Why is intraday trading so hard, Where is the ES liquidity, and When are most market moves happening (overnight), with Deepfield’s CEO, Bastian Bolesta

Who in the right mind would choose to make a living day trading stock index futures? It must be one of the most competitive, most challenging arenas out there with HFT and 10s of billions of dollars in quant strategies chasing alpha. In this week’s episode, we’re chatting up the founder and CEO of short-term systematic shop Deepfield Capital from Switzerland, who ply their wares on stock index markets from Asia to Europe, the U.S.
Bastian also discusses why there is a difference between market movement during the day and overnight sessions, the status of ES liquidity these days, whether less liquidity will bring new opportunities, the science (and art) of strategy research, why VIX futures are tough to trade, and more! Plus, as a bonus, we find out why Bastian dressed in a full head-to-toe Chewbacca costume for a wedding.
Follow along with Bastian on Twitter @LongVol_DFC and for any questions email him at info@deepfieldcapital.com
About Bastian Bolesta
Bastian Bolesta is a founding partner and Chief Executive Officer of Deep Field Capital AG (DFC), a Switzerland-based, independent, purely systematic asset manager, developing and trading niche intraday and short-term systematic programs in global futures and equity markets. DFC’s expertise in developing short-term quantitative programs is built on +20 years of independent, proprietary trading. As CEO and member of the Investment & Research Committee, Bastian drives Deep Field’s business development and investment process for its systematic investment strategies on the proprietary trading and asset management side.
Check out the complete Transcript from this weeks podcast below:
Why is intraday trading so hard, Where is the ES liquidity, and When are most market moves happening (overnight), with Deepfield’s CEO, Bastian Bolesta


Jeff Malec  00:07

Welcome to the Derivative by our RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Hey, everyone, Happy April Fool’s Day Eve. Is that a thing? We’ve got quite a lineup for you the next couple of episodes Mike Green of simplify Olympic gold medalist Lindsey Jacobellis performance coach, and VIX specialist Jim Carroll, Stuart Barton and Vance harwood to talk the new VIX ETFs coming out from Ball shares. Okay, after traveling to Ireland and Norway in the last two episodes, we’re continuing our European tour DeQuan in today’s episode by chatting up the founder and CEO of short term systematic shop Deep Field Capital from Switzerland, who ply their wares on stock index markets from Asia to Europe, the US. Okay, time to get going with Bastian ballista send it This episode is brought to you by our Sam’s outsource trading desk. We talked about trading in the overnight session in this episode and our CM 24 Six desk is there all night facilitate such orders. So US base traders can get some shit. Visit www.rm.com to learn more. And now back to the show. Okay, we’re here with my favorite Swiss automaton. Welcome Bastion.


Bastian Bolesta  01:32

Hi, Jeff, thank you so much for having me today. Yeah, always a pleasure.


Jeff Malec  01:36

Hopefully didn’t take offense to calling you automaton. Have you ever read the book The Invention of Hugo cabaret?


Bastian Bolesta  01:42

I heard you talking about it a couple of times. And I haven’t read it yet. So but it’s definitely on the to do list because you’re gonna ask me again sometime in the future.


Jeff Malec  01:51

Like the kid finds an old mechanical robot like the ones you are fond of. And it’s was his father’s rebuilds it to tear jerk with a little bit of coolness in there. And then I almost bought you a present in Vail, Colorado little shop. I was in that I sent you the picture of all those little those little robots, but yeah, we


Bastian Bolesta  02:11

loved it. I chatted with the team. Beautiful. No. It’s old mechanical. Out of metal. Right. That’s that’s that’s that’s beautiful. I don’t have some of these in the shop. We have some seats in the office as well. Yeah.


Jeff Malec  02:26

Yeah, that was about $18,000. So I didn’t I didn’t have that AMI to send you the present.


Bastian Bolesta  02:32

Yeah, we work we working on that. Yeah. And probably it’s 18,000. It’s not really the billable thing. Exactly. It’s, it’s beyond the norm for sure.


Jeff Malec  02:46

And so how are you? How’s your backgrounds in international relations?


Bastian Bolesta  02:50

Right? The Yes, I have a passion in international relations. After after studying business administration and finance, and working for Deutsche Bank. For a while, I decided to I wanted to do something while it was real fun. And that’s when I studied international relations, and lift in China and stuff like that. So but now I’m back in finance. All right. And so it’s rather a passion, I would say is then then the focus point.


Jeff Malec  03:17

So with that passion, what are you making of Switzerland breaking with their long held neutral stance and all that’s going on in the world? What do you what are your pet theories? Are couch Alliance chart, on a good hand. Awesome. But actually, yeah, maybe to put that into perspective.


Bastian Bolesta  03:38

While we are currently recording, it seems to be that Ukraine and Russia are making some progress. So you can actually really record on a good mood and markets are reacting to it accordingly. But in regards to Switzerland, I’ve I’ve read and heard, especially from the US that it was well noted that Switzerland has changed something and the politics of neutrality. I think Bill Clinton just the other day also said it quite openly and pointed out that this is a departure from certain ways Switzerland has acted in the past. There are actually a number of occasions in the past couple of years where Switzerland joined on certain sanctions. And one could probably say that argue to suddenly agree this is now a continuation of that policy. So they are the current the current topic is neutrality, neutrality, but not, but not showing lack of sympathy, so to say so they want they want to show sympathy, definitely towards Ukraine. The president of the Confederation has been traveling to Poland the other day So he’s at the forefront of showing that. And it’s certainly it’s it’s it’s perceived as mixed feelings here in Switzerland. Because not all political parties are happy with that departure from neutrality. But ultimately, I think they also caught by surprise, because everybody I know a lot of people were surprised how quick Europe spoke with one voice. Europe has a history of discussing over and over and very long, late nights. Think about Chancellor Merkel always pushing it towards the night because everybody’s sleeping, and then she has the overhand in Germany, guided guiding the discussions, but now she’s done. So there are certain changes in Europe now in terms of constellations. And I was very positively surprised how quick Europe spoke was one voice. The same goes for how NATO came together. And the importance and relevance and way how nature works, has been revived, which is probably a good thing. Considering that it is standing for democracies, and values of freedom and liberty, and many other things we all cherish and have enjoyed for many years, and have just been reminded that it’s not for granted. And in our case, in terms of distance, it’s not really far. So it’s happening on the ground. And we have a lot of refugees coming to the neighboring countries, but also to Switzerland, now into Germany, my kids this weekend, last weekend, before they actually went into the kitchen and bake cakes. As a mom, we want to do cakes, we want to sell cakes, we want to raise money for Ukraine for the refugees and displaced people. And they are 79. So when I was 79, I don’t know I wasn’t I wasn’t baking cakes for refugees. I had no clue that they actually refugees. So yeah, it seems to be that our kids are living in a different kind of world now as well. And they have been successfully raising funds. We donated it to a world central kitchen, US organization. I love these guys. They always whenever there’s a crisis in the US, or natural disaster, or now also in Ukraine, they go out and they cook food. So their focus is on preparing meals, hot meals, if somebody arrives and has suffered heavily, that they feel comfort, just for a short period of time. And this is an awesome effort. And yeah, my kids together with neighboring kids, they stood that entire Sunday. And people came by and very happily bought heavily overpriced cake. Yeah. But it worked. And yeah, my wife just came back from an organization where they give out toys for kids who are arriving and clothes. So it is it’s in our day to day life. It is it’s crazy. And congrat, just a couple of months ago, just a couple of months ago, everything was that was a different world. So it’s, it’s a different, we are living in a different kind of world. And maybe we are reminded that how blessed we are in terms of what we can do in terms of our business. We already discussed that in regards to COVID that people suffered all over the world while we could actually continue working in our now home offices and even benefited from it to some degree maybe because we don’t have to commute to the office every single day. And now maybe the world is even changing in terms of work that we can continue working from home and in the office. So some kind of hybrid model. And again, now there’s another crisis with even more tragedy. Not more, but a different kind of tragedy. Yeah. And more avoidable. Yeah. Yes, yes, probably. But it’s like history repeating itself. Or rhyming at least. And I’m, I’m very humbled to see how people got together and help in how it is uniting. And I I’m, I’m also I’m also very sad about seeing what has happening on the ground in Russia over years already. And now in a very short period of time, because I have friends from Russia as well. One of my best friends is married to a very cool Russian girl or lady and, and very modern and Moscow has been a very modern place. So we just had an IQ talk the other day, and they were paying with the subway tickets with faces and they had Google Pay all over the place. It was more modern. If you wanted to tip in a restaurant. You didn’t leave any money there. You did this all by app. So it was being in Moscow just a couple of weeks ago was felt more modern 21st century theory, there are many places much closer hereby, or in the US as well. But now this is all falling apart. And I hope that we somehow can all fix that together. Keep the dialogue open. And what’s happening today in Turkey is certainly very helpful. Even when I wouldn’t put too much immediate hope into it, it’s good. Is there a style? or can people continue to talk? So?


