Friends,

You can’t swing a cat these days without hitting a prediction of what AI means for humanity. Insofar as it’s possible for someone writing for a wide audience, I’ll share what amounts to some half-baked thoughts that I keep coming back to.

“YOU GET A UI, YOU GET A UI”

I say this as someone who feels some dissonance building an analytics product with charts and tables. The future is just APIs talking to each other. In the future, Zillow’s UI is a mere suggestion. You want the data in a different format? You want inference beyond what Zillow decided goes into a Zestimate? All of that is getting cheaper and accessible to non-technical people.

You’ll go to a site. Maybe. Instead it wil be Siri or Jarvis or Alexa or whatever “I want to see XYZ” and your client-side listener will construct it but it’s going to need access to API that has the data. The data is increasingly all the value while rigid presentations become pointless.

Again, the future is APIs talking to each other. Data becomes increasingly locked down.

On Data Lockdown…

Scarce or exclusive data’s value increases as its complement, inference, gets cheaper. The big futures and stock exchanges are some of the original 2-sided platform businesses. Can see them flexing their quasi-monopolistic might on the data side.

…which might get dark

The fight over data will intensify as well. If you place a bid, the exchange claims that’s their data. But is it yours? Well, it’s of little value to you but whose gonna galvanize the white-collar movement around “hey AI trained on all this data that had little value in isolation, but so much value in aggregate then used it to disrupt US”. It started with the Hollywood writers guilds, but is it crazy to imagine rolling protests as automation eviscerates industry by industry? To see picketers with dystopian slogans like “my data, my choice”.

It’s a different argument than p(doom) objections to AI. It’s not “you shouldn’t have built this” but you had no right to cut me out. It seemed like a bargain when we got “free” email or “free” social media. The tone deaf tech mogul will undoubtedly claim it was fair at the time and maybe that can fly intellectually. But it’s not the clawback by court that will decide. That one happens by pitchfork.

AI Immune

As SaaS gets wrecked, we wonder retains value in the singularity. My working model is:

trust and accountability

Maybe AI can sell my house but realtors have survived fee compression and technology far longer than anyone expects. I think this hints at a still-valid truth. People want to have someone to yell at, appeal to, or simply talk to when it comes to lumpy, rarely repeated transactions.

It’s the “shit umbrellas” theory. The human’s value is not in doing the work but in retaining liability. AI can read the tax code, but my accountant will stand by his work in court.

If you travel extensively for work your relationships are hard-earned. The proof of work is miles traveled or other exclusionary behavior where there was no substitute. Relationships are repos of accumulated, unfakeable work.

The more you can position yourself as accountable the more value you can retain. Being trustworthy and reliable don’t go out of fashion. They will get even more valuable as so much else can be faked.

A strange corollary to this:

Things that were always fake but valuable will stay that way. Like astrology.

A final thought in this thread:

Anyone burning their reputation to the ground thinks either the world is ending or the tides won’t ever turn. Hmm, how would you act if you couldn’t afford for the tides to ever turn?

Art

Art is a big question. There’s will always be a positional scarcity component of it and there will always be genius. The question of whether there will be a surplus of robot genius around as well. We may finally get an answer to would a million monkeys write Shakespeare.

Live performance and sports will stay important. At least until everyone over the age of 10 today is dead. Then all bets are off. I never thought watching people play video games would be popular. I’m now open to the possibility that future people may perfectly prefer robots playing video games or anything for that matter over people playing.

 

I leave you with this interview with the creator of Open Claw. Listen specifically from 8:30 to 10:17

107 seconds and I quote, “Holy fuck”

If you are hanging your hat on cleverness for its own sake or rigid definitions of intelligence, your time is over. I’m not saying intelligence is losing value, but that its truest definition will become obvious — the ability to get what you want out of life. This is the only definition that will matter and the bright side of that is that its more inclusive than whatever school thinks it is.

I was at a local book fair last week where you dump as many books as you can fit into brown shopping bag for $8. It was an epic haul and a great incentive to just snag boogs that seem even remotely interesting.

I picked up this 1957 classic by C. Northcote Parkinson. I was familiar with his eponymous law, which states “work expands so as to fill the time available for its completion”.

This entire book is an extraordinary, laugh-out-loud, pull-no-punches satire. Parkinson would have been an absolute master at Twitter. The law itself is satire wrapped around a specific observation. The way he formalizes the argument is pure art, even ending with an insane equation (he constructs hilarious equations throughout making the book feel like a tongue-in-cheek treatise on social physics).

Satire, notwithstanding, it sure feels like the very thing Parkinson’s Law pokes fun also holds the key to our salvation if AI just does all the work. So that’s where I am now. Placing humanity’s hope on a joke by a British naval man whose skill with the pen is such that I want to vibecode a Parkinson writing voice app.

 

 

Money Angle

As an example of “everyone gets their own UI” I whipped up a Dashboard page where I can add modular tools.

The first tool I added is something I call the “Financial Analyzer”. The seed of the idea came from an education POV. I’m teaching this Investment Beginnings Class, but I myself am a novice at reading balance sheets and income statements.

Pre-AI I would want a teacher sitting next to me explaining what sticks out to them. In minutes I was able to make a site where I give it a ticker and range of years and it pulls the filings from the SEC’s Edgar database. But the best part is Claude can act as the teacher and write its own summary of what it sees from year to year. I’m not saying this is going to be human expert level analysis but that is not the bar. I’d just like to pull up a stock and get a quick orientation through the years.

I could even feed the analysis back into an LLM to have it explain it to me even simpler.

I happened to pick up Neal Stephenson’s Diamond Age from that book fair I went to. You can build your own “Young Lady’s Illustrated Primer” now. It’s a bull market for learners out here.

The video below shows how the tool works. I’m not sharing the tool publicly because the analysis layer uses Anthropic tokens but this description is from Claude and is probably a good enough prompt to make it yourself:

A browser-based tool that pulls structured financial data for any US public company directly from the SEC’s EDGAR XBRL API — the same data companies are required to submit with their 10-K and 10-Q filings. No third-party data providers, no API keys.

• Enter a ticker, pick a year range, and get collapsible income statement, balance sheet, and cash flow tables going back to 2005.
• Toggle between annual and quarterly views.
• Every line item shows the exact XBRL concept tag it maps to, so you can trace any number back to the original filing. A “Raw XBRL Data” tab exposes the complete set of concepts the company filed — not just the ~40 our template covers — with search and filtering. Remainder rows flag where our template’s sub-items don’t sum to the reported total, so nothing silently disappears.
• An AI-generated analysis summarizes trends across the full time series.

Stack

• Single HTML file (no framework, no build step)
• Vercel serverless functions for the SEC proxy and Claude API calls, hosted on Vercel’s free tier.

Data endpoints

• www.sec.gov/files/company_tickers.json for ticker lookup
• data.sec.gov/api/xbrl/companyfacts/ for filing data.

 

Money Angle for Masochists

My new podcat series with Outlier Trading is up. The first is a short one just to set the stage for what to expect from weekly episodes.

We released a second one on Friday because, well, oil is interesting.

Visual Derivations

This week I re-published a foundational option post on X articles.

🔗👿The MAD Straddle👿

It’s a beast of a post that I orginally published in the format of a Socratic homework but in the X format you can basically read straight through it.

It covers:

☑️The relationship between MAD (mean absolute deviation) and standard deviation
☑️how to approximate a straddle value without a model
☑️a visual derivation of the approximation
☑️see how the straddle is the MAD
☑️gain an intuition for how skew and fat-tailed distributions distort the relationship between straddle prices and volatility
☑️see practical situations where ATM straddles and therefore volatility misrepresents risk

Sometimes these learning posts go over a lot of material so I think it’s helpful to point out what parts of them are most interesting to me personally. In this post it’s the section Lessons from a Skewed Coin and how standard deviation and in turn straddles are deeply misleading representations of risk when a distribution is highly skewed such that the mean is balancing many frequent events in one direction verse rare but large events in the other. I talk about how this shows up in familiar investing scenarios.

The other concept in here I like to emphasize, in no small part, because it’s legit fun is the visual derivation of the straddle approximation that states the straddle is 80% of the vol.

The derivation:

The mean of the distribution

We want to estimate the straddle. The mean of the underlying stock distribution is centered around the forward price not the at-the-money price.

We will estimate the at-the-forward (ATF) straddle.

This means we are estimating the straddle struck at the ATF strike.

The ATF strike occurs at the ATF price:

Approximating the ATF call option

This is the meat of the work.

[It requires no more than pre-algebra.]

Let’s go.

While we want the straddle, let’s start with the ATF call option.

 

We established 3 identities that occur at-the-forward:

Now we just plug these back into the B-S formula for the call.

Hmm, this looks fairly docile. Stare at it hard. The next section will feel good if you like geometry!

The underlying distributions for B-S is that stock prices are lognormal. The prices are lognromal but logreturns are normally distributed.

This is handy because normal distributions are familiar to work with.

d1 and d2 are like Z-scores on a Gaussian (bell) curve of logreturns!

The probability density function (PDF) for a bell curve:

 

The center of our distribution is an expected logreturn of 0 corresponding to the forward Seʳᵗ

The peak of a bell-curve at that forward price corresponding to a logreturn of 0. For the standard normal curve we can assume σ = 1

Plug 0 into x of the PDF:

 

Let’s bring this all together into a picture:

 

Understanding the picture

The value of the ATF call is the integral of the PDF between d1 and d2 but we can estimate it!

height x base x forward price

 

 

Note: This will slightly overestimate the value of the call (see the overestimated region in the picture

To go from call price to the straddle, we remember that at-the-forward strike the call and put are equal because of put-call parity!

The rest is easy:

The straddle is the MAD!

The volatility, which is computed just like a standard deviation, gives large moves extra weight. But the straddle is a better reflection of what move size we typically see.

It will cost you .80 of the standard deviation to buy a fairly priced straddle. Let’s plug that into a normal curve’s cumulative distribution function:

💡Theoretically, if the straddle is fairly priced:

• it will expire in-the-money ~ 42% of the time
• despite the low “hit rate”, it’s fairly priced because the payoff on larger moves balances the expectancy

 

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• at least make the conspiracy make sense
• how a high implied vol can be cheap
• Welcome to The Options Trench Podcast

In this issue:

• white rabbit
• a downside of trading careers
• oil options, Iran, Polymarket

Friends,

I’ll be short up top here today as the Money Angle sections are longer than usual. This is just something fun.

My adult ensemble band played a short set at Norm’s in Danville on Thursday night for “rock band karaoke”. Our set list was High and Dry from Radiohead, You’re Love by The Outfield, and finally White Rabbit via Jefferson Airplane and written by Grace Slick.

White Rabbit is one of my favorite songs because of how it builds, a signature feature of just one of its many eclectic influences, the Spanish bolera. If you’re into song origins this was a great watch.

Apparently, Slick wrote the song after listening to a Miles Davis record for 24 hours during an acid trip. The lyrics reference Alice in Wonderland:

One pill makes you larger
And one pill makes you small
And the ones that mother gives you
Don’t do anything at all
Go ask Alice
When she’s ten feet tall

And if you go chasing rabbits
And you know you’re going to fall
Tell ‘em a hookah-smoking caterpillar
Has given you the call
He called Alice
When she was just small

When the men on the chessboard
Get up and tell you where to go
And you’ve just had some kind of mushroom
And your mind is moving low
Go ask Alice
I think she’ll know

When logic and proportion
Have fallen sloppy dead
And the White Knight is talking backwards
And the Red Queen’s off with her head
Remember what the dormouse said
Feed your head
Feed your head

Money Angle

Ex-SIG quant trader, friend of the Moontower, fellow Substacker Whirligig Bear and prediction market enjooooyer Andrew Courtney went on the Odds On Open with Ethan Kho.

