Kris Profile picture
Feb 26, 2021 9 tweets 2 min read Read on X
I'll share some of the questions I got back in 1999...
You flip a single die and will paid $1 times the number that comes up. How much would you pay to play?

Suppose I let you take a mulligan on the roll. Now how much would you pay (you are pricing an option now btw)?
My batting avg is higher than yours for the first half of the season. It's also higher than your for the second half of the season.

Is it possible your avg for the full season is higher than mine?

(Simpsons paradox)
You are mid game that you have a wager on. Opponent offers to double the stakes or you automatically lose. (like the doubling cube in backgammon)

What's the min probability of winning you need to continue playing?
Your down by 2 with seconds left in regulation and have a 50/50 chance of winning a game. You have a 50% 2-pt shooter and a 33% 3-pt shooter.

Who do you give the ball to?

(simple EV question)
You are given $1,000,000 for free but theres a catch. You must put all of it into play on roulette.

What do you do?
There's a 30% chance of raining Saturday.
30% chance of raining Sunday.

What's the probability it rains at least one day?
Some risk tolerance stuff...would you bet $100 on a fair coin if you got 6-5 odds? How about $1,000?

(Just trying to see if you understand how bet sizing/edge/bankroll work. Kelly answer would have been the A+ version, but really was looking to demonstrate that you were sane)
If I think of any more I'll add them.

I also wrote a short post on aptitude last year in my Moontower musing letter...moontowermeta.com/on-trading-and…

Good luck on interviews...they are probably much harder today in the era of the internet and where everyone knows how to code

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More from @KrisAbdelmessih

Oct 7
🌙Excerpt from today's letter:

Here’s how I describe the set-up:

1. The destabilizing moves are higher. The market-maker and hedging community get shorter vol as we go up.

2. Market-makers aren’t stupid.
They literally saw this movie a few years ago and if you think SIG doesn’t have the “run Softbank vol surfaces” button in their cockpit, trained on the 2021 flow signatures, then you must also be puzzled as to why the market-makers are making unprecedented piles of cash trading…
…against retail with their democratized access and fancy subscriptions. My guess, those single stock calls are rich enough to neutralize the gamma poison on the arrows being flung at them.

3. They also aren’t in the business of selling vol naked.
Read 22 tweets
Oct 6
Asset prices climbing a wall of worry -- vols look broadly expensive compared to daily sampled vols.

Guessing they look cheaper relative to weekly sampled since we've been trending

Shorting vol = long beta; tough diversification setup

(Although oil has been 🚽)
Trimmed some hard deltas a month ago and trimmed also via soft deltas (buying puts in SMH)

Buying puts was the better play

Why?

1 month puts for 28 vol correspond to a 1 month st dev of 28/sqrt(12) ~ 8%

We've moved 16% in the past month
Another way to appreciate this is how a daily delta hedged position worked if you bought the 33d put back on 9/5

(I bot a lower strike put that day) Image
Read 5 tweets
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
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
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
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

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