PSA: has free GLM-5.2 for 2 weeks from @blackboxai, and 50% off @ChatGPT Sol for a month if you use ▲ AI Gateway. Sol is a brainiac, GLM-5.2 is a workhorse. Usage is much higher than we anticipated. We're working on adding more GLM capacity!

Accurately pricing derivatives when underlyings are closed is a universal source of edge in market making, from tier-1 firm graybox ETF trading to newer operations in 24-hour prediction markets and perpetual futures. Some widely applicable pricing strategies: Related futures and currency moves. When a derivative’s underlyings are closed, market makers use other instruments as proxies that have sufficient beta to the derivative. Examples for a US ETF on Japanese stocks: the USD/JPY pair trades 24/7 through a variety of FX ECNs, interdealer platforms, and futures exchanges. Nikkei 225 index futures also trade on multiple global derivatives exchanges during extended hours. Moves in these assets during the Japanese night will on average predict the opening prints of individual stocks listed on JPX. Home market index moves. An ETF moves with a non-trivial correlation factor to other US names simply because it’s a US-listed security. The effect is easily observable during heightened volatility. It’s a common industry saying that in a market-wide selloff, all correlations go to 1. Both narrow- and broad-based indexes of US names explain some of the signals in mid-frequency alphas. US index returns comprise a small but meaningful component of derivatives’ multifactor beta models. News. A key requirement for pricing derivatives on foreign stocks is processing local news and earnings releases that relate either to the particular stocks or relevant stocks in the same sector. Quantitative trading firms use automated translation tools to process local foreign-language news and suggest idiosyncratic adjustments to traditional factor models. Recent advances in LLM-based NLP have made sentiment analysis viable for blackbox trading systems to react instantaneously to news-based signals. Microstructure. High-frequency trading firms successfully and counterintuitively price derivatives by ignoring the underlyings’ characteristics. Firms extract short-term alphas from order book characteristics, recent returns, microprices, and other microstructure features. From the perspective of a reinforcement-learning non-linear model trainer, unlabeled feature sets and time series data result in ETFs, ADRs, and common stocks being treated as mathematically equivalent. Based on the above, here is a rough model of how large market-making firms predict mid-frequency returns when traditional underlying markets are closed: ΔP = β_FUT · ΔFUT + β_FX · ΔFX + β_IND · ΔIND + [News Term] These firms also heavily prepare for circumstances under which this model fails. FX and futures have idiosyncratic moves, home-market betas can break during regime shifts, news sentiments still have positives, and microstructure signals decay fast. The market shift underway in 24/7 traditional derivative and prediction contract trading will test the model’s longevity for market making and statistical arbitrage going forward.

“The Art of Squindo” returns to the Black Box tomorrow, Friday, October 9! Get tickets now to enjoy a live discussion and Q&A with the artist behind two decades of Metallica’s most recognizable artwork, our dear friend Squindo. And while you’re there, explore all the interactive exhibits our on-tour museum has to offer. Don’t miss it! 🎫

AI can appear like a black box: energy in, intelligence out. Efficiency spans the stack, from data-center power and heat to clusters and workloads. In 2025, hardware measures alone helped Nebius avoid 100+ GWh, equal to a year’s electricity for 9,800+ US households. Learn more.