Jeff Malec  10:26

Definitely, the Yeah, I put out on Twitter like a week ago of my wife texted me it’s you get the kids need to bring $1 for Ukraine to school and I’m like, a text I never thought I would get right. Bring it down there for Ukraine. Okay,


Bastian Bolesta  10:40

but that’s beautiful. No, that’s, that’s beautiful. It’s as if everyone everybody gives the dollar then that works out somehow. When when I when I donated I had, I had to top up to cover for the expense of sending money from A to B, it seems to be still be the same fees of sending money around the world. But


Jeff Malec  11:01

yeah, wasn’t supposed to fix that. Yeah, exactly.




Bastian Bolesta  11:04

Exactly. Exactly. Yeah. But no, the kids. Everybody’s very engaged. And I just thought, we hope for the best. So it’s a sea lot of very positive things. And my international relations perspective certainly has been shaken up to a certain degree, but it’s a lot of real politic taking place, as well as Switzerland reacting rather quickly, then as well. Joining the sanctions was just pure real politic because they caught by surprise. And they knew this time around, they couldn’t just sit it out, didn’t work, too much pressure and too much focus also on Russian money in Switzerland, and oligarchic money. And as such, yeah, they have there’s a certain degree of departure, but I wouldn’t emphasize it as strongly as it has been presented in media last couple of weeks. And do you ever they want to be a place for mediation and they want still want to be a place for all parties coming together. And they made a very strong stance that Russia should not be excluded from international organizations. Now, if you have heard that probably last couple of days that there were certain ideas to exclude them from other the g7. And in some out some other organizations. And the argument here is keep these platforms for dialogue. Maybe they have to sit another table in a corner that no shame, and kids get stable. Exactly. But it’s still in the same room and the dialogue keeps on going. And that’s very important. And


Jeff Malec  12:43

do you ever take we’ve had Luke Grohmann on here a couple episodes ago, basically saying this signals the end of the US dollar, as the world’s reserve currency in the world is going to move more towards right hard asset best based reserves, right. oil, gold, that kind of thing. Got any thoughts on that? Yeah. Yeah,


Bastian Bolesta  13:03

it’s it’s not our direct area of expertise, considering that you’re purely systematic. Obviously, we love macro as well as a story. And we listen to other folks who are very highly qualified in on that field. Generally speaking, just just very shortly, you can make the case that some folks out there have been reminded that a reserve currency could be switched off from one day to another, if you have to reserve somewhere you don’t have to reserve anymore. That was quite quite a surprise, maybe. For a lot of folks, and that could be an argument that the transition to alternatives besides the dollar may have accelerated, you could make the case that they have there have been some certain developments all over the place, and China has been looking into alternatives as well. But I gent for the foreseeable future. I don’t think that there will be any drastic change, the dollar will still have his role and a larger part of the world will still anchor their day to day life on the dollar, and it will not disappear as as reserve currency overnight. Agree.


Jeff Malec  14:21

So let’s let’s get started. That was all just the appetizer. That was good.


Bastian Bolesta  14:25

I saw it. We are done now. Yeah.




Jeff Malec  14:29

So I wanted to start by asking you, basically, who in the right mind would choose to make a living day trading stock index futures? All right, it’s got to be one of the most competitive hardest arena out there. So just how do you handle the insanity which is these markets on a day to day basis?


Bastian Bolesta  14:47

And it’s a good question. You could probably put it to my insanity. Adding discretionary Yeah, if I would sit there and I have to do a discretionary I know a lot of discretionary traders but I always I never I envied them in times of March 2020, or vol mageddon or something like that when you have to put on trades, while everything is on fire, and even when your portfolio is doing well to keep to keep calm and make good decisions at this point, I always was always impressed by some folks managing that. So considering that we are fully systematic, and everything is automated, it is not really day to day stress. It is it is more, it’s more research effort, which has to deal with the difficulties and has to overcome the challenges of the data presented in daily trading. So there are certain best certainly challenges, because there’s a lot of noise if you go very short term. All but one of our programs are all momentum based. And the majority of our research and development alt all focuses on momentum. You could argue that the larger part of movements intraday, or rather mean reversion, if you look at the return distribution of the s&p is a little up and little downs, that’s a highly mean reverting territory where you have a higher occurence than the normal distribution would suggest. So very high. And as such, the majority of days you’re facing are not really in your favor if your momentum. But at the same time, once the market moves towards these outer edges, you have a lot of return potential as well. So one of our programs that the ICA focuses on the tails, it includes a signal which have focuses on the shoulders. So we’re trying to stay away from the mean reversion part, which is probably somewhere around 60 to 80% of the time the case are noise and mean reversion predominant and momentum either very strong downwards momentum upwards, momentum is probably around 20% of the time. So you have to come up with measures to stay away from the drop zone. But once once something is happening, it can be very rewarding as well. And ultimately, you have a very different return profile. If you consider that most shorter managers are rather focusing on mean reversion. They are not there aren’t as many momentum guys out there. So you have a USP, which sticks out because of the very short holding periods. What does that mean USP unique selling proposition? That’s a marketing hat.


Jeff Malec  17:41

I thought you were throwing marketing term I didn’t know at me. Yeah,


Bastian Bolesta  17:44

no, no, You never never. So the the returns look different as a result. And your role in the portfolio is different. So you don’t have as much competition. When somebody looks at you have compares what you do with other shorter managers. But the short term space itself is very heterogeneous, because everybody’s going after slightly different things. But I’m with you in regards to challenges that you have to overcome the noise. That’s certainly one aspect and the market structure is changing also over time.


Jeff Malec  18:23

And do you feel the noise is created in the in the bulk of the bell there? Is that created by the high frequency trading firms? The market makers, the right is that noise created by all that super well funded super, you know, have the best computing power there is, but they’re all competing in that in that 60 to 80% range. So get out of there, right? Don’t compete with him.


Bastian Bolesta  18:47

Yeah, I would say that the the pattern, if you look at historical data, has has always been like that. So it is it’s not new, that the majority of time, you rather have noise, and it’s not as directional. So, high frequency has been around also for quite some time, but if you go if you go in terms of data to the times prior, you will still find that so the predominant pattern is these little ups and downs and not as strong momentum diversion movements in the market. The if you consider that on the on the left side of the distribution, these very strong downwards moves they are driven by fear and panic. So people the market is under stress. And this doesn’t happen too often. And at the same time on the right side that you basically have very strong updates you need you need quite some positive news and momentum there as well in order to push market as strongly so it’s rather the little up and little up and downs which which are the day to day moves. If you look in terms of returns the majority of money market moving news in terms of earning reports and stuff like that are in the off hours. Yeah, we’ll get to that. Yeah, if you if you look in terms of returns where the returns are coming from, this has been very stable throughout time as well and has not substantially been influenced by the rise of market makers, high frequency trading or things like that. So, what you can observe and looking at the data that the extreme overreactions on both sides of the distribution have increased in terms of frequency and magnitude. And as such, it is very beneficial to focus on on the shoulders or tails, but you have to be patient. So you can’t go after every single trade and you you don’t want to be lured into taking a position where something looks like an opportunity, and then it’s falling back. So be it must be very active risk management in terms of position sizing, how how, how high is the quality of that momentum currently evolving? How what should the bet size be given the current very short term market environment, and that there’s a lot of internal and many years of research close to 20 years, which have driven that in order to increase the odds that we can stay away from the noise. The very low vol days and the mean reversion days, and just focus on on the momentum as much and as good as possible.


