Meet Ming Zhao, CEO and founder of Atomic Vaults and popularly known as @FabiusMercurius by thousands of retail traders on Twitter.
She believes that the industry is systematically biased against retail investors and said she sets out to change the future of options trading by doing something rather monumental.
Zhao On Fractional Options Trading: During the Fintwit Conference hosted by Benzinga and Lupton Capital in Las Vegas, Zhao announced that her company Atomic Vaults is developing a solution to the existing system for options trading — and said this system will favor the retail investor, providing them with a means to trade options fractionally.
While retail trading apps like Webull Financial LLC, Stash Financial, Inc. and Robinhood Markets Inc. (NASDAQ:HOOD) allow retail investors to trade fractional shares, there’s no platform for trading options for the time being. But later this summer, her company expects to change all of this.
The Atomic Vaults product “makes the market fairer” for retail traders by “not betting against the retail guy,” Zhao said.
An embedded fractional option training platform, Atomic Vaults will enable both retail customers and broker-dealers to buy and sell U.S. equity options in less than 100-times lot sizes, or “underliers,” that require the buyer to bet on a minimum 100 shares worth of risk
. The platform itself is still pending FINRA approval but anticipates a launch in late summer 2022, Zhao said.
Zhao On Retail Trading: During her talk, Zhao described a scenario where retail traders take on greater risks than for which they can expect to be rewarded. She likens options bet sizing to The Saint Petersburg Game (PI) — a game of chance, where one places a risky bet on whether the outcome is heads or tails.
“If you bet on your net worth, how long do you sit and play the game until you make it all back?” she asked attendees as she began to dissect the Kelly Criterion for many just learning about this concept for the first time.
“There’s a natural risk aversion, or utility, that happens within the markets. It’s the same reason why when it comes to super positive expected value trades, we end up not betting our entire net worth.”
Zhao On Market Odds: Zhao discusses probability distribution and the likelihood of achieving an expected value when betting on the stock market. She explains that everyone has their own methodology and that outside of insider trading, investors need to understand how to best capitalize on their returns when making real trades.
She points out that few would likely invest 100% of their net worth on a speculative bet and that, on average, reinvesting only 25% of their portfolio would, in fact, provide the greatest return of all.
Drawing parallels between the stock market and the traditional coin toss game, one problem Zhao addresses is that minimum contract requirements for trading options far exceed the ideal bet size for 95% of retail traders.
She addresses the realistic expectations of trading options — even for the most popular investments — and how simple binary trades significantly differ when more complex variables, including stock volatility, are involved.
While she appears to be in favor of the reward of trading options, she attributes today’s standards to how so many retail investors have been losing money, especially those who trade on margin.
After all, “How do you determine the actual size going into a trade?” Zhao questions.
She later explains how greater rewards can be achieved through minimal bets. This means smaller trades could reap the greatest returns, as opposed to riskier bets that force investors to hold onto their trades for longer periods of time.
