Aug 5, 2024 · 1h 16m · capital-allocators
Todd Simkin - Game of Trading at Susquehanna (EP.399)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, Ted Seides interviews Todd Simkin, Associate Director at Susquehanna International Group (SIG) and CEO of Susquehanna Re, exploring how SIG applies mathematical game theory, growth-mindset trader education, and patient proprietary capital across quantitative trading, sports betting, prediction markets, and venture investing.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 16.7% of the talking time here. How this is scored →
Ted as informed peer 4.3 Guest teaching 5.5 Guest disagreement 1.1 Ted pushing back 1.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 42:50 Rejecting conventional profit-taking
Todd rejects the conventional trader instinct to lock in profits on winning positions, arguing that selling before fair value forfeits edge to competitors.
Hardest push from Ted ▶ 53:05 Challenging confidence definitions in venture capitalTodd pauses to deconstruct and reframe Ted's question on confidence, explicitly separating statistical confidence intervals from qualitative bravado.
Biggest teaching moment ▶ 46:35 Deconstructing Black-Scholes distribution flawsTodd breaks down why Black-Scholes' normal distribution assumption fails empirically and explains how SIG survived Black Monday by pricing left-skewed fat tails.
Ted holds their own ▶ 31:34 Framing private markets through derivative optionsTed displays sharp technical domain knowledge by synthesising SIG's venture capital as buying call options and its reinsurance business as selling puts.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Todd Simkin's Background and Path to Susquehanna | 3 | 4 | 1 | 1 | Ted asks a standard biographical question about Todd's path to SIG. Todd explains his background studying deaf culture and how he entered trading via a Susquehanna stock specialist who pitched it like competitive mental sports. | |
| Learning American Sign Language and Discovering Deaf Culture | 2 | 5 | 1 | 1 | Ted asks about the formative origin of studying deaf language. Todd details his initial cheating attempt in sixth grade science and how it transformed into deep respect for ASL structure and deaf culture. | |
| The Historical Evolution of Floor and Electronic Options Trading | 4 | 6 | 1 | 1 | Todd provides an in-depth historical overview of floor trading, single-listed options, and the firm's poker and game theory foundation. Ted listens and prompts him through his career milestones. | |
| Teaching Decision-Making Through Mock Trading and Senior Mentorship | 4 | 6 | 1 | 1 | Ted probes on how people actually learn after fundamental theory. Todd explains the mock trading apparatus and how simulation with senior trader feedback isolates decision branches. | |
| Developing the Tacit Grammar of Risk and Trading Intuition | 4 | 7 | 2 | 1 | Todd uses the analogy of adjective ordering in English grammar to explain the tacit intuition senior traders develop to spot flawed trade justifications. | |
| Blending the Art and Science of Quantitative Derivatives Trading | 5 | 6 | 1 | 1 | Ted asks about bridging the art and science of trading. Todd explains how quantitative models must incorporate human selection bias and model sensitivities in illiquid markets. | |
| Intellectual Curiosity as the Key Differentiator of Elite Traders | 4 | 5 | 1 | 1 | Todd highlights intrinsic curiosity and willingness to openly discuss reasoning as the primary factors that separate elite traders from merely competent ones. | |
| Expanding Risk Frameworks to Prediction Markets and Specialty Insurance | 4 | 6 | 1 | 1 | Ted asks how SIG selects new business lines. Todd outlines the unifying thread of risk pricing across VC, sports betting, prediction markets, and reinsurance. | |
| Portfolio Risk Management, Asymmetry, and True Statistical Uncorrelation | 7 | 5 | 1 | 2 | Ted shows deep domain expertise by framing VC as buying call options and insurance as selling puts. Todd affirms this framing and elaborates on true portfolio uncorrelation and fair value discipline. | |
| Scaling Internal Capital and Building Essential Technological Infrastructure | 4 | 5 | 1 | 1 | Ted inquires about managing scale and recruiting while maintaining opacity. Todd explains the biological scaling analogy and the emphasis on hiring technologists over traders. | |
| Sponsor Message: Ridgeline Front-to-Back AI Investment Technology Platform | 5 | 5 | 1 | 2 | Following the sponsor read, Ted asks how SIG competes against multi-manager platforms. Todd emphasizes their edge in patient, internal-only capital that avoids client reporting pressures. | |
| Prioritizing Expected Value Decision Process Over Short-Term Profit Taking | 5 | 6 | 2 | 1 | Todd details why locking in short-term profits is irrational if expected value remains positive, referencing Roger Federer's 54% point-win rate driving long-term dominance. | |