(Ethan’s pod is totally catching fire with his great guests and interviews. He works hard as hell on this project as well as school so I’m stoked he’s getting such traction).

Not surprisingly, it’s a terrific conversation, but I want to zoom in on an idea that resonated deeply for me and easy to overlook for aspiring traders.

Ethan: You left the firm with I think you said only around 40 or so real professional connections. You said that that was one of the other defining things of being a trader — you’re with the same group of people, obviously making lots of money, but it’s not the place for someone who wants to be wants to have this insane network of a lot of different people. Talk to me a bit about the culture.

Andrew: Let’s frame it as who might this fit or not fit. Let’s contrast it with some other high leverage elite type careers. Say you’re a consultant and you’re meeting C-suite people from all different kinds of clients, you know, and you’re only a year out of college. Or you’re an investment banker and you’re doing deals with all these different firms. You’re gathering this wide network of people, a

lot of different information sources. You are working with many people versus my primary relationships were my co-workers. These were fantastic people but that was the most of my network. When you’re a quant trader, you’re not out there at conferences telling people what you’re doing or networking. You’re not talking to anybody about what you’re doing.

So I had a pretty tight network and and good relationships with a lot of these people, but it’s not it’s not like I can the C-suite or get career advice or something like that. It was much more narrow and concentrated and dense network. So it’s a different type of career definitely.

This is very rarely talked about. But the trader career will not leave you with much of a usable business network if you change careers compared to a more sales-oriented job (I say sales because high leverage careers only fall into 2 camps — being on the road selling/deal-making or being a 99.5 percentile solo-player in front of a computer. And the latter is very much under threat right now).

I am always urging early career traders to take the effort to be outward before they need to. You have to overcompensate for the narrow network. After all, you’re going to make a lot of money, right? Well, you want to have people to invest with or raise money from if you decide to become an entrepreneur one day (if you’re trading for a living, there’s a misfit inside you that probably doesn’t want to be an employee forever).

I was fortunate to be on the trading floor which does expose you to lots of people. That network was critical. It led to my next job after SIG, it created most of my broker connections when I left the floor, and it has helped me connect people with firms. But my network didn’t really ramp until I became far more outward. Reaching out on Twitter to learn, starting this letter, and adopting a more sharing posture in general. There is a zero-sumness in trading that leaks into your mindset. It has its purpose to be sure, but don’t let it creep beyond its usefulness.

One last bit that Andrew alludes to…if you want a lunch break or lunch meetings, trading isn’t for you. You never get your full attention. Want to code or do any deep work without one eye scanning screens? Tough luck. Even your basic needs take a backseat.

I forget which comedian made the joke about the weird life of pro athletes. They are rich and influential. But they still have to chase a ball around.

There is no self-aggrandizing story to tell about trading. You serve money. If you’re not there to pick it up when it presents itself why’d you even come in?

Money Angle For Masochists

Oil vols and calls skews were up a lot this week as the expectation of the US striking Iran increases. A few pictures:

Polymarket implies only 38% chance that the U.S. does NOT strike Iran by March 31.

Risk reversals, which measure the premium of puts to calls, in USO have shot sharply negative this month.

USO vols are elevated and strongly inverted across the term structure.

Implied vols until late March are ~53%.

You already know to use the free event volatility extractor to compute trading day volatility by removing an expected earnings move from an expiration. Let’s use the calculator in reverse. If we assume a typical trading day volatility of 30%, then if we were certain a strike were to occur, we guess-and-test our way to an 11.3% move size to make the term vol fair at 53%

But this is not earnings. We don’t know if the “event” will occur. We can use the Polymarket probability of 62% that an attack will occur before the end of March. We’ll need to expand the equation we normally use to account for p.

We recall the basic identity:

Term variance = expected event variance + accumulated daily variance.

In math:

where:

DTE = business days til expiry =26

p = probability of strike = 62%*

TermVol = ATM IV from March 27 expiry = 53%

EventVol = annualized vol of strike day = 224%

DailyVol = annualized vol of regular business day = ❓

*Notice in the case where P =1, the equation would be exactly the same as the one behind the calculator.

Solving for DailyVol:

DailyVol = 40.7%

But, wait, we want to fix the DailyVol to be 30%. We need the event vol that generates a DailyVol of 30% assuming that event only happens 62% of the time, not 100%, as our first calcs assumed.

It turns out to be 14.4% or 285% annualized

💡Annualizing a move to a vol

• 14.4% x 1.25 x √251
• Why 1.25? Because a straddle or move size is only 80% of the volatility or standard deviation. See The MAD Straddle

In sum, if we treat an Iran strike that satisfies Polymarket’s definition AND we believe the Polymarket odds AND we think it manifests as one large single-day move, then 53% IV suggests that oil will move as normal at ~30% vol but have a single-day shock of ~14%.

This is a highly skewed way of decomposing 53% vol. To assume there’s a bunch of variance concentrated in just a single day. But that 53% vol is also not the market assuming we move ~ 3.25% per day either. It’s some mix of:

• “realized vol is elevated right now because there’s uncertainty”
• “at some point in the near-ish future there’s going to be a lump of variance as oil either relaxes lower (which could easily be 10%) or much higher. The current price of oil is a compromise between 2 states of the world but it’s not the right price in either of them and we don’t know which state it’s going to be”

Thoughts on the Polymarket price

Here’s a more up-to-date snapshot (Substack has a Polymarket integration!)

 

I have zero insight on geopolitics so I’m just going to offer thoughts on prices:

EDIT: The Polymarket prices updated from when this email post sent (a Sunday) and when I wrote it (Friday night)

• The market thinks a strike is coming soon. March 31 is 64% and June 30 is only 68%. Conditional on a strike happening, the market implies 64/68 ~94% chance it happens before the end of March. You can buy June, sell March and only risk $4.
• The dollar volume on these things is small but there are many papers supporting the “marginal trader hypothesis” that it only take a handful of active, well-informed traders to make a market more efficient. This is not suprising. If we played a mock trading game for even zero stakes it wouldn’t take long for you to see how quickly a market converges to a reasonable fair value.
• The volatility risk premium across many liquid markets isn’t abnormal. The market either doesn’t care what oil and Polymarket says or a strike on Iran is not expected to have a material effect on the volatility of equity shares. However, defense names have implied vols in high percentiles (while PLTR vols are tanked btw)

  

Here’s my off-the-cuff impression of the 64% price:

The real odds are probably higher. If this contract were trading for say 10% I’d guess it was overestimating the true probability because of lotto-ticket bias but also because there needs to be a healthy risk premium for seller to enter a highly negative skew trade.

I wouldn’t guess that a bunch of yolo-punting puts a price to 64% for lolz. When someone bids 64%, they are laying odds. Betting nearly $2 to win $1. The price of this contract has doubled in a week…it’s the buyer who likely brings more caution to the order book now.

I could imagine someone buying these as part of a relative value trade against selling oil options but the dollars available means it would need to be retail size and that kind of trade (oil vega vs prediction market?!) doesn’t seem like the kind of thing that would excite the class of trader who expects 20x leverage on crypto perps to get them outta bed in the morning.

If Polymarket depth was big enough to influence stock markets, there’d probably be some interesting scenarios of incinerating a few million bucks, maybe less, to influence the Poly price so you can influence the price of defense stocks where you could make tens of millions. The informational and liquidity linkages between prediction markets and traditional markets will be fascinating (appalling?) to watch as they continue to grow.

 

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• square root law
• the bias of hedging on implied delta

   

In this issue:

• more AI use examples
• options primer
• how taxes can influence option trades

Friends,

When I was in NYC a week ago, a friend pushed back our meeting by 90 minutes. I got a text and the calendar update. Didn’t think anything of it.

When we’re hanging out, I mentioned I’ve been tinkering a bit with AI to get more use out of the largest repo in our lives — our email inbox. My friend pulls out his phone and show me this app Poke. It was poke that pushed our meeting back on his command.

When he wakes up in the morning, Poke which is integrated with his Google suite, sends him a brief. It includes a summary of any emails or action items he received that it judges he would prioritize. It shows his schedule for the day. He had to deal with something pressing that conflicted with our appointment so he simply told Poke to notify me that he’d need to push the meeting back. Poke then emailed and texted me. He just treated his SMS like a personal assistant and it handled the rest.

This isn’t an ad for Poke, but just another thing I saw in the wild that previews how automation creep is about to turn into a flood.

Fun aside: When you onboard with poke you negotiate your monthly price with the app! The friend is well-known in investing circles and very online so the app tried to extract a high price arguing that it knew he was a baller. He got the price down 90% and told me he knows people that have gotten it to $0.

Back to email. I was thinking about marketing-related stuff for moontower. Over the years, readers have emailed me saying my content helped them land trading jobs or their boss told them to subscribe, or my post was forwarded to their desk.

[It’s a peacocky thing to say, but in the past year, the feedback is blunt about this letter being read at every market-making shop. The audience I have in my brain when I do the Thursday posts is an experienced trader who probably has juniors that he or she would rather say “go read this” rather than explain the things themselves. They’re busy trading, and I’ve already invested in the words so they can save their breath.]

I wanted to collect all these emails, but keyword search is far too manual. The ultimate crux of the problem is semantic understanding:

“My PM told the desk to subscribe” and “I got the offer at Citadel” are both results of interest, but there are many variations of these phrases and the words that comprise them share a wide range of contexts (“offer”, “desk”)

I asked the Gemini in Gmail to find them. It returned 4 when I’d expect hundreds, so its method lacks depth.

I turned to Claude to build a pipeline. It took some back and forth, but ultimately it worked beautifully. Which is exciting because it’s a reusable workflow for semantic search on any body of work, of which, Gmail is just one instance.

The pipeline is quite simple. This is how it works:

Step 1: Multiple searches using narrow keyword queries

• 14 targeted Gmail API keyword searches instead of 1 semantic query
• Each catches a different flavor: job language + “Moontower”, boss language + “newsletter”, forwarding language + “your post”
• Result: ~4,200 candidates
• Snag: First queries were too broad (13K results). Fix: anchor every query to “Moontower”

⚡AI Deliverable: Python script to push through Gmail API

 

Step 2 — Fetch the emails via API

• Gmail API pulls full email bodies programmatically — no export needed
• Result: 3,922 emails fetched
• Snag: Rate-limited at email 2,850. Fix: retry logic + caching to disk

⚡AI Deliverable: I actually used Claude extension in the browser to set up my Gmail API access

 

Step 3 — LLM classifies each one

• Claude Haiku reads each email: “Is this a finance professional affirming Kris’s work?”
• Categorizes matches: job placement, boss recommendation, team sharing, praise
• Result: 585 matches
• Snags: Wrong model string (3,900 silent 404s), API overload, ran out of credits mid-run, Python exception mismatch. Fix: incremental saving + resume flag

⚡AI Deliverable: This is the main AI magic. Classifying the email as something I’m actually looking for based on the context

Results

• 44 team/desk sharing
• 24 job placements
• 8 boss recommendations
• ~$3 API cost, ~8 hours runtime, 370 lines of Python

Now if I could only have my Twitter DMs accessible via this pipeline 🙂

Takeaway

Use each tool for what it’s good at. Search engines are good at retrieval, but LLMs are good at judgment.

 

Money Angle

It’s been interesting to re-share the evergreen investing/options posts via Twitter articles to see which one are getting lots of resonance now. Circumstances are different since the original publication date. I published quite a bit even when the blog was obscure so stuff that got lots of views or not were based on a smaller sample of readers.