Jeff Malec  21:30

And so in your mind, you’re not even trying to compete with like Renaissance or Citadel or groups like that who have who can outgun you so to speak.


Bastian Bolesta  21:38

Yeah, they can definitely outgun us from a technology perspective, as well as certainly brains on their teams. But


Jeff Malec  21:50

give yourself some credit. Yeah, yeah, but just in terms of number of brains, number of brains.


Bastian Bolesta  21:57

Not the massiveness of the brain, though. No, just kidding aside, but being very humble. Renaissance is quite an impressive shop. And so the others mentioned, and, but they come up with size. So they’re very large billions and billions and UNECE. It’s under management. And if you if you look at our core, playing ground, which is futures, the future space, with all its liquidity is still not as large when you look intraday. If you think longer term you hold overnight, it’s a different story. But if you want to go in and out intraday, we are only focusing on the most liquid equity indices globally, so trading Asia, Europe in the US. And so we don’t even have some very attractive ones which are very small, because they don’t drive the needle even for our portfolio. So for Renaissance trade, trading, I don’t know, the Malaysian market or Indonesia, intraday, that just doesn’t work. So I would argue that they may be active to certain degree. There are some other prop shops and short term systematic managers who are also active, intraday. But it’s a rather niche cap capacity constrained space. And it comes with a lot of technology, you have to invest as well. So this is certainly not an issue for Renaissance but if a new competitors coming in, and they want to trade intraday and globally, we have service centers in, in Japan, in Hong Kong, in London and Chicago. So you’re very close to the individual exchanges. It’s a lot of money, you have to invest first in infrastructure, and then it’s around the clock operations as well. So there are certain hurdles, and it’s not as scalable. So you, you will not have a billion fund trading intraday futures. It’s not gonna happen. It’s small, it’s more like 250 300, maybe, but more. So it’s a very juicy space, but capacity constrained and I think that keeps us safe to a certain degree from the folks you mentioned.


Jeff Malec  24:09

And what about the retail guy who’s gotten into options? Who’s trading futures more and more, that they have any hope?


Bastian Bolesta  24:17

In bet in which regards


Jeff Malec  24:19

in what day trading s&p futures or E minis are right. Yeah. So you can pass on that one? No, no,


Bastian Bolesta  24:30

it’s a it’s a good it’s, it’s it’s a good question. Um, I think it’s always good if you’re curious. And if adding additional strategies to your portfolio is certainly a good idea. I don’t know if you’re currently running meme stocks, which are hot again, you probably have seen it over the last couple of days, they’re skyrocketing. And if you’re if you’re so active, we’re predominately on the call option side if Now, venturing into SMP intraday trading is is the right addition to your portfolio? I don’t know. But generally speaking to be curious about new approaches very helpful it in our case we have worked on on such type of strategies for 25 years. Some key members even longer so it, it we have learned a lot of lessons there as well. So it could be it could be a yo show up and be successful. Yeah. Yeah. If you if you look at a lot of new investors coming in into the sphere of investing, yeah, over the past two or three years in a lot of folks had a really good, right. It was a specific market environment. We had tremendous stimulus, monetary and fiscal. So who do you want to play if somebody someone who has made decent money, especially from a very low starting point, very aggressively, in one day after another be confirmed in this very aggressive stance being a successful trade. And it’s happening at the moment right now, why we are speaking of the past two weeks, the market has seen a tremendous change again, so we are seeing tech being in again, I think Apple is now the 10th or 11th, stay up positive day in a row


Jeff Malec  26:22

on a trillion dollar market cap, it’s hard to do.


Bastian Bolesta  26:26

On top of it. So nastic is being pushed substantially. And you have seen a substantial increase in option activity around the mean stocks again. So it seems to be a preprint which has worked, definitely 2020 2021 Now just being put out of the drawer and reapplied. The tricky part could be that sudden other circumstances are changing while we’re speaking. So, the Fed has changed in the policy, it is starting to implement certain changes, monetary tailwinds are to certain degree becoming headwinds. So there are certain dynamics which may not be embedded in applying that blueprint. Successfully going forward. But for the time being, these folks are adding a certain degree of volatility to markets. We love volatility, all our strategies along wall so we have benefited from C’mon in the pools nucleus. Exactly, exactly. Um,


Jeff Malec  27:30

and I feel like people, I’ll lump you in with me, but probably not fair. But right. I’m like, Oh, these guys are gonna get blown out. They don’t know what they’re doing. They’re right. They’re just jumping in. But it’s kind of like, people like us can be too smart, too clever for our own good. And if you just ignore all your experience, ignore all the data and plow into these meme stocks, you would have made a lot of money. And then Exactly, yeah, so it’s a little, it’s hard to hard to measure,


Bastian Bolesta  27:56

I just hope that they don’t burn themselves too much. Because ultimately, it’s a it’s a new generation of investors, and they are facing certain difficulties out there and in the environment. Anyway, think about changing economy, a lot of automation as well a lot of folks not necessarily being able to work the jobs that parents worked because the jobs are not there anymore, and all these different things, environmental difficulties, climate change, but this is basically here is the world we have prepared for you guys. And now stop stop playing around as money was your meme stocks. So I don’t want to be too judgmental there. It’s I have a lot of respect for people who who are eager to learn and apply their experience good and bad on a day to day basis in markets. And I just hope that this generation of new investors is not burn too bad that they just make the experience as all the folks prior to them and that they continue to be investors in the space and that they don’t have a bad awakening somewhere in the future.


Jeff Malec  29:03

Amen. You touched on it a little bit want to dig into this some of you’ve done some research shared some reports how the bifurcation between the US day session and the overnight session right? So tell us what you’ve seen how has that evolved? And then after that let’s what why does it exist


Bastian Bolesta  29:30

Yeah, that’s a good Yeah, we did we did. Definitely did a lot of research into that. Driven by initially starting out trading the US intraday session only on the future side. So the ICA program, the intellect Christ Alpha started as an SMP program. And


Jeff Malec  29:50

in what years are we talking early? This


Bastian Bolesta  29:51

is 2017 May 2017. Yeah, so and consider 2017 Being so substantially low vol. In this program focuses on larger intraday moves in the s&p and the s&p didn’t move up or down more than a percent for weeks and months in a row. So there wasn’t much activity. I don’t want to say that we were bored. And as such, we were looking out of out of the US and we’re looking at different places. It’s always a good idea if you develop a program on a specific instrument or a specific market and you apply to different markets as well, to see if the pattern you’re trying to capture there is existing somewhere else as well. And as I said earlier, momentum specifically on the downside being a fear and panic driven aspect, overreactions. So a lot of behavioral aspects of how humans react to stress or also how they react, reinterprets certain news. And then relief is kicking in or even FOMO on the right hand side. But these the tails, the shoulders and the tails are very, very strongly explained by behavioral aspects of trading markets are approaching difficulties, which are deeply embedded in us as human beings and you can’t even escape even when you program algos and everything. And so, it was it was not a surprise to see that focusing on tails focusing on downwards and upwards momentum strong upwards momentum should also be present in Asia, for example, so we applied it to Hong Kong, Hong Kong, has higher retail participation, higher volatility as well. So it very quickly was reconfirmed that these patterns are only present. It’s not just a US specific thing, but you actually have it around the world. And it could be beneficial to apply exactly that approach to different markets. So from from that degree, our interest to apply to different markets and making it a global program with all the advantages of trading something globally, which we can discuss in a second as well, as well certainly, it was certainly very helpful for periods where we have now seen higher volatility and large movements specifically to the downside overnight in the US. So thinking about March 2020. So the COVID and market crisis was an outlier to a certain degree historically, but has been reconfirmed with other occasions since then, as well, that there are some very strong moves in the overnight. So from a US perspective, if you only trade intraday, you would not be able to capture the downwards move because the entire s&p downwards move, or US equity markets downwards move in March 2020, was overnight. However, trading globally in Asia and Europe now gives you the opportunity to use these markets as a proxy to access the movements which are expressing themselves in the US overnight session. And sometimes because you are asking for drivers, certain news are evolving while the US in the overnight so it’s not specifically that actors are active in the overnight and that’s driving it and but it’s just new news are coming in. So on regular basis, corporate news, certainly in the off hours, which have this effect, that there’s a lot of movement overnight and historically, not just in the US, but globally, the majority of the upwards move in the equity markets, is driven by the overnight. So equity markets have very strong upwards. Drift. And I’ve seen


Jeff Malec  33:35

that report that it was like the day session was essentially flat and there were at 100% gains during all the overnight sessions. Correct. Which is mind boggling, right? Like how it doesn’t seem like that could be the case.




