Friends,

I got so excited to tell you about Alright, Alright, Alright when I finished reading it that I never got shared the passage I loved from the prior book I read Three Cheers for Anarchy by James C. Scott.

This happens all the time. Stuff that I read or see that I want to share but gets buried in my editorial calendar by something else that is frankly just more recent. Eventually, the buried item just gets archived. I seldom look at the graveyard and when I do it’s rare that I find something worth re-instating. Recognizing this pattern is not good for my self-esteem. If my taste is as discardable as F21 why am I writing? Well my dear coquette I am not in the mood to take that question as seriously as I should so shall we just get back to Mr. Scott’s writing. I think we shall.

This is James C. Scott on history (emphasis mine):

The job of most history and social science is to summarize, codify, and otherwise “package” important social movements and major historical events, to make them legible and understandable. Given this objective and the fact that the events they are seeking to illuminate have already happened, it is hardly surprising that historians and social scientists should typically give short shrift to the confusion, flux, and tumultuous contingency experienced by the historical actors, let alone the ordinary bystanders whose actions they are examining.

One perfectly obvious reason for the deceptively neat order of these accounts is precisely because they are “history.” The events in question simply turned out one way rather than another, obscuring the fact that the participants likely had no idea how they would turn out and that, under slightly different circumstances, things might well have turned out very differently. As the saying has it: “For want of a nail, the shoe was lost; for want of a shoe, the horse was lost; for want of a horse, the rider was lost; for want of a rider, the message was lost; for want of the message, the kingdom was lost.”

Knowing what in fact happened, unlike the participants, can’t help but infect the story and drain much of its actual contingency. Think for a moment of someone who takes his or her own life. It becomes almost impossible for the suicide’s friends and relatives not to rewrite the dead person’s biography in a way that presages and accounts for the suicide. It is, of course, entirely possible that a brief chemical imbalance, a momentary panic, or an instant tragic insight may have led to the act, in which case rewriting the entire biography as leading up to suicide would be to misunderstand that life.

The natural impulse to create a coherent narrative to account for our own actions and lives—even when those lives and actions defy any coherent account—casts a retrospective order on acts that may have been radically contingent.

Jean-Paul Sartre gives the hypothetical example of a man torn between the obligation of staying and caring for his ill mother or leaving for the front to defend his country. He can’t make up his mind, but the day—like an onrushing train—arrives, and he must do one thing or the other, though he still hasn’t decided.

Let’s say he stays with his sick mother. The next day, Sartre notes, he will be able to tell himself and others why he is the kind of man who would choose to stay with his sick mother. He must, having acted, find a narrative that accounts for what he did. This does not, however, explain why he did what he did; rather, it retrospectively makes sense of—creates a satisfying narrative for—an act that cannot be explained in any other way.

The same could be said for the momentous, contingent events that have shaped history. Much history as well as popular imagination not only erases their contingency but implicitly attributes to historical actors intentions and a consciousness they could not possibly have had.

The historical fact of the French Revolution has, understandably, recast virtually all of French eighteenth-century history as leading inexorably to 1789. The Revolution was not a single event but a process; it was contingent on weather, crop failures, and the geography and demography of Paris and Versailles far more than on the ideas scribbled by the philosophes. Those who stormed the Bastille to free prisoners and seize arms could not possibly have known (much less intended) that they would bring down the monarchy and aristocracy, let alone that they were participating in what later would come to be known as “the French Revolution.”

Once a significant historical event is codified, it travels as a sort of condensation symbol and, unless we are very careful, takes on a false logic and order that does a grave injustice to how it was experienced at the time.

Chambon-sur-Lignon, now held up as moral exemplars, appear, more or less monolithically, as acting on Huguenot religious principles to aid the persecuted, when, as we saw, their bravery had more complex and instructive wellsprings. The Russian Revolution, the American Revolution, the Thirty Years’ War (who knew in year five that it would last another twenty-five years?), the 1871 Commune of Paris, the U.S. civil rights movement, Paris in 1968, Solidarność in Poland, and any number of other complex events are subject to the same qualifications. Their radical contingency tends to be erased, the participants’ consciousness is flattened and too often inoculated with a preternatural knowledge of how things turned out, and the tumult of different understandings and motives is stilled.

What history does to our understanding of events is akin to what a television broadcast does to our understanding of a basketball or ice hockey game. The camera is placed above and outside the plane of action, rather like a helicopter hovering above the action. The effect of this bird’s-eye view is to distance the viewer from the play and apparently slow it down. Even then, lest the viewer miss a crucial shot or pass, actual slow motion is used to further slow the action and allow the viewer to see it in detail again and again. Combined, the bird’s-eye perspective and slow motion make the players’ moves seem deceptively easy to viewers, who might fantasize mastering such moves themselves. Alas, no actual player ever experiences the actual game from a helicopter or in slow motion. And when, rarely, the camera is placed at floor level and close to the action in real time, one finally appreciates the blinding speed and complexity of the game as the players experience it; the brief fantasy is instantly dispelled.

Money Angle

Is there an inflation-protected rate at which you would just push in all your chips and never spend another brain cycle on trying to make your money make money?

This question and its dependencies are at the heart of Elm Wealth’s latest:

The Most Revealing Question in Personal Investing…and How Warren Buffett Helps Us Answer It (9 min read)

This is our single favorite question for shedding light on how you’re thinking about investing:

What is the lowest risk-free, after-tax, after-inflation rate of return you would accept in order to forgo all other investment opportunities for the rest of your life?

The answer, along with the thinking behind it, speaks to whether and by how much you think you can beat the market in the long run, your level of personal risk-aversion, and the average tax rate you think you’ll pay on your investment returns. It’s a useful reference point to keep in mind when evaluating real-world investments, and also as one of the key inputs to figuring out your long-term spending policy.

Over the past ten years, we’ve discussed this question with about 50 of our friends and clients, resulting in many animated and productive conversations. We’d like to briefly explain our thinking, and then invite you to use our calculator, where you’ll also have the option to submit your answers for a survey we’re compiling.

Money Angle for Masochists

I just want to say that you people are sick. This is the most viral tweet I can remember sending in recent times.

Because I happened to be helping the 3rd grader with improper fractions recently I saw 1.25 as 5/4 which is immediately recognizable as a square root of 25/16.

Sprinkle in some trader math that condemns you to see the sqrt(251) as 16 and you get an even more compact version:

Step by step:

The real masochism in that thread happens further below…

📈 Trading bootcamp on June 3-5th

It’s back again. If you are in the Bay Area it’s your chance to learn at a quant bootcamp that I repeatedly say should not exist outside of a trading firm. Attendees seem to agree — the demand for it is high and the Arbor team is growing to serve these more frequently. Don’t worry, they always keep spots for those coming from Moontower so let them know.

