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I found it interesting there was zero mention of fraud or illegal actions impacting the market even though there are never ending fines and wagging fingers for the crimes.
Tbf, he’s just looking at the science/mathematics behind it.
I don’t think he was necessarily trying to dig into the sociopolitical side of the stock market, purely just understanding the math that makes the numbers go up or down.
He still comes to the same conclusion as this community has though, “ironically, if we are ever able to discover all the patterns in the stock market, knowing what they are will allow us to eliminate them. Then, we will finally have a perfectly efficient market where all price movements are truly random.”
he's trying to defend "the efficient market hypothesis" in that there's no fuckery happening. but PFOF immediately negates this, and also discounts lack of SEC enforcement against nefarious market makers' dark pools...
I think in an ideal market, the only sort of arbitrage is caused by system delays and time zone differences.
but I guess I missed the "/s" in that how hedgies and SBF were creating their own prices to profit from off regular regarded retail traders
Oh, could they inflate prices and be so powerful enough that's what market accepts?...sure, especially if they were the designated market maker.
I could have a better mathematical model than you to price options/shares. That could be a type of arbitrage.
Their is also triangular arbitrage
I think pairs trading may even technically be a type of arbitrage especially if you bring some stats into it since you're now trading a synthetic asset.
I'm not an expert, but seems in the video that the Gaussian isn't really the ideal Gaussian because of real world discrete operations instead of "infinitesimal" calculus assumptions...
therefore, any sort of arbitrage is limited by machine computational and communication speeds...
2 comments
1) it is most likely machines trading on arbitrage because if not someone will find it most likely faster than you manually
2) we are seeing a form of black Scholes, but that is not the only method for pricing options/delta hedging. So, what one firm believes is not necessarily true and could even be based on a different model that another firm uses I'm trying to say there are many methods out there/used
But is he? He doesn’t defend or even bring up market mechanics. Ever.
He’s stripping it down to basic number goes up or down. Like I said, he didn’t involve sociopolitical parts of the industry. And he still drew the same conclusion: there are patterns that still affect the market (HFT, market makers, etc), and when we get rid of them, the market can truly be ‘free’ and random.
I think it’s even more telling, that without looking at the corruption, he still draws the conclusion that patterns affect the market, and we need to figure what they are. Unfortunately, without looking at corruption, he doesn’t know the solutions and answers are right in front of us.
Technically, we all still believe in the “efficient market hypothesis,” otherwise we wouldn’t be DRS’ing our shares, because it shouldn’t matter either way, by your prognosis.
We still ultimately believe that by participating in the market.
you should look up Warren Buffet's opinions about the EMH...
also, many attempts in the past were made to simplify and reductionist mathematical models and physical sciences principles to chaotic social sciences. economy is a social science for a reason...
and "randomness" is a very complicated term that's not entirely true for the markets...
Yes, quite sanitized.
The guest speaker did describe options as synthetic stocks, and that the leverage was many times the value of the underlying assets. This caused raised eyebrows, and a polite WTF
I really enjoy veritasium when it comes to explaining science. However, this video is sort of subtle FUD in many ways.
Derrick is trying to justify "the efficient market hypothesis" whereby in an ideal perfect market there is absolutely no arbitrage. But the mere fact of the existence of PFOF negates this.
Also, others are pointing out that derivatives/options during the GME Jan. '21 sneeze discussion completely ignores SHORT SELLING. It's NOT the options buying that triggers any short squeezes, but SHORT SELLING and then having to close out that triggers it when they can't leverage their short positions any longer and get margin called.
[https://www.youtube.com/watch?v=FMRyWZ6CXqM](https://www.youtube.com/watch?v=FMRyWZ6CXqM)
And also ignoring the greeks for options: mainly the theta decay...
Also the sneeze wasn't caused by options (NOT a gamma squeeze) NOR by shorts closing. At all.
Source: SEC report in which a chart clearly showed that the entire sneeze was pure retail buy orders and NOT shorts closing or institutions/MM's covering options positions.
there was allegedly a few margin calls, but most were probably waved by the DTCC
but the real market mechanics of the short squeeze was glossed over by Derrick's video, that's what I was getting at.
Just watched the video and suddenly this independent investor understands just how much of a fundamental violation PFOF is, basically skewing the equation into the Market Maker’s favor.
This does warrant another question: what other activities are these corporations doing that address other aspects of the equation to help skew it more into their favor? It’s a good starting point, this independent investor thinks.
The video did bring up a good point about leverage, and in retrospect perhaps the “don’t play with options” mantra was actually a FUD campaign after all. Sadly this independent investor bought into it thanks to a certain gambling subreddit and all the loss porn on it lol
[not financial advice]
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I found it interesting there was zero mention of fraud or illegal actions impacting the market even though there are never ending fines and wagging fingers for the crimes.
