BILLIONS: Trade Ideas – Fintech in Films Series


About the Episode

We are getting inspiration from Billions season 1 episode 1 from Showtime, one of my favourite shows, to apply some fintech in the world of hedge funds.
We are at Axe Capital headquarters, Mick and Ben meet Bobby Axelrod in the corridor to pitch him a trade idea. Axelrod asks “Who said the trade is going to happen?” and it is the trigger for a demonstration of his intellect.
Axelrod schools his employees on a trade pattern that they failed to notice. He demonstrates his memory and analytical skills as he teaches them a lesson.

Fintech concepts

From a financial technology (fintech) perspective Bobby Axelrod’s brain works a lot like a computer: Storing and processing Big Data and applying Machine Learning to it to make decisions.
Four important concepts in alternative finance and hedge funds explored in this episode:
👉Mergers and Acquisitions
👉Merger Arbitrage
👉Big Data in Finance
👉Machine Learning in Finance
The trade opportunity is a merger, although a merger arbitrage opportunity would be more suitable for a hedge fund like Axe Capital.
 
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ABOUT THE BILLIONS SERIES

Emmy® and Golden Globe® winners Paul Giamatti and Damian Lewis star in a complex drama about power politics in the world of New York high finance. Shrewd, savvy U.S. Attorney Chuck Rhoades (Giamatti) and the brilliant, ambitious hedge fund king Bobby “Axe” Axelrod (Lewis) are on an explosive collision course, with each using all of his considerable smarts, power and influence to outmanoeuvre the other. The stakes are in the billions in this timely, provocative series.

SOURCES

Merger Arbitrage: Arbitraged Away? https://bit.ly/3epyqam
Machine Learning Techniques in Trading https://medium.com/auquan/https-medium-com-auquan-machine-learning-techniques-trading-b7120cee4f05

ANALYSIS

Mick feeds Bobby with data about a merger. He will listen and make an instant decision.
One issue here is that sounds like they are just buying the target company. Normally a hedge fund would do a merger arbitrage and that would be a dedicated strategy. Buy the target and sell the acquirer at the same time to focus the risk on the merger, not the market.
As he schools his colleagues on what trade they should do the brain of Bobby Axelrod displays true computing power:
Big Data in his memory
Machine Learning ability to use all the data to identify patterns that can be used to predict outcomes and build a trading strategy.
Relying on a genius that you meet in a corridor, looks cool but it’s not how modern HFs work.
Bobby’s brain is actually like a computer running a machine learning program for merger arbitrage. Pulling two things together: Become Smarter with More information.
Does that mean that it’s all easy in the HF world?
Not at all. There is so much competition and so much computing power everywhere that the merger arbitrage opportunity seems to be disappearing gradually. I will put a link about it in the description if you want to read further.