People say a lot of things about trading, and most of it is worthless.
So it's useful to be able to quickly discard ideas.
Let's take an example...
Many in crypto, including @zhusu, will tell you that buying new highs is a good plan.
Is it? Let's have a look...
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It's important to understand that discarding ideas is a lot easier and quicker than verifying ideas.
Your mission is not to do the most perfect simulation of reality from the offset. You'll waste a lot of time doing that.
You want to do very quick data analysis.
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Plenty of time to go deep later.
We: 1. pull daily price data for all FTX spot contracts 3. for each asset for each day, calculate the 20d high 4. calculate the distance in days from the 20d high 5. calculate next day log returns
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And, is it just me, or is getting absolutely balls long a concentrated hugely negative-carry bet written and marked my a more powerful counterparty, essentially a masterclass in how NOT to trade?
If I were Burry then, instead of having a cringe boomer Twitter meltdown, I would simply put on some My Chemical Romance, do some blow with some goth hookers, and blow off steam the old-fashioned way.
You buy a call option in a heavily pumped meme stock you think is going to keep going up.
You were right, it keeps going up!
But your call is losing value. Why?
🧵for those who shouldn't be trading options but are going to anyway!
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Without a good mental model, then the price of an option contract may appear to change in confusing and magical ways.
With a good model, you will understand the most important dynamics intuitively - without needing any complex maths.
This is the 101 before the 101.
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[A quick administrative note so I don't confuse anyone:
To keep it simple we're going to inhabit a world where:
- options are European style
- interest rates, risk-premia, dividends, and other carrying costs don't exist.
i.e. we're gonna inhabit a risk-neutral world]
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