Thus far in this re-publishing experiment, the most popular share has been about the levered ETF rebalance quantities.

On Friday, I re-published a guest post. It is already the most viral article I’ve put on X.

A Visual Primer For Understanding Options

 

Money Angle For Masochists

I bought June/Feb13 put calendar in SLV a few weeks ago when the vol spread inversion went nuclear.

That was a disaster.

SLV dumped 30% 2 days later.

The Feb puts I’m short are of course 100 delta, so the effective position is long a June OTM call synthetically.

💡If a stock is $80 and you own the 100 put for $25 and 100 deltas worth of the stock, then you are synthetically long the 100 call for $5. If you don’t believe me, look at your p/l payoff for the portfolio of long puts and stock at expiry for stock prices of $90, $103, and $120 vs what it would be if you just owned the 100 call.

We understand the position and the risk. But we don’t talk about taxes much here so I’ll use this example to introduce the complexity of the real-world.

Let’s say I roll my June puts.

Consider the tax implications.

I will realize a gain on the appreciated puts.

The puts I’m short that are now the risk equivalent of being long shares because they are so far ITM. I have a mark-to-market loss on these puts, but it’s not realized. This is a problem. The entire trade has been a loser, but if I roll my June put,s I crystallize a short-term tax gain. Ideally, I need to crystallize the short-term loss on the puts I’m short by buying them back.

If I don’t buy them back and get assigned, I don’t realize the loss. Instead, I acquire shares with a basis of the strike price minus the premium I collected when I sold them. If I sold the 100 put at $5, my cost basis is $95. The shares are $70, but my loss is still unrealized until I sell the shares.

The problem might not be immediately obvious, so let me break it down.

• If I roll my June puts instead of closing the entire position out, I have a trade that has been a loser, but the tax accounting shows a short-term gain + an unrealized loss.
• To crystallize the loss, I must buy my put back or sell the shares once I’m assigned. But, both of these trades sell lots of SLV delta. If my intention is to maintain a synthetic long call position (long stock + long ITM puts) I’m stuck with an accounting gain.

⛔Because of the wash sale rule I cannot sell my SLV shares then immediately buy them back.

• You can envision a scenario where SLV rallies up again, my synthetic call position recovers the economic loss but I have a taxable gain on the rally. My p/l on all the activity is a wash BUT I have loads of short-term taxable income!

Not picking up your matched short-term loss is leaving a dead soldier behind.

(Ok, that was dramatic. I’m sorry enough to say so, but not enough to delete it. I want to imprint it.)

There are a few choices whereby you can roll the puts, achieve the desired risk exposure but I’m not an accountant and this is not advice. There’s no wink here. Talk to an accountant.

Goal: crystallize short-term loss without getting rid of your long silver delta

Possible solutions

1. Once you are assigned, sell your SLV shares and replace the long with a highly correlated silver proxy such as other ETFs or silver futures. From an IRS interpretation of the wash sale rule, the futures are probably safer since COMEX is NY silver and SLV is London deliverable. But again, not an accountant.
2. Replace your length with assets highly correlated to silver, like miner stocks. The basis risk is obvious.
3. Close your puts and buy the stock at the same time, effectively buying a worthless synthetic call.

Let’s talk about #3 a bit more.

If the stock is $70 and the 100 put is only worth intrinsic (ie there’s no time value left in the 100 call), then that package is worth $100. The stock price plus the $30 put. Now you wouldn’t expect a market-maker to fill you at fair value.

I figured a market-maker might fill me for a penny of edge. When I was looking at the quote montage, the 99 strike call was offered at a penny so by arbitrage the 100 call should be offered at $.01

I tried to pay $100.01 for the package.

No dice. Nobody wanted the free money. I didn’t raise my bid, figuring I would try again on expiration day since perhaps a seller didn’t want to bother with the inventory. If they traded it on expiration day, the whole position would offset at settlement, and they would collect their easy penny.

Well, what happened?

My short put got exercised early! I got stuck with the shares and now have to sell the shares to crystallize the loss.

The interesting thing to point out is that paying up a penny to lock in a short-term accounting loss is a type of trade that’s win-win. The market maker sells a worthless synthetic option, I get my tax situation aligned.

This is a screenshare constructing a synthetic call in IB’s strategy builder, then adding it to the quote panel so you can see the bid/ask for the structure.

 

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• design patterns
• From Text ➡️ Dashboards

Friends,

My reading habits ebb and flow with my general focus. I read very little compared to my baseline in 2024 since I’ve been giving more time to writing, moontower.ai, and tinkering with new tools.

I subscribe to about 150 newsletters, but I read a small fraction of them. In my more focused phase, my filter is extremely tight. The article needs to satisfy one of 3 conditions:

1. Instrumental to something I’m thinking about
2. Someone strongly recommends it as something that I, in particular, would appreciate
3. By a handful of authors who never fail to provoke or entertain even if I didn’t think I’m interested in the topic (ie Reducible Errors, David Epstein, Adam Mastroianni)

A few years ago, feeling more “explore” mode, my filter was much looser. I’ve made my peace with the idea of tightening and the resulting FOMO. There will be a time to loosen it again. Just another example of life physics where “you can have it all just not at once”.

In addition to tightening the filter, the more focused period coincides with triaging articles differently as well. If the article is short and by a high-signal writer, I’ll usually read it right away. Otherwise, if the article seems worth reading (sometimes this is not clear from a topical skim, and nowadays with Gemini and Claude in my browser I can just ask them for the main points of the article in the sidebar and use that to tip the scale), I stash the link on a Notion page. Once I do get around to reading it, I’ll move the link to a dated file which gets archived. I have a running list of every article I’ve read. I started that habit 5 years ago. I also log every new restaurant I’ve been to by location. I’ve been doing that for 14 years. We are all unwell in our own ways, don’t judge.

In the past 18 months or so, the reading queue gets quite long. The days of reading list “zero” are long gone. I just let it grow without anxiety, knowing that the next time I fly, I’ll rip through it. I can’t sleep and rarely watch movies on planes. It’s trapped reading time.

This trip to NYC was no different. 10 hours of reading in the past week, means I have exhaust. Here’s the best of what I read:

The Last Useful Man: On Tom Cruise and the Case for Embodied Knowledge (11 min read)

This was not only a fun read but deals with a question of growing importance that we all sense — Why learn, if you can ask?

Dan Wang’s 2025 Letter (31 min read)

This was Dan’s annual review letter. The mix of writing and observation in this long piece resists summary because the point is the nuance. The way Dan dusts his personal opinions throughout without imposing them is a graceful verbal judo; the net effect is I give them more weight. Dan delivers on both substance and style.

Inherent Vice is PT Anderson’s Best Film (11 min read)

Freddie de Boer is an exceptional writer. He’s an auto-read. Except for that he’s prolific and often writes about things I don’t care about so there’s just a lot of work I must pass on. So when he chooses a topic I’d love to read about, I’m ready to dim the lights and light a candle. I’ve read and watched Inherent Vice. If you have done either, this article is a gift.

Experimental History posts

Finally, I’m not going to link to Adam Mastroianni articles since you can choose any one of them and be delighted. There’s no point in singling out any specific ones which may sound strange, but it’s really the highest compliment.

Finally, a quote I use a lot…

Judge talent at its best and character at its worst — Lord Acton

Which is why I don’t unsubscribe from writers that I deemed worth subbing to but don’t necessarily read often. I even pay for a bunch of them. I know they are doing good work, but for some stretches of time, to use another quote, “it’s not them, it’s me.”

---

Money Angle

I saved one of the articles for this section. An immediate favorite of the past year. It is a history of how information travels. It’s the kind of thing that should be adapted to a Veritasium video.

Asymmetry is all you need (35 min read)

What drives information markets, and why the transformer is unlike the telegraph, ticker, and terminal

So good.

Money Angle For Masochists

One of the traders in our Discord was discussing exotic options in commodities markets. The topic of APOs or “average price options” came up because of this tweet:

This is spot on.

From CME:

To understand why producers like APOs (also known as “Asian” options*) we should first understand what they are.

*Via wikipedia:
In the 1980s Mark Standish was with the London-based Bankers Trust working on fixed income derivatives and proprietary arbitrage trading. David Spaughton worked as a systems analyst in the financial markets with Bankers Trust since 1984 when the Bank of England first gave licenses for banks to do foreign exchange options in the London market. In 1987 Standish and Spaughton were in Tokyo on business when "they developed the first commercially used pricing formula for options linked to the average price of crude oil." They called this exotic option the Asian option because they were in Asia.

An APO’s payoff depends on the average price of the underlying asset over a specified period, rather than just the spot price at expiration. For example, an APO call option pays max(Average Underlying Price – Strike, 0) while an APO put pays max(Strike – Average Underlying Price, 0)

Asian options are particularly popular in crude oil for a few reasons.

1. Cash flow matching: Oil producers and consumers often transact at monthly average prices, making Asian options a natural hedge
2. Reduced manipulation risk: Averaging prices over time makes it harder to manipulate the settlement price
3. Lower cost: The averaging mechanism reduces volatility, making Asian options cheaper than standard European options with the same strike. An appealing feature in a cost-focused commercial business with tight margins.

Poking around online, this topical information about APOs isn’t hard to find, but understanding #2 and #3 is harder to see, so let’s touch on the actual mechanics of APOs with an example.

Suppose the price of WTI is $75 and it’s January 31. You buy the Feb 75 Asian-style put.

The put payoff will be $75 – (average settlement price of WTI of the prompt future in the month of February)

"average settlement price of WTI of the prompt future in the month of February"

Unless you have traded Asian options you wouldn't know how this is even computed. We'll use Feb 2026 as an example. 

The prompt future is the March 2026 contract until its last trading date on February 20. Then the April 2026 contract is prompt. 

Taking account of weekends and President's Day, the March contract is prompt for 14 business days and the April contract is prompt for 5 business days. 

February average price = average of 14 March futures datapoints and 5 April futures datapoints. 

Notice that each trading day in February contributes 1/19th of the final settlement price. On the last day before expiration, we have a running tally of the final settlement price — the average of the past 18 days’ closing prices. The last day’s price change is weighted by 1/19 to determine the final average for February.

This means that as you approach expiry, the gamma of this option is actually declining! You’ve already seen most of the flop, right? If the average going into the last trading day is $76, you’d need the futures to fall more than $19 on the last day for the 75 put to go in-the-money.

This explains why Asian options are less prone to manipulation and their deltas less sensitive to changes in the futures. It’s hard for the futures to move enough to materially change the average because each day gets a small weight in the calculation. This stands in stark contrast to vanilla options which have extremely high gamma near expiration. A mere 2-cent move through the strike just before expiry can be the difference between the option being 100 delta or 0 delta.

In this February option example, we are already in the “averaging period”. But what if you buy the December Asian-style 75 put on January 31? The averaging period, the calendar month of December, doesn’t start until 10 months have elapsed.

The pricing model will treat the option just like a vanilla option for 10 months, then account for how the last month’s gamma and theta shrink as each day in the averaging period contributes to the final settlement price. Your optionality is declining in that final month. Asian options have cheaper premiums than their vanilla counterparts because they act the same for some period of time, but then lose optionality relative to the vanillas in the averaging period.

In practice, a hedger may buy a “strip” of Asian options. For example, the Cal27 75 put refers to the “75 put Asian style for each month in the calendar year of 2027”. If the hedger buys 100 strips, they have bought 1200 options (100 options in each month). If a bank sells this strip to the hedger, typically in a bilateral OTC form, they could lay off the risk by buying this APO strip from market-makers. While these don’t trade on a centralized order book, the trades can be submitted to CME’s Clearport where the exchange acts as a clearinghouse and margining agent to both sides, removing counterparty risk to the street.

