Thread by @dampedspring

$JHEQX post mortem
I lost money on a trade that I had tweeted about and researched for many months. As trading for profit is the standard for me I did not achieve my standard. So a number of things come to mind when reflecting on this episode. 1.Did I make a specific mistake?

2. Did I miss something important in the basic research?
3. Did I underestimate various players behavior
4. Did the high profile of this trade squeeze the edge out of it?
5. Did I miss other macro forces today?
6. Did I make a reasonable bet?

The answer on reflection is mixed and on balance I was modestly over confident that I could make better than a coin flip odds win. I may have been unlucky. But I am pretty sure I didn't have enough alpha to bet. Thankfully I bet small.

1. Did I make a specific mistake in my basic research. Nope. There was a net buy created by the roll of the collar. I checked my work with many credible sources famous on this site and even ultimately directly with @jam_croissant there was a buy.

2. Did I miss something important in the basic research. Again not really but I sort of because I misjudged players directly involved willingness to take bot print risk and market risk on the roll.

3. Did I underestimate various players behavior. Yes. Definitely. As I said The players directly involved were willing to take on more delta and print risk than I expected. Furthermore I missed the ability for market participants to line up other customer orders to lay off risk

4. Did the high profile of this trade squeeze the edge out of it? Probably. Last September I was less followed but also all over the roll. I made money selling on the way down and buying the bottom. So this quarter I expected a large impact again. This should have been a clue

When a thing becomes a meme beware that there is alpha left. I did get some comfort that there was a large disagreement regarding the details of the trade. Because I knew that I was correct regarding the detail I thought edge was existed. As I said I think the edge is gone

This trade is well known. Plus as I said the mistakes I made in how people were going to behave and what was also crowded with new people guaranteed the odds were not in my favor

5. Did I miss other macro forces today? I study and estimate month end and quarter end flows carefully Including rebalances of fixed benchmark funds, pension funds, CTAs, and vol targeted and flows from hedge fund redemption and subscription I have a good sense of what is coming

However what I missed was the sheer level of liquidity that all these flows provided and how little the net flow from $JHEQX mattered in the scheme of things. Tbh the day was a complete non event. It's not like I as long and the market got crushed

6. Did I make a reasonable bet? Looking back I would say my bet size was very small and reasonable but probably shouldn't have been made given the things I got right and the things I got wrong. I may have had 50/50
Odds but not much better than that.

I provide this thread to own my trade, describe my correct and incorrect analysis and allow others to transparently see how I post mortem a trade whether the outcome went for or against. If I have a 60% edge I will be wrong 40% of the time. This time I didn't have that edge