quant update

I have both a lot of updates and also a lot of time to blog today, so this will probably be a longer post than normal.

Over half of my internship has already passed, and I figured it was a good time to stop and reflect a bit about what I think about the internship as an overall experience, quant trading as a career, and what I should spend time on moving forward.

I conjectured before the internship started that the experience would probably be math camp 2.0, only as 20-21 year olds rather than middle/high schoolers. Even though I said this, it was still pretty surprising just how accurate this description was. The social circles run really tight among these math camps (notably Awesome Math Summer Program), and even the significant portion of people who didn’t do math competitions are pretty similar in personality/interests. Quants are mathy people–who could’ve guessed? There are other elements that make it feel like math camp–everyone lives in the same place, there are a lot of intern events, we have class/homework/exams, we play lots of board/card games, we do math problems on whiteboards, and the people in charge of us treat us in a manner between little kids and true adults (which I guess we are).

There is definitely something comforting in being surrounded by people you’re used to and who share similar passions/skills. There’s a ton of shared hobbies, from video games to keyboards to academic research to whatever other nerdy stuff–it’s validating to talk about traditionally nerdy stuff with people and feel similar levels of passion. There are obviously exceptions to this within the intern class, but in general this is a crowd that I’m comfortable with and can/have become friends with. I weight the importance of people super heavily whenever I make decisions, and the fact that I’m compatible with the types of people here is a huge plus. However, I’m also aware of some differences between myself and many of the other trading interns, as I’ve changed a lot over the course of college. These differences cause me to pause and wonder whether or not this ultimately is the right career for me.

My typical day right now starts around 8am (earliest I’ve waken up consistently at since literally high school), where I work on a quant research group project. The topic itself is pretty interesting (trading on short squeezes i.e. Gamestop), and it’s pretty in line with what I generally like doing work-wise so I think I enjoy this part of the day more than most people. Within the group project context, you run into the typical group project dynamic issues, but I’ve been lucky to get a rather motivated group, which I’m grateful for. It’s not my favorite part of the day, but it’s solid and has been getting better recently now that we’re making more progress.

At 9:45am, we have education, which looks pretty different now as opposed to at the beginning of the intership. Before, it would be a 2 hour lecture on options theory, with corresponding daily homework/exams. Nowadays, we do mock trading/play poker (SIG is known for using poker as an education tool for its traders, which has been cool). There are some other elements like speaker series (heads of desks will come in and give a talk), forecasting (predict whether or not COVID cases will rise in the next week), poker education (actually cool since this WSOP bracelet holder turned trader comes in and teaches us), as well as general finance education (what are banks, what happened in financial crisis, etc.). I think a big part of why this overall experience has been enjoyable is because I’ve been learning a lot, which is personally super fulfilling/fun.

The part I enjoy the most is the desk work, where I trade electricity on the Energy desk. I honestly didn’t really know what to expect from the desk before starting the intership, and I was slightly miffed that I wasn’t on something more essential like equity options market making. But it turns out that the skillset demanded for energy is precisely what I enjoy doing, the problems themselves are really cool/much more directly physical compared to something like options, and I feel like I’m learning a lot (which I mentioned before I really enjoy).

trading electricity

I honestly think trading electricity is super interesting. At its core, the market consists of an energy grid operator (known as an ISO) which presides over many states, physical participants (generators, loads), and financial participants (SIG, Citadel). The electricity market used to be really regulated, but this leads to inefficient pricing (and the consumer ends up paying more). To make prices more fair, the US started deregulating energy, enabling financials to trade, and adding derivatives to further increase liquidity/drive prices closer to fair.

One of the coolest parts of electricity is the energy grid itself. You can think of it as a giant graph (with nodes and edges), with generators producing energy, loads receiving energy/distributing to people, and power lines connecting everything. The catch is that energy cannot be stored (at significant levels), electricity flows like water (you can’t target your destination, you merely supply energy and let it flow through the grid), and power lines have physical limitations (the wire physically cannot carry power beyond a certain amount). Because it’s a mathematical graph, the ISO’s job essentially boils down to solving this giant optimization problem to supply everyone while minimizing the overall cost of the grid.

For physical participants, like generators, they generally use this market to hedge their position. Say a natural gas generator produces energy for $50 per MW. They are happy to sell it the day before at $100, rather than risk what might happen in real time. If it settles to $110 in real time, they are a little sad that they missed out on the $10, but overall are still happy to be making money. However, if something unexpected happens and they’re forced to sell at $40, or, even worse, they have an outage and are unable to produce, then they’re forced to buy energy at whatever the market offers. In Texas, this happened, natural gas generators froze over, and they had to buy the electricity they promised to sell–however, prices were at $9000 (the cap by regulation) per MW, so they effectively instantly bankrupted and people eventually didn’t get their energy.

Thus, physical participants pay a premium to hedge their position, and financials are often willing to take on this risk if they have enough edge in the trade. Financials will also just trade straightforwardly, depending on where they think the real-time prices will settle to.

