Volatility Arbitrage: An Interview with Da Vinci

Estimator has once again travelled to Amsterdam to interview a graduated Econometrician who is currently working part-time as a Trading Assistant at DaVinci Derivatives. Jeffrey Zwart finished his Bachelor in Econometrics and Operations Research at Erasmus University and is currently doing his Masters in Quantitative Finance at Erasmus as well. During the interview, we talked about his studies, the firm and trading in general.

So given your work as a trading assistant, how do you like working with the company? And by the way, how did you end up working at DaVinci?

So far it has been great. I have been working here since January 2022. In the beginning I was working two days a week, but now that I have more time available, I work two and a half days a week. I’m working on challenging projects that can have a real impact on the firm’s performance. So it’s great to be able to do that while working part time here. 

My first contact with the company took place during the Econometric Career Days, organised by FAECTOR, where I participated in a case from DaVinci. I really loved the whole experience, i.e., the people seemed very motivated and enthusiastic and knowledgeable. So, you can imagine that I had a pretty good feeling about the company. And then, after about six months, I got a message on Linkedin from the firm, inviting me to an office tour. So I was like yeah, why not? A few months after that I was invited to a Friday afternoon drink which turned out to be great. And then I heard they were planning to have part time roles and I applied asap. And that’s how I ended up here working at DaVinci.

You must have made a really good impression during ECD, given that they invited you for an office tour.

No, not necessarily, but if you show some enthusiasm then they are more likely to remember you and then reach out when such opportunities arise. It was not that I was the best or something. It was more about showing some genuine interest and they probably also invited some other people as well.

So you had the tour on your own?

When I was invited, they had just moved to this new office and everything was brand new. I got to see the trading floor and sit next to the traders for half an hour, which was pretty nice. So that’s quite different from other firms, I would say. You don’t get this kind of treatment at some bigger firms. That’s quite unique about DaVinci.

If we were to consider an average work day in your life since you've been working with Da Vinci, what do you like most about your day? What are your tasks as a trading assistant?

So, I work two and a half days now and usually I come in at about nine, but it doesn’t really matter, I can also come in at eleven and work a bit longer. So it’s quite flexible. On average I spend a lot of time programming. So I’m backtesting a certain strategy now. I have been working on that for a few months already. It’s really fun and quite challenging, that’s also why it takes so much time. Throughout the day you have some discussions (meetings) with some more senior people to see how everything is going and if the results make sense. Given their experience they can easily spot when something is right or wrong, which makes my job a bit easier. So that’s what I do, but the traders usually come in during the afternoon (they trade on the US and Brazil markets) and focus less on programming, so that’s a bit different.

Regarding the tasks you mentioned before, i.e., backtesting that strategy, what would you say are the most surprising results you’ve gotten so far?

So I have been working on this project since February. I can’t talk much about it, all I can tell you is that it’s just a general project that’s really fun. There are like ten different components of the strategy that all need to be correct at the same time; so, you hope to get good results for each of them separately, but also when every piece of the project is put together. Much like a self-made puzzle or lego; you know the intended end product should look like/do and have to make the components yourself such that when put together, they actually meet expectations. What I like is that, having worked on a project for several weeks and now that it’s finished and working well, it has given me a lot of satisfaction.

It is really nice, especially given that I had never done such a thing before and I had also not had the training that new traders and quant researchers get when joining the firm. So, you can imagine how steep a learning curve it was for me, for after just one month here, I was able to learn piece by piece about the strategy. And you really learn on the go so that’s what’s challenging about such a project where you’re busy for a few months, because that’s also a kind of training.

How did you decide to go into trading?

Already in my first year at university, I was eager to go into trading given the competitiveness of the environment. You always have to outsmart the competition and that’s something that really attracted me. Over the years I visited some workshops and when I finally saw the opportunity to work besides my studies at DaVinci, I thought that was perfect! You also get to know the practical side of things. University is obviously very theoretical, but at the firm everything also has to make sense in practice. So that’s a nice addition you can get besides your studies if you work part time.

We heard that you are going to start working full-time at DaVInci as a quant researcher, right? Congratulations! We were wondering if you first desired to work in trading and then changed your mind?

I consider quant research to be part of trading, because you discuss with traders and also come up with strategies and there’s a lot of modelling involved, so it's definitely a part of trading. Also, the discrepancy fades even further given that we have some researchers that now do more trading activities than quant research tasks per se. So it’s also possible to switch from quant research to a trading role, such a switch is supported by the firm. But during my part time work, I programmed a lot and that’s something I like. And as a quant researcher you also program a lot, so that role follows nicely from what I’m doing now.

Now, for students who are not acquainted with trading discrepancies between the two jobs, namely trader and quant researcher, have you considered becoming a trader?

As a quant, you work on projects, you research strategies, you program immensely. And as a trader you still think about strategy, but it’s less programming. And that’s what I like. I like to program a lot. So that was what made me choose the quant role. Also, like I mentioned earlier, if I want to switch to a trader role, there are a lot of opportunities to switch to that role down the road.

How does it feel to work on the trading floor? Do you like it?

It’s very exciting, especially when it’s busy and everyone is here. It’s really fun to be there, you can hear everything that’s going on and when there’s a big move you hear people scream sometimes.

Generally, trading is generally viewed as a highly competitive and fast paced environment. What would you say are the most important traits someone should possess to succeed in the business?

I would say, in general, you need to be passionate about financial markets and trading. You need to have a good work ethic, because everyone works hard, which is also because we love what we do. Traders and quant researchers have to have different qualities. On the one hand, traders need to be sharp and make quick decisions when opportunities arise. On the other hand, quant researchers usually do not have to make these quick decisions, they have more time to come up with a strategy and do more theoretical work than the traders.