[I’ve gotten to know Ricki, Ross, and David — you are in great hands with this crew. I’ve got so much to learn from them as well, I got “not enough time” anxiety]

What you need to know

Arbor’s Trading Bootcamp teaches the fundamentals of trading: markets, order books, auctions, risk and sizing, adverse selection, arbitrage, and how quant trading firms make money. It’s taught by former Jane Street traders Ricki Heicklen, Ross Rheingans-Yoo, plus David Holt and a team of scrappy, smart, chaotic lackeys. The philosophy of this bootcamp is that the best way to learn to trade is by trading. We’ll use a fake economy and exchange, run through many sessions of trading games designed to teach progressively more complex concepts, and auction off prizes at the end using our internal currency. Our next one is in Berkeley CA, starting Tuesday, June 3rd at 10am and running through Thursday night June 5th(with optional, more relaxed programming the preceding Monday evening and following Friday morning)—register here!

No formal prerequisites, but you should be generally mathematically inclined (e.g. comfortable with the concept of expected value). For this bootcamp, you don’t need to know how to program. More FAQ here. Also, we have a fun auction-based afterparty that everyone is welcome to attend!

Join our Discord here: bit.ly/qtb-discord“

Stay groovy

☮️

Moontower Weekly Recap

Posts:

• diploma season
• the price of a halted stock

Friends,

Happy Mother’s Day all. I’ll keep it short today with a few quick hits of useful things, stuff that picked me ears up, or otherwise found enjoyable.

✍🏽AI is not magic. It’s just math (12 min read)
Khe Hy

“A non-technical breakdown of how ChatGPT actually works”

This is a cool post even a middle-schooler can follow. Khe geeked out on Andrej Karpathy’s video How LLMs Work. The video is 3.5 hours so Khe distilled major points into a story. Readers might remember a 1-hr Karpathy vid I shared over a year ago called Intro to LLMs. He’s amazing at explaining the tech.

3D Printer Fun

It took about 90 min of assembly, downloading the app, getting the Bambu A1 mini 3D printer online, and loading the filament — but I did nothing — the 11 and 9 year olds managed it all on their own. That alone, made me a fan of this printer (ty Dave Nadig for the rec!).

By Thursday, Zak sold his classmate this fish for $1:

By Thursday night he rolled his eyes at me for inserting arithmetic into everything. By now he doesn’t complain, he just works it out to shut me up.

Me: How much material does it take to make a fish?

Kid: 10 grams

Me: The filament cost about $20, how much filament do we have?

Kid: 1 kilo

Me: So how much does it cost to make the fish?

Kid: $.20…I make 80 cents.

Me: What about the electricity?

Kid: Oh come on dad, I’m not paying for electricity.

Me: Ok fine, but you need to know the cost at least. [Quick Google search on how many watts the Bambu mini takes.]

It takes about 60. That means it uses 60 watts per hour.

Kid: How much does electricity cost?

Me: Here it costs about $.40 per kilowatt/hr. This is much higher than most places by the way. It’s more like $.11 where [uncle] lives. How long does it take to print the fish?

Kid: Half an hour.

Me: So what’s the electricity bill for the fish?

Kid: $2.40

Me: Bruh

Kid: [Laughs] Uhh, 2.4 cents

Me: Bruh, half an hour

Kid: [Laughs] 1.2 cents

Me: Cool. I cover the electricity, you use the profits to buy filament.

[We had 2 tangent discussions. He brought up the idea of higher-margin items. He has a friend selling a 30-gram fidget for $3 and he noted that it was the “same profit per gram”.

The other discussion was about heat and watts. We talked about one of the best YouTube videos we ever watched together about the discovery of the blue led. We learned that most of the energy, about 85%, in an incandescent bulb is turned to heat. Very inefficient. While LEDs, light-emitting-diodes, are way more efficient but also that they are an astounding and relatively recent innovation because it took so long to crack the mystery of the blue led. You’ll remember from the 80s that we had red and green LEDs in all kinds of electronics but we didn’t get white LED light bulbs until about 30 years ago. We needed blue. The blue led saga deserves a movie.]

Anyway, I’m sharing this because parents always tell me they like this stuff. I apologize to your kids in advance:

🚸Games and Word Problems For Kids

[Someone I’m close with who escaped the world of drug-dealing joked that my kid selling stuff in school (he’s not supposed to do that) is a gateway. That we bought filament by the kilo and Zak sold the fish an implied price of 5 kilos is a bit too on the nose.]

Full-body MRIs getting cheaper

I mentioned last week that Yinh and I are getting our full-body MRI scans soon. When Function acquired Ezra they slashed the price of scans for Function members. Since we had our scans booked before the acquisition they actually refunded us the difference. The price was lower by $499 which is the annual cost to be a Function member. Nice to see synergy on day 1!

This is the link to the scans.

[FD: Long Function; it was both a cash and stock acquisition of Ezra. I pay full price for the services though.]

Money Angle

🎙️Recap of The Sloan Sports Analytics Conference (Bet The Process podcast)

Jeff Ma and Rufus Wainright attend the conference every year. They talk about what panels and meetings stood out. It’s a great podcast in general because you pick up insights in passing just as they banter. The grout of the conversation always oozes gambling wisdom. When they echo the trope “if your model shows that you’re like a 10% edge, you probably should like re-evaluate your model” it reminded me of the pick-off story Kevin Muir told…hey mate, check your price.

I was doing a consult call recently with an option group and we were talking about those moments when you see an option structure trade at a strange price and how a surprising proportion of the time you come away thinking…”Oh, I see why they’d do that. I like their side.” It’s usually someone buying [selling] something that everyone would agree looks optically high [low] but the weird print snaps your mind out of autopilot to think about the scenario harder — only to come to the same conclusion as the aggressor — the underlying distribution is doesn’t conform to what conventional surfaces presume. [A good example was the emergence of the “teepee” vol surface ahead of earnings my friends and I referred to it. Voladynamics calls it the “W”].

Money Angle for Masochists

A new vid for the options audience.

Demonstrating the new Volatility Visualizer tool in the context of my IBIT May 60c position.

It covers what I see in the vol surface now to make me want IBIT vol using:

• The DASHBOARD view to get a snapshot of overall vol levels and term structure.
• The REAL Tool to compare implied volatility (IV) against realized volatility (RV).

We also discuss the misleading nature of realized vol after high-volatility periods, and how that impacts volatility risk premium (VRP) readings. I show how VOL CONES can help correct these distortions manually — and preview a coming feature that will do it automatically.

⏱️ Chapters
00:00 – Introduction
02:33 – Exploring the Moontower AI App
05:57 – Understanding Volatility and Z-Scores
09:45 – Using the Volatility Visualizer Tool
12:08 – Current Position and Delta Management
16:03 – Analyzing IBIT’s Volatility Trends
20:41 – Comparing Implied and Realized Volatility
25:36 – Evaluating the Market’s Volatility Expectations
30:34 – Final Thoughts on IBIT Options Trading

From My Actual Life

My mother-in-law who lives with us is 1 of 12 (all from 1 mother!). Most of the siblings and their families live in the Bay Area so we are expecting over 50 people today for festivities. Including my mother-in-law’s mother.