Since electricity cannot be stored, prices fluctuate a ton based off of real events, weather, how much energy people/businesses are consuming, and a bunch of factors that are all really hard to predict. It’s a super complex problem, and what makes it really interesting to me personally is how directly real-world events impact energy, especially relative to stuff like options/fixed income. One thing that’s especially impossible to predict is wind, which I’ve been working/trading on and it’s been super interesting/fun to think about.

quant v startups

I thought I had this figured out a few days ago when I was leaning towards startups, but I’ve realized since that I still have a long ways to go before feeling secure in such a decision. I don’t think I’ll be secure even when I ultimately make the decision, but I figured writing out my current thoughts couldn’t hurt.

I think this decision ultimately boils down to two things:

  1. Do I value meaning over money?

  2. Am I risk-seeking, or risk-averse?

Hopefully by this point in the blog post, you can tell that there are a lot of things I enjoy about quant: the lifestyle is great, the people are smart/good, the pay is actually absurd, and I find the work intellectually stimulating/fun (at least for now). As far as 9-5 jobs go, I don’t think there is a more optimal choice for me.

I guess what makes it hard is that my answer to the first question leans pretty heavily towards meaning. I believe money inherently has value and there are many things in life that I enjoy that require money, but I doubt I’d be someone who blows money without thinking about it at all (getting to that point would require a change in who I am that I’m not super comfortable with). I think this summer has established pretty clearly for me that I do value meaning over money–work is fun at all, but I do feel like I’m turning off key parts of my brain/thinking. The value added by individual quant work is a stretch (providing liquidity to the markets is important, but this is the case only in a late-capitalist society). It’s relatively hard to get a quant job, but me choosing to not do it ultimately doesn’t change anything in the grand scheme of things–someone else would sit in my spot on the trading floor. On the other hand, I have this genuine drive to work on interesting, real-world problems as well as the means/opportunities to do so–I feel like I almost have an obligation to do so since it’s not really guaranteed that someone else will solve these problems. There’s this whole world of startups that’s super new and even thinking about it excites me–quant is cool too but I know that after a few years, it’ll eventually stabilize in terms of intellectual curiousity. If I go the quant trading path, it means I’m either taking the easy/stable way out, or that I’m eventually pivoting into startups anyways–and if this is my ultimate goal, I should just start gunning for it now. Spending years on something else feels like a waste, not to mention a huge opportunity cost.

The thing that’s holding me back is I feel similarly obligated to be risk-averse. There is something safe and comfortable with following the inertia of my current path, to continue recruiting, shoot for the top job possible, and cash in all my hard work and coast for the rest of my life. It’ll require working hard, but everything is known and riskless–putting in work, doing the right steps will realistically lead me to these goals. I have personal/family circumstances that push me towards being risk-averse, but the same logic can be applied for the reverse direction–my loved ones and I have sacrificed a lot to get me to my current position, isn’t it time for me to shoot for the stars now that I have these opportunities? At the end of the day, I’m coming to terms with the fact that there isn’t much worst-case risk–if I was out of money, I would find a job, which would be suboptimal compared to a top quant firm, but at the end of the day is far from a bad situation. Most of the risk I feel like I’m facing is more of a product of the discomfort resulting from the unknown and stopping my inertia of following conventional paths.

I feel like I know what I should do, but it’s scary to jump into the deep end. Recruiting for quant/keeping it as an option is hedging my risk, but at the same time, I know it’s limiting me in the sense that I will never feel the need to take huge risks. I also know fighting inertia by turning down a quant offer is likely beyond my willpower. Last night, in a moment of particularly strong conviction, I told myself something along the lines that I wouldn’t recruit this coming year–upon reflection, this probably isn’t the best move and just ends up limiting optionality, but this concept of hedging risk and its effects on my drive/motivation is real. It’s naive of me to think that I can achieve these high startup ambitions without putting myself in risky positions, and it’s also naive of me to expect that I can return to the comfort of quant life anytime if I full-on pursue startups for years and take on risk.

My past approach to these sorts of things is to accrue perspective/more information before making decisions–I blogged about this concept before, which I dubbed analysis paralysis (just working on stuff instead of thinking too much about a decision that’s unsolvable with the information at hand). Now, seeing more and more of my peers forming strong convictions, I’m beginning to wonder if I need to actually experience these things in order to make decisions, or if I have enough experience to make decisions without additional information. I’ve thought about this over the past two days, and I’ve reached the conclusion that I still haven’t formed strong enough convictions about myself/life. However, I am pretty close to that stage–I think I need to just have a legitimate startup experience, and I’ll be able to form my convictions/make decisions. At this stage of my career/life however, being honest with myself, I don’t think I’m capable of these convictions/decisions just yet. I respect a lot those who have reached this level of self-awareness and conviction–my next major life goal will be to reach this level of self-understanding.

blogging again

Blogging my thoughts might be an efficient way of reaching this goal–there will be blog posts in the future. A daily habit is really hard to sustain since blog posts take so long to write (even though I don’t edit/proofread anything), and I often realistically don’t have the time to write fleshed out posts. I might try a weekly habit however for the remainder of the summer/beginning of the school year and see how I feel in terms of its impact on my personal development.