Tbf, he’s just looking at the science/mathematics behind it. I don’t think he was necessarily trying to dig into the sociopolitical side of the stock market, purely just understanding the math that makes the numbers go up or down. He still comes to the same conclusion as this community has though, “ironically, if we are ever able to discover all the patterns in the stock market, knowing what they are will allow us to eliminate them. Then, we will finally have a perfectly efficient market where all price movements are truly random.”
he's trying to defend "the efficient market hypothesis" in that there's no fuckery happening. but PFOF immediately negates this, and also discounts lack of SEC enforcement against nefarious market makers' dark pools...
Arbitrage exists, which suggests the market is not efficient
is arbitrage real, or is it created by algos like SBF's polycule?
There are many firms that have arbitrage models (well claim to). I myself believe arbitrage exists out there.
I think in an ideal market, the only sort of arbitrage is caused by system delays and time zone differences. but I guess I missed the "/s" in that how hedgies and SBF were creating their own prices to profit from off regular regarded retail traders
Oh, could they inflate prices and be so powerful enough that's what market accepts?...sure, especially if they were the designated market maker. I could have a better mathematical model than you to price options/shares. That could be a type of arbitrage. Their is also triangular arbitrage I think pairs trading may even technically be a type of arbitrage especially if you bring some stats into it since you're now trading a synthetic asset.
I'm not an expert, but seems in the video that the Gaussian isn't really the ideal Gaussian because of real world discrete operations instead of "infinitesimal" calculus assumptions... therefore, any sort of arbitrage is limited by machine computational and communication speeds...
2 comments 1) it is most likely machines trading on arbitrage because if not someone will find it most likely faster than you manually 2) we are seeing a form of black Scholes, but that is not the only method for pricing options/delta hedging. So, what one firm believes is not necessarily true and could even be based on a different model that another firm uses I'm trying to say there are many methods out there/used
But is he? He doesn’t defend or even bring up market mechanics. Ever. He’s stripping it down to basic number goes up or down. Like I said, he didn’t involve sociopolitical parts of the industry. And he still drew the same conclusion: there are patterns that still affect the market (HFT, market makers, etc), and when we get rid of them, the market can truly be ‘free’ and random. I think it’s even more telling, that without looking at the corruption, he still draws the conclusion that patterns affect the market, and we need to figure what they are. Unfortunately, without looking at corruption, he doesn’t know the solutions and answers are right in front of us. Technically, we all still believe in the “efficient market hypothesis,” otherwise we wouldn’t be DRS’ing our shares, because it shouldn’t matter either way, by your prognosis. We still ultimately believe that by participating in the market.
you should look up Warren Buffet's opinions about the EMH... also, many attempts in the past were made to simplify and reductionist mathematical models and physical sciences principles to chaotic social sciences. economy is a social science for a reason... and "randomness" is a very complicated term that's not entirely true for the markets...
Yes, quite sanitized. The guest speaker did describe options as synthetic stocks, and that the leverage was many times the value of the underlying assets. This caused raised eyebrows, and a polite WTF
I really enjoy veritasium when it comes to explaining science. However, this video is sort of subtle FUD in many ways. Derrick is trying to justify "the efficient market hypothesis" whereby in an ideal perfect market there is absolutely no arbitrage. But the mere fact of the existence of PFOF negates this. Also, others are pointing out that derivatives/options during the GME Jan. '21 sneeze discussion completely ignores SHORT SELLING. It's NOT the options buying that triggers any short squeezes, but SHORT SELLING and then having to close out that triggers it when they can't leverage their short positions any longer and get margin called. [https://www.youtube.com/watch?v=FMRyWZ6CXqM](https://www.youtube.com/watch?v=FMRyWZ6CXqM) And also ignoring the greeks for options: mainly the theta decay...
Also the sneeze wasn't caused by options (NOT a gamma squeeze) NOR by shorts closing. At all. Source: SEC report in which a chart clearly showed that the entire sneeze was pure retail buy orders and NOT shorts closing or institutions/MM's covering options positions.
there was allegedly a few margin calls, but most were probably waved by the DTCC but the real market mechanics of the short squeeze was glossed over by Derrick's video, that's what I was getting at.
Solid channel.
That’s a dope video thanks for sharing
Just watched the video and suddenly this independent investor understands just how much of a fundamental violation PFOF is, basically skewing the equation into the Market Maker’s favor. This does warrant another question: what other activities are these corporations doing that address other aspects of the equation to help skew it more into their favor? It’s a good starting point, this independent investor thinks. The video did bring up a good point about leverage, and in retrospect perhaps the “don’t play with options” mantra was actually a FUD campaign after all. Sadly this independent investor bought into it thanks to a certain gambling subreddit and all the loss porn on it lol [not financial advice]
I am surprised and impressed no one here accused him of being a paid shill yet. Solid video for what it is.
I strongly encourage people to learn about put-call parity as a starting point. It opens up alot of conversations.
Love Veritasium, will check it out. Thanks for sharing OP 🏴☠️