Lots of fun stuff to learn today about options. Jumping right in. GLD and USO On the weekend of August 18th I pointed out that GLD ATM vol looked expensive as of the close on August 16th. I wrote about the setup and the performance after a week in the following posts respectively: Flash post on GLD vol (8/8/24) how many coin flips until your goal? (8/25/24) I did not put anything on myself as I prefer to stick to trades where my vol lens and directional bias overlap. I have no opinion on gold. It’s a small part of my overall asset allocation as is other crap I don’t understand like BTC and ETH. If my well-being in life ever r

One of our pro subs sent us a note this weekend: Subscriber update: I’ve had a really successful first month with my moontower built trades. I’ve just been buying cheap vol verticals and diagonals, time spreads and selling expensive credit spreads, fine-tuning with the skew screen, playing the macro uptrend. Been helping me see the surface better, especially because never knew how to look at the surface before. Same with skew. This is my novice approach (8 year experience, retail). Thanks for constantly improving the site. A challenge that we totally anticipated in opening moontower to subscribers is retail options trading tools are incentivized to dumb down options. We are always trying to balance the challenge of simplification with the reality of options — 

I recently built this cockpit view to see what’s going on in markets. I’ll be iterating on it as well as creating a page to incorporate my portfolio so I can do some high level bucketing by asset class, vol weights, and portfolio correlation. It won’t take much to get it to a suitable template for the personal account. I’ll probably add proxy benchmarks to mimic private fund holdings that hold public securities. However, there won’t be accounting for angel investments. I hold them at cost on the spreadsheet and at 0 in my brain regardless of their “valuation”. If anything hits, I figure my kids will thank me one day. If not, and I trained them well, they’ll drag me over the foregone beta return. They own a lookback option on our sense of guilt. That goes beyond finances I’m sure.

Note: This is a trade I’m looking at. I’m not an advisor. I get hunches, I cross-reference them with pictures I have a hand in creating, I fire and then I go back to writing, tinkering, and ignoring what the world tells me to look at. Anything that rattles in your brain from my thoughts or existence are at your own damn peril. WTI has given up all its gains for the year after falling the last few months and another 3% Tuesday after OPEC revised demand growth estimates lower through 2025. Commodities are telling a bearish story for the world economy. The BCOM index is down 5% for the year and over 12% from its May peak. There’s a risk-of

This post starts with a response to a reader question but leads to a deeper question — do arbitrage-free prices present opportunities to fundamental or directional investors? One thing I’ll be doing more of is sharing my answers to reader questions. Here’s one that channels a topic that eternally confuses option investors when they learn about skew (emphasis mine): In your excellent article Lessons from the .50 Delta option, you wrote that by bidding up the put skew, the market makes call spreads more expensive. Combining this with your insights on the deeper understanding of vertical spreads, implied distributions, and thinking of spreads as odds, I was left wondering how the steepness of the skew relates to ou

Just based on my local observations, it still feels like the bid-ask on residential real estate is wide. I wrote Staring Out The Window in October 2022: Musing #1: Bid-Ask Widening A year ago the people that paid ridiculous prices for RE were market orders. “Fill me at any price”. Many of them were immediately in the money (ie they probably could have turned around and sold a month later for more. Maybe not net of transaction costs but you get the idea). This isn’t shocking. When optimism turns to euphoria, the rate of change of the returns themselves can explode into a parabolic curve. Of course, such curves are unsustainable. The smug moment of being in the money is short-lived in the same way that a fund tha

Equity markets have been crazy. In my caveman view, we just left a world where volatility markets were searching for vol buyers. The “job to be done” in options was to find a way to accumulate options without bleeding out. Selling had become too popular. At this moment, I suspect risk groups of discretionary capital have put yellow police tape on the option sell button. The market is now bidding for sellers so that’s probably the side that offers compensation. Do this at your own risk of course, shorting vol or anything for that matter is hard because it’s hard to time but also because it has diabolical math — if you’re wrong your losing position becomes bigger while your equity shrinks (when longs lose money the losing position becomes a smaller percent of your equity). Managing trad

SIG’s Todd Simkin went on Ted Seides’ Capital Allocators podcast recently. I’m biased but Todd’s interviews are some of the best you’ll find in finance (also SIG interviews are rare to come by). Come for the discussions of risk and trader education, stay because his personal stories are highly thought-provoking. My notes on his prior interviews are some of my most-read podcast summaries. Notes From SIG’s Todd Simkin (35 min read) 5 Takeaways From Todd Simkin on The AlphaMind Podcast (11 min read) I didn’t do a full breakdown of this one but I’ll point you to a few key parts. Ted asks, “When someone’s learning and

The lingua franca of asset management regardless of strategy is returns. But this is not necessarily true in trading. In my own 21 years of trading, it was never even brought up internally. It gets mentioned somewhere far in the background. In vague terms at best. And even then, the context is more of a hurdle than a target. We’re going to talk about this in 2 parts. Today I’ll walk through what this meant in the 3 phases of my career (with plenty of color interspersed): Being a market maker at SIG Running my own market-making group financed by a Chicago firm that backs traders As portfolio manager within a relative value volatility trading hedge fund. This last job was for an entity that was backed by LP money and therefore beholden to the concept, language, and delive

Gather round. Let’s just chop it up in no particular order. On Monday, I fired off an impromptu email with a trade I was doing. Disclaiming of course that it’s not a recommendation. I have no licenses and I’m not qualified to give financial advice. Buyer beware and all that. I sent it to paid subs only. Actually, let me clarify the paywall. Last year I added some paid tiers on Substack. It was like $150/yr. There was also a $500 annual OG tier. For $150, it was just a chance to support the letter and OGs had that satisfaction plus a Zoom or IRL chat if they wanted. In other words, there was no extra content for paying. It was just a tip jar. I support other writers even if the content is free so I understand the impulse. Who am

Just popping in to share my notes on 2 books. The links go to my notes. More Than A Numbers Game: A Brief History of Accounting by Thomas King Advanced Portfolio Management by Giuseppe A. Paleologo I picked up these books because of an interest in the practice of “measuring correctly”. Context always governs what “correct” means. A quote by Paleologo the opens Chapter 8: Understand your performance The Earth rotates around the Sun at a speed of 67,000mph. When I go out for my occasional run, my own speed is in the tens of thousands of miles per hour Should I take credit for this amazing performance? I w

Find the audio here. When I was 22, I thought I hit the jackpot with my job. After bonus season, management took the entire firm to Las Vegas. It’s still a weekend that looms large in my memory, not only because I got sun poisoning but also due to the sheer over-the-topness of it all. There was one moment when I was sitting in the basement of Drai’s at a table with the older traders and one of their friends — the friend was Vin Diesel. I mean, this was Vin pre-Fast and Furious, but still, I had never been to Las Vegas before, and my first impression was pretty overwhelming. It was also peak. What I didn’t understand was that all of this was a one-time dividend. I’m going to talk about what I didn’t understa