Friends come in

Moving away from 'home', whether it be away from where your parents live, where you went to school, or where you have grown accustomed to, is always a hassle. The upside, of course, is that you get to make more places in the world your home. Friends and family are a phone call and a flight away.

Some choose to take that flight. Yesterday, a friend came in to see the US trader that I hang out with often. They went to a Casino and the Trader helped Phil Ivey sign in. If you know me, then you know how I dislike celebrity, but this is cool. Phil Ivey is one of the best Poker players in the world, regarded as highly loose and aggressive.

Today, we will experience my top 5 reasons why Amsterdam is the best place for friends to come visit.

1. The rules are different than any other place in the world. To visit other places is to experience other cultures firsthand. Where else can you visit the red light district and talk about the 'philosophical' implications at a coffeeshop.
2. Museums: Heineken museum, Van Gogh, Rembrandt, Anne Frank's house
   
3. All you need to get around is your own two feet. Take a tram anywhere you want to go in the city. Fly to Italy, Istanbul, or London for cheap. Take a train to Brussels, Germany, France, etc.
   
4. The culture is young and everyone speaks English. You will always find young tourists just like you.
   
5. Optiver's housing is incredible. While the rate at which things get fixed can be problematic, the actual intention of providing the best housing is clear.

Quick information on how to not ruin your laptop
If you come to Amsterdam, you will probably bring a laptop. If you are looking for a laptop, try xpbargains.com

• Computers overheat. And when they don't over heat they are still hot. Please turn off your computer every so often. If you do not have a cooling stand, you are likely to be overheating when you leave your computer on all day and all night. (My rec)
  
• Take out your battery when it is fully charged and your laptop is plugged in. (Tip due to Jerry, thanks Jerry.)
  
• If your computer is in "sleep mode" you can ruin your hard drive by carrying it around. Your hard drive is not turned off so it will spin and is vulnerable to shocks. Putting it instead into hibernate is preferable.
  
• Please look into downloading WinPatrol and AdAware

What happened to the Taylor expansion?
Friends, as soon as I figure out how to put pictures somewhere besides the top of the post, I will be much better armed to discuss the Taylor expansion.

Taylor Expansion

Think fast
Trading is fast. In trading interviews (with the exception of Citadel and Optiver), studying 'higher' mathematics is considered nearly useless. After all, what does a deep thinker have in common with a successful trader? Working on discipline or training your nerves is much more likely to lead to profits than developing a new strategy. What a mathematician may understand with a lot of work, the trader will feel.

The privilege of having a blog is the ability to say whatever I like. Math is incredibly helpful to gain intuition. Math may be more precise than feeling, but it's not the precision that I am emphasizing.

Estimating your wealth
Let's assume the adage that money makes money. In fact, a universal power has decided that your wealth will be given by f(x) = x*x or x squared, where x is your age in years and f(x) is your wealth in euros or dollars. You at 21 years old right now and you are making 42,000 a year. How rich will you be by the time that you are thirty? (please refer to the top picture)

In words
You could assume of course that you will be making 42,000 for the next couple of years. You would be saying, let's discard the higher order effects, like acceleration of salary. Your wealth is where your salary is coming from, where it derives from. Your salary is the first derivative of wealth because it is the first order effect that directly affects your wealth. With this approximation in mind, you can make the first calculation (see second picture). I will make forty two thousand every year for the next nine years so I will make 378,000. That means if I starting with 441,000, my wealth will be 819,000 by the time I am thirty.


In Math
f ' (x) = 42,000 every year (every 1 x that goes by)
f '' (x) = assumed to be 0
f (21) = 441,000
f(30) = f(21) + 9* f ' (21) = 819,000

Damn it
I know what many of you are thinking: 'igor, I want you to make more money since you have such a nice blog. After all, you don't even have any advertising on your site.' I have to go to work to make our next assumptions more probable.

In the next post, I will finish the example and introduce taylor's theorem to help us do the math in a second instead of belaboring the point.

Corporate Meeting and Week Two

If I have a gamma of 10 and a delta of zero, how much money do I make if the stock moves 10 points? (hint : f' is delta and f'' is gamma). I will go into good detail about this in a later post... Answer at the bottom of the post. the Taylor expansion is great for calculating in your head...

Trainee Class
Yesterday, a trainee decided that trading / sales is not for him. He has left the company, but is happy to have made his decision so early. He was a great guy, and by no means unable to get the job done, but this particular work did not suit his more social nature. Though Optiver gets people who study all sorts of subjects, an MBA in management is one of the less likely fields to enjoy sales / trading.

Corporate Meeting
On Tuesday, September 11th Optiver had a river cruise / corporate meeting / dinner. Like all good prop houses, Optiver is secretive about its strategy and market presence. I can say this: the developments, growth, and brand are headed in a positive direction. Offices in Sydney and Amsterdam are in a great position, and the Chicago office sounds like a good place to be.

Company policies are in flux do to the growth. It was hinted that the department might become "more professional." I am not sure if this pertains to the attire of the trading department, but the attire seems to be casual. At this time, it is about 50% business casual and 50% straight up casual.

For chicago trainees: your salary will be paid by the chicago office. It is very easy to set up all the paperwork by contacting the office in Chicago. I suggest doing this before you get to Amsterdam. There is enough to do while you are here. :)

If Training is slow...

1. Technically, you are not allowed to sit with the traders while you are supposed to be studying Natenberg. If you have studied options before, you might have A LOT of extra time. You should think about making friends with the training class ahead of yours and watching them trade. There is a ton to learn on the screen. Even if you understand everything about finance and options, applying that, for example, to the rhythm of scalping or the precision of near arbitrage (buys and sells better than theoretical values [careful, this is not an accepted phrase. I made up this expression]). Watching really helps you get the experience that you need...
2. Optiver has a library of Finance and Options books. Some of these are great, and some are really not that useful... If you have not read Hull, you can pick it up to understand how models approach the problem of finding theoretical values for different kinds of options. All traders should have a feel for why the models are adjusted and in which cases they are sensitive to their inputs / adjustments.
   
3. There is always something to model on the computer, but that can get boring.
   
4. The risk analysis guys are helpful to understand some of the more long term projects in place.
   

Previous food prediction was spot on. I am really finding it difficult to enjoy lunch, which will be great as a trader since I am supposed to "minimize breaks"; slash it will be awesome when I can eat something good in Chicago.

Bring a TI-83 to training. It will save you a ton of time and head aches. Also, daily compounding is impossible on the clunky calculators they let you borrow and you can't ceck your answers if you use simple interest.


Later this week:
-I will also post something that will make your Optiver training easier, the Taylor expansion. Though this isn't covered, many math people know to use it.
-How you could potentially, though I am in no way telling you to do so, download a bunch of finance, trading, options, and math ebooks. Though this is free and awesome, it is illegal for you to do this and for me to imply that you should. That's why you shouldn't, but I will post how anyway.
-If I have time, I would like to discuss the very controversial topic of when you should hedge positions. I will emphasize acceptable risk and bid-ask.
-I really want to think about the concept of dimensonless risk measures in derivatives.

Write me at igor.schmertzler@gmail.com

ans: .5*10*(10)^2=500