Moontower #104

Friends,

Floor trading and fintwit share an overlapping dynamic: “cooperative competition”. I’ll lay out the floor trading ecosystem so you can spot the analogies.

The Players

Let’s classify the traders on the floor:

“Locals”“Locals” are independent traders. They trade their own money and secure the right to trade on the floor by owning or leasing one of the limited seats which represented an ownership stake by the exchange’s “members” (this was before demutualization). Since they are not as well funded, locals trade smaller and focus on extremely high Sharpe (although they wouldn’t use this lingo), low capacity opportunities. They tend to be seasoned and run tight risk. Many were independent-minded misfits, allergic to jobs and W2s.
Sure you might get in a nose-to-nose screaming match for an allocation to the big order that came thru the pit that morning. But later you’d grab a beer at Suspenders.
Faster Learning

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Permalink to this blog post: Twitter Reminds Me Of The Trading Pits

The Money Angle

On Delta Hedging(Link)
Moontower

This post is a cleaned up version of a popular thread I wrote on delta hedging. It begins:

Delta hedging is a trade-off between transaction costs (direct+slippage) and risk reduction. Some observations to help you think about it top-down…

This tweet

Everyone in my house loved Hamilton. Zak can rap much of My Shot in time and his little bro has 1 verse under his belt. We saw it live in SF and have since watched it many times on Disney+ but it wasn’t until I saw it over and over that I came to fully appreciate it (also seeing the Song Exploder episode on Wait For It helped).

But in all those viewings I never realized how young these characters were!

Separately I noticed some confusion in the comments. Someone detracted from the awe of this tweet by arguing that life expectancies were much shorter then. That might be true but not for the reasons the commenter thinks. If people lived shorter back then it was due to higher infant mortality and perhaps lack of medicine/hygiene.

I’ve explained this before:

In 1900, life expectancy was about 47 for a US male. Does that mean you were middle-aged by the time you left college? Of course not. If you made it to 22 years old there was a good chance you’d live well into your 60s or older. Life expectancy is extremely sensitive to infant mortality rates. In 1900, infant mortality was around 20%. Today it’s closer to .5%.

Society 1:

Infant mortality = 30%
Survivors who make it past infancy live to 80
Life expectancy = .20 x 0 + .80 x 80 = 64 years old

Society 2:

Infant Mortality = .5%
Survivors who makes it past infancy live to 80
Life expectancy = .005 x 0 + .995 x 80 = 79.6 years old

Without tracking the lives of people, the snapshot of life expectancy can make people jump to all types of silly conclusions about the 2 periods. When we study longitudinally we would have seen that someone who makes it to 32 is still far from middle-aged.

The average biological maximum we live to naturally has not changed. Biologically today’s 21-year-old is the same as Hamilton was in his day.

Although it seems our expectations have changed for what “kids” can do.

From my actual life

Yinh and I are getting the Moderna vaccine at CVS on Tuesday. We jumped the gun a little bit this weekend, hanging out in a dive bar Friday night. You can feel the energy of re-opening everywhere if you can feel it in Lafayette, CA. Birth rates around the world plummeted in the past year. Thinking that trend might V like the stock market did. Feels like we are going to go from socially distanced to tequila-body-shots-in-Cancun sloppy for summer 2021.
Go ahead, lever it up…long condoms, short face masks.

Trojan FTW