Managing theta in the DS Alpha portfolio - 201
4 months ago I wrote out the embedded thread which discusses how I use options in the DS alpha portfolio. Clients asked for a followup to strictly relate to how I manage theta. That thread follows

https://twitter.com/dampedspring/status/1518194750255505408

I use very specific options strategies based on the framework above. Long options. Long 1x1 spreads and short 1x1 spreads. That's it. This thread will be about those trades but the basic lessons are similar.
When you buy a call option you are betting that stock will go up

A certain amount or more in a certain time. That's it. That's your risk. Along the way you have a lot of mark to market risks and things fluctuate. But at the end of every trading day the price of the option reflects the same thing. A gain that begins at the strike price

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Andy Constan

@dampedspring

Aug 11

The damped spring alpha portfolio started on April 2019 since then it has done 214 trades of which 59.3% have been winners. The total ITD a return has been 42% and YTD has been 11% ish based on todays mark legal disclaimer below

In no way is this investment advice or a solicitation for investing. This track record is me posting for my own purposes of journaling my trades and their outcomes and does not in any way suggest future performance.

Every single trade was posted live as it was being executed to clients

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Andy Constan

@dampedspring

Aug 11

Macro diversification of bets 101 - I bought bonds today. People asked why and asked if it had anything to do with my equity bet. The answer is nuanced. If you are equally good at poker and playing golf for money and your systems say it's a good opportunity for poker put some

chips down. If at the same time Golf system is saying play golf great. Get a match too. When both are firing your sharpe ratio is going to improve because those two alpha streams are presumably completely uncorrelated and you get a diversification benefit. Adding other alpha

Streams like trivia night or fantasy football or fight night. And play them all when you have an edge.

In investing because at any point in your collection of alpha in various asset classes you have a snapshot portfolio that means you are subject to the correlation of your bets

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Andy Constan

@dampedspring

Aug 11

On 6/29 I went max bullish Equities due primarily to global portfolio's having delevered over the prior six months that was driver either explicitly or much more importantly implicitly using a vol targeting approach to portfolio risk. Essentially delever as portfolio risk rises

Having worked with portfolio construction topics and with many risk managers throughout my career the drivers of such deleveraging are individual asset volatility and diversification benefit. The tricky part is how to forecast ex anti portfolio risk. For me I dont have to

predict ex anti portfolio risk I just need to predict what others will use and act upon. That signal triggered in late June suggesting that models for deleveraging had reached peak ex anti risk and further deleveraging was unlikely. Notice that ex anti portfolio risk estimates

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Andy Constan

@dampedspring

Aug 10

@elonmusk

So @elonmusk said he is "done" selling this time. He has raised 15BN for twitter in sales since the merger announcement. He needs to sell another 6BN or have equity partners commit. The balance is debt and debt collateralized with stock margin loans which presumably are still

https://twitter.com/dampedspring/status/1557190689603162113

Committed. It's possible that he may have to sell the additional 6BN and of course the margin loan portion of 12.5BN May get jeopardized by a fall in $Tsla stock but he is in much better shape to handle an "adverse" ruling which would force a purchase of $TWTR. Well done!

A couple of things. His public tweet of last night has some legal meaning when he says he is done. I'll let others judge how long that prevents him from outright selling. However he also said he would repurchase shares of $TSLA if he is not forced to buy $TWTR. Two relevant

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