Bastian Bolesta  33:50

But it is it is it is that the News, the news I expressed overnight and materialize in a gap, give up or get down and then some other folks are coming in in a second guessing or reinterpreting and then there’s a battle in what direction the instrument or the market actually goes from that point. But overall, the drift is downwards, intraday. And this specifically goes for crises so panic fear emotions, that’s expressed in very strong downwards moves if you go if you analyze the large draw downs in the s&p since the birth of the.com Bubble even earlier, it’s it’s all very pronounced intraday. But when the day says wasn’t like that in the day session, correct, it’s in


Jeff Malec  34:37

guidance. So you’re saying that the past 20 years the normal profile has been up overnight, down in the day session? March 2020. flip that down overnight. And then how so as I think of it right if Amazon comes out at 415, or whatever, after the market closes and announces record earnings, their stock jumps 15% The s&p futures jump gap 5% or whatever. Like, can you even trade that? Right? It just gaps to that level? So where or how did that how do you trade that? So even if you recognize that all this movement happens overnight, can you even? Can you capture it? Because it just gaps, right?


Bastian Bolesta  35:17

Yeah, you if your top thing is stocks are very narrow basically it’s getting more difficult in comparison to finding proxy. So if if Amazon comes out with very good news, it will not materialize itself in the Hang Seng or the Nikkei. Yeah. Or not to the degree that you can actually capture it. So if in terms of proxies and diversifying your years overnight, and by Asia and Europe, we are talking larger market, overall market driving events. But the so this systemic moves, basically, yeah,


Jeff Malec  35:56

well dig into that, because you used to call it you write the global relay, and this news happens, and it’s going to realize in all these different markets, so dig into how you look at that,


Bastian Bolesta  36:07

yeah, but um, the if, if, if you’re long Amazon and you already have it in the book, then then you’re able to capture that, but the it is quite likely that there will be another push, if it’s really good news, another push once the session opens, because certain participants are way too large to act in the overnight, because the liquidity overnight is generally very thin, so you don’t have as much room for the very large players. So they are predominantly active in the on the fringes of the day session at the open and at the close. Or they bebop throughout the entire day. In certain players that are constantly constantly on the buying side, if you think about all this passive investment, ETF discussion, very well researched, and much better explained by my clean and focused and then what I could say here, but they have done a lot of work there, which basically shows that you have this, this constant support of this upwards drift in this is certainly also kicking in if you have really big news for certain single stock or company. But we have become quite active on the research side on single stock trading as well. And actually just in the process of applying our momentum signals, single stocks. And we see that it’s very beneficial to trade them in today’s Well, despite the fact that these big drivers are overnight. Because you get a lot of a lot of momentum from time to time, not very often, but if it’s large, also in the single stocks, but we can talk about that later for sure.


Jeff Malec  37:48

And come back to that global relay concept so that you want that proxy exposure in Hong Kong to capture those download those tail events.


Bastian Bolesta  38:00

And the global relay race is a term which refers to that something larger is happening. And it may start to play out first in Asia, and then it’s followed followed through in Europe. And this falls through in the US. Or maybe just in two of these geographies where the relay is handed over to the next session. And despite the fact that the other geography is already aware of what has happened during that say, the US overnight is aware of what has happened during the day in Japan and early early morning hours than in Europe, but still may follow through gapping but then still follow through still a larger movement. And this doesn’t happen very often that you have a global relay race around the globe. But you have it in very large systemic crises. So when when something really big is happening, because then everybody is panic and round the globe. And if you trade intraday, you have certain advantages in comparison to buy and hold if you have positions overnight as well, because the intraday program goes out at the end of the session. So at the end of the session in Japan or in Hong Kong, you’re flat again. And you may enter new positions now in Europe if the relay is handed over and the market follows through or you don’t and the next thing and the US because of that you have internet compounding which can be very strong in cases of a complete relay race, or even when the two geographies where you trade your capital multiple times per day. And because capture requirements are usually defined by margin which you’re holding overnight. So the clearing broker is asking for margin specifically if you have positions overnight. You need certain buffer as well when you’re trading intraday, but intraday margins are also made as high as as overnight. And as such. This is one of the key advantages of intraday programs not specific effect to hours. So it’s generally speaking, if somebody trades intraday, they have the advantage of extreme capital efficiency, and you don’t have to come up with new capital. When you add such a program to a portfolio normally you have to say, Well, where do I reduce? Or where do I get new money in order to allocate to a strategy with intraday strategies, as long as they have the desirable characteristics and quality and things like that, you can just add them. And this is also the case when you trade globally. And so you don’t need three times your capital in order to straight your capital three times per day when you trade globally, that’s a unique advantage. And what has certainly been helpful, even when the relay race is not around is diversification. Because we said earlier that the predominant pattern is rather noise and mean reversion in in markets from an intraday perspective. And now if you focus on momentum as we do, you have quite some challenges. But if you have a challenge in a certain geography, there may be momentum in another geography so that you can start compensating. And we have seen that very strongly in the very choppy environments and past couple of months as well, where one geography has difficulties because it’s always chopped around or very often shopped around, but you have very strong caption another. So for example, if I look here to date, ICA has been quite strong in Asia. And so we have seen that the the Chinese Tech has been pushed down heavily by a series of crackdowns from a regulatory side. And on top of it, you have also aspects of the zero COVID policy in China being put a test at the moment, with Shanghai currently on lockdown. And prior to that you had Shenzen as well. And you have things Shenyang as well on the North as well. So a lot of a lot of difficult news for for Asia, which basically pushed the market down heavily. And this could be captured with short momentum in the Asian session, Europe got chopped around a lot, because you’re obviously because of the tragedy happening not far away from here, between you crane and Russia. You You had overall the negative connotation, of course, people got worried and markets were pushed down. But the US very often reverse what has happened in the in in Europe. So we had a lot of choppiness in your in the European session in the past couple of weeks, resulting in being negative year to date at the moment, but positive Asia and the US is actually now strong again, because we have seen a more degree of follow through in the US. So you see that the global diversification helps in that regards. It’s not always a relay race. But it’s helpful if you already have a little bit under your belt before you get chopped, or in chopped in the morning that you have an opportunity. So we never call it a day until the 4pm. Eastern then the day is over, they leave man wake up in the morning and you see a loss in Japan, I say, Ah, I still have three sessions to pick it up. So


Jeff Malec  43:17

and I always see when I see right, the US market gaps down 3%. And you guys go short. And I’m like, oh, no, here we go. comes every person. Have you done any research on that? Like, how big of a gap down is too much of a gap down to go short that gap?


Bastian Bolesta  43:35

The Yes. It’s not as direct that you say, Well, this is too large. Now you don’t go short. It is it has an impact on the degree of position sizing, for example, and on the quality of signal strengths will require you for example, January 24, you had that’s basically where when vix went up heavily and the s&p was down 4% Roughly I think around 4% and then rallied up complete reversal and yes, that’s exactly when you wake up and say oh no Bastion just yeah the good thing on that day despite seeing this is a massive reversal so the s&p is down close to 4% and then closes the day up in the positive I don’t know rallied 5% or something like that. This is like the most difficult environment for momentum because this is hardcore mean reversion but we had captured an Asian in Europe and we were actually flat on the day. And you may recall that research on the internet momentum side let from ICA employing a signal with ranges to one which also has no ranges, the active into the momentum and there’s a signal diversification Following the idea of an ensemble approach, that you combine different paths, dependencies, and the past dependency of the classic signal was ranges. And the aim signal result was very helpful there because they took positions at different levels. And were only marginally down in the US not as strongly and the overall session was actually flat. Despite that being probably the most violent or hostile environment for momentum. On the next day, the 25th. We even have the situation, this was like a repetition. So you wake up and say again, and it was again gapped down and again, a rebirth. And again, in the positive, but this time, there was a reversal of the reversal. But we even got a long signal there. If the if the reverse was strong enough, there may be situations where specifically ame can enter because it says, Well, I understand that I was active on the short side earlier this morning. But this is a very strong upward momentum. And then ame gets a signal a classic can’t really do that or not to that degree, because if you have a range, and basically, you’re active on the short side, you break the range. And then there’s a reversal, the classic has to travel through the entire range in order to potentially get along signal. But ame doesn’t require that. And so you saw that the signal diversification certainly helped as well. But going back to your question, there are a lot of factors on a very short term, look back window, looking at how is volatility evolving at the moment? How large is the gap, which informs the decision when to take a position and how lots of persistence would be, and without that you would be more exposed.


