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DISCLAIMER: This post appeared on Reddit on 23 September 2021 by u/delicious_manboobs and is reproduced here in it’s entirety without editing. Apes Army does not endorse this DD or any of the information contained within. This is not financial advice. Do your own research always.
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Smoke and Mirrors: What Citadel’s Financial Statements tell us about options
My name is u/delicious_manboobs and you might know me from boring you out of your mind with posts including walls of text about financial statements.
Yeah, you twisted ape, I know about that AND your furry pr0n collection, but that’s a topic for another time.
This post is gonna be about what I discussed about “affiliate transactions” in Citadel’s financial statements in this post:
and how this potentially makes estimations about price movements based on observations in the options and derivative market at least less reliable.
Disclaimer: I am heavily retarded, don’t trust me and this is not financial advise. I bought a ladder to go to high school, bruh, that’s how bad it is.
Did I write something wrong? Drop a comment, always happy to edit this post.
tl;dr: At the end of both sections, you lazy ape.
Let’s fucking go.
Check out my other post about information contained in Citadel’s Financial Statements, I linked it above. A particular statement really caught my eye:
The Company being Citadel Securities LLC, as this is taken from their 2020 Financial Statement.
So, why would you find such statement in a financial report? Would Citadel put this there in order to tell the world that some rules can be bend when playing with yourself? Hell no… That’s because there is an auditor that actually digs through your shit to check if there is shit worth mentioning. This is how it looks in the financial report:
The auditor in this case being PricewaterhouseCoopers.
So, does this guarantee that an auditor will write down everything they come across during the audit? Of course not, because there is a very weird relationship between auditor and auditee: the auditee pays the auditor for their audit, so an auditor is also incentivized to not completely upset his customer. Yeah… it’s weird and always has been so and according to some fairy tales, a lot of scandals could have been prevented if the world would find a better way to solve that.
Anyway, let’s continue.
I believe this statement is there for a reason and should be considered as relevant (like actually everything in a financial statement).
Ok, let’s check what related parties and affiliates are. That’s financial speak for friends and family. And, man, that’s a big ass family over there at Citadel. The financial statement alone names around 6, if you look at the SEC page of Citadel Securities LLC, you will find related sec filings for a lot more:
Relating to the topic of this post, I would like to point out two specific entities, namely
- Citadel Securities Institutional LLC (CSIN)
- Citadel Securities Swap Dealer LLC (CSSD)
So, what is the business of those 3 brothers?
Citadel Securities (the company that made that statement in their annual report) engages in “market making and liquidity provision in U.S. options, equities, government securities, and foreign exchange products, as well as trade execution.” And let’s not forget, that Citadel Securities is the market maker for GME as well, enjoying a couple of exemptions when it comes to short selling.
CSIN is an affiliated broker dealer, that engages in “options order routing as well as trades U.S. government securities and equities with institutional and broker and dealer clients.”
CSSD is an affiliated swap dealer.
Oh, interesting. Those brother are involved in the derivative markets, writing options, swaps, whatever.
tl;dr: Citadel is a big family, the brothers and sister are involved in market making of a huge variety of securities, including equities, options and other derivatives. The financial statement of Citadel Securities LLC tells us that if they trade between each other, they might have their own set of rules, and that their own set of rules might differ substantially (“material difference”) from the rules in the market.
So now that we leveled the playfield, let’s play fucking ball. The following are conclusions that I have drawn based on my observations. There has been extensive DD shared in here about hiding FTDs through derivatives, expecting certain dates for roll-overs which should relate to price action.
This DD is magnificent research, no fucking doubt, and definitely beyond my understanding in my cases (looking at people like u/Criand obviously) and the conclusions might be correct, if we can assume that those derivative contracts are made under normal market provisions. We know as a fact from their financial statement, that if Citadel is playing with itself, that doesn’t has to be the case.
Here’s a couple of examples where I believe this might be relevant:
“Look at the fucking huge gamma ramp! The call writers will need to hedge this before it goes fucking boom!” – Might be true, but what if I told you that hedging in a family transaction might be done in another way that you expect it (namely not by MM buying shares?). I don’t know: “Bro, if I ask nicely and pay you a beer at the bar, will you not execute your calls?” While pocketing the premiums of people jumping on the bandwagon because of option play analysis.
“Futures need to be settled at this and this date.” Does this hold true even if the buy and sell side can set their own rules when it helps their cause?
tl;dr: I don’t think that you can reliably predict price movement based on derivative markets, if the players themselves state that the terms set in transactions among themselves might not be the same as those that would result from transactions among unrelated parties and such differences could be material (=substantial).
That’s it, apes. It seems to me that there’s no reason for trying to outsmart somebody in the derivative market, if👏he👏actually👏told👏me👏 that he’s not going to play by the rules.
All of this, however, does not change anything on the big picture. Shorts have not closed, hedgies are fuk’t.
Buy. Hodl. DRS. This is my way.
Apes together strong.
[insert rocket emoji here]