Lou Mercer: We're going to another day in the life segment with Randy Frederick and special guest Stacey Gilbert, head of derivative strategy at Susquehanna Financial Group. Randy?
Randy Frederick: Thank you, Lou. Stacey, it's great to have you here with us.
Stacey Gilbert: Randy, thank you so much for the invitation. It's great to be here.
Randy Frederick: So I'm not sure that retail investors necessarily know who Susquehanna is, and one thing I know that you and I both have in common is that we've both been involved in derivatives trading for pretty much our whole career. So why don't you tell us a little bit about what you do and maybe who Susquehanna is, and then we'll go forward from there.
Stacey Gilbert: Sure. Absolutely. So my name's Stacey Gilbert. I run the derivative strategy group at Susquehanna Financial Group. I've basically been born and raised at Susquehanna. I started there right out of college, traded as a market maker on the American Stock Exchange, ran our education department, started our derivative strategy group, moved upstairs, traded options upstairs electronically, and currently run our derivative strategy group, which is a sell side operation for institutional clients.
I spend a lot of my day taking to institutions about best ways to incorporate options into their portfolio, ETFs into their portfolio. Susquehanna is one of the largest market making firms on the options marketplace. We're anywhere from 15 to 20 percent of all listed options, market volume, on any given day say upwards of 5 percent of ETF volume. So basically, as we like to say, if it trades on an exchange, we're likely involved. We may have decided to participate in the order or have provided the liquidity for it.
Randy Frederick: So Susquehanna is that group when one customer enters an order, if they don't trade with another customer, they trade with this market maker, that we always talk about those market makers. That's who Susquehanna is. They're the ones who trade with clients when the clients want to trade, and there's no one on the other side, correct?
Stacey Gilbert: There's part – that's part of our business as a market making unit. The other part of our business is the institutional sales side. So we'll talk directly to clients. We'll provide the liquidity for them there. So Susquehanna in general, if it's trading on the exchanges, particularly on the options market, we're certainly involved in one place or another.
Randy Frederick: Interesting. So tell us a little bit about your day, because I'm guessing that like me, you probably get up really early and do a lot of research. So tell us how you start your day and sort of how you get into your groove, if you will, of your daily routine.
Stacey Gilbert: Sure. As you know, being in the industry for this long, no day is ever the same. What I would say is an optimal day is I'm up by 5:45, and I'm starting to read what happened overnight. By overnight, maybe that's seven hours ago from when I went to bed. But ideally, what's happened overnight, having a good sense of what I need to anticipate for that day.
Get into work hopefully by 7:15 and start emailing clients with observations of things that I think were interesting from yesterday's trading or upcoming events. I'm always looking for something that's standing out as a potential opportunity or a situation where the market just seems to be pricing in risk differently than I would anticipate the market would price in risk, and looking for those opportunities for our clients.
Randy Frederick: So even though you're dealing with institutions, and these are people who are swinging big trades, trading big dollars on a daily basis, you actually provide them with information that they can use to implement their trading strategies throughout the day, right?
Stacey Gilbert: Absolutely. We're looking for situations where we think an option may be – look attractive as a sale for them, if they're looking to override a fund, for example. If they say, here's a level that I'd like to get out of this stock, we may look at the options market and say, well, here's a level where you're going to get this much return. This is the income you're going to get from it. This is the ultimate yield. And this is the price target that you've set, so we think that this could be an optimal strategy.
Randy Frederick: So it's that balancing, that – sort of that hedge, if you will, plus the income, and maybe looking at that in terms of dollars and also percent returns, right?
Stacey Gilbert: For some clients. I mean, a great example would be the election right now.
Randy Frederick: Right.
Stacey Gilbert: A lot of clients are interested, what's going to happen? What is the market anticipating? So even if we have – we have clients that aren't trading options, they'll still call us to say, give me a sense of the risk that's being priced into the market. Is the S&P 500 going to be the biggest mover? Is it going to be something with the peso or the Mexican markets? And just looking at the options market and the ETF market to basically back up that information and have a sense of where the market says the most risk is.
Randy Frederick: It's been fascinating, certainly. We've watched – we've been talking about volatility and noting that the VIX has moved higher for like eight straight days now, even though the S&P 500 hasn't gone down all that much, and maybe just a little bit. So clearly, there is a lot of apprehension, or at least some anxiety about this election. So let's say something that wasn't expected happens, and maybe it ends up being not such a good day. How do you handle days that don't go so well? As you said, every day is different, and some days aren't always good days. What happens then?
Stacey Gilbert: Right. Obviously, the best is prepare, right? We all know an election is coming. That's not going to be a surprise. So anticipating what's going to happen is obviously going to be the best defense. But if there is something – for example, yesterday, had the Fed raised, that would have been a absolute surprise to the market, and then that happens, it's really kind of talking to our clients, having them take a step back and say, what did you think – we said here's the probabilities. If this situation were to happen, what was your thesis going into it? How has that thesis changed? Let's look at the market for those opportunities where we can overlay it best.
Randy Frederick: Okay. So great. So how do you balance – it sounds like you've got a very busy day. I know sometimes I can't think – sometimes I forget what city I'm in. But how do you balance sort of work and life? Because you probably work more than an eight hour day, as most of us do.
Stacey Gilbert: No, absolutely. And the beauty of work/life balance nowadays is that you – so much of it's electronic in terms of just being able to get the background information that I need. Like I said, ideally, I'm up at 5:45 to read all the information that I have. So –
Randy Frederick: And you're doing that from your house.
Stacey Gilbert: And I'm doing that from my house. Exactly. While the kids are still asleep. But ideally, by the time I get into the office, I'm not getting caught up on what happened overnight. I already have an idea of what's happened, so that I'm able to start my day really with more information than I've had historically, when you had to wait for the newspaper, go through the newspaper, get to the office, and start.
So at least nowadays, I think the amount of information that's out there and the access to it makes it much easier to start your day ready to go once you hit the office.
Randy Frederick: So even though a retail investor might be looking at the markets from a different perspective, maybe you can offer a piece of advice. What is the single most important source that you go to to get information that helps you gauge what kind of day it's going to be or maybe what might happen?
Stacey Gilbert: Well, The Wall Street Journal obviously is one of the go to sources that I would read. The Wall Street Journal actually recently acquired a new service that's called The Daily _____, and it is just an amazing – it's basically this amazing email that has about, well maybe 45 different charts. And we joked earlier. I'm a math major. I don't like to read and write. So give me charts. Give me numbers. Give me formulas. And you're really my language. And I love this, because, as they say, a picture has a thousand words. I can look at this and say, okay, this is interesting. The fact that this graph is here says to me that emerging market volatility maybe should be higher. Let me think about this. Let me think if this emerging market volatility is accurate. And those charts actually give me a great start to the day.
Randy Frederick: So it's all about getting right to the meat of what's important very quickly, down and dirty, and eliminating all the fluff, right?
Stacey Gilbert: Exactly.
Randy Frederick: Outstanding. Well, guess what, Stacey? We're out of time. Thank you so much.
Stacey Gilbert: That's amazing.
Randy Frederick: It was great talking to you.
Stacey Gilbert: Thank you. Really appreciate being here.