Featured: Derivatives Trading, Quantitative Finance, NBA Analytics
Chirag Agrawal graduated with four degrees in 2016. He somehow managed to quadruple major in Business Honors, Mathematics, Electrical Engineering and Economics – a feat not generally recommended by BHP advisors! Needless to say, we all wondered where our resident genius would choose to go after graduation, and how he would tie these majors together. Chirag interned at Optiver in Chicago, and loved it so much he decided to return after graduation. He has indeed been able to use all the skills he gained from these majors in his position trading options at Optiver.
How would you describe what Optiver does?
Optiver is primarily an options market-making firm. This means we are always showing prices at which we are willing to buy or sell options. It’s analogous to a grocery store; when somebody wants to buy food, they go to a grocery store because it will always have food in stock, the food will be of a safe quality, and the prices will be fair. Optiver plays the same role as a grocery store, except it is willing to take both sides (buying and selling). Optiver makes markets in options on almost anything (e.g. S&P Index, Oil, Corn). Options are a type of financial derivative, and the work that goes into their pricing is typically fairly quantitative.
What is it about derivatives trading that hooked you and made you want to pursue it as a career?
In college, my three main interests were statistics, finance, and programming. Derivatives trading offers a perfect combination of the three. Optiver makes hundreds of thousands of trades a day, and on each trade we make a prediction for the amount of money we’ll make and the amount of risk we take. Statistics is used to try quantifying exactly how much money and how much risk comes with each trade. Finance is used to interpret news in the market and incorporate the information into our prices. And programming is used to automate part of our trading and make more precise decisions. Not every trader uses all the skills on a daily basis, but I came in with both an academic background and an interest in each field. So I get to use all three almost equally every day.
What is a typical day like for you as a trader?
My day starts at around 7:30 am, and I spend the first hour communicating with other traders on my desk about what we want to do with our position, what our main risks are, and what we expect during the day. I trade S&P options, so the main trading hours are from 8:30 am to 3:15 pm. During these trading hours, I make trades and adjust prices based on news that comes out and activity in the market. Two years ago, this process was significantly more manual. With an increased emphasis on automation, less trading labor is needed during the day to manage the position. So I get to spend some of the time working on projects whenever the market is slow. An example of my most involved project was projecting moves and volatility around the US Presidential Election. After 3:15, I continue project work, and I recap the trading day with my teammates on my desk.
Why do you think most BHP students don’t either know about, or choose to purse derivatives trading very often?
I think both sides are relatively unfamiliar with each other. As a student in BHP, I didn’t know any alumni in the industry, and I never heard of older students recruiting for trading jobs the same way I heard of students recruiting for investment banking or management consulting. On the other side, most trading firms primarily recruit from schools like MIT, Cal-Tech, Harvard, Yale, or Princeton. The industry is quite small, so they haven’t quite explored all the potential candidates yet.
However, I think the industry is shifting. When I first interned at Optiver, I felt as prepared (if not more) for the internship as the other students from top schools around the country. Since then, Optiver has hired three other UT students for the full-time Trading role, and we’re now one of the most represented schools on Optiver’s trading floor. I think many BHP students are interested in quantitative finance, so I hope to see more BHP students explore derivatives trading over the next few years.
You had four majors in college. Are you using skills you gained from all of them in this role?
I get the opportunity to use skills from each major on the job, particularly from my Math and BHP majors. In Math, I took several probability and linear algebra courses which taught me skills I can use when making trading decisions. In BHP, I took finance courses which taught me the basics of financial markets and relationships between different macroeconomic products. One course in particular that stood out was Professor Kumar’s Optimization Methods in Finance which blended financial concepts with programming.
Along with the classroom, my extracurricular activities and work experience were particularly helpful. I was very active in the Undergraduate Computational Finance Group, and the projects done in that org were excellent practice for projects done here at Optiver. I also worked part-time at Integra during the school year, and this gave me experience doing project work, but in a more professional setting.
As a new(ish) grad, what has been the biggest challenge to for you in moving on from college life?
The biggest challenge by far is dealing with the cold weather. As expected, Houston and Austin did not prepare me well for winter in Chicago. After that, meeting people in a new city has been a bit of a challenge. Going from college where you’re surrounded by all your friends to a new city is quite a transition. Fortunately, Chicago is a friendly city, and there are a lot of social activities available.
Within work, the biggest change is everything is done in a team-setting. BHP classes did a great job of emphasizing teamwork or having group assignments which resemble work done in the real world, but the rest of my classes didn’t. Communication and teamwork skills that were underappreciated in college are now proving to be very important.
Anything else you would like to add, or advice you would like to share with current students?
My main advice is to pursue side interests or hobbies outside the classroom. For example, I enjoyed working with basketball statistics in college, and I actually developed useful statistical and programming skills through this hobby. I even started writing for an NBA analytics blog recently. Side interests don’t have to become a primary source of income to be useful. They keep you entertained, improve your skills, and could potentially become a career.