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Equity 2 Equity Option Arb AVX2 Optimization


Barry Ritholtz, The Big Picture/Bloomberg, 10 Monday AM Reads, (here – Check out the Value Walk folks hft news), here.  They found a sub-4 microsecond brute force arb evaluation for an entire GOOGLE equity option chain. This is totally doable with off the shelf Haswell NUCs in 2014. Who are the main bigs in the Equity option arb? This is HOT. We can crush this until the cows come home in a NucRack. Or can you put iMacs in a COLO in January 2014? I’m thinking you got a shot at pulling the option chain tick revaluation under a microsecond – all in – on each option and underlying tick, need to play with the code on Haswell. But it is borderline realtime tick by tick  arb discovery on vanilla equipment running C++. So that’s why there are so many option tickers?

Welcome back to the first full work week of the new year. Back to work!

• You Are HERE (Reformed Broker)
• Wall Street is finally acknowledging that bogus trades are a problem … (Quartzsee also HFT Madness: Nasdaq Spoofing, HBAN, Google Options (Value Walk)
• ‘Value’ managers are finding few cheap stocks. Is that a warning sign for the rest of us? (WSJ)
• The rise of long-term thinking (Felix Salmonbut see Long-Term Thinking: 1800-2013 (Motley Fool)
• How baby boomers screwed their kids — and created millennial impatience (Salon)
• Gold Analysts Get Most Bullish in a Year After Rout (Bloomberg)
• Inside “the richest niche there is” — StockTwits announces new CEO, funding (Pando Dailysee also Welcome John Melloy our New Stocktwits CEO … and The Future of The Financial Web (Howard Lindzon)
• Where Ben Bernanke made a difference (FT)
• Brilliant! I Smoked Pot With David Brooks (Gary Greenbergsee also Yuppie Prohibition League Denounces Pot Legalization (Rolling Stone)
• Future Tiny Robots Will Communicate Using Only Molecules (Fast Co.)

Then the Value Walk guys come up with the killer hft arb in equity options:

The bread and butter of high frequency trading is arbitrage. The ability to purchase and asset and almost immediately sell it with zero risk is what keeps HFT alive. Much like the proliferation of ETF’s and trading venues provides more arbitrage opportunities, so too does an increase in the number of derivatives or options that trade based on an underlying asset.

For instance, as Google Inc (NASDAQ:GOOG)’s stock changes price, the options markets must re-price over 4,000 contracts. Those 4,000 contracts trade on 12 different option exchanges. Therein lies a myriad of risk-free arbitrage opportunities for the algos fast enough to take advantage. Given this, the growth in symbols should come as no surprise. Take note that despite the tripling of contracts available since 2007, actual trade volume remains relatively flat.

That’s how you use good old fashioned open source AVX2 technology on Haswell to dominate the fancy server, secret, HFT equity 2 equity option arb. On every tick of the underlying you have 4000 Black Scholes Option revaluations. We have shown previously in Black Scholes 2014  (we even gave you the code) competitive code should be good for 150 to 200 million independent Black Scholes evaluations per second. These are not independent valuations so we can probably do a little better than 200 MM per second. Let’s call it a nanosecond per valuation just for simplicity. How long does it take to recompute the entire option chain on each tick of the underlying? It would be about 4 microseconds until you have all the arbs on the entire option chain by brute force. The options themselves quote in the 2.5 to 5 microsecond range at the high end , so keeping up with or ahead of the quote traffic is entirely plausible, You probably have easily a 10 microsecond lead on any Sandy Bridge Server running the brute force arb computation in going to the SOR. Those fancy server HFT folks will not even have a chance to get their cancel orders in before you lift the arb, not a chance to spoof, juke, or even move before they get banked in real-time.  There is a ton of optimization work/opportunity there to unfold the arb, you just gotta get back to fundamentals and seeing the real value.  Obviously we can back out each of the ticks in the options to all the other options and the underlying in a competitive time frame. Nice work.


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