For my mom, love you, I’ll call you in a bit. And happy Mother’s Day AND happy birthday to my sis. Good luck in pickleball today 😛

Stay Groovy

☮️

Moontower Weekly Recap

Posts:

• alright, alright, alright
• the 2 vectors of volatility scaling

YouTube:

🎥demonstrating the new Volatility Visualizer tool in moontower.ai

Friends,

If you google “origin of the term meme”, you are served a snippet from Wikipedia:

The word meme was coined by Richard Dawkins in his 1976 book The Selfish Gene as an attempt to explain how aspects of culture replicate, mutate, and evolve (memetics). Emoticons are among the earliest examples of internet memes, specifically the smiley emoticon “:-)”, introduced by Scott Fahlman in 1982.

A meme, like a gene, compresses information. A killer headline can be a powerful meme. You might even parrot it, participating in a culture-wide game of telephone where nobody actually reads the article they just re-post, re-share, re-tweet.

We’ve substituted virality for nuance. You can probably feel the effects but naming them takes work.

With that in mind, I point you to Kyla’s outstanding post:

What Happens When Everything Becomes a Meme? (8 min read)

She doesn’t need an introduction from me, but just in case, you should know she’s a very smart writer who happens to be an influencer. A highly self-aware one. She brings Bane’s weight to the discussion — she didn’t merely adopt the meme she was born in it.

Her latest writings on this topic have all been fantastic but that post is the one you should start with.

I’m no fan of treating ideas like people. That’s what ideology feels like to me. I’ve expressed this many times (Antidote to Abstraction, How the need for coherence drives us mad)

I just wrapped James C. Scott’s Three Cheers for Anarchism. I have seen Scott’s work referenced in many places, usually Seeing Like A State, but this is the first time I’ve read him directly. I did a lot of nodding which is probably not an accident since I picked up the book in the first place.

But this Fragment 27 [the book is a collection of essays or fragments as he make no attempt to force them into a single song . I not only appreciate that but sensed he did, it would be off-key irony given his resistance to exactly the type of just-so reasoning that successfully sells books in terminal 3] amplifies my sense that abstraction is ethically expensive. I reprint it here with my emphasis.

Fragment 27: Retail Goodness and Sympathy

The heroism of the French town of Le Chambon-sur-Lignon, in the Haute-Loire, which managed to shelter, feed, and speed to safety more than five thousand refugees in Vichy France, many of them Jewish children, is by now enshrined in the annals of resistance to Nazism. Books and films have celebrated the many acts of quiet bravery that made this uncommon rescue possible.

Here I want to emphasize the particularity of these acts in a way that, though it may diminish the grand narrative of religious resistance to anti-Semitism, at the same time enlarges our understanding of the specificity of humanitarian gestures.

Many Le Chambon villagers were Huguenot, and their two pastors were perhaps the most influential and respected voices in the community. As Huguenots, they had their own collective memory, from at least the St. Bartholomew’s Day Massacre forward, of religious persecution and flight. Well before the Occupation, they had manifested their sympathy for the victims of fascism by sheltering refugees from Franco’s Spain and Mussolini’s Italy. That is, they were well disposed both by conviction and experience to sympathize with the plight of refugees from authoritarian states, and with Jews in particular as a biblical people. Translating that sympathy into practical and, under Vichy, far more dangerous acts of assistance, however, was not so simple.

Anticipating the arrival of Jews, the Huguenot pastors began trying to mobilize the clandestine shelter and food they knew would be required of their parishioners. With the abolition of the Free Zone in southern France, both pastors were arrested and taken off to concentration camps. In this menacing setting, the wives of the two pastors took up their husbands’ work and set about lining up food and shelter for Jews within their community. They asked their neighbors, both farmers and villagers, if they would be willing to help when the time came. The answers often were not encouraging. Typically, those they asked expressed sympathy for the refugees but were unwilling to run the risk of taking them in and feeding them. They pointed out that they also had a duty to protect their own immediate family and were fearful that if they sheltered Jews, they would be denounced to the local Gestapo, who would put them and their entire family at grave risk. Weighing their obligations to their immediate family and their more abstract sympathy for helping Jewish victims, family ties prevailed, and the pastor’s wives despaired of organizing a network of refuge.

Whether they were ready or not, however, the Jews began to arrive, and to seek help. What happened next is important, and diagnostic for understanding the particularity of social (in this case, humanitarian) action. The pastors’ wives found themselves with real, existing Jews on their hands, and they tried again. They would, for example, take an elderly Jew, thin and shivering in the cold, to the door of a farmer who had declined to commit himself earlier, and ask, “Would you give our friend here a meal and a warm coat, and show him the way to the next village?” The farmer now had a living, breathing victim in front of him, looking him in the eye, perhaps imploringly, and would have to turn him away. Or the women would arrive at the farmhouse door with a small family and ask, “Would you give this family a blanket, a bowl of soup, and let them sleep in your barn for a day or two before they head for the Swiss border?” Face-to-face with real victims, whose fate depended palpably on their assistance, few were willing to refuse them help, though the risks had not changed.

Once the individual villagers had made such a gesture, they typically became committed to helping the refugees for the duration. They were, in other words, able to draw the conclusions of their own practical gesture of solidarity—their actual line of conduct—and see it as the ethical thing to do. They did not enunciate a principle and then act on it. Rather, they acted, and then drew out the logic of that act. Abstract principle was the child of practical action, not its parent.

François Rochat, contrasting this pattern with Hannah Arendt’s “banality of evil,” calls it “the banality of goodness.” We might at least as accurately call it the “particularity of goodness,” or, to appropriate the Torah, an example of the heart following the hand.

People don’t easily identify with or open their hearts or wallets for large abstractions: the Unemployed, the Hungry, the Persecuted, the Jews. But portray in gripping detail, with photographs, a woman who has lost her job and is living in her car, or a refugee family on the run through the forest living on roots and tubers, and you are likely to engage the sympathy of strangers. All victims cannot easily represent one victim, but one victim can often stand for a whole class of victims.

We trample over each other in the name of some contrived ideal of consistency…which we don’t ever achieve anyway. And thankfully. Because that is the cover for history’s greatest butchers.

[If interested…my Zeroth Commandment]

Money Angle

I impulsively tweeted this on Wednesday while procrastinating taking a break.

The trading version of not being in on the joke is to not know which side of the market is fake on the lean. How many times do you have to watch someone hit their own bid to learn?

Offer it to buy it. Bid it to sell it. It’s always the game. Everywhere. Yes in SEC markets you can’t spoof but that’s only one way to do this. And man outside SEC markets, this game is on full display everywhere. I’m more convinced that spending a week in an open outcry pit could teach quite a bit about bottlenecks, the hierarchy of information flows, second-order knowledge You can get all these lessons elsewhere, but the pit speedruns it.

I decided it was needlessly esoteric so I indulged the procrastination for 30 more minutes and explained it on camera. There’s nothing technical here, it’s more about tradecraft and being a bit less naive.

