New post:

Portfolio Theory And The Invisible Option On Hobbies…
I start with a recap from a short post I wrote last year that encapsulates a few timeless portfolio theory lessons.
Which implies a subtle point:

The value of an asset viewed in isolation is actually a floor.


There is an invisible option that lives above that floor.
What is the nature of that option? What is it sensitive to?

Connectivity and divergence
What does this tell us about any hobby done with concentrated effort?

The intrinsic reward of doing it for yourself is actually a lower bound of its value.

"Those *selfish* hours spent doing something *weird* might have a lot more value than what you think they do today"
Ownership of equity or skills contains an invisible option that has a positive delta with respect to the world becoming more networked. The more divergent the skill the greater it can improve the portfolio (all else equal)
I don't think this is shocking, but sometimes spelling things out can be useful to fill in gaps or lead to other thoughts.

I hope this post accomplishes a bit of that.

Stay groovy

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More from @KrisAbdelmessih

7 Oct
Lots of new followers. Presumably option-curious.

A bit about me. I traded options on the floor for 12 years (8 at SIG, 4 with a backer). Mostly commodity futures and ETFs. Equities and indices very early in career.

Spent next 9 years a PM at a vol fund. Left trading in March.
I share stuff (non-alpha...more meta or basics that are less appreciated)

I'll put some resources in this thread for those that want to learn further:
My writing is hosted on my wordpress site MoontowerMeta. Blogs are chronological which is a crap format for this content so all my writing is indexed here.… Image
Read 7 tweets
7 Oct
Felt cute and looked at some nat gas options on CME's website.

Let's go on a little ride to talk about trade prospecting.

We are going to need some background...… Image
The first thing to understand is the widowmaker spread in commodities is the famous H/J futures spread.

This was the football famously tossed between John Arnold's Centaurus and Brian Hunter's Amaranth.

@HideNotSlide did the story
The reason it's a widowmaker is because the spread can get unruly.

The March future, henceforth known by its future code (H), represents the price of gas by the end of winter when supply has been withdrawn from storage.
Read 42 tweets
7 Oct

Scale price changes by implied vol and ignore noise.

Daily= change on day * 16/IV from yest

Weekly=change on week * 7.2 / IV week ago

Monthly= chg on month * 3.5 / IV month ago

Put your watchlist on the x-axis, enable barchart.
This is pretty much how I looked at all price changes. If the absolute value of any of the numbers was greater than 1 than the asset moved more than 1 implied standard deviation.

Set a filter for what size moves you want to see.

Clean way to look at how markets changed
This is what I call self-care
Read 4 tweets
4 Oct
Perhaps unpopular take:

It's a gambling hobby whitewashed as "investing".

The SNR is so bad that most "investors" in liquid names will never know if they had an edge.

I can save them them the anticipation.

They don't.

Their saving grace...
The vig is so tiny that they are playing blackjack for almost free. So the variance will swap the neg edge, encouraging winners to delude themselves that they are good at investing.

And from POV of giving the people what they want, it's working. Cheap casino.
Is this complex "blackjack" a good use of time? Probably as good a use a time as video games I guess.

If the entertainment we know as "markets" gets teaches you skills that's like getting comped by the casino host so much that you might come out ahead.
Read 13 tweets
1 Oct
There's so much that can be explained about what a mm thinks about and what tools they use when they handle a show. After so many reps the mental checklist and "feel" of the call is automatic but dissected it's prolly interesting to the corners of fintwit.
A really simple example would be someone soliciting a quote for a risk reversal. Take a symbol like URBN.

You are thinking about the class of customer the broker represents, where you are in the brokers pecking order.

Then you think about the stock itself.
What's the liquidity in the shares? What term do they want to trade? Are they looking to collar stock or disguising a skew trade? Well is it delta neutral or live?

How's the borrow? Confident in div dates? Are the screens stale or a good indicator of the fair vols for the name?
Read 15 tweets
30 Sep
I feel like I should make a video describing exactly what happens when a broker calls a desk with an option show.

Might be NSFW.

Seriously the signal chain from phone call, to the print on an exchange floor is not widely understood.

Announcement, crossing and blocking etc
The adverse selection of your order not being blocked. How the floor traders free roll off that moment. Why prop shops have people on various floors so they can block orders from crossing without getting their tribute.
Something important to realize is that anything represented by a broker on the floor of an exchange is considered "public" info since anyone can access that info by hiring a broker

Phone negotiations that result in an order/ trade are private until they are "announced" on floor
Read 11 tweets

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