books

Note: Seminars can be tailored to your trading, risk, client, and systems needs.  Submit your needs, and/or "cut/paste" from other Seminars (see entire "standard" list HERE)

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Last modified: July 25, 2011