The bank desk does wear a trader hat in the act of facilitating this flow. They aren’t required to “back-to-back” the risk or cover it exactly as they opened it. For example, if the bank thought the vols in the second half of 2027 were expensive, they could just buy options covering the first half of the year effectively legging a short forward vol term structure trade. If they thought put skew was expensive, they could buy a call strip instead of covering the puts. This would neutralize their vega, but leg them into a short skew risk reversal. They could weight their own hedge in a way to express their bias. They could trade plain American or European options if they thought they’d get tighter prices from a wider pool of traders (more traders deal in vanillas then Asian style options) and sweat the Asian vs vanilla mismatch. The menu of possibilities highlights how valuable it is to have deal flow. You know you are getting to sell on the offer on one side of the deal and then you can try to trade mid or better when covering some or all of the risk. Commodity option trading is a fun global boardgame!

I’ll wrap up with this blurb from my friend Mat. I found it interesting because I have sometimes thought that it’s a historical accident that the most popular options are American-style vanillas when you can see how cash-settled European or even Asian-style options would make more sense.

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• do you have to let it linger? (apparently yes)

Friends,

Trading firms are Rand-pilled cloisters of libertarianism.

Is it a self-serving post-hoc rationalization of meitrocracy that allows rich traders to not only enjoy wealth but virtue? Ha ha, sorry folks, not today. I’m ain’t gonna bait myself into this discussion.

I’m just going to leave you with a couple thoughts to turn over at your own pace.

When I was a trainee I remember an argument by a senior colleague who, as was typical, a market-maximilist who argued that teachers are probably overpaid, not underpaid as a fixed price will weed out everyone who knows they are worth more and therefore you structurally select for those worth less on average. Your best case scenario is the price and talent are exactly matched. It’s basically the same argument for why buffet restaurants are bad business. It only selects for eaters who see the price as a good value.

To be honest, I think I’m giving the colleagues’ argument some grace. I don’t remember it being as cosmetically coherent as mine. His argument gestured in the general direction of “markets are right”. That the price of teachers is not set by a free market doesn’t seem to have found its way into the discussion. Details, details. This person is very rich today and extremely sharp on topics like trading and business, so you know, just another reminder that high aptitude in one area doesn’t easily transfer (whether it reflects natural cognitive silo-ing or motivated reasoning is yet another question.)

I’ve heard that a stereotypical view of wealth in many parts of the world is that if you’re rich you must have been corrupt or left a trail of bodies in your wake to amass wealth. In the US, wealth is virtue. Capitalism victory points. Evidence that you gave people something they wanted. A ledger of value creation.

My view is directionally American with wide error bars. There are a lot of rich people whose profit has been nothing but an unaccounted for externality. They got the benefit without bearing the cost. Tobacco is giving people what they want. But pardon me if I think gains from trying to get teenagers to become early addicts should not become wealth. I think even the oncologists who treat those “customers” would be willing to sacrifice the 5th bedroom in their house to not have this “value created.”

Markets are downstream of politics. Markets and law are inseparable constructs and US law is the product of either pure mob democracy (the proposition system in CA) or representative government, whereby a centralized agent, like a senator, is entrusted to, umm… do what they want, subject to the constraint of “get re-elected.”

If law is not a free market, neither are the markets that it rests on, notwithstanding the platonic inventions of libertarian fever dreams. My favorite example of this today is college athletes. They were always creating tremendous value. But one day they weren’t allowed to extract their share and the next they were swimming in NIL money. With the stroke of a pen, their bargaining position changed.

Wealth is not just a function of value creation. Its value creation times some bargaining position factor. And that factor is often political. From FCC spectrum to land to labor laws to unions to IP laws, from subsidy to censure, from Spotify to artists, from accredited investor laws to bank charters, from casino to prediction markets…it’s all infused with law which creates centralized nodes of outsize power to influence or corrupt.

This has always been my concern with wealth inequality. It’s not a normative or moral concern so much as an acknowledgement of social physics. Wealth is power and nobody believes anyone’s power should be unlimited. We watch as individuals’ wealth continues to climb to those of city-states distracted by talk of “greed” or “fair share”. That discourse travels well because it’s smoke. The fire is deeper in the walls.

The future is going to require more transparency than ever. Which should be available in the age of broadband, compute, and video. And yet we don’t trust our eyes and when we do, we disagree about what we see. The line between info and info hazard is blurring every day. It’s ironic that so much wealth has been created by liberating information, but that same wealth will be used to selectively control it.

Switching gears to wrap up…

As a practical matter, when you think about the work you do and how it improves people’s lives, recognize that it’s within a path-dependent, arbitrary system-level backdrop. You may create lots of value, but the rules have limited your bargaining position.

You can choose to make peace with it, fight to change the rules, find a way to express your talents in a more advantageous industry/company. But crying over it or arguing with the smug who say the invisible hand is giving you what you deserve will rot your heart. Face reality to deal with it.

---

I had a chance to join legends Jeff Ma and Rufus Peabody thanks to John Reeder! If you don’t already listen to Bet The Process, you might remember Jeff as the protagonist of Ben Mezrich’s Bringing Down The House (later adapted to the film 21). I Having the ringleader of the famous MIT blackjack team ask me a question about Catan strategy is not something I had on my podcast bingo card!

---

Money Angle

On Thursday was the first session of the Investment Beginnings Class I spun up locally.

These are the materials I used.

Materials from class 1:

• Slides
• Spreadsheet
• The Bill Ackman Explainer Vid that inspired the example (I recommend watching this even for parents!)

Homework

• Identify 5-10 companies in 3 industries and report on what their margins are and the average margins in the industry based on your research. The open-endedness of this question is a feature not a bug. Let’s see what they come up with.

⭐I strongly recommend playing with the spreadsheet to explore the lender and equity investor results if we had rolled “bankruptcy”. Stepping through the formulas is a valuable exercise!

This introductory lesson opens with a question:

What can you do? What can go wrong? What’s your best-case scenario?

Then pose a new question…

From there, the lesson begins…

There were 18 youths, mostly 12-17 years old, and a bunch of interested parents as well.

The next session will be in a few weeks, I’ll share the materials as we go along and consolidate it all on this page:

https://notion.moontowermeta.com/investment-beginnings-course

​

Money Angle For Masochists

In the spirit of spaced repetition, I published The Gamma of Levered ETFs as an article on X. Seemed relevant given silver’s 30% selloff on Friday.

Here’s the short version of the math of levered ETFs. To maintain the mandated exposure the amount of $$ worth of reference asset they need to trade at the close of the business day is

x(x - 1) * percent change in the reference asset * prior day AUM

where x = leverage factor

examples of x:
x=2 double long 
x=-1 inverse ETF
x= 3 triple long
x= -2 double inverse

Applying this to silver:

AGQ, the ProShares Ultra Silver ETF, is 2x long. It had ~$4.5B in assets at the close on Thursday.

For the underlying swap to maintain the mandated exposure, at the close of Friday (assuming no redemptions) the swap provider must trade silver. How much of it?

2(2-1) * -30% * $4.5B

or -60% of $4.5B.

-$2.7B worth of silver in forced flows. Negative = sell.

There’s an UltraShort 2x ETF, ZSL, that had about $300mm of AUM going into Friday.

Rebalance trade:

-2(-2-1) * -30% * $300mm = –$540mm

Assuming no redemptions, these levered ETFs needed to sell ~$3.25B worth of silver into the close.

In a typical environment, silver volumes are mostly split between London’s spot market (LBMA) and COMEX futures (NY deliverable) with Shanghai (SHFE), India (MCX) and SLV (London deliverable, US traded ETF) combining for less than 10% of total volumes.

At the NY close, SLV and COMEX represent all the liquidity that’s open.

COMEX futures traded nearly $150B of volume Friday and SLV traded ~$50B which is on the order of 10x the dollar volumes silver used to trade a year ago at lower prices. Still, those forced sales, if they are happening in the few hours of trading may represent something like 5-10% of the liquidity.

I’m guessing readers who are actually on metals desks have a better guess.

Silver futures margins, after being raised again this week, are about 15% of the contract value (although your broker may ask for more. IB asks for twice that, which was prescient!)

If Shanghai futures, which were closed, have a similar requirement, that means the exchange doesn’t have enough collateral to cover the 30% move if Shanghai futures match the COMEX move.

I don’t know how that exchange works (many exchanges have an insurance pool where some of the losses are socialized across clearing members), but one thing that would be interesting is if Shanghai exchange officials have the authority, balance sheet, and ability to have sold COMEX futures as a hedge. I doubt that, it’s just a speculative musing, but if such a thing did happen, their Sunday evening unwind trade would be to buy back COMEX futures as they liquidated Shanghai holders. Again, this is just a ridiculous musing, but I look forward to seeing how it all shakes out.

In any case, I think a useful takeaway from all this could be to add expected levered rebalancing flows to your dashboards (of course, this is a recursive problem because the price at any point in time reflects some people’s knowledge of these flows. Pre-positioning always opens the door to backfiring if enough arbs think the same way).

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• Dunning-Kruger detector
• vega’s finishing move

My wife Yinh pinged Khe to see if he’d host a seminar for people interested in getting more mileage out of AI. He agreed (and texted me separately with “I’m sure you know this already, but your wife is a force of nature”…Oh, I’m quite aware).

She emails 60 friends and associates, inviting them to this session. She got 40 affirmatives by the next time she checked her email. As she told me by text, “everyone feels like a boomer”.

I’m not going to spend time speculating on AI futures but it’s hard to not realize that sources of value are shifting beneath our feet. AI could have written a lot of my technical posts. It wouldn’t have been in my voice, and insofar as my written voice has some entertainment or organic attraction, it’s not the same quality. But it would convey much of the instrumental information content and at far lower cost.

To paraphrase a tweet I can’t find anymore (I gave Grok 2 chances but no dice) from a lifelong software developer: I used to pride myself on solving tricky problems and finding elegant solutions and watching LLMs do this instantly has rattled my sense of self-worth.

A lot of value-added work in the past is commoditized. Without speculating on futures, I only invite you to prompt yourself, “how much of the work I do is truly unique?”

There’s an ongoing whole layer of AI-enabled automation creep that we’ll embrace, I’m not talking about that.

Aside: The latest one I’ve appreciated is the Gemini summaries that sit on top of long email threads:

I’m talking about the increasing automation of formerly complex tasks that we actually hang our hats on. My voice is the organic part of the writing. But what’s that even worth relative to the content? A doctor’s job is a mix of inference and bedside manner. What’s the relative value of these things? If you are in sales, how much of your cycle has to do with trust and a firm handshake versus data persuasion and storytelling. What will AI lower the cost of, not just for you, but for competitors? It’s the Innovator’s Dilemma in homine.

You squeeze one part of the balloon and the air bulges into another part. It’s like the “commoditize the complement” thinking in product strategy.

This article by Jon Matzner is a good example of updating your models hard in the face of re-structured inputs:

The Only Cost I Want to Go Up

Where does the value go? What are your sunk costs? What is a trapped asset or idea that is now tenable? These types of questions were always relevant, but the speed at which they are coming at us in a wide-open frontier is only precedented at major inflections of general-purpose technology. A relatively recent example on the timeline of innovation is Netflix knowing long before it became a streaming-first company that streaming was the future, but broadband needed to catch up. The AI inflection is a confusing sandstorm rapidly covering old monuments while revealing new spaces to build. Anyone paying attention can feel it. Hence, the FOMO response to Yinh’s email.

