Moontower #232 - Party at the Moontower

Friends,

This tweet rubbed me the wrong way.

No shade to the author. He’s just making an observation. I have no bone to pick with its truth value. The tweet bugs me because it is a poignant reminder of how easily we are manipulated.

A few comments on status generally.

There’s a lot of discourse about status games, luxury beliefs, status legibility, and even status-as-a-service.
Status is scope dependent. Every subculture from gamers, to social justice warriors, to Yakuza, to Maori tribes has its own status hierarchy. You might be a lowly admin at work but be the greenest thumb in your gardening group.
Status liquidity varies. Airlines are never going to invite current and past Grand Wizards of the KKK to board with the active military. Meanwhile being rich/famous appears to give your words more weight even if your source of status has nothing to do with your thoughts being worth a spoon of sand. (I think one of my favorite discoveries in the world of permissionless posting is watching wildly successful people accidentally reveal how little intelligence has to do with making money — since brains like height aren’t evenly distributed this is a delightfully egalitarian conclusion. If you’re keeping score, the flipside should also get a point — smart doesn’t equal effective.)

Reality is in the room with us — status games are unavoidable. We are social creatures who use status to compress information. But the tweet bugs me because it reminds us that the speed of heuristics has a cost. In the same way tests narrow the definition of learning in the name of scalability, the tantalizing aroma of status cheese lures us from fuller definitions of growth.

Status is a zero-sum game. If money or abs are prestigious but we all get richer or take ozempic then status transfers from achieving objectively desirable ends of wealth and health to having these things more efficiently — can you be rich while also wearing flip-flops? If you have abs but work out 4 hours a day for them then your status goes through the other side of the Pac-Man map to “Jersey Shore reality star”.

The tweet is a reminder that status symbols change. It’s fashion. The symbols go in and out of style. If you orient your heading to those goals by definition you will fall behind the curve. If everyone is fashionable, nobody is.

You’d have to be a real piece of bread to read this and be like “oh my god I need to stop chasing these status markers”. Status-seeking to the point of self-detriment is more insidious. It takes the form of copying which we were built to do. Approval-seeking monkeys hacked by social proof. In the age of “you need 12.5 min of sunlight right when you wake up, followed by a 59 mg titer of nootropics…” you are playing adult Pokemon Go where the goals are set by people who believe in 3-figure probabilities. (Hey, sometimes the mask slips and you see the structure of the game.)

I’m not above status games either. Nobody is. But I don’t see any specific thing like a “meeting-free calendar” and think this person is “free”, “absolved”, or “in-control”. Because I have no idea what that feeling means to them. Anyone who thinks otherwise is projecting what they think it would mean to them. I’m unprepared to draw conclusions from such observations.

I’ll tell you what impresses me broadly.

People who look forward to Mondays. People who struggle to sleep because they are so stoked to be awake. This is a person who excels at something they enjoy and has the opportunity to do it. It doesn’t mean their life is free of things they don’t want to do. But their energy is directed towards activities that adequately solve their earthly needs for food and shelter and well-being needs for self-expression & autonomy.

This is messy.

Nobody is “arrived”. You’re always en route.

But it’s the most liberating thought if you let yourself take it seriously.

I love McCaughnney’s advice to never look at the scoreboard. That’s how you choke. You just run through. Through the endzone. Into the tunnel. Let’em tell you you scored when you’re gone.

Persist, ignore the crowd (but not the opinion of those you deliberately accommodate — this list should be small — you cannot serve everyone), and realize that course-correction is a constant.

The original tweet is irksome because the list unjustly narrows the imagination in a way that obscures the broader spirit — intentionality choosing your compromises. To many, the ultimate status is not having to make compromises. This is a childish view. Life is risk. In ventures and relationships. Risk is vulnerability and vulnerability means compromise. Being able to choose your compromises is a more reasonable asymptote to strive for.

All of this thus far is me engaging the tweet at its face.

But I have a red pill reaction too.

The tweet is a clue to the illegitimate foundation of status — the projection of desire that intersects with evolutionary fitness. We are obsessed with images, youth, and vitality but we live well past reproductive age.

Which makes the most underrated form of status — grace. Navigating our common compromises with courage and integrity instead of fantasizing about controlling them. (I said “underrated”, but “unrated” closer to the truth.)

Look around at who has status. How many of them do you think have honor? Too often we confer status by standards that are bankrupt. Just like a test we are taught to.

Money Angle

My friend Rajiv, the actuary who wrote Life Settlement Arbitrage for Moontower is writing an amazing behind-the-scenes series on the game theory, incentives, and alignment in financial advisory.

The idea that there are conflicts of interest in brokerage, insurance, and wealth management is beyond cliche. But Rajive breaks them down in ways that I have never seen nor appreciated previously. It debugs the system to make you think about how you can get the most from advisory or reconsider the value of the relationship and how you pay for it.

Rajiv isn’t pedantic but plays the role of a highly informed guide demonstrating extensive business and technical knowledge on his tour.

Game Theory and Financial Service (5 min read)
When Your Oil Change Costs $10,000 (4 min read)
The Benefits of Inequality (6 min read)

Money Angle For Masochists

I’ve been narrating my small GME trade this week through this substack and twitter.

On Friday I rolled my short June 20 calls to the 25 strike. I narrated my thinking on twitter but I’ll re-print it here. It’s a combination of real-time thinking and some meta-thoughts about trading as well.

Sharing my monkey thoughts as i mess around in GME… I’m long that 20 lot of June 20/30 call.

