This page has been archived and commenting is disabled.
Guest Post: High Frequency Trading Alert - AIG
Submitted By Joe Saluzzi of Themis Trading
There has been a lot of talk over the past few weeks about high frequency trading. We have argued that the volume these high frequency traders are creating is not beneficial to the market. Lets take a closer look at what a high frequency favorite stock looks like. The poster boy for HFT this week is none other than 80% U.S. government owned, AIG. AIG recently underwent a 1 for 20 reverse split since the “issuer” wanted to make their stock look more attractive to institutional clients. You would have expected volume in this stock to be reduced by 20x. Instead, volume has remained at a consistent pre split level of 75 million shares/day. How could this be? Did something change to attract more institutional buyers? Did the black hole of AIG liabilities somehow close? No, the answer here is that the High Frequency traders found a new stock to play in.
How do we know that AIG is a HFT darling? We look for three prime characteristics: high volume, a quick early morning ramp in the stock and then a constant bid throughout the rest of the day that will hold the stock at the top of the ramp. To graphically view this, look at the July 13th intraday chart of AIG.
Volume exploded in the morning and the stock ramped to $14. This level was now the “point”. The HFT’s defended this level all day (and collected liquidity rebates for this privilege). Throughout the day there were mini spikes higher that allowed the HFT’s to sell at a higher price all the stock they had been accumulating at the $14 level (again, they collected a liquidity rebate from their exchange/ecn “partners” for this privilege). What caused these mini-spikes throughout the day? It seems now that the HFT’s have attracted a new partner – the day trader. They now have caught onto the game and realize they can “leech” off the back of the HFT and make a small profit during the mini spikes (http://www.smbtraining.com/blog/?p=1401)
Going forward, we will begin noting these HFT situations and start posting them to our blog regularly.
»
- 3323 reads
- Printer-friendly version
- Send to friend
- advertisements -
Cool Wall Street rakin' in the dough agin'!
while main street fizzles!
I have always said these guys are like carnival barkers.... Come and play in this game. Look at all the action... You just have to make sure you don't end up like the fat kid in a dodge ball game.
This simply means that AIG became gamblers prey isn't ist
I'm not at all convinced that this is evidence of HFT.
I think this is just good stock timing. My own stock timing system identified AIG as a solid buy on July 9 and told me to buy the morning of July 10. Had I done so, I'd have made 60% on my money.
S$P's went from 871.2 to close around 895 in straight up trend day the 13th as well. Option X with AIG July 10,12.5, 15 strikes with huge put OI sitting there ripe to squeze. Whats new? Mind wants to link observation with cause, and the simpler the better.
Great call Tyler:
Ive been watching every tick on this stock for the past four days. There is NO question at all that this is HFT.
The question is when do they find a new toy? Do they stick around for a while here?
I noticed the same with FAZ that the volume has stayed the same or picked up after the split
We've noticed similar patterns in SPY/ES since 2006 bull run.
However, if event B (constant bid) occurs just after event A (quick ramp up) or simultaneously, one should not jump to the conclusion that A causes B. Several possibilities exist:
A and B may just happen to occur together (coincidence). Neither is the cause of the other.
A and B may be caused by another event, so that A did not cause B or vice versa.
Maybe A did cause B, but such a conclusion must be verified.
Bababooey,
I would appreciate an explanation on how you draw that conclusion. How is it that HFT is the reason for AIG's movements and not other potential causes. Thanks in advance. No offense but I am not sure how tick by tick observation proves anything. I assume you have no access to dark's or liquid net data info which makes up so much of AIG's current volume. Another simplisitic explanation is there were 700k in July puts due to expire, many of them in the money. When S$P's ramped those long puts need to sell. That put enormous buy pressure on the stock.
Zero hedge: please provide more info to help us understand how you reached this conclusion.
no1ego: with S & P rallying (and long putsexpecting the AIG stock tobe rallying), long puts hope to sell their options fast. but these are american options, why would a sale of option cause an uptick on the underlying? Am i missing something here.. please enlighten me!
shoutout SMB link on zero hedge ~ * * *
Finan-learn. The sellers of those put options (institutional/smart money so to speak) need to hedge those sales by shorting the underlying stock or the use of off setting deriviative positions. When the owners of the long puts sell, the sellers of the puts take off hedges creating buying pressure in underlying equity. If a portion of 700k puts get sold in the ramp up, know that each contract represents 100 shares of AIG which needs to be bought as the put sellers puke them up. Hope this helps