---

A couple weeks ago, in work is going to feel very different by next Christmas, I said I’d share some of the things I’m doing with AI. For example:

I can write a description of a bug in Linear or Jira (who am I kidding — I upload a screenshot with a blurb and have AI write a detailed bug spec complete with testing protocol) and assign it to…”Claude bot”. A dev approves the change. Push to prod.

Tools I use

1. Claude Code with Opus 4.5 on a Max plan ($100/m)
2. Gemini Pro ($16/m)
3. ChatGPT Plus ($20/m. This is really Yinh’s but I use it sometimes. Don’t tell.)
4. NotebookLM when I want an audio summary of lengthy text. Sometimes I will give it a bunch of notes and have it generate a podcast conversation about them which can help me find connections or through-lines that outlining doesn’t. Something about hearing vs hearing I guess. I could get to the same place sparring with a text-based LLM but this way I can do it while walking or in a less taxing way. Or sometimes because I need to just let some material wash over me.
5. A service (in stealth at the moment) that connects to any data source including the moontower options database that’s hyper-tuned for inference. An example I’m messing with now is something I call VCR or Variance Contribution Ratio. What percentage of the realized variance in a list of assets in some window came from N% of days. You can ask it a question like that and it will come back with all kinds of ideas, charts, insights. It’s an intern that skips the photosynthesis→food→brain power+senses drivetrain altogether and just runs on sending electricty through a recipe trained loop that our ancestors have run through many times before. Progress. Suicide. Both. I don’t know, I’m just an ape with a lever.

Comments

• I was using Terragon as an agent that can talk to my github repos as well as deploy to vercel but Claude has replaced all this workflow. Similarly, Claude has replaced my usage of Copilot in VSCode.
• I find the native MSFT Copilot in Excel to be trash. I haven’t used Claude for Excel yet. I have found the Claude Chrome extension in the browser to be helpful with Google sheets.
• More broadly, Claude and Gemini browser tools are still clunky in some contexts (“port this substack post to my wordpress site”) and useful in others especially within your email. “Give me a list of all the people who reached out asking about XYZ” or “go find the loan agreement document with entity X and compute the accrued interest according to its provisions through today”.

Silo’d projects I’m currently using AI for

As a matter of procedure, I use Projects folders within Claude to compartmentalize initiatives. You can upload lots of files to the project for context and then have a limitless number of chats within the project itself all dealing with different aspects. I like to tell Claude to consolidate what I’ve accomplished or learned from individual sessions and then I feed that back into a living document in the files section so its always handy to the bot for future chats. These documents also include feedback about directions Claude took that I didn’t like. I don’t know what reinforcement learning is mathematically but the process feels like manual training.

Here’s a few things I’m working on:

Investment Idea Generation

Agent reads investment letter email, generate a bullish/bearish template that considers the author’s sentiment, timing, etc, which can automatically be fed another agent connected to moontower.ai infra to see how it accords with option surfaces. Another agent then presents the output. In an advanced form this is becoming part of the product itself, capable of generating watchlists and so forth. (I’m more interested in the pipeline at the moment. The business end of it would be more complex since there’s author IP involved).

Status: very early…need to get email agent running

Mooncoin Option Trading game [skunkworks name for now]

This is less agentic and more LLM conversation about gameflow. However, Claude Code was integral to helping me style.

Status: Ready for a second round of playtesting to pin down the concept. Long way from a final product but can start playtesting over Zoom!

Current screenshots:

Trading Quizzes

One of my projects is setup as a RAG with about 70 articles. I’m having Claude devise interactive quizzes that give learners a chance to practice their option knowledge. Varies from beginner to more advanced.

Status: early and promising. A few rounds of iteration so far on a tranche of concepts where I’m training the LLM to know what I consider a good question. From there I will extend it to more tranches of material and if that goes well I know have a custom quiz maker for any material I give it. I’ve been heartened by some of the angles it’s taken on questions — it definitely comes up with stuff I wouldn’t have. The median quality can be higher, so still more to do. I’m not sure how much of the meta of making a good question I’m going to succeed in relaying but that’s part of the fun.

---

Money Angle

In the late aughts, one of my family members had a side-hustle while getting his Masters where he’d post ads on Craigslist offering to help people with their Excel work. People were willing to pay a lot more for this than I expected.

He told me why.

It was people who somehow ended up with Excel-heavy jobs without knowing how to use Excel. He was quite literally doing their jobs for them. In finance terms, he was the layoff account where his client was a bank trading desk arbing their customer (the employer) and he was picking up the juicy scraps.

So much for that. Anthropic just released Claude in Excel

Claude in Excel is an add-in that integrates Claude into your Excel workflow. It’s designed for professionals who work extensively with spreadsheets, particularly in financial analysis and modeling.

With Claude in Excel, you can:

With Claude in Excel, you can:

• Ask questions about your workbook and get answers with cell-level citations
• Update assumptions while preserving formula dependencies
• Debug errors and identify their root causes
• Build new models or fill existing templates
• Navigate complex multi-tab workbooks seamlessly

Money Angle For Masochists

Today is for the younger masochists (and their overseers).

I’m going to start an investment beginnings class locally. There’s a few things at the end of this section you can use. If it inspires you to do something similar or have ideas, let ‘er rip!

Around 15 people signed up. I’ll see how the experiment goes and report back as it evolves.

This is the email I sent to the families:

We recently opened up a brokerage account for our 12-year-old, Zak so he could start investing in some stocks he’s interested in. I want to give him a more structured foundation and since this scales easily to a group, I figured I’d open it up to family and friends.

What it is: A hands-on class where we learn by doing – looking up real securities, building spreadsheets, understanding how markets work, and developing the kind of financial instincts that serve you for life. The goal is to make sure participants aren’t suckers and start with good financial hygiene.

The approach: Participants will be treated as capable people who can figure things out. We will get comfortable working at the edge of what we know how to do, wherever that may be – Googling, LLM’ing, excel formulas (and we can get into heavier automation/coding if there is appetite), troubleshooting, and being resourceful. If this inspires ambition, we can go further. Other than building an object-level understanding of investing, the dual goal is to earn the type of confidence that only comes from competence and its prerequisite — persistence. This will feel harder than school.

Format: Sessions in front of a room with a projector. Each participant will need a laptop to follow along. We’ll use real tools and real data. (I’ve asked a company to sponsor this by giving us free licenses to their tools, but we’ll see if that comes through. There are plenty of open-source resources that will work.)

Who it’s for: Anyone 12 and up – young people and adults welcome. No prior knowledge needed. Participants will get maximum mileage if they have a brokerage account, but it’s not required.

Cost: Free. I’m doing this for Zak anyway.

Location: [redacted]

Schedule: TBD

Note: I will record sessions to share with remote friends who are interested by uploading as unlisted (undiscoverable but public) YouTube videos. Participation is implied consent to this.

Action items

1. If you’re interested or have questions, just reply. I’ll follow up once I have a sense of the group.
2. As a first step towards “doing” we need everyone to get to some absolute basics. I’m having Zak read Blue Chip Kids. but if you want a video series, I curated a custom sequence: Khan Videos in place of Blue Chip Kids for investing basics

This is a very loose draft of the plan. I will prepare a lesson before each session (this week is the first) and update this document. As always, work-in-progress.

---

From My Actual Life

I’ve mentioned before that I coach both my boys CYO basketball teams (4th and 7th grade). The highlight of my past week was Zak’s (7th grade) game so I just want to share it.

Zak had a cold and a headache but we gave him some Advil and said to come root his team on. We were only going to have 5 players without him. He wore his uniform anyway in case he felt good enough to go and in pre-game shooting he said he could play.

The game was neck and neck. One of our players scored an unlikely basket off an offeensive rebound as the clock expired to send the game to overtime. It was shocking, everything about the rebound itself and making the layup from directly under the rim was unlikely.

We’re in OT, down by 2 with 5 seconds left. We intentionally foul. Our opponent misses both free throws. I was prepared to call timeout but Zak ripped the rebound and took off.

No point in calling the timeout since it wouldn’t advance the ball from our backcourt. Instinctually I liked our admittedly very slim chance better with him one on one against a chaser.

Well, he makes it to the 3-pt line, the chaser jumps pass him as he hesiatated for moment, and just put the shot up as the clock is expiring.

Swish.

We win by 1. The team mobs him. Because it’s an overtime game and these things are on tight schedules all the people there for the following game are watching and the whole place jumps.

It’s a meaningless 7th grade CYO game but it was a unique moment. We joked that it was his Jordan flu game.

Anyway, that win happened to clinch 1st place in our division but we had already clinched a playoff spot so it wasn’t integral. We wrap the regular season today and have playoffs in 2 weeks.

(I’ve already went to watch the team will most likely draw from the other division. They have a kid that’s 5’9 and one that’s 6’0. Zak is 5’4 and one of our bigger kids 🫣)

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• sticky vs floating strike
• slashing away parts of their humanity

Friends,

The following statements are simultaneously true:

1) You can do anything if you put your mind to it” is a lie.

If your last name is McCaffery, you have a chance of engineering elite athletes. If you are an Abdelmessih, you’ll be waiting for the metaverse for the sensation of what a 4.3 40 feels like.

2) You are currently very far from your ceiling.

You can drive a truck through the gap between these 2 ideas so they are not really in conflict.

To let the first disappoint you is to let perfection thwart the good. The cost of this pedantically true statement is self-defeat. It’s the kind of victory only an intellectual would recognize because it’s familiar territory — an unnatural use of technicalities to excuse failure because they define success as adherence to fine print. It’s a strange inversion of “It’s better to be roughly right than precisely wrong”. They are precisely right but roughly wrong, but the wrongness touches their life ceaselessly and in the most material ways.

To let the second statement disappoint you is known as a “start”. Congratulations. Recognition is the first step. This should be obvious, but the path to improvement starts by realizing there’s room for it. In you. Not in the world changing such that your conditions are improved, but for you to improve your station, with a smiling indifference to a world you can’t control anyway.

But I stay “start” because beginnings are sensitive to expectations. If you start anything expecting it to be easy, you will likely not finish. It’s such a simple observation, but it bears a life-changing load. It means that anything you are serious about doing should start with the expectation that it will test your resolve, so when the moment comes, you are not hit with the double indignity of difficulty but also surprise.

And one of those negative surprises always comes from others. Haters. But haters also come from people who don’t actually hate you. They may even love you. But this is how they deal with being disappointed in themselves.

This is not an easy subject. It’s at the root of how everyone relates to everyone else. It’s wrapped up in status, luck, a sense of narrow justice when it has to do with the promotion at work, and global justice in the sense of being born on third (or America…although whether the runner is heading home or to second is today’s “dress” debate).

It’s not as easy as saying “ignore everyone else”. There’s a scammer in jail or even just a common internet grifter who dismissed sober advice from someone they respect who they dismissed as speaking behind a veil of risk-aversion. Or less scandalous scenarios like “I’m dropping out of school to pursue acting”.

It’s a good idea to consider the judgement of those you are certain love you. But even then you need to grade them on a curve based on their own risk bias which takes some judgement of your own. Parents want to see their adult children on solid ground. If you win an Oscar and they get to walk the red carpet, that’s just gravy. That will never be in their calculus. But it might be in yours. They’re running a max-min strategy, you want to win the tournament.

(Rob Carver’s analogy to the Wordle starting word choice is a tangible expression of this for most of the English-speaking world who got swept up in that game.)

So if you should consider the judgment of loved ones and even then with skepticism, you know who you should definitely ignore? Randos and water-cooler friends. There’s just too much at stake.

I posted this on X in a thread where Ryan was parrying haters.