If you’re looking for something meatier this morning, grab a coffee, a cozy chair, and your spectacles:

A Tale of Two Tariffs (27 min read)

Citrini writes terrific investment pieces. But this one is a departure from his typical posts (and unlike the others…free).

It’s been more than two years since I’ve published a history piece to CitriniResearch. After all, our tagline is “you’ll never have to ask ‘what’s the trade?’”, and these pieces are not necessarily actionable. However, the last one I wrote – an examination of how markets have failed to price in geopolitical risks through the lens of WWI (similar to the one we’ve just seen that was…not priced in) – has aged relatively well.

It’s a history lesson and an inquiry into what might be relevant or not from prior tariff expeditions. While I enjoyed the history lesson, my favorite part of the piece was Citrini’s discussion of the current moment.

Money Angle for Masochists

I replaced my IBIT shares into long calls when BTC vol got crushed this week while selling my VIX futures which held up quite well on the equity rally, a possibility I suggested when I explained that the elevated but also flat term structure of VIX suggested vol was here to stay in 2025. From vol speed round:

As I was looking at IBIT I thought I’d share a habit I picked up from distant past of ETF arbitrage — estimating the prem/discount baked into the ETF price I’m about to trade:

1. Go to the IShares web page to grab 3 values (highlighted)

2. Enter them in my spreadsheet to compute the ratio of NAV to BTC price. The cells with the box around them are via the previous close values. I then apply the fair ratio to the live BTC price compute IBIT’s live premium or discount.

Stay Groovy

☮️

Moontower Weekly Recap

Posts:

• “not dead yet”
• hedge ratios

YouTube:

Friends,

It was a long week in southern CA.

I was pulling out of SAN in a rental car Monday am just as the earthquake hit. Feels like a lifetime ago.

I’m focused on getting back to routine this week. My version of back in black.

Let’s start with 2 education related links.

How to Help Parents and Teachers (12 min read)
Dominic Cummings

Cummings, known for his controversial role as Chief Adviser to Prime Minister Boris Johnson from July 2019 until November 2020, also writes a substack. (The thought of a Trump advisor having a substack is a comedic contrast that we’ll set aside.)

Cummings is an outspoken critic of the British education system especially in mathematics. This post opens with a summary that you can use to decide whether you want to continue. I enjoyed it.

• What books and other materials to use to help children learn maths if your real goal is ‘they learn maths’ and ‘learn to think’ as well as they can — which is not at all the same as ‘follow the national curriculum’ or ‘succeed on government controlled tests’?
• Why does the system generate huge numbers of rubbish material and suppress good material, so much so that many great books are hard to find (and whose judgement should you trust?) and have vanished from teacher training and institutional memories?
• What is the Russian experience with Maths ‘Circles’, why are Circles so treasured by those who participated (an amazingly large number of western faculty), how do these differ from maths in normal English schools, what lessons can we be very confident in, how could these lessons be brought to Britain?
• How much can such things scale, how much is limited by necessarily relatively few excellent teachers, what can/can’t (well) be scaled with the internet?
• What can parents do given almost all schools (including almost all private schools, for complex reasons) are driven by *optimise to the national curriculum and government controlled tests* but this is bad for both those children more or less able than the median? How are these options affected by wealth? (NB. many teachers appreciate that optimising for the National Curriculum and government tests is not the best educational approach but most have no/little choice.)
• What are the core beliefs about education among Westminster players across party allegiance and how do they undermine civilised education? Some of my ideas about this came from working in the DfE 2010-14, creating King’s Maths School and other projects, discussed below.

Yet Another Reason To Hate College Admissions Essays (11 min read)
Astral Codex Ten

Scott Alexander nails this one. It’s paywalled but piles on to a free post by Yascha Mounk’s The College Essay Is Everything That’s Wrong With America.

Yascha sets the scene (X addicts already know the backstory because these kinds of stories always make the poster the “main character” on the app):

A few days ago, an 18-year-old by the name of Zach Yadegari publicly shared his impressive accomplishments—and the disappointing outcome of his attempt to get into an elite college. Zach had a GPA of 4.0. He had a score of 34 (out of 36) on the ACT, a standardized test applicants sometimes take in lieu of the SAT. Perhaps most impressively, he is an accomplished coder who has built a genuinely successful business: an app that allows users to count calories by submitting photographs of their food, and which he claims already earns $30 million in annual recurring revenue.

Despite this impressive record, most schools weren’t interested in Zach. According to his post, he was roundly rejected by every Ivy League school (except for Dartmouth, to which he didn’t apply). Nor did he fare any better at other top colleges, such as MIT and Stanford. Even some comparatively less selective schools such as UVA and Washington University did not take any interest in him.

Scott Alexander starts his post:

His [the 18 year-old’s] essay is well-written on a stylistic level. It sort of, kind of, hits the right beats – “Now, I see that individuality and connection are not opposites, but complements” is approximately the sort of thing you’re supposed to say if you want to sound wise. I don’t feel like I really deeply understand what makes him want to go to college, but whatever, I would hire him for an entry-level writing job somewhere and expect him to pick it up quickly.

The reaction from people with college admissions experience was more negative. Aside from calling it “cocky”, they pointed out that it failed to list hurdles he had overcome, didn’t explain why the particular school he was applying for was a great match for him, and didn’t give the impression that admitting him to college would cause him to make some great contribution to the world.

These are reasonable things to ask from an essay. Why did I feel so uncomfortable with this response?

Writing, done honorably, is a good and valuable skill. Colleges would do well to select for it. Or at least it’s in my self-interest to say that.

But there’s nothing honorable about a college admissions essay. It resembles nothing so much as prostitution – not the fun sort of prostitution you read about in Aella blogposts, but the kind that appears in news stories on human trafficking. You have to twist your innermost self into a marketable commodity – smiling and telling your violators how much fun you’re having, while your soul screams the whole way through.

Five, maybe ten percent of applicants are some kind of special snowflake whose father was murdered when they were five years old. As he lay there bleeding out, he said “Daughter, my whole life, I dreamed of being the first LGBT person to get a PhD in the study of ancient Assyria. Now that dream has been taken from me. With my dying breath, I give you my trowel and hand-painted figurine of Tiglath-Pileser III, in the hopes that one day you will succeed where I failed”. She spent the next twelve years sweeping chimneys to support herself and her paraplegic mother, before one day – rotting in jail after protesting police brutality – she started talking to her cellmate and found he was Behnam Abu Alsoof, legendary expert on the ancient Near East. He offered to tutor her in cuneiform, and at age seventeen she published her first paper, a daring thesis claiming that the Elamite Kingdom, long thought a victim of foreign invaders, was actually destroyed by internalized misogyny. Now she wants to attend Dartmouth, the college her father always dreamed of making it to, with the top Assyriology program in the world, in order to continue her groundbreaking work on Bronze Age sexuality.

The rest of us are just some kid who wants to go to college because that’s where all the good jobs are. If you really press us, we’ll say something like “idk biology seems pretty cool”. We encountered an approximately average number of hardships. Once when we got our wisdom teeth taken out, the surgeon said we had the weirdest reaction to anaesthesia he’d ever seen – does that count as a hardship?

