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.
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.
A little thread of fun intuition for option probability based on yesterday's letter
A couple weeks ago @dampedspring posted:
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.
I narrated some of my IBIT trading last week streams. Expiration on Friday went well but I want to zoom in on the experience broadly because it’s a classic flow of what vol trading looks like...
Just for recap
But that masks the process and experience. Let's start.
Initial Trade Setup
I liked selling near-dated IBIT vol while buying extra teeny options in the second month for a calendar spread.
I was out Monday night in SF with friends from Parallax and we realized it’s been exactly 4 years this week since I left. I gotta tell you, while I don’t miss having the job, I deeply miss the people.
I deeply miss being an office (although I don’t miss the commute or the 4am mornings). I reference the film Clerks all the time, but my professional life felt like Clerks.
Non-stop banter, friendly debate, and just sharing highs and lows on this little rowboat that we were all paddling in the same direction. Clearly that wasn’t enough for me to stay. The work itself felt stale and my heart wasn’t in. Nobody’s fault. It’s just a me problem.
best performers relative to their vol in the past week
germany, FEZ, euro
so...immediately your instincts should make you ask...
did the put skew invert?
spot down is stabilizing to vol relative to spot up
looking at the May expiry (closest to 60 dte) the 25d put skew is 75th percentile (1 yr lookback) and the a 15% premium to at-the-moneys
in other words either a cheap put spread if you think the flow has been choppy but probably an even better delta hedged trade or sell the puts hedged (possibly on a light delta...I'm thinking any model deltas are overestimates on these puts)
Procrastinating a bit this am so here's a thread based on today's letter.
@AFwithNick and I chatted back in Dec and he asked:
Isn’t every life decision essentially a vol trade?
I did the thing where you re-frame the question to one you prefer to answer...
What can option theory teach us about decision-making in general?
My response started:
I'm gonna piggyback off some of my training. I started at SIG, and famously—or infamously, at least in our little world—
Jeff Yass has said that you cannot be a sound decision-maker without understanding option theory. That's a heavy-handed way of putting it, but what he's really pointing to is that decision-making is a practice that has structured inputs.