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Comment by conditionnumber | Hacker News Reader

Don't know about Jane Street, but that sounds like a general problem.

If options & futures are more liquid than the underlying, someone will be tempted to nudge the underlying.

Bond ETFs and their options chains seem like another locale where this could happen.

    > If options & futures are more liquid than the underlying, someone will be tempted to nudge the underlying.

This is a weird statement. Why would liquidity matter here? As a point of reference there are generally two types of options: (1) options that depend directly upon the underlying, like a Tesla stock option, or (2) options that depend indirectly upon the underlying, like options on S&P 500 index futures. The liquidity in category 2 is normally tiny. Cat 1 normally has far less liquidity than the underlying.

Why is the adjective "more" important here? Even if less, the opportunity to profit is still good, assuming that one chooses the path of market manipulation.

What matters is the volume rather than the liquidity per se, but the two are generally pretty well correlated. The point is that moving a market costs money, making a trade moves the market against that trade, so even if someone is deliberately trying to move a market they'll pay more than they could ever hope to recoup. The exception is when there's a derivative market that has more volume than the underlying - in that case profitable manipulation becomes possible, as you can spend to move the underlying, losing money, but making more money on the derivatives where you'd bought the other side.

Heavy gamma exposure also helps move the market by forcing dealers to hedge in some particular direction.

During the memestock craze, retail traders were able to create a gamma squeeze due to this forced hedging.

https://www.nasdaq.com/articles/what-gamma-squeeze-understan...

And it was glorious! MMs sure learned though. Premiums have exploded now.

    > What matters is the volume rather than the liquidity per se

What is the difference between volume and liquidity for the purpose of this discussion?

    > The exception is when there's a derivative market that has more volume than the underlying

This is wildly rare in public markets.

> What is the difference between volume and liquidity for the purpose of this discussion?

You're the one asking "Why would liquidity matter here?", you tell me. Like I said, they're correlated well enough that it doesn't really matter as far as I can see.

> This is wildly rare in public markets.

Yes, but it's what happened here.

Option markets are quite often more liquid than the underlying in India which is why Janestreet was able to pull that off.

Retail folks use options to gamble. Apps gamify access/trading. It's really odd like that.

I have a suspicion this has been happening with a particular MAG7 stock these last few months, but I can't fully convince myself such a large stock can be manipulated like that.

At least one of those stocks tends to have a comparatively thin order book.

Oh?

Google tells me:

    > Coined in 2023, the group consists of Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.

Which one?

Tesla

except Tesla is not just car company but a taxi company and energy company and AI company and robotics company… 6-7 more decades and orders will be pouring in :)

Tesla is also Musk. The Tesla stock is currently tied closer to the shenanigans of it's CEO than it is to the fundamentals underlying the company.

Any stock with large retail options trading volume is ripe for shenanigans, and I can bet tsla is one of them.

> but I can't fully convince myself such a large stock can be manipulated like that.

I have the same initial reluctance to believe it that you do, but less so when I remind myself that we live in a world where the Social Security Administration sent out a mass email praising the passing of the "big beautiful bill".

I think our built-up understanding of how the US government functions at a baseline has not caught up to recent events. Especially in regards to how much regulatory bodies are doing their traditional jobs vs being forced to sit on their hands, or in some cases just not even existing anymore.

Someone gets it. If you keep cutting budget of people trying to make sure the rules are followed, what do you think is going to happen?

As someone living in a country with very weakened democracy, getting emails from the government was the point I realized things were really messed up. If this is now happening in the USA, well, good luck.

Thanks, we're gonna need it (the luck, that is).

We got email from a government agency that is weakened by the passage of a new law celebrating the passage of said law, so yeah that's not looking great.

Of course large stocks can be manipulated like this. But there is also normal oscillation, repeatable human psychological behavior (e.g. momentum, mean reversion), and just crowd murmuration. Be careful using your eyes to gleam patterns from graphs; you may find if you try to monetize these they vanish before you.

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