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This is obvious to those who are in the business but those who aren’t may get some value from this.
Microstructure: When I was on the sell side, we would have clients who would systematically come in and buy stocks/ options / exotics on a set date and time regardless of price ..
Microstructure: When I was on the sell side, we would have clients who would systematically come in and buy stocks/ options / exotics on a set date and time regardless of price ..
These clients were large funds that had certain mandates and requirements they were forced to meet.
Ex: Canadian fund A needs to be allocated 15% to healthcare at all times. (Rebalancing happens more often than you think)
Ex: Canadian fund A needs to be allocated 15% to healthcare at all times. (Rebalancing happens more often than you think)
As a “dealer” we obviously knew this and would shift the price a little bit in order to squeeze some more MTM p&l , we couldn’t play with the price too much or else the client would just say “ok I’m going down the road to Goldman or MS” etc.
If you follow a name and flow well enough, you can start to pick up on these patterns. One reason I’m forever grateful I traded prop, it showed me how to spot flow by simple things such as level2.
I no longer use level2 everyday but when I really need to dig down I’ll dive in.
I no longer use level2 everyday but when I really need to dig down I’ll dive in.
So some of you are saying “Kris why does this matter”....well how do you know when people are truly “risk off” when Vol is spiking and the market is going insane?
It’s the biggest indicator that risk is off when the market is tanking and the trillion dollar whale is holding off on their mandate.... that buyer of 15% healthcare every Wednesday at 1pm is no longer there..... that is the best sentiment gauge that you can ask for.
Understanding these things takes time and a lot of digging if you aren’t on the institutional side, but there are small pockets that exist where you can pick this off or even use it to gauge sentiment during a risk off scenario.
Happy trading
Happy trading