When it comes to haters its useful to remember that the correct retaliation is nothing but apathy which if the detractor was smart in the first place, they would realize that themselves. What’s that line about hate being like drinking poison and expecting the other person to die?

Hate seems like ultimate confession of weakness.

It’s very rare that anyone changes anyone else’s mind. Unlearning hurts.

The internet fools us because when life’s most important moments happen, your world shrinks. The volume on everything turns down, and you are left with a few people. The hater? Might as well be an atom in another galaxy. Why would they occur to you?

Attention is everything. Lots of people on here give you the gift of permitting yourself to ignore them. Accept it gratefully

Scott Adams, the Dilbert cartoonist, died this week after a battle with prostate cancer. He’s a politicized figure (Scott Alexander’s memorial post is a bizarre mix of tribute and psychoanalysis). But like many others, I’ve read his work on career advice and even the thought experiment book “God’s Debris” which I remember precisely nothing about. But I did see a quote from it this week, which I strongly agree with:

“People think they follow advice but they don’t. Humans are only capable of receiving information. They create their own advice. If you seek to influence someone, don’t waste time giving advice. You can change only what people know, not what they do.”

Money Angle

I want to expand briefly on Wednesday’s HOOD: A Case Study in “Renting the Straddle” because HOOD’s implied volatility that contains earnings actually declined for the rest of the week and disentangling that is a good chance to reinforce your understanding.

On Wednesday, Feb 13th HOOD vol (which encompasses earnings on Feb 10) lifted a bit from when I wrote the post. We’ll call it 68% IV.

To make 68% IV fit smoothly with the non-earnings vols from the preceding expirations, we need to assume an earnings move that allow the ex-earnings vol to be ~56%

That corresponds to about a 9.5% earnings move (a bit higher than the average move of 8.55% for the past 8 quarters).

This table shows implied trading day IVs net of various-sized expected earnings moves.

Let’s tie this idea back to theta or option time decay.

A one-day move of 9.5% corresponds to a single-day implied vol of ~119%

9.5% / .80 = 119%

This comes from remembering that an ATM straddle is 80% of the implied vol

As you approach the earnings day, the implied vol of the option will be dominated by the fact that the stock is expected to move 9.5%. Therefore, we know the implied vol is going to increase.

We think of theta as “how much value the option loses as time passes” but because we know that vol is going to steadily rise, we can conclude that the actual experience of theta is going to be much less than the model says. The model doesn’t “know” the implied vol is going to increase, but you do.

As vol increases, the option will gain value that offsets some of the theta. It won’t offset all the theta. If it did, then you would just buy all the options today, have free gamma for a month, and sell them right before earnings.

So much of the theta will be offset?

We can answer this if we hold our assumptions constant:

• trading day IV is 56%
• earnings move is 9.5%

(I added the assumption that the earnings date is also the expiration date. It’s stark that all the theta we defer happens on the last day.

You can see how the vega offsets part of the theta.

Just like with any option, the theta still accelerates as you approach expiry but at a slow rate (theta is left axis).

All the theta happens at the end.

Oh, as a matter of pragmatism, I should add that HOOD option markets are wide. And yet there’s millions of contracts of open interest! Amazing for market makers. To quote Alanis…isn’t that ironic?

Money Angle For Masochists

In Thursday’s paid subs post, embedding spot-vol correlation in option deltas, I buried this story but I thought worth sharing since it’s broadly suggestive of what happens when you list options on an investments touted as worth being in your asset allocation:

I started in commodity options just before the listing of electronic options markets. When I first stepped into the trading ring, many market-makers were still using paper sheets. We had spreadsheets on a tablet computer, but heard of a fledgling software called Whentech. Its founder, Dave Wender, was an options trader who saw the opportunity. I demo’d the product, and despite it being a glorified spreadsheet, it centralized a lot of busy work. It had an extensive library of option models and it was integrated with the exchange’s security master so its “sheets” were customized to the asset you wanted to trade.

I started using it right away. Since it was a small company, I was able to have lots of access to Dave with whom I’ve remained friends. I even helped with some of their calculations (weighted gamma was my most important contribution). I was a customer up until I left full-time trading. [Dave sold the company to the ICE in the early 2010s. It’s been called ICE Option Analytics or IOA for over a decade.]

The product evolved closely with the markets themselves. Its nomenclature even became the lingua franca of the floor. Everyone would refer to the daily implied move as a “breakeven” or the amount you needed the futures to move to breakeven on your gamma (most market-makers were long gamma). Breakeven was a field in the option model. Ari Pine’s twitter name is a callback to those days. Commodity traders didn’t even speak in terms of vols. They spoke of breakevens expanding and contracting.

What does this history have to do with a spot-vol correlation parameter?

This period of time, mid-aughts, was special in the oil markets. It was the decade of China’s hypergrowth. The commodity super-cycle. Exxon becoming the largest company in the world. (Today, energy’s share of the SPY is a tiny fraction of what it was 20 years ago.)

Oil options were booming along with open interest in “paper barrels” as Goldman carried on about commodities as an asset class. But what comes with financialization and passive investing?

Option selling. Especially calls.

Absent any political turmoil, resting call offers piled on the order books, vol coming in on every uptick as the futures climbed higher throughout the decade.

A little option theory goes a long way. Holding time and vol constant, what determines the price of an ATM straddle?

The underlying price itself: S

straddle = .8 * S *σ√T

If the market rallies 1%, you expect the straddle price at the new ATM strike to be 1% higher than the ATM straddle when the futures were lower. Since the “breakeven” is just the straddle / 16, you expect the breakeven to also expand by 1%.

But that’s not what was happening.

The breakevens would stay roughly the same as the market moved up and down.

If the breakevens stay the same, that means if the futures go up 1%, then the vol must be falling by 1% (ie 30 vol falling to 29.7 vol)

It dawned us. Our deltas are wrong.

If we are long vol, we need to be net long delta to actually be flat.

When your risk manager says why are you long delta and you explain “I need to lean long” to actually be flat, you can imagine the next question:

“Ok then, how many futures do you need to be extra long for this fudge factor?”

We need to bake this directly into the model because it’s getting hard to keep track of. Every asset and even every expiry within each asset seems to have different sensitivities between vol and spot. The risk report can’t be covered in asterisks detailing thumb-in-the-air trader leans.

Whentech listened. Whentech introduced a new skew model that allowed traders to specify a slope parameter that dictated the path of ATM IV. Their approach was simple and numerical…

 

From My Actual Life

I definitely have more couch potato tendencies in the winter. I’m currently watching Mad Men (for the first time!) I’m almost finished with Season 2 which means I like it.

I recommend the movie Eden on Netflix. Go into it knowing nothing. That’s how I went in (Yinh said let’s watch some movie called Eden and I said ok knowing nothing else). I’m so out of touch sometimes, we were a quarter of the way through the movie before I said “Isn’t that Jude Law?”

It’s definitiely one of those movies where right after you finish it, you’re googling “how true were the events in [movie title]?”

Wednesday night was the first time I ever went to a Cal game which is kinda pathetic since I’ve lived less than 20 minutes from Berkeley for over a decade now. But St. Mary’s College usually has a better hoops team, is even closer, and has a much smaller arena. It’s more of a gym than a venue.

Cal was able to hang with the Blue Devils for the first half before Duke started being Duke.

So many nepo babies in the game. Marbury’s son was is a sophomore walk-on for Cal (he’s only played 5 minutes all season though), Justin Pippen is Cal’s starting PG as a sophomore, and the freshman Boozer twins play for Duke (although only the 6’9” one sees the court. 6’4” bro MIA). The taller Boozer is a force. Much savvier than you might expect from a freshman big.

Duke brought out some local celebs. We didn’t see them, but Steph and Del Curry were there with family. We did see these guys one of whom’s life is basically a victory lap. Getting dapped up every 3 seconds, everyone taking selfies with him. You can decide who I’m talking about:

 

 

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• Illusions, Empathy, and the Hackability of Perception
• HOOD: A Case Study in “Renting the Straddle”
• embedding spot-vol correlation in option deltas

   

Friends,

I started to feel it over the break, but the feeling is inescapable after the past week.

This has nothing to do with current events. It’s me having the same reaction to Claude Code that early adopters using the terminal have already felt:

Work is going to feel very different by next Christmas. Yinh and I were talking about how long 2024 felt. There were a lot of life events, but just in terms of workflow, it felt like a year ago I was mostly using LLMs for transcription, editing, and giving it photos of broken stuff for help.

Today, I can write a description of a bug in Linear or Jira (who am I kidding — I upload a screenshot with a blurb and have AI write a detailed bug spec complete with testing protocol) and assign it to…”Claude bot”. A dev approves the change. Push to prod. Hundreds of hours saved over the course of a year. It’s accelerating by the week.

I’ll share more about what I’m doing personally in the letter this week, but here are a few must-reads if you are curious about getting more out of AI.

1) Claude, Code, and What Comes Next (6 min read) by Ethan Mollick

This is a strong overview of why Claude Code feels so stepped-up in capability. I’m using Opus 4.5 regularly and for one project in particular, its ability to compress the chat is lengthening the context window. This post is a nice primer to read while the idea of agents working 24/7 for you floats in the back of your mind.

2) How I code with agents, without being ‘technical’ by Ben Tossell

Khe texted me this post and it’s the next thing to read after Mollick’s. This gives you a glimpse into the near future (which is already here for Ben despite his humility in this post) with very concrete ideas. PSA: Khe’s letter is mandatory if you are a regular person trying to get the most out of the tools around us. I feel like I’m literally stepping in his tracks, just 3 months behind as I’m finally using Claude Code (I just needed it to be in a desktop app rather than command line because I just think DOS and my brain powers off.)

In this article, Ben says:

Not to be like everyone else on Twitter when they see Andrej Karpathy tweeting something, but this really rang true to me: **there’s a new programmable layer of abstraction to master.**

First of all, I have the Claude extension in my chrome browser. This lets you talk to Claude about anything you are seeing. Like the design of the website you’re on? Ask it to extract a style sheet. Don’t want to read the whole email or article? No need to copy/paste, just ask the sidekick to summarize it. There’s even a Google Sheets add-on if you want it to spreadsheet for you.

In this case, I just asked Claude in my browser for the Karpathy thread that Ben is referencing.

Boom, it just goes out to the web and finds it.

Here’s the Karpathy quote:

I’ve never felt this much behind as a programmer. The profession is being dramatically refactored as the bits contributed by the programmer are increasingly sparse and between. I have a sense that I could be 10X more powerful if I just properly string together what has become available over the last ~year and a failure to claim the boost feels decidedly like skill issue. There’s a new programmable layer of abstraction to master (in addition to the usual layers below) involving agents, subagents, their prompts, contexts, memory, modes, permissions, tools, plugins, skills, hooks, MCP, LSP, slash commands, workflows, IDE integrations, and a need to build an all-encompassing mental model for strengths and pitfalls of fundamentally stochastic, fallible, unintelligible and changing entities suddenly intermingled with what used to be good old fashioned engineering. Clearly some powerful alien tool was handed around except it comes with no manual and everyone has to figure out how to hold it and operate it, while the resulting magnitude 9 earthquake is rocking the profession. Roll up your sleeves to not fall behind.

If Karpathy feels behind, I guess the rest of us shouldn’t feel so bad. But the part I bolded feels big. Like you need to stop your first reflex about how you’d approach a problem and embody someone to whom this is all native to (while recognizing that nobody is perfectly native to it. Instead, there’s a continuum of how far along people are in how easily they consider problems in light of the new capabilities.)

3) Claude Codes by Zvi Mowshowitz

Things are moving fast. This came out 48 hours ago. Highly practical and honest assessment of the current state. Also happens to echo my opinion — this is going to be a vertical year in terms of workflow.