He expands his attack on the ritual of the college essay before ending by putting his finger on exactly the same feeling I have about the college essay (in bold):

While reading this, I fantasized about how I – now a professional essayist with more years of experience than the average college applicant has been alive – would address the college personal statement if I could do it all over again. The most damning thing I can say is that I would write it exactly the same. I don’t even remember what I wrote – I assume something about how I struggled with OCD as a child and that made me want to become a psychiatrist – but it was the world’s most boring prose, it used 1% of my talent and explained 0% of how I differ from every other would-be doctor, and every single incredibly clever thing I would write in my fantasies would have been much worse.

I don’t know how to destroy the college essay. But I do earnestly hope that someone destroys it.

Money Angle

Abraham Thomas doesn’t publish frequently but I always make time to read when he does.

This post is terrific:

Making Markets In Time (16 min read)

Abraham’s main point: Just as Wall Street profits from spatial arbitrage (trading across locations), Silicon Valley profits from temporal arbitrage — trading across time by financing different stages of a startup’s lifecycle.

This framing explains several familiar features of venture in terms of well-theorized risk tranfer mechanisms.

• Just as futures allow risk and logistics to be unbundled across intermediaries — like producers and consumers — venture rounds aggregate liquidity allowing investors to “pass the baton” through stage-specific benchmarks and funding expectations. The stages make the startup ecosystem legible which in turn drives volume.
• Consensus is a bug not a feature. VCs are mocked for being herd animals, but shared consensus is necessary to keep the financing assembly line moving. Startups don’t just need to be “good”; they need to be “fundable” to the next investor in the chain.

I found this provocative because Thomas is suggesting that VC is a Keynes Beauty Contest more than long-term investing. A successful early-stage investor reliably front-runs consensus. They are market-makers, less concerned with “value” and more with positioning deals to match future investor appetite — similar to how a trading desk connects buyers and sellers.

But Thomas’ framing becomes even more provocative since I’m so predisposed to utter cynicsm in large scale private asset management.

The [VC majors] are not really hunting alpha. Outperformance is not the point; rather, because of their increasing economies of scale, they just want to be part of every (material) deal. The result is, essentially, beta on the private tech market — it may not be a true ‘index’, but it offers highly-correlated directional exposure to the market as a whole, which is almost the same thing.

LPs love this. Most institutional investors want sector exposure first, and in-sector outperformance second. The venture majors provide precisely this.

And the incentives don’t stop there. Allocator capital scales better than allocator diligence — it’s so much easier to deploy $20M into one fund than $1M into each of 20 funds. And of course GPs are happy to make 2% of the biggest number possible.

Everybody points to the 2024 statistic that 50% of new LP dollars went to just 9 firms; nobody seems to have a theory of why rational LPs would do this. Market-maker concentration provides the answer!

There’s a clear parallel with history here. Many of today’s largest investment banks — Goldman, JP, Citi — got their start as prop lenders during a previous technological buildout: canals, railroads and coal in the 19th century. They then broadened their franchise into more beta-like businesses like brokerage, depository and market-making — less glamorous, but far more lindy. Prop traders come and go, but banks go on forever.

The goal of the venture majors is to become the investment banks of the technology world. And it certainly looks like they’re succeeding! They say venture doesn’t scale, but this is not venture; it’s a completely different product, with completely different risk-return and investor profiles.

Money Angle for Masochists

A reminder in the spirit of being attuned to seemingly far-fetched risks:

If short selling were restricted in any way, the value of puts relative to calls on the same strike increases in a put-call parity framework.

Another way to say this is being long stock is more valuable since only long sellers can sell. If puts increase relative to calls on the same strike, as they do when borrow costs increase, that is like a synthetic future on the stock trading at a discount to the stock price.

Similarly, being short futures vs being long index or SPY expresses the same bet. If futures start trading at a sustained discount to the cash index value it could also reflect an implied probability of short-selling restrictions being imposed.

If futures are trading at full carry and you think such a ban is possible it’s an asymmetric bet to put on conversions (ie short futures, long stock or for options short combos long stock).

🔗Related

📽️Teaching Options Basics With Live Data (Moontower YouTube)

📔Synthetics: Alternate Realities (Market Jiujitisu)

From My Actual Life

On Friday night, we saw AC/DC at the Rose Bowl for nephews first concert and my boys second (they liked this one more than the Foo Fighters).

My 8-year old started playing the guitar in December. He has the spark of obsession. He performs his first song with a band next Sunday (7 Nation Army “including the solo” which he emphasizes). We have cute video of him dancing when he was 3 with a small Loog guitar mimicing Angus Young. He was especially psyched to see him. So I play it up a bit. “The band is in a bus behind the tunnel, keep your eyes out for them when the lights go out, maybe you’ll see them coming to the stage…”

But I also told him they have famous friends. He knows all about GnR so I told him that Axl is friends with the band and lives in LA. I said, “I think he’s gonna be here. Watch the area by the stage where people come from the tunnel area.”.

Within 3 minutes…jackpot:

Dad is an f’n wizard.

(People in surrounding seats were impressed by that call and since I totally believed it was possible I was looking for him and was the one who spotted him. I mean Appetite was the first cassette I ever bought — this is stupid lifelong preoccupation paying off on a guess.)

Stay Groovy

☮️

Moontower Weekly Recap

• father

Friends,

Hello from Texas! I’m on Spring Break with my family visiting friends in the DFW area before heading to Austin. I’m having my kids do a shadowing day at Alpha School (which has been in the news lately). My good friend Sonny, who lived up the street from me, moved to Austin to work more closely with the folks behind the school. I’ve known about the school for awhile (some moontower readers also send their kids there) and with Sonny holding the welcome sign it was all the catalyst I needed to make the trip.

That said, I’ll be back to publishing in early April so I’m all-in on the break. Today will also be short.

But important.

I got a distressing text on Tuesday. A close friend I grew up with informed me that her younger brother’s daughter, Rachel, was just diagnosed with AML, a rare aggressive leukemia. Rachel turned 10 this week.

I just sat there. What is there to say? How can I help?

Her little bro Jeff was like my own little bro and now he’s living a nightmare. Not to mention having an 11-year-old daughter who is being passed around the relatives in NJ as the parents will be posted up at Children’s Hospital in Philadelphia for the next 5 months for what is just the preliminary stage of treatment. Daily in-patient chemo.

