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4 Nov, 4 tweets, 1 min read
Good morning! FOMC came and went, and there wasn't any surprise to speak of. Two things are keeping me from bull hands right now. The first is yesterday a ton of index calls were bought. That means there will be a stabilizing force in the markets keeping them from going up.
At least until a certain level, which appears to be roughly 4850 (a long way to go). That doesn't mean downside is imminent, but it means that long gamma bullish is not the answer. Put vanna still higher, but call vanna is stronger than normal.
The 2nd issue is 3Dec the debt ceiling is reached once again. 2 months ago this happened, result was a downside bleed. The bleed was slow, and the gamma flip point is far below us (4480). Base case: the next week, flat indices. Then downside bleed until debt ceiling is resolved.
Stay gamma negative, slightly bullish to neutral delta. I'm keeping my same trades on I had on before FOMC, might turn my hedge into something more bullish today.

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More from @WizOfOps

The Wizard Of Ops Profile picture
5 Nov
1/Trade Planning Part 4 - Edge

Reminder, here's the 4 parts of any trade:
edge -> setup -> trade plan -> execution.

If you missed the other sections, check out my history.
2/Edge is the opportunity you have identified in the market that provides profit. It is the “alpha” everyone talks about. The term alpha comes from the expected return curve on a log scale chart where the price is the y-axis, your metric is the x-axis.
3/I’m sure you remember the simple formula Y = bx + a… beta is the b, alpha is the a, so if the a is positive (the y intercept), that means even if x doesn’t do anything, you make money. Edge is the highest order of trading, so it is tough to recognize if your thesis has edge.
Read 12 tweets
The Wizard Of Ops Profile picture
4 Nov
1/Trade Planning Part 3 - Setups

Reminder, here's the 4 parts of any trade:
edge -> setup -> trade plan -> execution.

If you missed the section on execution or trade planning, check out my history.
2/A setup is a scenario when you recognize your edge exists and there is enough liquidity to formulate a trade plan. For example, in my "overvixing" metric, when VIX deviates from the regression by enough, there is a setup.
3/I hear the word setup a lot in technical trading circles. “I see a possible 1-2, i-ii, I-II setup and the market will go up for 3 years straight.” or “I see a bull flag that above price X, this will extend to Y.” IMO, these are not setups.
Read 11 tweets
The Wizard Of Ops Profile picture
3 Nov
1/Trade Planning Part 2 - Trade Plans (too alliterative for you? lol)

Reminder, here's the 4 parts of any trade:
edge -> setup -> trade plan -> execution.

If you missed the section on execution, that was yesterday, check out my history. Anyway, here goes:
2/A trade plan is an entrance and exit strategy designed to extract your edge from your setup. The more efficient your trade plan is, the better your returns on your edge are. A trade plan involves tools, using stock, options, futures, etc. These tools need to be used correctly.
3/Before you use a tool, know exactly what it is, practice with it, learn it. I identified options as an important tool due to its convex nature, where equities alone have a more linear nature. Learn your tools before you use them. Do not be Alex Kearns. cnn.com/2020/06/19/bus…
Read 11 tweets
The Wizard Of Ops Profile picture
3 Nov
1/ A 4-part thread on trade planning. Part 1

This is an amalgam of a lot of reading, so it isn’t attributable to a single source. This functions as the framework for my trading.

Some definitions:
2/
 A trade succeeds or fails if it works as it is designed. Success and failure isn't winning or losing. You can lose but have a successful trade.
 Return to Risk (R/R) = (Probability of success * reward)/(Probability of failure * risk). Should be >1 every trade
3/
  Your trade thesis is what about the market your trade is trying to capitalize in your favor.

 The natural flow of a trade is: edge -> setup -> trade plan -> execution. If any of them are lacking, your trade’s success chance plummets, but they can inform each other.
Read 10 tweets
The Wizard Of Ops Profile picture
1 Nov
Good Morning! VIX doing its usual Monday thing, slight overvixing, creating a VIX up/SPX up dynamic. The odd thing is, the normal undervixing wasn't done last Friday, suggesting further hedging for FOMC. It also suggests more liquidity injection, since we are still melting up.
Since these are ad hoc CMBs, there is no way of knowing how much are going to be issued, or how much there is left to be issued. So I maintain an slight positive delta, gamma negative trade that is hedged. Looking forward...
We recently had a debt ceiling scare. We are looking at almost the exact same scenario as 2 months ago wrt market action. So it is time to start planning accordingly.
Read 6 tweets
The Wizard Of Ops Profile picture
7 Oct
The $SPX/ $VIX relationship

This is a thread about one of the market correlations that has been consistent over the past decade+, although I will be focusing on 2018-current. The SPX/VIX relationship everyone *knows* exists, but only assumes the correlation and its meaning. 1/13 Image
$VIX is many things, but at its core it is a measure of implied volatility (IV) on $SPX. This represents the supply and demand in $SPX options. The demand comes from customers while the supply primarily comes from centralized market makers (MMs). 2/13
Because the MMs have more uniform goals (to isolate and collect premium on their options), the supply side is much easier to analyze. When you look at the SPX/VIX graph, you can’t help but notice how correlated it is. 3/13
Read 13 tweets

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