Biggest Pay Raise on Wall Street Goes to Stock Derivatives Traders
From original post at: https://www.wsj.com/articles/biggest-pay-raise-on-wall-street-goes-to-stock-derivatives-traders-1543401000
As markets get wilder, some Wall Street traders are getting richer.
The return of volatility might be making many rank-and-file investors queasy, but it is proving to be a boon to some trading desks at the biggest banks.
Many desks focused on derivatives tied to stocks are set to generate billions of dollars more in revenue this year, as choppy markets give traders more opportunities to make lucrative, against-the-grain bets on these financial instruments. It is a contrast to recent years, when these desks slumped amid calm and steady markets.
As a result, the top traders on banks’ equity derivatives desks are expected to take home some of Wall Street’s biggest paychecks. Pay for the highest ranks could top $3 million this year, a few hundred thousand dollars more than a year ago, according to a survey by headhunting firm Options Group.
The big payouts reflect Wall Street’s continued shift toward trading based on math savvy and deep dives into data, rather than guts or Rolodexes.
They also highlight how financial firms are wary of losing traders with quantitative chops to the technology and cryptocurrency companies that are competing with the banking business both for consumers and employees. That is particularly true of younger “quants” who make up Wall Street’s talent bench for its most complex businesses.
Michael Karp, chief executive of Options Group, said that as banks decide pay over the next few weeks, they are likely keeping one eye on the arrival of Amazon.com Inc. and expansion of Alphabet Inc. in New York that is making the city a tech hiring hub to rival Silicon Valley, increasing competition for key skill sets.
“Quant strategies, artificial intelligence, data science—there’s going to be a lot of pressure not to lose people in these areas,” Mr. Karp said.
Equity derivatives desks deal in notes, options, margin loans and other instruments whose values derive from stock prices, but not stocks themselves. Investors use them to bet not just on whether prices are going to rise or fall, but how much or how rapidly they will change. Clients—often hedge funds and other active investors—use the complicated trades to hedge against or bet on that volatility.