Jeff Malec  46:39

And the end of the day, you’re trying to have a small risk in order for the volatility to expand. And then you capture the expansion, typically to the downside, but yeah, so as if things are whipsawing around that, that’s no good, because the risk has now blown out too.


Bastian Bolesta  46:54

If the VIP site is large enough, it becomes the trend again, or their momentum. And so it is but if if it’s if it’s too narrow, and you get stopped out twice or three times, then it’s an issue, we have seen a lot of very exciting new data coming in, in the past three months, situations where we had to short entries stopped out and short again and then along at the end, and maybe we were flat, even on the day, but you say all this work. Yeah. And you despite the fact that you are systematic, you’re still there. And on these days, you’re always in front of the screen. And already know that I got caught some calls later on people ask why this? Why that? Yeah. And so I already have the idea. Okay, well, I need a chart for that. That’s very exciting. Three times trying your luck on the short side and then on the long side, but positive at the end of the day, yeah, but it could be a flat. So, it has certainly the the last last three months have been quite quite special in that regards, but we are happy. So overall, we saw that global diversification works. So by geography signal diversification is very helpful. AIM has been the strongest signal since implementation in February last year. And as the research on AIM has informed a new cash equity program trading aim called aims now active into the momentum stocks. And it shows that it’s always important to not rest but to continue. Your research aim has been built on the on the data of the COVID and liquidity crisis because there we saw very massive swings intraday as well, we already had the argument earlier today that, well, it was an overnight crisis. So you could rest and say, Well, we are US intraday. So how should we capture that if it’s the sell off is overnight, but still intraday? There were some some very large, attractive moves, still being considered a momentum move from our perspective. So our research focused on that and said, How can we capture something like that? And the aim is the answer to it. But as reflected in the past couple of weeks or months, it’s still it’s always work in progress. So we were grateful that the large down days if you look, q1 2022, the large dominates the s&p, the majority of them, we were positive with decent capture. So we provided these positive uncorrelated returns. But at the same time, we also saw that the equity markets were down heavily and it’s not that we were up heavily and if you look at the VIX complex as well this was even more tricky, because we also had the pattern of a lot of overnight action, overnight expansion and then reversal intraday, if you take the 24th of January you discussed earlier, the the front months rose by close to 20%. On that day, very strong long signal on the VIX side, but then when the s&p He reversed as strongly it completely crushed 17 or 18% down. And this is very difficult to trade as well, in the VIX complex itself, but you can always learn. And there were a lot of interesting observing observations. In the past couple of weeks, or even the last two weeks, were coming from a vix was in the range of 30. I think the candle earlier today was at one of the candles. And this is in two weeks. This is tremendous crush, complete reversal. We’re back in contango. And it’s not that the world has substantially changed that. Now. Everything is fine. Yeah. So we have we have the strategy still going on. It’s not solved. Yes, we have more clarity in regards to what the Fed is telling us at the moment what they think they will do going forward. But it is still it’s still surprising, um, how we how quickly we changed in a matter of two weeks, from a type of cautious in crisis mode into a certain degree of complacency again, but ultimately, for us, it’s still interesting, you have these because of these changes, you have these moves and overreactions and the last couple of days have also been been helpful


Jeff Malec  51:20

for us. So I think people did the sell the VIX, if there’s a nuclear war, we die, right? The VIX will spike, but we’ll be dead anyway. If there’s no nuclear war, it’ll sell off heavily. So they just did that quick equation. And talk about we’re still on microstructure here a little bit talk about the liquidity in these markets. Right. So I’ve seen a lot of reports that many liquidities at near all time lows. I have questions on how they measure that. Right in with a lot of algo execution stuff, a lot of size gets hidden. So what are your thoughts? Or if you see it as a problem, you see it as getting worse getting better the same?


Bastian Bolesta  52:05

It’s it’s a very interesting topic, but difficult to measure, as you already hinted in your question and statement so with with one of your hats, certainly partially having expertise on the execution side, right? Yeah. With some some news I followed the other day, some good news, hopefully for you. And looking looking at liquidity and yes, the s&p for example, if you look at order book debt and top of book debt, somebody as an example, how much what kind of volume can you trade for certain price without substantially impacting the market. And there have been a Goldman did a lot of research or pushed it at least, and one could definitely see that until 2018. audiobook death on the first level, on the top level was substantially larger in terms of how much notional you could actually get in there, without impacting and that has, has come down substantially after 2018. And since then, we have seen three or four cycles, where it’s somewhere in the range of I think, posits 30,000,000,020 25 30 billion baht has dropped substantially, for example, during the covered in liquidity crisis in March. So what you see specifically that however, you measured that, that this is dropping substantially, exactly when you need liquidity most. So it is a reconfirming the observation that liquidity can evaporate very quickly, like if you try to get a grasp sent stronger, you’re stronger, you press as quick as you lose it. And so it’s not only thin, but it’s also fragile. So liquidity disappears very quickly. And I think even if we incorporate very fair arguments you made that the way you measure it that a lot of participants are not presenting themselves on top of the book, but they’re basically using all kinds of different oligos in order to slice slice in to hide from or much size, whatever they have there in the market in the market. It’s still you can make the argument, execution algos and the idea to use these techniques are not new to us and haven’t evolved over the past four years, but they have been around prior to that. So they’re still a remarkable trop if you if you incorporate the aspect that this has been around


Jeff Malec  54:47

longer, and they should still show a footprint right? Yeah. So even if it’s reducing overall footprint, even if it’s still decreasing. Their footprint is decrease.


Bastian Bolesta  54:57

Yeah, it’s it’s it is It’s it’s a, it’s an occurence, or it’s basically it’s something which is there. And the degree how bad it is, differs from person to person. Yeah, I’m usually what?




Jeff Malec  55:16

Sorry, do you say the same thing in Hong Kong and Wang sang and in Euro stocks? Or is it? What do you see across those different geographies?


Bastian Bolesta  55:24

It is, it is a pattern, specifically in times of crisis, which is also happening down. It’s not necessarily throughout the entire time. But when stress it the market liquidity gets in a very, very quickly. And this leads to higher volatility. And there are certain market participants who when volatility gets higher, they’re pulling out. So they actually pulling liquidity and that reinforcing loop in


Jeff Malec  55:54

this is not a name near the US. What do you mean? Certain?


Bastian Bolesta  55:58

Yeah, it’s, it’s, it’s that they used to be time when the market maker was a market maker, because the market maker made the market. I heard an interesting podcast. Maybe it was you and Chris Cole, I’m not quite sure. But basically, there was a story that somebody talked about his experience in the pit. And that even in the pit. If if the heat had the market, well, you really needed to go to the restroom. It’s not your fault, or you feel so sick. So that though it’s this is also pulling liquidity Agarwal, even historically, people pulled liquidity in times when they didn’t want to provide it. But this has become substantially stronger. And the that means that whatever you see in terms of liquidity is just not there. And when you need it, most it it disappears. And this reinforces or even strengthens the crisis, and you have loops, which are pushing markets down even quicker. For us, it’s beneficial because the overreactions in the market more pronounced because of that. But ultimately, it leads to a higher degree of fragility in the markets and make catch various people by surprise.