| The Role of Luck, Black Monday, and Left-Skewed Distributions | 5 | 8 | 2 | 1 | Todd delivers a masterclass on Black Monday and why the Black-Scholes normal distribution assumption is fundamentally flawed regarding left-skewed stock returns and downside put pricing. | |
| Evaluating Talent and Asymmetric Expectancy in Venture Capital | 4 | 5 | 1 | 1 | Ted asks about the framework for evaluating expectancy in venture capital. Todd contrasts fast-paced options trading with the long-term qualitative assessment of founding teams. | |
| Updating Conviction and Treating Early Investments as Real Options | 5 | 6 | 2 | 2 | Ted asks about confidence in qualitative VC assessments. Todd disambiguates statistical confidence intervals from bravado, explaining early investments as real options with embedded optionality. | |
| Two-Sided Liquidity Provision in Kalshi Binary Prediction Markets | 4 | 6 | 1 | 1 | Todd explains how binary contracts on Kalshi translate prices cleanly into implied probabilities and how SIG provides continuous two-sided liquidity. | |
| Strategic Expansion into European and US Sports Betting Infrastructure | 4 | 5 | 1 | 1 | Todd explains how SIG utilized the European sports betting market to test and validate risk models and infrastructure before the US sports betting legalization rollout. | |
| Launching SIG Re to Underwrite Specialized and Weather Risks | 4 | 6 | 1 | 1 | Todd describes founding SIG Re to monetize non-financial risks by leveraging internal commodity traders and meteorologists for underwriting. | |
| Structuring Creative Corporate Promotions Backstopped by Event Underwriting | 3 | 6 | 1 | 1 | Todd explains how SIG Re underwrites creative corporate promotional hedges, such as customer rebates tied to sports team victories. | |
| Long-Term Outlook on Growth, Discipline, and Market Dominance | 7 | 5 | 1 | 1 | Todd shares his Jeopardy game theory wagering strategy. When Ted correctly identifies that zero wagering is optimal under tied leader conditions, Todd validates his reasoning. | |
| Personal Reflections, Mentorship, Core Values, and Life Lessons | 3 | 3 | 0 | 0 | Standard closing reflections on hobbies (choral singing, solitary hiking), parenting milestones, mentorship from Arthur Danchik, and Mark Twain's advice on travel. |
Statements from this episode (27)
Simkin: Jeff Yass merged trading firms to form Susquehanna in 1987
“Jeff Yaz started his own options trading company on the Florida Philadelphia Stock Exchange in 1981. Some of the other partners of Susquehanna in the early days had their own companies that they merged together to come together as Susquehanna in 1987.”
Simkin: Traders are made, not born, and can be taught
“That they had the firm belief that traders are Made, not born. So it's not the case that you have to find somebody who is inherently a trader, and then you just put them in the right spot, and they go. Instead, they said, if you bring us any smart person, if y…”
Simkin: Derivatives trading remains Susquehanna's core business
“The core part of our business then is still the core part now, which is derivatives trading.”
Simkin: Dell options sparked the multiple listing boom
“So there was a case of Dell computer was the first one that Chicago wanted to list options on Dell.”
Simkin: Susquehanna trainees manage small books before trading class
“One is before ever going through our trading class, our quantitative traders are working directly on trading desks, talking to the traders who are making decisions about the decisions that they're making, and they gain responsibility over time. So they will be…”
Simkin: Trading decisions function like intuitive grammar, not a mechanical checklist
“If I had a script for it, it'd be easy, because then I would just give people a script to use as a checklist like a pilot does when they're starting up their plane, or like a surgeon does when they're starting a surgery. I don't have a script, and I wish I did…”
Simkin: Traders must articulate underlying conditions driving their decisions
“You've incorporated that into your decision process, but if you don't say it out loud, your decision process sounds odd to me. But then you say, here's the pattern that I've noticed, and here's what I'm pricing in, and you say, okay, well then that makes sense…”
Simkin: Counterparty willingness to trade illiquid assets signals severe adverse selection
“There were very esoteric products that traded in Europe that did not have a lot of liquidity, which meant that if I was trading, I was probably trading against other professionals who were doing a good job of figuring out the appropriate fair value and the exp…”
Simkin: Quants must update assumptions based on pricing sensitivity when trading
“And the other thing is, in a Bayesian way, to update my assumptions when somebody is willing to trade against me by looking at those points that are most sensitive. So understanding not only the outputs of the model, Here's the price at which we think you shou…”
Simkin: Susquehanna operates a sports trading unit in Ireland
“We've moved into creating a sports trading unit that is trading on sports books in Europe, and that group is in Ireland.”