4) Greg Isenberg on “what young builders do” (X thread)

This thread is just a mind-eff because it shows the frontier of the kids building in the context of entrepreneurship.

5) Everyone Is Wrong About the Skilled Labor Shortage (5 min read) by Jon Matzner

. I tend not to think about things along the lines of “what are the jobs of the future”. It feels like when you do that, you are choosing a self-alienating frame that favores the predicate over the subject.

Anyway, a local friend is a lecturer at Cal in AI. Kids similar age as mine. He gets asked about future jobs all the time and I can’t pretend I never think of that even if I resist the impulse.

His answer is “fix people, fix animals, or fix robots”. He’s also partial to the “trades”. Basically, work that AI will eat last.

It makes sense. I can’t say I’m sold. My own view is that the acceleration is so fast that any prediction on those lines is swamped by the error bars, but insofar as you must choose, it’s as good a guess any. But that’s not a great foundation for deciding, so I just treat that topic as entertainment.

My view here even disappoints me because it sounds helpless with respect to planning. But then I read an article like Matzner’s and it’s an example of how a lot of consensus thinking (like going into the trades) is perfectly risky. The frictions to knowing how to do something will melt. The asymmetry in info that a tradesperson has compared to the client has been narrowing over time (YouTube) but the “last mile” of actually doing is going to get shorter. You’re going to know how to fix anything at home, it will be a question of whether the time is worth it or not. If there are no jobs, we’ll have plenty of time to fix things. I think I’m kidding. But what if I’m accidentally right?

6) Dos Capital by Zvi Mowshowitz

And now we get to the macro. Provocation instead of practical. For the lolz.

Zvi’s post is a reaction to Trammell and Dwarkesh’s post about the unprecedented wealth inequality we are about to see. What Zvi calls absurd is effectively Trammel & Dwarkesh not taking their premise seriously enough.

Zvi (emphasis mine):

They affirm, as do I, that Piketty was centrally wrong about capital accumulation in the past, for many well understood reasons, many of which they lay out.

They then posit that Piketty could have been unintentionally describing our AI future.

As in, IF, as they say they expect is likely:

[redacted list of assumptions in order]

Does the above conclusion follow from the above premises if you include the implicit assumptions?

Then yes. Very, very obviously yes. This is basic math.

Sounds Like This Is Not Our Main Problem In This Scenario?

In this scenario, sufficiently capable AIs and robots are multiplying without limit and are perfect substitutes for human labor.

Perhaps ‘what about the distribution of wealth among humans’ is the wrong question?

I notice I have much more important questions about such worlds where the share of profits that goes to some combination AI, robots and capital rises to all of it.

Why should the implicit assumptions hold? Why should we presume humans retain primary or all ownership of capital over time? Why should we assume humans are able to retain control over this future and make meaningful decisions? Why should we assume the humans remain able to even physically survive let alone thrive?

Note especially the assumption that AIs don’t end up with substantial private property. The best returns on capital in such worlds would obviously go to ‘the AIs that are, directly or indirectly, instructed to do that.’…

Even if we assumed all of that, why should we assume that private property rights would be indefinitely respected at limitless scale, on the level of owning galaxies? Why should we even expect property rights to be long term respected under normal conditions, here on Earth? Especially in a post calling for aggressive taxation on wealth, which is kind of the central ‘nice’ case of not respecting private property.

The world described here has AIs that are no longer normal technology (while it tries to treat them as normal in other places anyway), it is not remotely at equilibrium, there is no reason to expect its property rights to endorse or to stay meaningful, it would be dominated by its AIs, and it would not long endure.

If humans really are no longer useful, that breaks most of the assumptions and models of traditional econ along with everyone else’s models, and people typically keep assuming actually humans will still be useful for something sufficiently for comparative advantage to rescue us, and can’t actually wrap their heads around it not being true and humans being true zero marginal product workers given costs.

That’s the thing. If we’re talking about a Dyson sphere world, why are we pretending any of these questions are remotely important or ultimately matter? At some point you have to stop playing with toys.

I don’t even know that ‘wealth’ and ‘consumption’ would be meaningful concepts that look similar to how they look now, among other even bigger questions. I don’t expect ‘the basics’ to hold and I think we have good reasons to expect many of them not to.

Ultimately all of this, as Tomas Bjartur puts it, imagines an absurd world, assuming away all of the dynamics that matter most. Which still leaves something fun and potentially insightful to argue about, I’m happy to do that, but don’t lose sight of it not being a plausible future world, and taking as a given that all our ‘real’ problems mysteriously turn out fine despite us having no way to even plausibly describe what that would look like, let alone any idea how to chart a path towards making it happen.

The AI discourse is a ready reminder that there are no rules. There’s only power. We are bears on a unicycle. To some of our tech overlords humanity is but an experiment. A branch of a codebase we can’t see the extent of. And most likely NOT ‘main’.

To be overwhelmingly confident that this path is humanist is either hubris or motivated by the next round of funding. It just doesn’t seem clear to me that human flourishing is a layup end state of this trajectory.

Google’s mission is “to organize the world’s information and make it universally accessible and useful.” Google’s AI division’s mantra?

“Solve intelligence, and then use that to solve everything else.”

There’s mission creep and then there’s MISSION CREEP. If a business’s goal is to solve a problem and this is a quest to solve all the problems, I think it’s only fair to ask, while we still can…

“What is the last problem?”

[Nate Bargatze voice: Nobody knows]

Not a bad place to insert Asimov’s famous short story, The Last Question.

Money Angle

These 3 videos had me dying. The dude behind them, Benjamin, clearly has a strong grasp of trading and investing, but this is totally underselling the talent.

Erik pointed him out to me. Benjamin publishes videos rarely (they take a long time to create), but despite being sparse in his output the quality is so good that you can see why they get millions of views and why the channel has over 600k subs. You don’t generally see these numbers on an account that has published 33 videos total.

Enjoy!

Money Angle For Masochists

From Kevin Mak’s outstanding Price Discovery and Trading:

What’s elegant is that this example very quickly teaches people to go from thinking with an individualistic perspective (what do I think it’s worth?) to thinking with a market perspective (what is the market saying it’s worth?). This shift in the way you think is extremely counterintuitive to non-market people (who are the majority of my students, and a majority of the population in general).

I urge you to read the post because it contains beautiful game that Kevin created to give students a visceral sense of how prices emerge from the interplay of public and private information.

Just after Christmas, I spent a day at the Arbor Quant Bootcamp run by Ricki & Ross. The bootcamp is 4 days. I attended “options” day (and even had the honor of speaking for an hour).

Options day is the last day of the camp. The capstone game brings together everything you learned over the course of 4 days. It was, by far, the coolest simulation I have ever seen of a trading situation. I won’t say too much but it involves teams huddled around computers live trading a situation that brings together options, index arb, game theory, probability, and an incredibly layered scenario where the right approach is not a settled matter. An incredible canvas for socratic teaching on top of a basic corpus of financial plumbing.

Given the audience of this letter, I hope you can all experience this one day. I sent my neighbor’s son to this bootcamp a few months before entering college because he wanted to know how he’d know if he liked trading. You will walk away from this bootcamp either unable to think of anything else other than what you just experienced or you will want to run far away. Either way you win because you’ll understand what trading really is (and why it’s a general skill set — which explains how many traders at prop firms have traded many different asset classes and markets).

It is a stark experience. You go on the internet and get some impression of what trading is and then you attend this lobotomy and can’t see markets the same way. For the uninitiated, it will spark the “Omg, I can see how looking at the world through this lens prints money for Jane Street et al”.

I have no financial interest in Arbor’s business, I’m just a huge fan. I’ll obviously boost the next session once it’s announced.

(Also, I’ve been working on a card game and one of the mechanics in their simulations might be the unlock I’m looking for. We’ll see. It’s an ongoing project in the moontower skunkworks.)

Advice

I had lots of conversations with people in attendance who were just starting their trading careers ,either at banks, private funds, or prop firms. I was asked for advice quite a bit. I’m generally uncomfortable with that because a lot of the best advice is banal (“don’t be late to work”) and more specific advice is so overfit that you can find its opposite in other people you admire.

But I did get asked one question that I had the rare fast, confident answer to. An eager fella asked me what asset class he should try to get into “for his career”.

Hold your horses, kid. You’re pivoting your data on the wrong column.

You should be more concerned about who you learn from. Asset classes go hot and cold, often for long stretches. They also teach you different things. Single stock option trading is very different from trading options on macro assets or index.

[I should probably write about this, but one is much closer to heads-up no-limit poker and the p/l glide paths from t-zero to t+x is totally inverted between the 2 businesses. If you want to have some laughs, put an index trader in a stock trader’s seat or vice versa. One can learn the other, but there’s an unlearning and learning curve.]

You may not have a choice in who you learn from. You will also not have a mature enough taste when you are starting out to distinguish mentors. So the beginning of your career is an especially sensitive starting condition to an already-wiggly path. But you’re better off at least being aware that “who” is more important than “what”. The right surroundings can turbo-charge your career or saddle you with habits you might never unlearn.

On advice, Gappy’s updated memo is terrific:

2025 Buy-Side Quant Job Advice

 

From My Actual Life

We played a lot of games over the holiday break. Some recs.

Timeline games

Hitster: Draw a card. Scan the QR code and a song plays on Spotify. Place it on your timeline based on the year the song was released. First player to line up 10 cards wins.

Chronology: Same idea as Hitster but cards with historical events written on them. Did you know the first looping roller coaster preceded the Gettysburg Address? Neither did I.

Weirdly, these games are not by the same company despite the same mechanic of completing a timeline of 10. I’ve never played a game with that mechanic and then played 2 with 4 days. Baader-Meinhof game moment, I guess.

 

Trickery games

Imposter: This is a free social deduction game that got a lot of play since we had several large gatherings.

 

Skull: I’ve boosted this game before. It’s reminiscent of poker or Liar’s Dice but we played a bunch over break with several groups and it universally loved. Even the 9 year-olds were super into it. Take 2 minutes to learn but then it’s very rich.

My favorite game review channel is Shut Up & Sit Down:

You really don’t need to buy the game to play it. Here’s the same game played with whatever cards you have around the house:

Finally, we played a giant round of a game I wrote about last year:

Left Center Right (1 min video)

This game is pure degeneracy and takes less than a minute to learn. Asian grandmas and 5-year-olds alike will lose their minds over it. Huge party hit this holidays. It’s actually an old game, but new to me. It has zero skill so when I heard how it works I immediately poo poo’d it but playing it in a group of 15 for a little cash is amazing.

If you want to make it skillful just create an open outcry side-market on who the winner is. Let’s say “Ann” is playing…Ann futures settle to 0 or 100 depending on if Ann wins so you can bid, offer, or trade any integer price between 0 and 100 based on your assessed probability of Ann winning. It’s a faithful simulation of mock trading (and really similar to the StockSlam game I was playing a couple years ago).

This year, we played a single round of LCR on Christmas Day that took close to an hour. 17 people with a $20 buy-in. Winner got $340. Asian aunties were rabid. Call me whatever you want, but “these people” love gambling.

[Because of the buy-in, we used poker chips instead of singles for tokens. I was told this took away from the experience since “grandma wants to see the cash”. Noted for next time.]

 

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• slop
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Friends,

A message for the 6th year in a row:

As always around the holidays, Moontower is taking the next few weeks off and returning in January. We can all use a bit less stimulation at the end of the year. Play boardgames, go to sleep late, binge some shows, gain a few pounds. Laugh so hard bourbon eggnog comes out your nose. Shower your loved ones with attention. You’re not missing anything, including Moontower.