Jeff Malec  57:17

My view on that is the risk departments have gotten a lot more technical and improved, right. So in the old days, that guy in the pit could just keep putting on sighs and the, the guys and girls upstairs didn’t even know what his size was until the paper tickets came through the Claire got upstairs, they’re doing the math, right. And now that’s near real time have they know their exposure? And they know, hey, that that person needs to be cut off


Bastian Bolesta  57:41

regulatory, as well as certainly folks are not allowed to put as much risk on the book anymore. And as such, it’s, it’s, it’s missing now. So


Jeff Malec  57:52

but do you view it as a hindrance or an opportunity for your programs? Because you’re kind of a liquidity provider at those times are a taker, right? Like, so if people are rushing to get out the exit, you can hold back and be like, here we go. Here we go.




Bastian Bolesta  58:07

Yeah, it’s, it is it’s an opportunity, because it leads to overreactions. It’s a it’s an reinforcing loop, pushing volatility higher and liquidity even lower. So it’s as a result, the market moves become more extreme. And when you focus on intraday momentum, it is beneficial, certainly, you may have less capacity in these times as well, because we still want to get out at the end of the day as well. But that has been addressed by a lot of work on the execution side. So utilizing professional third party execution algos. Why we focus on signal generation. So we realize that despite the fact of having traded our own money for the last 25 or even 30 years, depending on the team member, and having a decent understanding how to execute things, if you if someone is really specialized in that in does it as a day to day job, they will always do better, or most of always, and that’s why we would always we would recommend to utilize the knowledge and experience of specialists wherever you can and stick to what you can do best and in our case it’s see the research on generating signals and not the intelligence on our execution


Jeff Malec  59:34

So switching gears I love love love. When I email you asking why this trade or that trade behave the way it did you don’t answer with a sentence or a paragraph but a full seven page report with graphs and, and stats and data. So talk to us a bit about how you approach the science of what you do, how you’ve built this research, team and tech, right that doesn’t just inform how you build the trading strategies, but how you answer emails as well.


Bastian Bolesta  1:00:03

But doesn’t attack the question if you actually read the seven page pages, sometimes even more, right, our current report is, like 60 or 70 pages.


Jeff Malec  1:00:13

And I’ll admit to skimming every now and then. But that’s always can


Bastian Bolesta  1:00:17

be, it can be overwhelming for sure. It isn’t interesting, or maybe not interesting. But it is an insight in how we do research and how we look at our programs and signals as well. So in many cases, the all these pages, our views on how program behaves in a certain market environment on a certain day. What are the interdependencies in the these perspective have been developed and collected over the past 20 years? So we said wait a moment, what happens? What happens if volatility rises or falls? The starting point probably would was, here’s the s&p most important market in the world. And what does my signal do my program do when the s&p is up or s&p is down? And that’s a good starting point for me. Yeah, basically, yeah. So look at your portfolio and do a day by day analysis, not manually. But day by day. If the s&p is up, and s&p is down, do you usually make money when the s&p is up or lose money? Or the other way around? More importantly, do you lose when the s&p is losing? And this is very quickly leads to conditional correlations,


Jeff Malec  1:01:30

right? Because we already said he’s not even simple if the market was up or down that day, was it up overnight? Was it up internet?


Bastian Bolesta  1:01:36

Yeah, that’s that’s one one layer deeper that you start out with the the first analysis, day by day, different asset classes against your program or your portfolio, then you can divide between intraday and overnight. And so very quickly, you get a lot of different perspectives, which you can now run across all these different signals. And the majority majority of investment strategies, they they are very strongly aligned with the s&p is doing a lot of a lot of these strategies to basically lose when the s&p is down and have a, an undesirable correlation to the s&p in these times. And so it can be very helpful. If you if you can analyze that all being involved manager or basically utilizing volatility to your favor. All our programs have these desirable anti correlation to the s&p. And that’s one view to look at it. But the next step is basically to, to categorize different environments, only because the s&p is down or up. Well, you can say, well, usually I make money when the s&p is down. And I also, from time to time make money when the s&p is up. But what kind of environment was this specific day and that’s where we categorize or have developed certain categories of days. So very, one we refer to earlier, mean reversion intraday, so you look at the market, was it a mean reverting market today, or intra momentum market? Day? Or was it a low volatility day? In our perspective, roughly 60% of the time, it’s, it’s so low vol, and not really moving anywhere that it’s not even categorizing as a very strong mini version or momentum. It’s basically just really noise. Is that measure


Jeff Malec  1:03:25

range based, like the range isn’t big enough as a percent of its past x ranges or something of that nature? Correct?


Bastian Bolesta  1:03:33

That’s, for example, very good. That’s a very good first starting point, if you categorize, what kind of range did it have on a given day? And how does it compare to the average of the past months year or the entire data set? And if it’s below a certain threshold, then you say, Well, this is a low ball day, not much movement, not much action,


Jeff Malec  1:03:54

then even if I close at the low of that day, with inside that range, it still wasn’t a momentum day per se.


Bastian Bolesta  1:04:00

Exactly, exactly. Yeah. And if you if you have a large range, then the next step would be for range beyond a certain threshold is say, was it momentum or mean reversion? And though you can look at open and close, how did that work out? Even when you have certainly a certain degree of choppiness, it is a good starting point in measure to categorize the day and then you can do analysis across your programs. If you have an intraday momentum program, you usually more more often than not would like to see positive returns on days you categorize as an intraday momentum day. And we needed to come up with these analyses by ourselves because the majority of the world out there is not as short term. So the the classical risk measures and the classical perspectives on how programs do our longer term. I’m still I’m still surprised when Investors are interested to allocate to our portfolio or to, to add one of our programs to their portfolio, that they asking for data, but they asked for monthly data. Because it’s it’s not as it’s not as helpful. Specifically, if you would like to look at the interdependencies or the relationships between a new component and new portfolio building block you would like to add to the others, if you just look on a monthly basis, specifically, some of the strategies don’t even have such a long track record. So it becomes substantially more helpful if you go deeper and look on an intraday on a day to day basis, if not intraday, and this this is more complex, and the tool sets are not as easily available. And as such, because we are on the intraday space. And we are so short term we need to come up with our own analysis. But it is it has been built over a very long period of time. And a lot of these analysis are very helpful for every other investor as well. We have from time to time, if an investor wants to look at this entire portfolio, we have done some work for them by asking them well, if you can give us the return streams of your 20 portfolio holdings. And let’s have a look what you actually have there. And there has been have been various occasions where people got caught by surprise because they don’t. They thought, Well, I’m diversified, but then they see oh, no,


Jeff Malec  1:06:30

you on these types of days? Yeah.


Bastian Bolesta  1:06:33

Yeah, yeah. It’s, it can be quite shocking. If somebody says, I’m well prepared for crisis, but then you see over the past 10 years, and crisis, you have these positive correlations, and everything or larger part of your portfolio goes down. And then you very quickly come to the question, how large do long vol components in your portfolio have to be in order to actually drive the needle? If you have a miniscule allocation to anti correlation, or long wall or other strategies, which could be beneficial in the circumstances? And the larger part of your portfolio? Is our cha cha ball. 90% very difficult to really do something there. And and that’s, that’s, that’s how it is used internally and externally.


Jeff Malec  1:07:19

What, what percent of the days do you identify as those momentum days that you kind of target that you like to see?


Bastian Bolesta  1:07:26

Roughly 20%? Roughly, how many you have you have you have, you have like 11 and a half 1011 and a half on a low momentum side and also 10 1011? On the short momentum side?


Jeff Malec  1:07:40

And so how do you write a lot of people I feel like would be like, Why? Forget that? 20%? Let’s focus on the 80%, which we have touched on in the beginning, but how do you avoid that getting into that trap of like, hey, there’s, let’s figure out how to make money in this other 80% of the time as well.


