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Kris

@KrisAbdelmessih

2 Jan

Floor trading and fintwit share an overlapping dynamic

"cooperative competition"

It'll be fun to lay out some basics of the floor trading ecosystem and you will spot analogies.

First an fyi.

The floor gave traders what was known as "time/place advantage". It was the first place an order became public if it was not an electronic order.

Let's classify the traders on the floor:

"Locals" and prop firms

"Locals" are independent traders.

They trade their own money and secure the right to trade on the floor by owning or leasing one of the limited seats which represented an ownership stake by the exchange's "members" (this was before demutualization)

Read 25 tweets

Kris

@KrisAbdelmessih

20 Nov 20

https://twitter.com/kchoudhu/status/1329847170569285633

Neat passage (where's it from?)

I'll add some rambling musing to this including the whole optimizing for grades thing (which btw I'm not wholly convinced is bad strategy despite the popularity of influencers to say otherwise)...

https://twitter.com/kchoudhu/status/1329847170569285633

I was told that good grades were the path to💰 and i only wanted💰.

and i only wanted💰 bc i was lazy (not bc i wanted stuff).

Of course this was all mistaken. I wasn't lazy. I was bored & school does suck.

I didn't figure this all out til my fear of being broke as my parents went away.

That I didn't figure this out for a long time can mean a few different things.

Let's see...

Read 8 tweets

Kris

@KrisAbdelmessih

28 Oct 20

Let's do dispersion trading for the uninitiated.

The vets will need to bear with me, it's been 20 years since i traded index anything...but that actually shows why it's a good thing to explain. The lessons from it come to bear on thinking about all portfolios, even today.

First what is dispersion trading?

In its purest form, imagine selling an index straddle and buying the components' straddles in proportion to the index weights. In practice, liquidity makes this impossible. Instead one settles for a "dirty dispersion" position.

The trade is "short correlation". It wants the average corr between the stocks in the basket to be as low as possible.

Imagine a 2 stock index. You own the straddles on the stocks and you are short the index straddle. The 2 stocks rip in opposite directions. The index is unch

Read 20 tweets

Kris

@KrisAbdelmessih

27 Oct 20

A thought on premium in options.

Index options should be "overpriced". The question is how much premium do they deserve.

If stocks warrant a risk premium over the RFR it's because their systematic risk cannot be hedged.

Index options must conceptually inherit this premium otherwise there would an arb in portfolio allocation.

A index option, held delta neutral, gets paid as correlations in the marketplace increase. It literally makes money when systematic risk embodies.

A standard for deciding if puts are expensive:

Its price should have enough premium in it that by buying a put, if delta hedged, that you would actually have basis risk. In other words, it's premium should make it uncertain that you would actually make money in a sell-off.

Read 5 tweets

Kris

@KrisAbdelmessih

26 Oct 20

I sometimes explain how I use boardgames as a tool to teach my kids. The unsaid assumption is that "transference" works.

Paraphrasing from Yale:

Transfer” is a cognitive practice whereby a learner’s mastery of skills in one context enables them to apply it in another.

🤔

👇

@Alex_Danco

I see examples of this all the time. Consider @Alex_Danco letter this week (I'm a big fan of his writing btw).

He writes about using poker as practice for decision-making practice. In the past, he's written about bridge as the cooperative, strategic analog to SV culture.

Kasparov has tacitly taken advantage of the fact that transference is a thing, parlaying his chess acumen into authoritative political strategy writing.

SIG hires world-class poker, backgammon, Magic, and chess players. On the Amex I met world-class bridge & chess players.

Read 15 tweets

Kris

@KrisAbdelmessih

23 Oct 20

Locking up your $$ to save you from yourself is a sales pitch in some parts.

I've said before:

"Any argument that says liquidity is bad because it exposes you to behavioral bias must address the value of that option."

Let's explore this.

First, why care?

Even if you want to lock up your $$ to "save you from yourself", that doesn't mean you don't deserve a discount for investing in something illiquid.

Your needs/preferences don't set the marginal price.

Don't be so vain, not everything is about you 🎶

The price of an illiquid investment are set by those who do care about liquidity even if you don't.

You inherit that discount the same way you get power windows for free nowadays. You get that even if you think you'd be better off with the exercise of cranking your own windows.

Read 28 tweets

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