I went to Twitter and found that the follower community there is amazingly generous and I promised to put this in the letter as well. There’s no pressure. Even an equivalent gesture to a cup of coffee multiplied by the number of readers is an enormous help:

My friend Jamie is a nurse and the best equipped in the family to coordinate care. She’s applied to multiple foundations for help and this is the GoFundMe:

On March 19, just 8 days before her 10th birthday, Rachel was admitted to Children’s Hospital of Philadelphia and diagnosed with Acute Myeloid Leukemia. She is currently on a ventilator in the ICU at CHOP, and will be admitted for at least the next 5 months for an intensive regimen of daily chemotherapy. Jeff and Sam have been left reeling as their entire lives were upended, and the road ahead is going to be the hardest of their lives, both emotionally and financially. They are struggling to do the impossible: spend every minute by Rachel’s bedside while still being present as a support system for Rebecca. The medical bills are already racking up and there is no end in sight. Any help during this heartbreaking ordeal would be incredibly appreciated and certainly utilized, and we would be beyond grateful if this page could be shared as widely as possible. Please send love and prayers for our sweet girl as she fights the hardest battle of her life.

Campaign to help Rachel

The Simon family and I thank you for help, boosting, and prayers. 🙏🏽

Money Angle

I went on Quant Insider. It’s one of the more thorough interviews I’ve done, getting into option details a little deeper. I asked the host, Tribhuvan, to actually cut up the interview into a bunch of mini-videos to make a playlist, one for each question, because he asks some foundational educational questions that I think have evergreen answers.

In the meantime, this is the full 2-hour chat. You can find some of the key timestamps below.

[03:32] What is volatility trading, why does it matter, and how do different players approach it?

• Vol trading is essentially options trading, focused on the volatility input.
• Explained moneyness, interest rate, time to expiration—all known inputs.
• Volatility is the only subjective input to the price.
• Traders can express views on implied volatility (IV) or realized volatility (RV).
• Two approaches:
  • Buy/sell options based on view of future IV
  • Delta-hedge options to profit if realized vol differs from implied vol (replication)

[07:37] Can you explain relative value in volatility?

• Opportunity is driven by investor flows
• Establishing what’s normal or “fair” vs what stands out as a candidate for further exploration
• Detection via cross-sectional lens at the top of a the funnel
• Stressed the importance of context and flow in creating those mispricings.

[09:35] How do you decide if a premium is cheap or expensive? What metrics do you use?

• Mentioned implied vol percentile/rank as a starting point, but overly simplistic.
• Better method: use liquid markets as references—they embed collective wisdom.
• Term structures, event pricing, and skew levels are useful.
• Combine quantitative tools with qualitative context (e.g., upcoming events, product launches).

[13:45] What are some common misconceptions retail traders have about vol trading?

• Biggest misconception: “High vol = sell, low vol = buy”
• Explained mean reversion bias in vol and the fallacy of price = value.
• When vol is low, it’s usually because realized vol is even lower, so implied vol still trades rich.
• Similarly, when vol is high, options often still lose money due to negative carry.
• Market doesn’t offer easy trades—vol is priced smartly even when it’s low or high.

[20:37] Can you give an example of a vol trade based on these principles?

• During the 2023 banking stress (e.g., SVB, First Republic), longer-dated implied vols became unusually elevated.
• Could use a calendar spread to short forward vol: sell longer-dated options and own shorter-dated ones.
• The idea was that if the panic subsided, forward vol would compress, and the trade would pay off.

Key concept: forward vol and stress regimes

• When a name is under acute stress, the options market prices in worst-case scenarios. That makes the forward vol particularly rich.
• Shorting forward vol in the already-stressed name offers favorable odds because a lot of bad news is already priced in.
• If the stress is systemic, lagging names will reprice higher, and there’s more room for vol expansion there.
• If the stress is idiosyncratic, vol in the stressed name will mean revert faster.
• This setup creates a relative value vol trade: short the forward vol in the stressed name, and optionally own vol in the laggards that haven’t yet reacted.

[25:41] What is market-making in simple terms?

• Defined market making as a solution to the double coincidence of wants problem.
• Options markets are fragmented with strikes and expirations—market makers fill the gap.
• Market makers use vol models to price options, not directional views.
• Described how both sides (customer and market maker) can win by seeing different edges.
• Introduced idea of options being zero-sum globally, but not necessarily at the individual trade level.

[30:28] How is market-making in commodities options different from equities?

• No dividends or corporate actions in commodity futures.
• Differences in cost-of-carry models.
• Huge difference: each option expiration in commodities refers to a different underlying future.
• Time spreads aren’t hard arbitrages in commodities like they are in equities.
• Gave an example of calendar spreads trading for credit in commodities due to price level differences.

[35:43] How does backwardation or contango affect commodity options pricing?

• Whether the futures curve is a forecast or just reflects supply/demand matters.
• Beliefs about futures rolling down affect put skew and vertical spreads.
• Gave examples involving coffee futures and how drift assumptions change skew.
• Showed that pricing must be tied to expectations of where futures converge or diverge from spot creating conflict and opportunity

[40:07] Is smart money vs. dumb money a real thing?

• Defined dumb money as price-insensitive flow.
• Smart money is discerning, optional, and price-aware.
• In options, smart money might be:
  • Insider or informed (directional alpha)
  • Vol-smart (trading implied edge)
  • Large size (e.g., SoftBank-style flow)
• Explained how market makers classify counterparties (delta-smart vs. vol-smart).

[46:20] Are VIX products flawed? Should retail avoid them?

• Not flawed, but misunderstood.
• Tools, not investments—mostly for short-term trading.
• Roll cost and leverage decay are real, and disclosed.
• Retail traders often misuse these products without understanding term structure or decay.
• Emphasized investors should avoid them, but traders can use them carefully.
• How an old Denis Leary joke relates to the conversation

[50:31] What do you think about the rise of option trading influencers post-COVID?

• Compared it to real estate seminar scams.
• Most frame options as free income machines without explaining trade-offs.
• Framing games: emphasized proper comparison for covered calls is 75% stock position.
• Many influencers pitch theta harvest trades without showing risk of underperformance in tails.
• Algebraically equivalent to shorting straddles, which no one openly recommends.

[01:10:45] What is gamma scalping and how does it work?

• Step-by-step example of buying calls and delta hedging.
• Gamma causes delta to shift → you rebalance to remain delta-neutral.
• You buy low and sell high as you rebalance.
• But gamma scalping is not the source of profits—it’s just a hedge.
• The true profit comes from realized vol exceeding implied vol.
• Gamma scalping reduces P&L variance, it doesn’t increase expected return.

[01:16:43] What does a P&L decomposition look like in gamma scalping?

• Gamma P&L = ½ × gamma × (price change)²
• Theta is always a loss when long options.
• Realized vol P&L = gamma gains – theta losses
• Implied vol P&L = vega × change in implied
• Delta hedging isolates the vol component.

[01:19:13] How do you incorporate skew or smile into trading decisions?

• Black-Scholes assumes constant vol—real markets don’t.
• Vol tends to fall as market rises and rise as it drops.
• This affects hedge ratios—deltas need to adjust.
• Incorporating skew improves hedging accuracy, especially in large books.
• Explained sticky strike vs. sticky delta concepts.

[01:26:42] How do you measure volatility risk premium (VRP) and trade on it?

• VRP = (implied vol) / (realized vol) – 1
• Failure modes:
  1. Future event like earnings → implied is “rich”
  2. Big past move → realized is “inflated”
• Must adjust for these with event-extracted vol surfaces
• Also used bucketing of realized vol periods to create smarter forecasts.