Bastian Bolesta  1:07:59

Yeah, you lose, you lose your USP. No, you lose it, you lose your characteristics. The long ball component, the focus on momentum on the divergent trade, creates the smiley, have all these different programs. And that’s where you have a very strong proposition, what you can bring to the table, whereas,




Jeff Malec  1:08:24

so it’s kind of like our mandate is x. So that’s why we’re focusing on on y over here. Correct? Correct. But it does


Bastian Bolesta  1:08:31

cause to skew and convexity there. And that’s if it breaks works to your favor. It’s very exciting. It is you can argue, well, 80% of the time, it’s not really as exciting, isn’t it? It is buffered, because we’re trading globally. So we talked about the global relay race earlier. But what you also have when you train globally, you have locally confined crisis. Yeah. So the TechCrunch in China, yes, it now played out in a larger picture, because there was some crisis here as well. But it was still something local. This is a this is a government regulatory driven crackdown on tech. And it already played out in in July 2021. So last year, you already have that. And these are opportunities which are just existing there, and can bring something to the table when you trade globally, and you do not necessarily have to squeeze more out of the 80% in the US which are not favorable to you. You can trade momentum somewhere else when it’s securing they’re so patient ultimately, right, which drives me crazy sometimes when people who are just trading the US and don’t see that larger opportunity set. And I’m like we might wait 20 more years for the volatility for the movement to come back in the intraday session. Right? The US has been very difficult to trade for a longer part but I said currently it’s in All our momentum signals it’s positive here today. So it has it has come back.


Jeff Malec  1:10:08

Why not trade the overnight session in the E Mini to liquid?


Bastian Bolesta  1:10:13

It is an interesting point. There are opportunities you can you can filter for when is it liquid enough and you can enter theoretically so there are opportunities but we are accessing via the proxy via Asia Europe. So you’d be a little edge, you would lose your edge not use USP being an intraday program because once you start overnight, this kicks in other capital requirements and a lot of our investors utilize the the intraday programs as an overlay to the rest of the book. Very often they have I don’t know, equity Bita SMP exposure, and then they add this in, you don’t have to cut down your original allocation in order to invest as long as it’s intraday. But once it you hold overnight, you have to make certain compromises, you can still structure it in an interesting way. But it’s a different game. And as such, we would we are currently not interested in that. We look at the data and try to analyze if there’s more to it, but are currently not focusing on accessing it in the Globex session outside the regular trading hours.


Jeff Malec  1:11:29

And then when I think of research, right, how do you avoid the trap of like, okay, every Wednesday after the market was up on a Tuesday, we lose money. So let’s not trade on Wednesdays. Right? So how do you kind of match it back with reality to say, here’s what the testing shows. But is that something we actually want to do?



Bastian Bolesta  1:11:54

Or maybe triggers? I think, never because you just said why? Data is something very interesting. You can play with it, you can dig and find stuff, but always at the risk of becoming too specialized on a very specific setting. If it’s if it’s always when you stays down and Wednesday, but only when there’s full moon or something like that, well, that could be that could be the the idea or a feeling of a meaningful relation. But I would argue that it doesn’t, it’s always a risk that doesn’t hold and the the key focus point of the momentum strategies on the shoulders entails they are focusing on omni present behavioral aspects. So if the market shows a certain pattern and fear kicks in, this is very often very similar. And it doesn’t hold on Tuesdays or Wednesdays because there was a certain pattern in the past. Yeah, so we focus on these more stable and promo pronounced characteristics. But you can before you apply the research or after the reason right so you’re kind of pointing the research towards that philosophy Yeah, it’s it’s a reinforcing loop. Because if you are specialized if you’re specialized in that area, your curiosity is most likely also there if you’re not caught by surprise that you find something say Wait a moment. I didn’t expect that. Such as the overnight crisis in March 2020. This was new for us in that magnitude expressed in the s&p sell off but also if you look at the VIX, it was like amazing just just also overnight Yeah. In compare that to the vol mageddon where if you do differ between intraday and overnight the entire move and warm again on was intraday, and so it was like BAM on that day and it’s completely explained by the intraday driving forces so but they triggered curiosity me said okay, we acknowledge that this took place overnight but at the same time we see interesting data that the moves intraday were still large enough they may not be they were not proper for our way of trading back at the time was the classic signal. But the aim signal, um, should deal with that quite well, based on what we see on the research side. That’s why you certainly see a tendency in our overall evolution that we add different signals and they may all be from a certain film, family all momentum signals, but with different angles to it. We haven’t yet add one which doesn’t trade on Wednesday, could be at that’s a very pronounced case to be made. But the focus on on the shoulders and tails on the behavioral aspects gives you a comfortable high degree of persistent alpha. So it’s not as much alpha decay, because it will not go away. Even when people program algos or sets of stops, and it’s all automatically. It’s still our monkey brains. Sorry, put monkeys probably have much better. Yeah, it’s it’s still us, it’s still


Jeff Malec  1:15:33

a great time. But even if it’s the risk department mandating it, and it’s not someone panicking, it’s still the same conceptual thing. Yeah, and why not just have bring in a machine learning team and say, click a button and have it, right, give it the parameters of, hey, we want to be on the shoulders in the tails. And tell us the 10 best ideas to capture Alpha there. It’s


Bastian Bolesta  1:15:58

machine learning, generally speaking, is a very exciting field. Ai. Yeah, and all the other things so and we have the team has ventured into this space, multiple times over the past years, are Arna, our Chief Investment Officer already did generic programming like 15 years ago. But there have been many cases where we were we there weren’t signals. But once you start to try to implement, it disappears in it’s not repeatable. It’s also not precise in things as things like though we struggle a bit to implement things where we can’t explain why it’s there, where it’s coming from. And we can do that quite well, including utilizing our seven or 70 pages reports, I can tell you why we lost money there and why we will lose money again, or why we will make money in a certain setting. And we’re just there’s like,


Jeff Malec  1:17:05

that’s the problem with AI funds. The investors can’t pin anything on anything.


Bastian Bolesta  1:17:10

Exactly. Yeah. And I, we are interested about what’s happening there, we always try to look what other people are doing. And we have tested things, even in the past couple of two, three years, tested sort of machine learning techniques and tools there. But so far haven’t haven’t found something which justified spending more time on it. In that regard,


Jeff Malec  1:17:35

you almost have to accept there’s some hidden gem that the machine can find. Versus you’re saying, I don’t think there are really any hidden gems in there. It’s noise. Let’s just stay on the


Bastian Bolesta  1:17:45

Yeah, if they enough signals. And if, if it’s scalable, as well, as a lot of these things disappear as soon as you start applying sighs we have we have we have traded and test rated. Certain machine learning AI generates generated signals. But in the majority of case it was just not stable enough. We always test new things with our capital first and even we had a site research project are two projects there in the past couple of years, where we bought software or we rented software in order to see if if we find something interesting there. But it was it we didn’t find something which fitted our long ball profile. It could be that on the shortfall side that you have more success there. Which would add in terms of exposure to what the majority of investors already have in the portfolio, then it’s a new different way machine learning generated signal on the short haul side. But it’s not our turf on the longboard side was SKU, something which would fit nicely side by side with the rest of the strategies. We didn’t didn’t find anything. I haven’t found anything.


Jeff Malec  1:19:05

Chalk one up for the humans. You mentioned VIX, the VIX trading programs that’s kind of taking the same concepts, but utilizing it on the VIX. Talk about some of the challenges there. You mentioned the VIX was crazy on that Jan 20. For that one seems to be a has been harder than the others this year so far. So what are you seeing in the VIX in particular that comes to mind.


