For the nth time

You're not vol trading if you don't normalize (or "calenderize")
If the expiration of one asset is 8am and another asset is noon and each has different exercise cutoff times do you know what vols you are relative vol trading?

If one name has a known event coming do you know what ex-event vol you are trading?
What happens to implied correlation measures during earnings season? They break if you don't normalize.

Your career goal should not be to know how to do this. This is brain damage in relatively small markets.
When I say relatively small I mean take vol opportunities market and cut SIG, CitSec, and Jane combined market share.

Pro tip: if you are in it for money, find a way to clip a coupon on beta instead

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Kris

Kris Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @KrisAbdelmessih

27 May
A musing from the "grass is greener" file

Finance is a super competitive "blood from a stone" business. It has a lot of optimization to squeeze perma-threatened margins.

It's draining in that zero-sum way and because it's a scale business the rewards return to scale (& owners)
As the last year showed, optimizations often revolve around liquifying excess capacity, redundancy.

It's short vol in that sense since options are sold. Time decay on slack, will cost you customers in short term.
As @moreproteinbars mentioned on Corey's pod the fear in commodities is to the upside because shortages are what destabilize markets

(Oil call skew is anti-correlated to excess days-to-cover)

Read 11 tweets
26 May
New post:

Talking To The Diamond Hands

This is the 3rd and last post of recent reflections about investing and risk.

This post is about how personal risk is.

What you'll find:…
🧠How Finance Brains Think Of Risk

Investors use math and models to quantify risk and size positions.

But it all rests on an unchallenged, qualitative assumption. Relax it, and people seem less crazy.
🧑‍🤝‍🧑How normies think of risk

I include a short script of how you can talk to a normal person about risk.

I explain what it means when you disagree. Sometimes it's ignorance. Sometimes it's different goals.

But you won't know unless you engage. The script helps you engage.
Read 7 tweets
15 May
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
-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)
Read 9 tweets
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

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!