🎙️98 Years of Economic Wisdom (People I (Mostly) Admire Podcast)

Gappy recommended this one. Steven Levitt (Freakonomics) interviewed the late Nobel Laureate, Robert Solow, months before he passed. There are great individual sections of the interview. Like Solow’s take on the modern state of academic economics. Or his service in WWII. My god, that whole section is amazing — Solow is such a mench. Which brings me to what I said to Gappy thanking him for the rec…

Listen to how Solow takes a question, appreciates its facets and breaks it down. Someone so wise whose able to rattle off enlightening answers at the same time conveying sincere humility at the limits of his knowledge. And he’s 98 when he does this interview! Then try listening to anyone in public leadership. Every single word that comes out of politicians’ mouths is self-interested propaganda. It’s exhausting for every public appeal to be to the lowest common denominator.

Meanwhile, I’m watching the Ken Burns documentary on the American Revolution and they just covered the part about how viral Thomas Paine’s pamphlet Common Sense went. It was deeply influential document at a critical time in the conflict. And it’s not an easy read!

Neil Postman’s Amusing Ourselves to Death covers this idea head-on. When we were at our most literate, we were capable of more nuanced thoughts. The discourse was on a much higher level hundreds of years ago. (That book is like 100 pages — that’s the best stocking stuffer out there. Stuff your own stocking with it.)

Anyway, listening to Solow was so delightful. It’s lucid. It’s kinda special in that it quiets the mind while activating it. But then it’s over, I turn on a screen, and my head’s in the dryer again.

Money Angle

🎙️Acquired’s Google: The AI Company

I just finished listening to this after taking it snippets while shuttling the kids around in the car during the past month. It’s 4 hours long. Khe Hy texted it to me with “this is the best podcast I’ve ever listened to”. My wife also recommended it. And then I was at my monthly dinner with guys I worked with for over 20 years and one of them told the rest of this episode pushed him over the edge — he made GOOG the biggest position in his investment portfolio. “10x bigger than the next position”.

I almost never trade single stocks myself and I bought GOOG during the Liberation Day melee. Although not nearly enough. I sold it for $100 a share profit…in other words 1/3 LOWER than where we are today. If I heard that episode earlier I never would have sold. (I’m about to buy it again fthough — for my son’s account).

Putting the stock aside, the podcast is an amazing history of AI and filled with so many stories that are both fascinating and flat-out unsettling, especially when you realize how small the room is “where it happens”. I feel very much like a pawn.

It’s also a glimpse into how much leverage there is in being really, really smart in the modern era. The difference between being 99.99% and 99.5% seems to be billions of dollars. It made think that while trading firms are not operating on the same scale as GOOG, the growth in profits at the smartest firms like Jane and HRT suggests breakthroughs in money glitches that I’d expect if GOOG bothered with a subsidiary to apply their intelligence to slumming over zero-sum alpha.

In any case, I could go on and on about specific parts of the episode, but just give it a listen. Fair warning — you will feel tiny afterwards.

Money Angle For Masochists

SIG’s Todd Simkin interview with Ethan came out before mine. I just watched it. These are always good.

I’ll just excerpt the section about prediction markets below. You are going to keep hearing about them. You are going to see them in your brokerage accounts. Godspeed.

On prediction markets as risk transfer

“The world is a richer place when people can freely transfer risk from those that are less able to stomach it to those that are more able to stomach it.”

“Every trade makes both parties better off because they have another option which is not to enter the trade.”

On why market size reflects real-world exposure

“Everything finds its appropriate level. There shouldn’t be billions of dollars exchanging hands on whether or not Taylor Swift holds the top 10 spots on Spotify. People don’t have a billion dollars worth of risk on her performance as an artist in a certain time period… There are real implications to businesses about things like tax rates or tariff rates. You can hedge this sometimes imperfectly, but you can hedge it by using prediction markets.”

On tailoring contracts to real business risk

“What I really like about the prediction markets is that the contracts can be tailored to the specific risk that you’re looking to transfer.

If you can dial in exactly the risk that you want and have a market listed on it…If the true probability is 20% and they charge 21%, you’re probably happy to pay it because you don’t want the one-in-five chance of it going to 100%.

If they said they’re going to charge you 50% for it then you don’t trade it.

On liquidity as information

“Not enough liquidity comes in, which is also information. That’s information you can use to figure out whether this is the right time to be talking to somebody in Mexico about a different source of product.”

2025 Money Masochist Writing

In case you haven’t noticed the pattern…Thursday’s posts, the only ones I paywall, are almost all about trading, options, or quant topics

[although I’m not a quant so it’s more like you get a (hopefully) tasteful quant-curious perspective from someone who’s squeezed a lot of mileage out of grade-school arithmetic].

I’m better at predicting how popular a Thursday post will be than a regular post.

[Long meta aside:

This is probably because I have a decent map of how well people understand and don’t understand some of those topics based on questions I receive, but also because experience grasps subtle concepts that elude the amateur’s eye. There are some things you’d never look for until you lost money on them. You update your mind’s custom instructions to consider them in the future. This is an intrinsically advantageous place to be able to write from because it’s easy to reach into your bag to pull out a surprise-resolution trick.

This letter is popular in the trading world not because I’ve had rare experiences. In fact, it’s just the opposite. The inbound I get is that I’ve put words to exactly what traders have noticed. The success of this letter is not in what I know. It’s in the willingness to write them down.

Since the typical trader is an EV maximizer, writing does not screen as something worth doing. They are correct. I doubt I’ve earned a babysitter’s wage if you consider that I’m well past halfway to my 10,000 hours in this no-longer-new writing endeavor.]

Again, pretty good at predicting which masochist posts will be popular. But occasionally I’m wrong. And there’s one particular form of wrong I find unsettling. When I learn a lot from writing a post which means even I get to experience some surprise, but then that doesn’t carry over to the reader. I write something I find very pleasing because I got to upgrade my thinking, I put it into the world, and I’m left to interpret the readers’ indifference as “duh, we already knew that”. I’m like the last kid in this video meme…

The post that had the largest gap between what I find fascinating and what readers found resonant was a recent one:

The Coastline Paradox in Financial Markets

So I removed the paywall. Maybe I’m miscalibrated on how neat I thought that one was or because my math skills are less than the readership* so it was naturally more enlightening to me.

Anyway, have at it.

*The survey results point to the royal YOU being more educated than I. The survey also was interesting regarding the next section. It’s a primary draw for a set of readers but also the most likely to be skipped (along with the Masochists) section. Feels like an opportunity for some “bundling economics” expert to optimize my revenue, but even saying that feels exhausting in that way that only modernity can make you feel.

For the folks who want to follow more of the actual life stuff you can follow my Insta. I lately have been reposting from my wife’s stories (her IG stories are popular with a wide group of friends and associates — her finance job requires a lot of “peopling” — which is funny because I’m more of the extrovert but definitely less skilled and all the distinctions within that are things I wouldn’t even be aware of if it wasn’t for her). My favorite social media is her stories because it’s often a different perspective or focus of attention on the experiences we share (I don’t think about the Roman Empire, but that meme still hits hard). But also because IG stories is one of her art forms — she’s like good at all the animations, music, and stuff.

If you wanna follow:

my insta

her insta

Just fyi…there’s almost no regular posts, it’s all IG Stories.

One more useful life-hack. The Meta algorithms can be weaponized to your advantage. With the move we have been buying furniture, redecorating, etc. We have bought lots of stuff from Facebook Marketplace. Designer furnishings (and music equipment), like nice cars, depreciate as soon as you buy them but also stop decaying at transparent levels when you look at the used market. So if you buy them used you are basically renting them for free or just getting a good deal.

Anyway, the IG and FB marketplaces are amazing at putting the things you actually would be interested in buying in front of your face. IG has become a primary search engine for things like “desk”. For better or worse, META products have little to do with connecting with people in my life and far more to do with outright consumerism but it is solving a pain point and surfacing some niche brands. I should compile a list of these. Something for the new year maybe.

From My Actual Life

I look forward to some downtime. On the professional front, 2025 had good growth at moontower.ai, a lot of writing right here in the Substack, interesting consulting and teaching opportunities, an increasing amount of feedback that this project has turned into “the most read letter at trading firms”, a small but growing YouTube channel, and so much more proficiency in the AI-code loop (although still scratching the surface at the same time!). Of course, all the time I spent in generation mode had a cost. I only read 2 books. An adult low. I even listened to much less music and podcasts, according to Spotify Wrapped minutes. On the investing front, avoided landmines, had a nice score in silver (thanks to Alexander Campbell I bought silver futures at the start of the year) and got a nice exit on my private shares in Ezra (acquired by Function). I’m underweight risky assets in general, so these pointy scores really just helped me get a market-like return. I don’t explicitly think in “barbell” terms but I guess this is how this year turned out.

On to a few activities that occupied my non-working, and clearly non-exciting (not a complaint — I’m no adrenaline junkie) life:

• Continuing to play bass with my band at the music school
• Coaching both my boys’ basketball teams
• Getting on to a functional health program this summer. Been meaning to write or possibly do a webinar about this. I do the preventative MRIs (not just an Ezra investor but a client), but now keeping better tabs on bloodwork and disentangling myself from what feels like an increasingly stodgy PCP system. “Your booking physcials 4 months out?” Pass. I’m a 47-year-old hypochondriac. I don’t have patience for that.
• Visiting Austin a couple times and even having the little guy shadow at Alpha School.
• 25-year Cornell Reunion weekend. Ithaca in the summer is undefeated.
• Participation and contribution at the social club we started in town that is 3 years old now

But the most memorable occasions, both good and bad, were major family events.

My father passed away on May 19th, ending 2 years of profound suffering. The weight I was carrying did not show how heavy it was until I found peace on the other side. Dreams of giving his eulogy would intrude on my daily life at strange times. I believe it was a pull to confront a lot of conflict I carried within me. The mind and body are intricate machines. I was being “prepared”. I am grateful for the love, light, and learning he is within me. I didn’t always see it that way. But all of the feelings serve me in ways that (I hope) make me better.

About a week after the funeral, on a Tuesday, just before we left for SFO to go to NY for my Cornell Reunion we swung by an open house that was around the corner from our rental. We needed to get to the plane, so we had to sprint through it. A month later we closed on that home. And it feels like home. We love it. The boys have their own room, the formal living room is a soundproofed rock & roll room because we ain’t formal, and we are building Yinh’s mom a beautiful ADU (architect’s rendering):

Finally, 2 of my cousins’ had weddings that brought the extended family together multiple times this year, including a giant reunion in Sicily this summer. When Egyptians and Italians have a reception:

I share the good things because I need to. Inside my brain there’s nothing but flaws. I just see the gaps between where I want things to be and where I am. To be a bit harsh, I think any good work requires this, but the side effect is unhealthy anxieties. I don’t know if it can be any other way.

But life is fragile. The volume on everything I pay attention to now can be turned way down if life transmits a “We interrupt this broadcast because…” message. That’s clearer as you age (if you’re lucky by the way — this is a brutal lesson to learn when you are young). So when it’s your time, people will remember the moments together.

If you are fortunate enough to be with loved ones this holiday season, savor it. Invite magic by delighting someone. Be present. Scrap the politics and bond over personal stories, not some grand worldview philosophizing. Retreat into your cozy couch chats at 1 am with cocoa or wine, play Taboo or Codenames, and for heaven’s sake, strum some chords fam.

I’ll be back in January. I gotta go beg my son to wrap some gifts for me now. My handiwork looks like a wolverine got into the tape.

 

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• the poor and the magnificent
• Pricing 0DTEs
• Moontower Survey Results