# The Constructal Principle and Markets, from Victor Niederhoffer

June 11, 2014 |

The Constructal Principal where all flows move to the most efficient and point of least resistance and the prevalence of round numbers, one believes has a certain comity and unified cause to it. The question is, is it predictive as well as descriptive.

## Gregory Van Kipnis writes:

It is macro descriptive, for sure, and it's micro predictive if you have enough information. In personal discussion over the past few days with sports analysts, everyone agreed on its relevance to predicting outcomes in football and hockey (probably other sports as well). If you study the teams, their bio-physical make up and their play strategy (spreading out vs bunching) you can pick the winner with high accuracy. As for markets though, so much is invisible. To understand and predict each event's outcome so much has to be divined.

## Orson Terrill writes:

The options volume and open interest clustering at rounds as a partial explanation is good, and also reinforces the idea that there is a structural preference for the round (the standard strikes). What the Chair says about there being a point on the battle field where doves fly so both sides can come to agreements, and get their needs met, is also an excellent nuance that is worthy of consideration.

When I was taking game theory in school, with a Harvard educated game theorist, the Chairman's round number observation was always on my mind in that frame work; there are multiple scenarios(games) that can explain many situations in markets, and make a prediction if you have the information (what van Kipnis said).

SolarCity Jan 2016 Calls

The 10 rounds are ~35% of strikes, but account for ~75% of the open interest.

Column 2 is open interest, column 1 is the strike (rounds are highlighted).

> SCTY
[,1]   [,2]
[1,]   8.0    1
[2,]  10.0    1
[3,]  18.0   15
[4,]  20.0   66
[5,]  23.0    1
[6,]  25.0   29
[7,]  28.0    3
[8,]  30.0  202
[9,]  33.0   19
[10,]  35.0   31
[11,]  37.0   14
[12,]  40.0  874
[13,]  42.0   31
[14,]  45.0  264
[15,]  47.0   74
[16,]  50.0  487
[17,]  52.5   66
[18,]  55.0  148
[19,]  57.5   76
[20,]  60.0 3346
[21,]  62.5   60
[22,]  65.0  148
[23,]  67.5   78
[24,]  70.0 1605
[25,]  72.5  146
[26,]  75.0  571
[27,]  77.5   92
[28,]  80.0 2117
[29,]  82.5   23
[30,]  85.0  209
[31,]  87.5   31
[32,]  90.0  425
[33,]  92.5  117
[34,]  95.0  602
[35,] 100.0 2296
[36,] 105.0  382
[37,] 110.0  134
[38,] 115.0  619
[39,] 120.0  244
[40,] 125.0   88
[41,] 130.0 1873
[42,] 135.0    5
[43,] 140.0  204
[44,] 145.0   16
[45,] 150.0  283
[46,] 155.0  892
[47,] 160.0   20
[48,] 165.0   15
[49,] 170.0  391

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