Bastian Bolesta  1:19:36

Generally speaking, VIX is already quite difficult vix futures. And so we are trading the futures we want to be X to first to expire is and it is it’s a very difficult instrument to trade because of trading costs, large minimum tick moves, so you you you have to overcome this hurdle first. At the same time we it’s in Interesting to be active in that space because we have seen an increase in big spikes over the past years. So, if you do an analysis on the the magnitude and the frequency of large moves, it has, there has been a pattern that these occur more often. And as such, it makes sense to focus on it. Some of the moves also initially start overnight. So we talked about that that much 2020 from the VIX perspective was also predominantly driven overnight. And we we also had some of these observations now in the past in the in the first three months of this year, so that the overnight played a strong role, but you still had sufficient and strong momentum volatility expansion intraday as well. The tricky part over the past couple of weeks was that the reversals were stronger. And in line with what you what you saw, in the equity market, there were certain observations which were very interesting that for example, why? Sorry, why the s&p was already grinding down in January. The VIX term structure was still very strongly in contango, yeah, very juicy contango. If you do an analysis and compare, when do the term structure actually flipped. So when you have the inversion, then you have backwardation with the with the front months being higher than the ones further out. This has historically been quicker. So we saw in January that the VIX complex was rather relaxed in that the what does it mean? It means that in the necessity to hedge further to get protection on your book wasn’t there while the market was grinding down. So it was way below, s&p already been down more than 5% that you actually saw the flip. But we could also see if you look at the spread between the VX 30, so constant 30 and the 30 days realized volatility. What you see historically, in times of crisis, when there’s really fear and panic kicking in, you see that the realized wall is surpassing the implied wall. So the implied is caught by surprise. And then it’s it’s rallying as well, wasn’t there? January and February was all the tragedy in human misery and the fears what’s the fattest doing and all the other things? Panic never kicked in. So from that standpoint, it was not a crisis was more like a correction, but still quite sizable. If you look at where the NASDAQ stood at a given point in time or the s&p This is quite a sizable downwards move, but not expressed in panic. It was very orderly, and the spread never went negative, VX sorry, against realized, which differs quite clearly from credit from previous crisis. So from that standpoint, it going back into the country part was 70 pages, it tells you Well, there were certain opportunities for our big into the momentum or The Big Short Term momentum which can hold overnight, but at the same time, they were not as juicy. And the days where we try to make money and we didn’t make any money on the on the 21st of January, for example, this is the Volcom traction of 17 18% after intraday also substantially upwards, you would expect to get stopped out there. If your objective is to go along at a certain point. What was beautiful, or not beautiful, but certainly positive. The VIX short term momentum, the vstm. The newest signal, which can hold positions overnight, had its first overnight position, going into March 7. And this was positive because the SMP dropped quite substantially on March 7, and Bix read it further. So we had for the first time now live the confirmation that even when you trade very, very short term and from time to time you hold overnight, that there are certain information in the structure, which informs that it can be more beneficial to keep the possession instead of closing it and being purely intraday.


Jeff Malec  1:24:38

Because that takes away from your USP.


Bastian Bolesta  1:24:42

Yes, that’s true, but within the volare program, which utilizes the intraday VIX, overnight, it is just one sub strategy so it’s not as high in terms of margin and this happens very rally so the both the VIX intraday momentum vix shorter momentum, they only trade in essence 6% of the time anyway. So it’s very rarely that you see the substantial upwards moves in the x one and x two, and then that the setting at the end of the day is still as juicy and informative for what’s happening further out that you want to keep that position. It’s it hasn’t even rally. So most of the time when ICC and DSDM have an injury position, they both exit at the end of the day. So we were quite relieved to see that it took a position and




Jeff Malec  1:25:34

and what what’s the path dependency? If I’ve already have the ICA? I’ve already have the right say I’ve gone short Asia and made that money like what’s the path dependency recovering for that vix spike at the same time? Yeah, the the it seems to me like somewhat I already have it covered with the other programs. Is it? Is it kind of adding on?


Bastian Bolesta  1:25:55

Yeah, that’s, that’s in terms of VST. MD overnight, you have the proxy, potentially in your favor in Asia and in Europe, which could capture the expansion, but vix futures as an instrument are more convex. So I would rather I would rather capture a nice run in BX one, then being short the hang, it’s very nice to have both. But it’s it puts a certain more boom for the back to it and provides an additional pass dependency to the portfolio. It is additive because it’s it’s a different way of expressing a long ball trade, which can occur in the overnight from the US perspective. And asset earlier sinks in minutes of global crisis. It is absorbed and processed differently. In Asia and in Europe, even when it’s the same same idea which may drive whatever’s happening in the VIX overnight. And if you look at the cross correlations between ICA in Asia and Europe, it’s they don’t have very strong correlations to whatever’s happening in vstm. Overnight. Yeah, so there aren’t it’s additive, because they’re uncorrelated return streams. They’re not correlated, so on


Jeff Malec  1:27:08

and just talking in terms of vix points that go of that as VIX is spiked to 25. And I’m going to grab 25 to 30. Or is it I’m getting value at 15 and waiting for it to spike to 20.


Bastian Bolesta  1:27:23

Depends where you stop the day right? Here’s your intraday intraday. So if, if previous day was at 15, now we’re opening at 25. While that’s already quite sizable, in tricky but it also that would be very, very strong move and it shows that how is loose and the both ICC and vstm most likely will take a long position they’re being exposed to a reversal but also being positioned to capture a continuation of the volley expansion.


Jeff Malec  1:28:00

Let’s close it up with two truths and a lie. You got to give me three things, two of which are true, one of which is false. And I’m going to try and suss them out. Got anything good?


Bastian Bolesta  1:28:17

Oh, two truths and a lie. Yeah. Okay. Um I, I once went to a wedding dress as Chewbacca wedding, sir. Man, that’s good for you as a salesman. That’s


Jeff Malec  1:28:37

right, chewy.


Bastian Bolesta  1:28:39

My only action figure as a child was Prince Adam, with the VC Viollet leggings and the wine ret velvet best. Do you know?


Jeff Malec  1:28:59

I don’t even know Adams. Adam is no


Bastian Bolesta  1:29:01

Prince Adam from human human Master of the Universe and Prince Adam would be the one which hasn’t changed into human and justice accordance with the violet wagons. And what else would be true? I make it easy. And I speak Chinese.


Jeff Malec  1:29:28

Okay. Well, I know that you actually do speak Chinese and lived over there. So that’s true. And I’m gonna go the action figure is true. Yes,


Bastian Bolesta  1:29:46

yeah, it’s not true because um, I luckily it was my first and I was so disappointed that I got a second one. Because Can you imagine everybody I don’t know. You know, most of them have Skeletor and Hema. and they all have muscles and swords and you have the prince was the valve at best. And I got skeleton I think, lucky me.


Jeff Malec  1:30:09

But he said, Come on, man. What am I supposed to do with this?


Bastian Bolesta  1:30:13

Budget? Marcos true. Chewbacca? Chewbacca is true. Yeah. Wow,


Jeff Malec  1:30:18

where was that?


Bastian Bolesta  1:30:20

It was the wedding of my brother in law. It was the entire the entire thing. So it was it was even the mask. Well, do you know the mask? Yeah, that


Jeff Malec  1:30:37

perfect. Love. I knew that


Bastian Bolesta  1:30:38

you like that? Yeah, it was the mask and the entire custom. So was a little hand. It Yeah. But luckily it was an autumn wedding. And you don’t have to wear much under it. To be discreet. It’s just between you and me here. So anyway. And my my son, he was also he was a little Chewbacca. I was to Parker, and you couldn’t tell that it’s us because it was complete the entire costume. And my wife, my daughter. They were princess and Leia. And the entire wedding was was Star Wars and other action figures was amazing. Because I haven’t had I haven’t had something like that before.



Jeff Malec  1:31:18

I’m sad. I wasn’t invited. But yes, I can send you something knowing your sister. Right. Well, thanks so much passion. It’s been fun. Let everyone know where they can find you on the web. We’re getting you on Twitter now. Right? You’re on Twitter, but you don’t do anything. Yeah,


Bastian Bolesta  1:31:33

I’m on Twitter, but I’m more a reader than writer in that sense. But yes, on Twitter, and definitely deepfield capital. There’s a webpage on the under construction for various years already. And but you can send me an email at info at Deep Field capital.com For sure. And we are happy to share research and some insights on the quant reports and things like that as well, which we discussed for sure.


Jeff Malec  1:32:01

They’re great, highly recommend. Well, thanks. Passion has been fun. Best. Thank you very much. Have a good evening. They’re in Switzerland. Thank you stay safe and healthy. Will to you’re gonna come to Miami next year. Do we get to see you again? Yes, hopefully. So we are


Bastian Bolesta  1:32:17

registered. We already registered for one conference. And it was a pity that we couldn’t travel but the pictures. We have seen a view and the other folks were quite supportive in the argument that we missed something.


Jeff Malec  1:32:31

Exactly. It was but we missed it. Alright, thanks so much. We’ll talk to you soon. Thank you. Bye.

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