In terms of communication skills, you are always communicating with your colleagues. Given the importance of communicating a trade/analysis result/piece of news across the trading floor even in busiest times of the week, communication skills can be seen as paramount for the job. When a trader has a question, he asks a quant or a developer and then they just sit together for five minutes and the job is done after one hour, or as short a time as a dozen minutes. Also, in the aforementioned case, the quicker the trader manages to put across the essence of the problem, the quicker said problem can be fixed, which in this environment means more opportunities to take advantage of money saved. So you should not be afraid to speak up when something’s wrong! Or if you have an improvement idee or a suggestion, you can easily walk up to one of the founders five metres away and pitch it. If it is a good idea, you will be able to see it through.

That sounds like a great environment to work in! Would you say that your degree in econometrics prepared you for your job?

Yes, it really prepared me well. During our studies, we study a lot of models and also have some programming courses and assignments. Also, depending on the major you choose (i.e., quantitative finance), then you have some courses about options and financial derivatives, which can give you a decent overview of how these products work. But that’s not to say that a background in Econometrics or Finance is a prerequisite for the job, we also have people here that come from a Physics or Mathematics background. So, you don’t need to have a background in, for instance, Quantitative Finance, nor do you need to know a lot about options. It's the mathematical skills that are important, and you gain a similar skill set from studying i.e., Physics or Mathematics.

From what we understood, your job tasks consist of a lot of programming. What programming languages do you code in? Did you learn said languages during your bachelors?

For the analysis part, we mainly use Python, because it is used by a lot of people and is really versatile. You can use it for almost anything. But C++ is generally a bit faster, so we use C++ for production, like many other firms in this industry. During my Econometrics bachelor, I followed Java courses, like all other students. It’s a good background, though, but I also followed the computer science minor at TU Delft, where we only used Python and that prepared me quite well for this job and programming in general. You can easily switch from Java to Python, though, but it's nice if you are good at Python right off the bat. We say here that if you can program in any language, you can certainly program in Python, because it’s one of the easiest languages there are.

So, programming courses are definitely useful to follow. If you’re working at a firm and you need to do some analysis or some modelling, then you cannot do that by hand and instead, you need to code that. Also, I would like to stress that it is not important to be an expert in programming to work here. If you just know the basics, you can easily learn the rest on the go when working on a project.

Given your experience, what else would you advise students who are considering pursuing a career in trading? What skills should they pick up during their bachelors?

If you are considering pursuing a career in trading, it's always good to participate in as many workshops and in-house days as possible. These provide you with a good snapshot of the industry, daily tasks involved and ultimately, you can really see if you like the firm. And when you’re there, it's useful to show some interest and be active. Then they are more likely to remember you and reach out to you, like it happened to me. Another thing is to start trading yourself. It doesn’t have to be too advanced, but then you can kind of see how it works and learn more about due diligence (i.e., strategies, analysis, etc.). Lastly, reading trading-related books always helps.

Have you actually traded yourself?

I wouldn’t necessarily call it trading, more like investing. I used a buy and hold strategy, so I didn’t do high frequency trading. You can do that though, but that takes a bit of time and effort.

We’ve discussed your job, the work culture at DaVinci and trading in general. But I think the readers are also curious about finding out more about the company, so let’s zoom in on the firm. How does DaVinci differentiate itself from other market makers and trading firms in the Netherlands?

DaVinci is a relatively young firm. It was founded in 2015 by some experienced traders and has grown successfully. Last year we moved to a new office and are hiring more employees. What differentiates DaVinci from our competitors is the fact that we are relatively small. So, everyone knows each other here and I think that’s quite different from bigger firms. We also have a lot of social activities that forge connections between people, so it feels more like a group of friends than co-workers. This work environment has the advantage that you can easily approach senior traders and tell them what you think. We also do not depend on speed as much as our competitors, as we also have strategies that focus on the short to medium term.

You mentioned DaVinci uses short to medium term strategies. How do those strategies work?

We are focussed on volatility arbitrage. That's basically profiting from the difference between the implied volatility of an option and the realised volatility of the underlying asset. So if options are relatively expensive, you can sell them and hedge by buying the underlying, and then pocket the difference. That’s our speciality!

Thank you for your time and for sharing your experience with us! I am sure that our readers will have a lot to learn from your experience. Last but not least, let us congratulate you again on your starting as a full-time quant researcher from September! Good luck!

If you yourself are interested in a career in trading and, in particular, in a career at DaVinci Derivatives, here’s a message from the firm’s recruiters: Many of our Dutch traders and quantitative researchers come from a background in Econometrics which provides the right mix of technical components and financial focus. Quantitative research might be the ideal career path for a student with a predilection for programming and research, where you get to work with mathematical models and algorithms on long term projects and optimise trading strategies. For an individual who enjoys thinking quickly on their feet, the trader role may be more suitable. For such a job, one is required to have great intuition, understanding of risk and reward and to be ready to take advantage of any opportunity in the market. However, we understand that the direction you want to take may not always be clear until you have tried the prospective jobs, which is why we offer the (part-time) trading assistant role to students who are in their final year/s of their studies. In a trading assistant capacity, one gets to work on projects with both traders and quants to learn both aspects of trading. The goal is to transition into one of the full-time roles after graduation, like Jeffrey who will join the quant team full-time in September. Hope to see you soon at our office or at the next edition of  Faector’s Econometric Career Days!

About this article

Written by:
  • Aaron Stefan Popa
  • Max Hedeman Joosten
| Published on: Jul 03, 2022