[01:32:36] How do you analyze changes in vol surfaces to find trade opportunities?

• Use heatmaps and scanners to track daily surface moves.
• Execute based on flow: Buy what’s down, sell what’s up.
• Combine structured lens (your “axes”) with tactical execution based on how vol moves.

[01:38:10] Can you generate directional (Delta One) signals from skew?

• Didn’t build directional strategies, but others did.
• Skew more useful as a defensive filter than an offensive signal.
• Described how vol surface can offer alternative expressions of the same idea (e.g., ratio put spread vs. buying puts).
• Highlighted that vol markets offer multiple paths to express a view based on payoff preferences.

Volatility surfaces as a menu of path vs. terminal exposures

• Options let you choose how you want to get paid — not just if you’re right, but how you’re right.
• In contrast to Delta One (which pays off purely on terminal price), vol strategies allow you to customize for:
  • Path-dependent outcomes (gamma scalping, calendar spreads)
  • Terminal-dependent outcomes (e.g., vanilla calls/puts, simple spreads)
• For example:
  • A calendar spread is a way to bet on path — you care about vol between now and expiry of the short leg. You’re exposed to the journey.
  • A put spread or outright put is focused on the terminal level — you care where the asset finishes.
  • Ratio spreads or backspreads blend path and terminal: they monetize certain moves more efficiently but may lose on others depending on the path taken.
  • Many trades are the result of end users and market-makers simply choosing to focus on path vs terminal value

[01:43:27] How important are second-order Greeks like Vanna and Volga?

• Never directly monitored them.
• Managed through scenario analysis (spot/vol shocks).
• Adjusted positions based on how P&L behaves under various shocks.
• Emphasis was on practical, intuitive understanding—not Greek math.

[01:48:32] How do you trade term structure and recognize anomalies?

• Term structure reflects different flows (front-month sellers vs. long-term hedgers).
• Measured using:
  • Ratios (e.g., 3M/9M vol)
  • Forward vols
  • Spread prices across maturities
• Explanation of how forward vols have many-to-one relationships with legs.
• Executed trades slowly via working orders, not by crossing spreads.
• Emphasized being a position trader with market-making DNA—not purely either.

Videos this week

The basics of option quotes and how stock and option movements relate to implied volatility. Has a market-maker perspective. Enjoy:

Update on the COIN straddle I bought. After recording the video I got filled on a delta hedge of buying 50 shares of COIN for $175.

Stay Groovy

☮️

Moontower Weekly Recap

• stop with the stop-loss debate
• straddle-sniped

Friends,

Market’s been pretty wacky so lots of yapping down below. I’ll keep it short up top here.

I have a lot of trips upcoming. Vegas with a few couples next weekend to celebrate a friend’s 50th and see Nate Bargatze. Texas for Spring Break. LA next month to take the kids to see AC/DC (little guy loves Angus as he should). 25 year Cornell reunion in early June before summer travel in Sorrento/Taormina/Malta for my cousin’s wedding and some add-ons.

Only a small part of it is on the touristy side so most of this article I’m going to share doesn’t really apply, but if you have some travel upcoming, this piece by Kevin Kelly has been making the rounds. A lot of unconventional advice, you’ll probably find something useful in it:

50 Years of Travel Tips (13 min read)
by Kevin Kelly

Money Angle

At the close of Friday, I was looking at far OTM gold put spreads.

With GLD at $275, the April 251/249 put spread is similar to a binary bet that GLD expires below $250 at expiry or about a 10% sell-off.*

You get 39-1 odds.

This is using market-based pricing, net of skew.

At-the-money vol is 16%.

Turns out 39-1 is about the right odds if we use 16% as a standard deviation. When I say “about right” I simply mean the gold left tail is basically conforming to an out-of-the-box Black Scholes distribution. I don’t mean B-S is “right” just that the put spread odds conform to what the B-S would say.

I wouldn’t expect that for SPX puts, but gold downside doesn’t have that much skew or tail fatness.

See the table mapping ATM vol relationship to the likelihood of ~10% selloff in a Black-Scholes world:

But a lesson that is far more important jumps out:

Implied volatility—the second moment of the return distribution—has almost no direct connection to the probability of catastrophic price moves!

Look how likely a 1-month 10% selloff is as a function of implied vol. If vol is 15% instead of 12% such a sell-off is 4x as likely and if it’s 18% instead of 12% it’s 10x as likely.

Just think of VIX…it can easily be 12 or 18, right? But what you should really take away from that is that volatility tells us very little about the tails.

Option Pricing on the Wing

A few things option traders learn early about pricing tails:

1. At-the-money volatility tells you nothing about the true probability of large moves.
2. Tail risks are not just “scaled-up” versions of small market moves.
3. Historical data is almost useless for extreme events because of sample size is too small to build robust probability estimates.

Instead, traders price tails based on…other tails.

Not backtests.

I invite you to keep your eyes open for sales pitches that pretend they know the likelihood of extreme moves and how they claim to know it. And if the sample sizes weren’t small enough, marketers might try to condition the probabilities — “when the market does X the probability of an extreme event does Y” which reduces the sample sizes even more. Godspeed with analysis that looks like that.

Inferring tail behavior from the meat of a distribution is so sensitive to small changes in volatility — so sensitive that it’s a clue that they’re not strongly related. I’m not making a math argument (I’m sure many readers could say what I’m saying formally). It’s a common sense observation that falls out of the volatility itself being volatile and sensitive to sampling.

The true odds of extreme moves are unknowable but there’s no reason to think they move increase an order of magnitude when VIX goes from 12 to 18, or for that matter, get cut by an order of magnitude when VIX falls from 18 to 12.

*The concept explained in a deeper understanding of vertical spreads

Money Angle For Masochists

Friday’s IBIT options expiration played out about as well as I could have hoped.

[I discussed my trades in videos here and here and here.]

Near Friday’s close, I sold my April 38 puts, closing out a trade where I benefitted from both implied volatility (IV) and skew dynamics.

When I entered the trade, it was a ratio calendar where I sold elevated near-term vol to buy 2x 6-week teeny puts.

Specifically:

On March 4th, I initially paid 61 vol for the April 38 puts and sold them at 63 at the Mar14 expiry, while the Mar14 48 puts I had sold at 64.5 vol saw their IV get crushed as they pinned near my short strike. The stock was $48.50 when I put the trades on and was trading $48.14 at expiry.

The ratio trade collected $0.65 on the small leg upfront, the fronts expired worthless and then I closed out the larger short leg at $0.40 per contract, yielding a total profit of $1.45. When I break down the attribution, I see a small win on IV (although the vega isn’t as meaningful as the gamma/theta battle on options of these tenor), a giant win on realized, a small loss on delta, and then the positive luck on path which is the short expiring at the strike. (I know, broken record, but: Short where she lands, long where she ain’t.)

[On Thursday I’ll publish the actual attribution. It contains a big lesson].