Simkin: Susquehanna expands into insurance and partners with Kalshi prediction markets
“Most recently, in the last few years, we've moved into insurance, which is where I spend all of my time now, is thinking about insurance products. And similarly, we've also recently did a partnership with Kalshi, where we are providing liquidity in event marke…”
Simkin: Unlimited upside asymmetry won't stop venture capitalists from going broke
“But that does not mean because of the asymmetries that venture capital is a winning business because you've got this unlimited upside, or that insurance is a losing business because you've got this unlimited downside. Ultimately, what it comes down to is appro…”
Simkin: Uncorrelated businesses scale profit linearly and variance sublinearly
“Our businesses being uncorrelated means that over the long run, I expect my profits to increase by the expected value of each of these businesses, but my variance, my standard deviation only to go up by the square root of the number of Businesses or exposures …”
Simkin: Susquehanna employs more technologists than traders
“The greatest pool of employees that we have is not traders, it's technologists, because so much of what we do relies on good quality technology infrastructure and business infrastructure that our technologists are able to build out for us.”
Simkin: Client reporting and rigid mandates structurally constrain external hedge funds
“One of the problems with hedge funds is that they have to frequently manage to Not just quarterly reports, but monthly reports, or even weekly and daily reports. So they've got to show that they're staying with the strategy that they have outlined for their in…”
Simkin: Proprietary capital gives large-scale trading firms agility without LP constraints
“We get all of the benefits of having a large capital base with all of the benefits of having a small number of decision makers at the top who are weighing in. They're not putting artificial rules in place that we might have seen if we had ever taken outside mo…”
Simkin: Susquehanna refuses to lock in profits while expected value is positive
“At Susquehanna, we'd say, no, if anything, if we're able to buy more at 19, and we still think it's worth 20, then we would. The fact that we got to buy it for 10 is great, sort of confirmed now by the fact that someone's willing to pay 19, but that doesn't me…”
Simkin: Susquehanna holds positions to maturity unless underlying information changes
“Part of the culture of the firm is one in which we are Finding edges wherever we can find them, but then capturing all of it by either holding to maturity or holding to expiration or closing at an appropriate rate when we have either new information or where t…”
Simkin: Black-Scholes wrongly assumes stock distributions are right-skewed, not left-skewed
“The Black-Scholes model, which is literally Nobel Prize winning math, this is amazing stuff, has assumptions built into it that we know are just wrong. Among the assumptions that are built in is a normal distribution of stock returns, which would lead to a log…”
Simkin: SIG backed ByteDance for diversification, not foreseeing TikTok's global dominance
“I alluded to being fortunate enough to invest in ByteDance when it was a several million dollar company before it became a several billion dollar company. It'd be great in hindsight to say we are so good at figuring out what social media platform is going to b…”
Simkin: A five-year fund structure would have forced SIG out of ByteDance
“If we had entered our ByteDance position, and it was in a fund where the investors needed to get paid back in five years, we would have closed out of that position and made a little bit. It would have been happy day in the office, and we would have been out of…”
Simkin: Early-stage venture checks function as real options to hold and learn
“Sometimes what we are doing is R&D type investing. We are putting money in so that we have an embedded option to keep our money in. That what we are buying is, in the parlance of economics professors, a real option, and the real option is that we don't have to…”
Simkin: Binary prediction pricing communicates risk clearer than traditional asset prices
“So having a price that you can immediately turn into a probability really leads to improved communication about the underlying risk in a way that you don't have even in the financial markets. What does it mean for a stock to be trading for a 117 dollars? You h…”
Simkin: Sports odds pricing requires combining inside handicapping and outside statistics
“This is again that marriage of art and science. So some of it is being a good handicapper, being able to look at Jared Goff and decide how strong is he as a quarterback with this certain receiver core. That's part of it. And that is what we would refer to as t…”
Simkin: Susquehanna operates a weather trading desk with an in-house meteorologist
“We have some weather derivative risk that we take. Well, we've got a weather derivatives trading desk, and we have a meteorologist on staff.”
Simkin: Insured contingent promotions embed customer call options, outperforming standard discounts
“From your perspective, it costs you the exact same amount of money, except that now you're not hoping to go from a 100,000 to a 120,000 dollars a month. You're hoping to go from a 100,000 to 500,000 dollars a month because anybody, whoever was in the market fo…”