Rolling the position

Despite the stock being down today, the 30s are eroding as vol is declining so the spread actually upticked in value.

I’m also looking at the june 20/25 call spread:

The spread value has increased a lot. The vega on these options is small but not totally negligible. Look at the IV spread…it’s fallen 14 points today on a spread with a penny of vega – that’s a 14c rally in the spread on a delta deutral basis! Since the spread is only .23 delta, the vol change has kept the spread little changed despite the stock move.

I decided to roll my short 20s into short 25s.

So I sold the June 20/25 cs. I was filled at $3.71

I was long the June 20/30 cs from $2.08 but collected $3.71 on the 25/30 cs.

=> On balance, I’m left long the 25/30 cs for a $1.63 credit.

Thinking behind the roll

The roll was driven by a sense that the risk-reward on the 20/25 cs at $3.71 is not as great as owning the 25/30 for a m-t-m level of $1.60.

I’m synthetically “selling the 20/25/30 fly” in my reasoning.

This is a mix of seeing the strike vol changes today and feel. This may sound woo woo. If you require higher standards of trade discretion I can understand that but for the most part this is kinda what trading looks like for all the nerdom that gets bandied about.

GME is a name that doesn’t lend itself to data analysis or cross-sectional triangulation.

[Also, these are microscopic stakes —the original trade only risked about $4,200 and was only 1/5 of the size I wanted to scale into. Unfortunately, the call spread went straight up in value after I was filled and I was too anchored to chase]

In a professional setting, you will be more plugged into flow which tightens the reasoning and timing plus better execution tools/costs, but the mental progressions of a MM very much rhyme with mine especially in idio situations.

The value of tracking

After selling the 25/30 call spread, I stored it in my watchlist on a delta-neutral basis vs the stock price reference I sold it against to track its performance and my fill quality.

The market on a delta-neutral basis is $3.52-$3.89, I sold at $3.71.

June 20/25 call spread

I noticed as the stock went down my fill marked better and vice versa.

This can be an artifact of market widths in the legs esp since both calls are ITM but if you can rule that out by tracking the counterpart put spread instead (CS + PS = Box so you can translate the 3.71 cs as a 1.29 PS) you can get a fingertip feel for how the skew moves as the stock changes by watching a delta neutral price move. I used to do this for lots of structures. They’d be in my window for weeks so I can see how certain large trades worked or not.

Experience is a repo of unstructured data

Overall, these little habits accumulate as a big unstructured data repo otherwise known as experience. Discretionary trading uses “science” for measuring. models, dashboards, stat studies. But the trading is a boardgame sitting on top of that.

Systematizing

Systematic trading is different. I sat next to people running large systematic strategies. It’s piloting & auto-piloting a more diversified strategy, less chunky risk but it’s not an alien approach. It’s also inspirational because you can port measures and ideas from it

I never really figured out how to systematize my trading from end to end. I like to say discretionary trading is just trading without ignoring unstructured data. The unavoidable pitfall is part of that “unstructured data” is bias however.

You can fight that with a team of people conscious of behavioral biases because while it’s hard to debug yourself it’s easy to call out others’ blindspots. You can help each other. (see Trading Is A Team Sport)

moontower.ai

It’s funny as I’m sandboxing analytics to develop for moontower.ai, I’m always thinking about how to pre-chew ideas for users.

There’s always a balance between legibility and user effort. If investors just hand you money to manage for them, it requires no effort for them but they have no control over the trades or process.

At the other extreme, you can give a user a Bloomberg terminal where they have full control but need to make all the decisions.

For a retail user this trade-off requires tremendous thought. You could just feed someone a signal without teaching them how to fish. When the signals don’t work they’ll churn. Or you can teach them how to approach their goals methodically understanding that there’s a learning curve. It takes more effort for the user but for the person who wants to learn to fish it’s the only way.

moontower.ai balances being opinionated but not signal-driven because it inherits the exact trade prospecting funnels I used as a discretionary PM.

We can see the seeds of signals in our “axe list” concept. It’s just a roadmap idea at this point. But some of the data play I’m doing for this coming week’s paid post looks like it might be a source for another analytic regarding skew.

As a reminder, if you’d like to signup for moontower.ai as a paid user, a moontower.substack paid sub is included.

We also have a fully automated affiliate program. If your audience would be interested in option analytics with a point of view…you can sign up to be an affiliate and get $100 for users who sign up.

$ Become A moontower affiliate

Arb in ADBE options? (twitter thread)

A Twitter friend thought he might have found an arb in the ADBE options that could be exploited by a trade known as a ‘conversion’. It was a false alarm but if you scroll through the thread you can learn a lot about computing implied rates and the details of how to execute the conversion arbitrages. They don’t sit around in plain sight but this is the masochism section so if you want to learn the thread is a real-life process of noticing something that looks off, getting to the bottom of it, and learning a lot about options in the process.

From My Actual Life

Happy Father’s Day!

A mid-June Sunday is always a good time to indulge some dad rock (and try a new instrument!)

Stay Groovy

☮️

Moontower Weekly Recap

Refer a friend

Need help analyzing a business, investment or career decision?

Book a call with me.

It’s $500 for 60 minutes. Let’s work through your problem together. If you’re not satisfied, you get a refund.

Let me know what you want to discuss and I’ll give you a straight answer on whether I can be helpful before we chat.

I started doing these in early 2022 by accident via inbound inquiries from readers. So I hung out a shingle through the Substack Meetings beta. You can see how I’ve helped others:

📲Book A Meeting