Sharing more widely as DMs asking me to evaluate trade ideas grow.

I'll add a few more points...
Categories of relative vol trading:

-cross-sectional equity
-dispersion
-cap structure rel value
-vix/spx complex

-cross-sectional macro/commods
-intra-commod complex

(last 2 were my focus for past 15 yrs)
None of this should be attempted at home unless you listened to @darjohn25 with Corey and thought "yea, I could do that"

it's more natural to use vol-informed ideas to structure directional option trades (if you dig thru the vol wiki there's plenty on how to think about this)
Commods focused:

blog.thinknewfound.com/podcast/s3e6-j…

(this one is super resonant cause Jeff is a friend and one of the people I ask to sanity check my ideas)
If you are trading options from a retail seat know what game you are playing.

Vol informed or vol aware directional trades is not relative value vol trading.
If you think you are doing rel vol trading my first question is how are you normalizing macro & idiosyncratics calendars and events.

If you are insecure about your answer I'm not sure how you are doing any relative vol trading. That game is played for small edge...
...smaller than the effect of normalizations. And requires capital intensive levels of diversification.

If you are directionally oriented than be able to articulate at least to yourself what your edge is.
Market's are tight. Negative edge be masked for a long time...that time has an opportunity cost that doesn't show up in your IRR either

On a positive note, Darrin's pod was the only time an independent has been on Corey's show. That story is awesome.

Corey, find more!

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More from @KrisAbdelmessih

13 May
I like Pat giving an economic reason of why regime shifts in surface behavior happen. In this example it's the washing out of vol sellers.

I'll give another example from oil markets...
Banks and market makers get short say an 80%-60% put spread every year due to the annual Hacienda hedge. If the market drops, vol beta is strong...but what if the market trades below that 80% strike...
Now the hedgers are short an ITM puts and long an OTM put. In other words, they went from being short a PS to being long skew on risk reversal. The inventory causes the call skew to firm, and the vol beta to decline to the downside as dynamic hedgers are no longer stressed lower
Read 7 tweets
12 May
Reading about scarcity mindset from @NeckarValue and the Horowitz interview

We have a hack at home to help (my wife picked it up from a pod guest maybe) for keeping scarcity mind away:

"You can never be negative when you're in a state of gratitude"
I have found the phrase weirdly effective.

I had a scarce mindset until my 30s. My wife is anything but and I literally watched by example why it's so pointless.

(She's experienced scarcity in scary ways that her abundance mindset was almost necessarily adaptive)
Not everyone feels gratitude and it's not my place to judge anyone.

But if you do self-identity as having gratitude and want to break scarcity thinking loops, maybe it will help.

If not, no harm just leave it alone.

You can't be negative when you're in a state of gratitude
Read 4 tweets
11 May
Look closely Sam's dropping hints.

The best trading/mm firms aren't just capturing spreads. They use market intel to read the table and make big bets. Obsession was finding real EV knowing they had bankroll to bet big when they found it.
It ties back to a lesson I've mentioned before and makes sense when your bankroll is large

if you make money every day you're leaving money on the table

You don't close trades unless your getting edge to do so.
Like Darrin said on @choffstein pod...if you sell a tail you must collect the whole premium otherwise the times you lose multiples mean you def have neg ev

Example below...
Read 4 tweets
10 May
Outstanding.

That's an interview with a trader.

Last 10 minutes advice so 🔥🔥. Real talk.
A few favorite takeaways:

Building sims instead of backtesting as a way to get more samples. Table stakes to get a fingertip feel especially when you don't get the apprentice experience

(btw, doing this gig w/o being an apprentice sounds impossible so huge props to Darrin)
The idea of pricing out financial products to the penny. Darrin called it "back-office" kinda stuff that retail doesn't do. Corey said he does this too.

This is exactly what you do at a mm/arb shop. Giant spreadsheets pricing fair value for financial products. Not optional work
Read 9 tweets
6 May
I remember haggling over some trinket in Khan el-Khalili 16 years ago.

The seller opened at equiv of $50. I negotiated down to $2 and still felt ripped off.

I remember telling the guy off

"You would have let me pay $50 for something you were willing to sell at $2"
It didn't bother me that much (negotiating in my bad Arabic felt like a fun game) but I realized how much I internalized the concept of open outcry and if your bid/offer was inferior to one that was shouted it was technically illegal. Made me appreciate how our markets work.
The reason I remembered the story was a convo I was having at lunch with a friend yesterday. We were discussing compensation. Employers and employees navigate semi-transparent labor markets.

We were discussing a particular strategy.
Read 18 tweets
4 May
Here's a story that starts with Costco and ends with a broader question.

After a recent shopping trip I was telling a friend how good the Kirkland tequila anejo is. I was wondering which spirit brand they laundered the Kirkland name thru.
After some raving about Costco and how you can literally drop $300 there on a casual Friday morning and not feel bad about it my friend shared a story of Costco's buying power.
She was privy to Costco's dealings with the Hidden Valley brand. She told me that years ago Costco in an desire to be more healthy didn't want to sell a product with msg...the magic ingredient in HV Ranch dressing.
Read 8 tweets

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