Adam Webb began his trading career in the mid-’90s, working on the London FX spot desk at Goldman Sachs. By 2002, he was running one of the world’s top global exotic options books. Adam left Goldman in 2004 to set up a small boutique market making business focused entirely on exchange-listed options products, and he has been running that business ever since. Adam recently moved to the TT platform and is using the Advanced Options Package. You can contact Adam though his Macrohedged website and follow him on Twitter at @macrohedged.
How did you get involved in trading?
Adam: From an early age, all I wanted to do was wear one of those colored jackets and trade. My dad had a suit jacket with a liner that looked like the Kyte Futures floor jacket. I would turn the jacket inside out and pretend to do hand signals. I got a job as a “yellow jacket” at 17 working for a tiny Bund arbitrage trader on LIFFE. It was hell. I basically worked for free, got shouted at and was the lunch buyer. I remember asking if I would get a business card and was told, “Yes, of course.” The next day, I had a lovely stack of business cards all handwritten saying “Adam Webb – bacon butty buyer.” Thankfully, the options guys at Goldman seemed to like me. They offered me a job with the promise I would get a degree while working, which I did. You thrive or die in an environment like that. You don’t slowly wither on the vine. Investment banks are the human version of the fail fast business model. I wish that culture remained; people might have more backbone.
Do you have any memorable trades or trading events you can share?
Adam: I’ve seen so many over the years that I feel old now. I can list several, like the Kobe earthquake, the dot-com crash, the global financial crisis, Arab spring, European debt crisis and the 2014 OPEC/Shale battle. I think the most chaotic ever was the Kobe earthquake. This started the chain of events in 1995 that led to my career trading yen options for Goldman. This gave the yen the same crazy reputation for movement that GBP or DEM had. This was in the days when you had to spoof just to survive and get out of customer orders, long before it was illegal. We only had the interbank market to get out of any volume. Now, there are so many non-bank liquidity providers, you can disperse the impact a lot better.
What has electronification done to alter options and strategies trading?
Adam: Many traders sit and fight in the outright futures all day without seeing how the massive advantage in this market over the last eight years has been on the options side. As a mass quoter, all I have seen is edge erosion. The advent of the “join” feature in many quote models has slowly eaten away at the theoretical edge. This is to the huge benefit of the position trader (retail, macro, prop, small firm). Entering a trade for options on futures has never been better. I can enter a put spread where the market is only a tick wide. Just think about the positive expected outcome of those dice rolls! There is only one long-term winner. I set up Macrohedged.com to try and shine the light to all traders on this point.
Why do you prefer to trade strategies over single options or futures contracts?
Adam: It’s rare to see anyone trade the single options in size. It’s not where the informed money trades. It is where many retail traders trade. Mass quoting single options has become a good source of income for market makers as they’re quoting against retail order flow. I would always say a strategy over the outright option is a better play. Give yourself the most amount of convexity you can in order to be around in this business as long as possible. I never take a futures-only position, although I do execute a lot of futures for delta hedging. The other thing I see so many times is traders entering very short-dated options position and always holding these to expiry. People are so comfortable to trade a futures contract, but they hold onto options like they are one-time-only lottery tickets.
You recently moved your business to the TT platform. What are your thoughts on our options offering?
Adam: Trading Technologies has been part of my life longer than my wife has. I started using TT software in 2002, and getting it back into my working day has been good. I had stopped using TT when some of the other platforms made acquisitions in the options space and dedicated market maker platforms emerged. I was pretty shocked by the features when I reviewed TT a few months ago. Options traders don’t get excited over chains or spreaders. We live on risk and “what if” views, and I am amazed by how good these features are in TT. I called a friend who’s at an exchange and asked if he had seen the options functionality on TT. He replied, “They just jumped 10 years of development in three months.” Once I got a handle on the risk features, I started to look at the rest of the platform and the critical winning factor is the auto skew. If you trade options as a position taker, not as a market maker, you know the pain of theoretical value refitting. The TT auto skew feature is truly amazing. I spent some time checking odd contracts and odd skews, and it’s spot-on all the time. All the other things you would expect from TT are there. No point in me reviewing execution; it’s like asking Ferrari if they make engines. As mass quoters to the market, we are always looking for edge on the strategies side, and the TT Electronic Eye was a shock to see on the platform. This is usually something that’s an extra cost on other platforms, so I was expecting it to be weak. It’s not at all—and quite the opposite. The updates are fast, and the edge hunting is very accurate. I’m really happy with the platform. I’m the first person to moan if things are not right. My FCM has known me forever and is quick to say, “Are you really sure, Adam?” They had no doubts at all about this move.