I want to zoom in on the experience broadly because it’s a classic experience of what vol trading looks like.

Surfing Volatility

Here’s a breakdown of the past 10 days of positioning:

1. Initial Trade Setup: I liked selling near-dated IBIT vol while buying extra teeny options in the second month for a calendar spread. I structured the trade with a delta bias so that if I was wrong on direction, my risk was tolerable, and I wouldn’t need to hedge aggressively.
2. Volatility Spike & Adjustments: A few days later, IBIT fell, and vol spiked even further. Since I had extra “units” from my ratio structure, I took advantage by selling additional front-month options into the vol pop, which still seemed rich.
3. Reversal & Volatility Decline: As IBIT recovered from the lows, IV dropped, and I naturally got shorter vol as it rallied away from my longs (April puts).
4. Buying Vol on the Dip: Mid-week, I bought more options (August teeny puts) because vol had declined, and relative to the broader vol landscape (the moontower “blob”), IBIT was now looking cheap.
5. Capitalizing on Vol Compression: Those fresh vol buys turned out to be the best-performing IVs on the board today, as vols continued to drop. Now, with vol even cheaper, I have the opportunity to roll my April and August teeny puts into straddles on a premium-neutral basis—for example, selling 8 units to buy 1 straddle (2 units). For now, I sold my long April teeny puts near the close as my March shorts expire or “go away” but still have my Auggies.

The screenshot highlights the options I own…the IV performed relatively well as vol comes in overall on the rally. The puts benefit from 2 forces:

1. a rolling up the skew as they become further OTM
2. the moneyness itself getting further away becomes vol is declining. It’s obvious that a fixed strike is a further percentage away as the stock rallies but the subtle effect is declining implied ATM vol means it’s yet even further away in standard deviation terms pushing it to an even steeper point in the skew.

The wave never ends

You ride and ride. The beach never comes.

Looking ahead to next week, if vol continues to come in, I’ll roll my deferred puts up, especially if BTC vols cheapen relative to the broader vol landscape. But really, this is just about having a game plan for everything—something is always relatively high or low, and you just react to what the market gives you.

A common mistake is focusing too much on whether an option will ever “get there.” The reality? Those deep OTM options that seem like obvious sales are always absolutely expensive. But that doesn’t matter. They’re almost like options on options—ammo. The owning the extra wings in this case allowed me to sell more weekly March options when they popped again because I owned what I like to call “the trap door”. My risk was capped. It’s always easy to dismiss OTM options as expensive because the mind says “that’ll never happen”. But that ignores the path of how market expectations and vols change as the underlying moves.

If the options I’m long never get there, that’s fine. Because the game isn’t about binary outcomes; it’s about surfing volatility.

If you fixate on “I can’t buy that option because it’ll never get there,” you’re trapped in directional mode. The real game is 3D vol thinking.

[If you don’t want to think dynamically about path and stay directional, vertical spreads are safest.]

Personal bit of commentary about the art of vol trading. Open to discussion on this because I’m curious how other option traders think:

“Surfing volatility” is the best way I can convey how I see vol trading. It feels closest to the essence. I guess I came into this paradigm because I never bothered to learn much about fundamentals or forming opinions. I never thought my ability to differentiate on that would have an ROI. Too competitive. Most people learn about trading from the realm of investing either in college, or their uncle who read Ben Graham, or CNBC. All of these sources suggest that you should compete to analyze if a stock will go up or down. It’s predicated on prediction and having better information.

That’s not what option trading feels like, at least how I practice. It’s “surfing with an alien”.

It’s not how normie investors think with their religions like value investing or real estate for the long run or whatever.

It feels like atheism.**

(Unfair comparison alert though: investing <> trading)

The world of option traders has many different styles, blending market context with vol understanding with various weights. Almost all my weight is on pure vol dynamics. Which is a pretty demented way to see. It usually requires holding my nose to make uncomfortable trades that disagree with my opinions if I allowed myself to indulge them.

But I think there’s something to that.

Opinions are mostly trash (although I’m grateful for them because that’s what makes others trade). They’re trash because to be successful with them they must be both out of consensus and correct which is, by definition, rare. Even further, someone with worthy opinions must not only be out of consensus and correct, but bet huge on the few times when they will be correct since most of the time they will be losing a small amount (out of consensus trades are cheap but usually lose). This is either the realm of genius or got lucky on one giant bet. Neither is a life strategy I’m eligible for or have the stomach for.

Vol trading on the other hand looks like a cushy version of life in the coal mines. Pick away. Process. Try not to die. When it goes well it feels like you are using the wave’s energy to push you forward while you carve minor adjustments, reflecting your style. It’s actually fun.

When it doesn’t, it’s usually because it’s a crowded day in the lineup without enough waves to go around. Everyone is focused on the one roller that comes in. If you don’t paddle to the exact spot, you miss it and the lulls between sets are looooong.

A last aside: there’s some weird real-world bleed from my way of seeing things. I have very little respect for most opinions. Not in a hateful way, just that “your thoughts are nothing more than entertaining curiosities wrapped around the insecurities that dotted your particular path to being wherever you are today”. I think the same of my own opinions. Notice how I usually call them biases. An area where I differ from a lot of traders I’ve known — I do yap a lot. Tens of thousands (sounds fancy like that eh?) see my ramblings. But traders know that words are confessions. Listen, say little. Everytime you open your mouth you give away info, just as every bid or offer leaks an opinion, and just as the lack of a bid or offer leaks a consensus.

**This is an underappreciated aspect of SIG or Jane Street style training. It’s utter ego depletion. If you open your mouth it’s like placing a bid or offer. That environment makes you incredibly careful to respect opinions as tradeable bets. It’s not how most of the world operates. Imagine if every time a politician opened their mouth you can say “sold, how much you wanna bet on that?” 99% of statements in the world would disappear overnight. While most people will never go through an environment like I’m describing, you can get a taste if you ever go to one of Ricki’s bootcamps. She even refers to your statements as “claims”. It reminded me of training and of how lazy my thinking can be since being removed from that environment. It takes energy to override heuristics but parsing claims closely enough to be profitable requires higher res examination than the realm of “generally true” that heuristics import from.

One of my cranky opinions, discount freely, is that the asset management world is the vitamin industry. It sells placebos. If effectively hides behind beta and long feedback loops from which learning anything deeper than heuristics is either impossible or unincentivized.

The trading industry is the beneficiary. If the investing world shut its collective mouth and CNBC and all its media cousins were blacked out, there would be no prey, no trading, but also no liquidity. Alas, my uncranky response to myself: we are all free riders on the fact that overconfidence is a human birthright.

Videos this week

Thursday 3/13/2025:

Tuesday 3/11/2025:

Monday 3/10/25:

Fwiw

My favorite Satch tunes are Ten Words and Come On Baby which was a love song to his wife.

Stay Groovy

☮️

Moontower Weekly Recap

• 4 years removed — a reflection on my biggest bet
• a misconception about harvesting volatility