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Kris Profile picture
@KrisAbdelmessih
Oct 2, 2020 • 6 tweets • 2 min read • Read on X
Moontower Money Wiki: Start Here

This work-in-progress is an attempt to to connect the dots into a cohesive picture of how your financial picture over your life is connected to your daily decisions as well as what you actually do with your time.

I will append to it over time Image
"Does This Sound Like You?"

notion.so/Does-this-soun…
"Financial Hygiene"

notion.so/Financial-Hyge…
"Defining The Problem"

notion.so/Defining-The-P…
"A Word About Goals"

notion.so/A-Word-About-G…
"A Word On Constraints"

notion.so/A-Word-on-Cons…

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More from @KrisAbdelmessih

Kris Profile picture
Jul 31
Let's actually understand the meaning of vol drag.

This week I explained that while meme stock put spreads "look" expensive, there's a good explanation.

High vol affects the skewness of a distribution -- it shifts the median return lower...
But the thread I wrote bounced all around the internet but like a nerdy game of telephone the message is suffering from major info loss as it gets passed on.

What you need to remember:
Vol drag does NOT change the mean or expected return. It affects the return you are most likely to experience.
Read 11 tweets
Kris Profile picture
Jul 7
Just an opinion...

Gonna put JS index expiry manipulation aside. It looks bad and if that was their intent it is bad.

But regarding the strategy where they sloppily buy deltas to turn around and sell option combos at artificially pumped prices...
The antitode is for the losers is to
realize that they aren't entitled to overestimate how much liquidity “last sale" represents

I mean as a market maker you are taught not to provide more delta liquidity in the options than the underlying so this isn't some profound suggestion
For example, if a market makers is seeing a bid for puts or call offers they are pricing the vol using the stock's bid (and vice versa, they use the offer if the option order is buying delta)

But they don't assume infinite liquidity at the bid or offer
Read 20 tweets
Kris Profile picture
May 8
moontower today was triggered by an insightful comment by @ScottPh77711570 on @choffstein podcast

Excerpts...
I fired up Corey Hoffstein’s goated Flirting With Models podcast to hear Scott Phillips discuss “ugly” edges in crypto. This episode came highly recommended in my corner of twitter. It does not disappoint.

But I want to zoom in on one part. Scott says: Image
I’m repetitive on log and compounding math for 2 reasons that extend beyond the shock factor of the “lilypads in a pond” puzzle:

a) Investing is a serially repeated game so compound returns are our primary concern
Read 15 tweets
Kris Profile picture
Apr 23
Kris' point is an instance of a wider tension. I call it distributional edge vs carry

The sellers believe they have distributional edge but the cost to hold the trade is carry (here in the form of roll-up).

blog.moontower.ai/distributional… x.com/Ksidiii/status…
I haven't actually done this explicitly but I could imagine some model where you solve for how many negative carry days vs speed to revert to say some vol target and set the p/l path to zero to solve for how long the market thinks it will take to resolve to a normal vrp world
It's not a real model, too many cross influences between the paths, but just framing it like this sharpens your thinking. Fuzzy "it'll go down eventually" is probably so consensus that my guess if I knew nothing else the vol is underpriced
Read 4 tweets
Kris Profile picture
Apr 20
Quick thread extracted from today's letter

If they ban short-selling derivatives become the underlying
A reminder in the spirit of being attuned to seemingly far-fetched risks:

If short selling were restricted in any way, the value of puts relative to calls on the same strike increases in a put-call parity framework.
Another way to say this is being long stock is more valuable since only long sellers can sell. If puts increase relative to calls on the same strike, as they do when borrow costs increase, that is like a synthetic future on the stock trading at a discount to the stock price.
Read 8 tweets
Kris Profile picture
Mar 24
A little thread of fun intuition for option probability based on yesterday's letter

A couple weeks ago @dampedspring posted: Image
By saying I’d buy that proposition I’m saying “I’d buy that vol”

Andy, responded with a joke about what’s the “one touch” option worth, which I asked him to delete because I really would have liked a fool to sell me that proposition and Andy’s comment gives away the sauce.
[X’s killer app would be to escrow bets, but that’s another convo altogether]

I’d be a size buyer of a 50% probability that we get back to the highs before the end of the year.

Why?
Read 14 tweets

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