An Interview with a Volatility Trader

Tell us about your current role.

I work as a Volatility Trader for Gauss Capital, which is an independent asset management firm located in Brazil. We're focused mainly on macro hedge funds, although we also have some equity and credit funds as well. It is a huge market with lots of liquidity on almost all maturities. I'm also starting to look more at equity derivatives, especially index options, for example.

My work involves the generation of trade ideas for the markets that I cover and also executing those trades. I currently have a senior trader who supervises my work, and he helps me design and implement those trades. I also assist in managing the options portfolio in our flagship and matrix funds. Basically, I monitor the Greeks and our exposure data to ensure that we are in the right assets. 
 

Where and in what role did you start your career and how did you get to where you are today? 

I started as a risk analyst and was in the risk department for almost four years before making my transition to the trading desk. At the beginning of my career, I wanted to develop and exercise my quantitative skills in finance and risk was a very good place to learn, especially since I came from an engineering background, and I was able to learn more about financial markets from that perspective. Over time, I went from more manual operational work to developing new models and tools for applying risk management solutions. During my tenure as a risk analyst, I worked very closely to the management and the trading team, and I became very interested in transitioning over to the trading desk and was able to complete that move last fall. 
 

What are some of the highlights of working in your current role and what are the biggest challenges?

The greatest challenge in quantitative trading is the level of technical knowledge you need to trade efficiently. There are so many different techniques, models, and heuristics, you can find in the literature, or even develop yourself to help you, but it’s a vast field and you have to make choices. Once you start to understand the basics of option trading, you need to be comfortable with the notion of probability distributions and how they are used to price options. We use stochastic calculus too, of course. You don't necessarily need to apply Ito's lemma, for example, to trade options, but you should have a good grip on the intuition behind it. Overall, this is one of the most exciting fields for applied math and this also ends up being the biggest challenge in my opinion, because finance is a very competitive field. You must stay up to date with the latest developments, new models, and new techniques, so your personal improvement really never stops. This is actually one of the greatest things that the CQF tries to address; as an alumnus I have unlimited access to all the material that's being added to the curriculum, not to mention all the events and workshops. Having such a wide range of information available to you is one of the main benefits of the program. 
 

Could you describe what a typical working day looks like for you in your current role?

I usually arrive at the office around one hour before the local market opens in Brazil.  I take a look at the news that came out since the end of the previous day and see what happened overnight in the Asian markets. Then I run my trading models with the most recent market data. I look at the output signals and compare those signals with the current positions to see if the overall portfolio positions are aligned with the models. Are there any kind of adjustments that need to be made to the to the portfolio? Then throughout the day, I monitor the Greeks in the options portfolio since I do the delta hedging as needed. In parallel, I also read some new papers and technical books to sharpen my knowledge and continue to study a range of topics from options trading to portfolio optimization. So, it is a continuous learning and implementation process.
 

What do you think are the most important skills for professionals in your field to have? 

I think the most fundamental ability these days centers on programming skills, particularly in terms of data libraries and object-oriented programming. There are many online courses, to get you started, but besides watching those videos, the most important part really is to practice. It's important to complement those skills with mathematics and statistics skills. These are the technical foundations that you need to deal with a lot of challenges and develop your confidence. If you can showcase your coding skills, but also demonstrate that you have a structured way of thinking, really logical, really rational, I think there will be demand for your work.
 

You earned the Certificate in Quantitative Finance (CQF). Why did you decide to enroll in the program and where has the CQF added value to your career?

I first decided to enroll in the CQF program because I was looking for a way to accelerate my learning in quant finance. The traditional way might be to do a master’s degree, but it would be very difficult in my case to manage both the academic and professional demands at the same time. In the CQF program, I was able to cover all those subjects in a very short period of time and still held my job as well.  Taking this path has definitely added value to my career, particularly in the ability to transition from risk management to trading.  I wouldn't be where I am today without it. 
 

Do you think the industry has changed since you started your career, and how do you see it changing in the next few years?

The industry is essentially walking towards a more quantitative approach to investing and I think this will only increase with time. When I started in the financial markets, which was around 2020, just after COVID hit, I think that programming was a skill that was seen as necessary for back and middle office positions. Nowadays, most positions, even in the front office, require some degree of programming knowledge and those juniors in the front office are going to be the PMs and traders of the future. I also think about how widespread and accessible information is today, but the ability to process and analyze huge data sets and find the patterns in these data sets still takes considerable knowledge and skill and you can only scale this kind of process if you have good programming skills. So, it is all interrelated.
 

What would your advice be to someone starting a career in your field today?

Being genuinely curious about the problems you have to solve, and falling in love with solving the problems, rather than with the tools you use to solve them. Many quant projects get sidelined or postponed because people tend to use overly complex techniques (such as neural networks) to solve simpler problems, when a simple logistic regression could get the job done. It is obviously important to have a deep knowledge on the models and their assumptions but focus on using the right tool for the right situation. If along the way, you notice that the model you are using is too complex/simple, you can always shift the complexity down/up.
 

Additional Question: Did the skills acquired on the CQF program help you to make the transition to the new role with BTG Pactual?

Yes, being a CQF alumni definitely helped me getting this job opportunity - besides being awarded with a well-known and respected certification, many quant projects I carried on my previous job at Gauss were supported by skills and models I learned at CQF program, and talking about these projects in a clear and structured way paved the way for me to get a job as an specialist at the quant modelling Group at this bank.