Moontower #187


In the past few weeks about 5-10 people have reached out to ask me for advice in the vein of “my kid is 6 and likes math and what should I put in front of them to foster this”. They are usually looking for specific answers.

I offer a few things my kids have enjoyed (everything can be found on the blog, ie here and here) but I want to be clear — I’m no expert. I’m just like the rest of the parents who have the same goal of watching their kids’ curiosity flourish.

To kill many birds with one stone here’s the gist of my email responses:

I don’t create pressure. Let learning be a source of joy. Insight is its own reward and to train someone to appreciate that when they are young is a life-long gift because they can find stimulation in the pleasures of the mind and the mundane.

Sure, math proficiency has plenty of instrumental value in life, but appreciation and beauty is the bigger gift here (I also suspect this is an antidote to the doping that broader media does to people — if you find beauty in the evergreen you don’t need to constantly be taking drags from the current times and you’re perspective and emotional state will be better off for it. No science behind that — just my hunch).

You are already doing the single largest muscle movement –> literally giving a shit about your kids’ curiosity flourishing. Like seriously that’s 90%. The specific instances of expression — coding, writing, drawing, cooking, composing — or any other forms of creation are secondary. Creating not just consuming is the key because by being able to manipulate the world (I don’t mean manipulate in some evil sense) around you, you reinforce your agency.

When I see fear and extreme tribalism I see people retreating away from agency and frankly accepting some learned helplessness. Your role as a guardian is to shepherd a healthy sense of agency (unhealthy would be to program an overconfident narcissist).

Code and writing are symbol-manipulative domains — some will gravitate to that more than say carpentry or being a physical maker. I’d be open-minded about the specific expression and focus on nurturing the upstream creation and play impulses.

And if you got this far you exemplify an ironic phenomenon — the people who reach out looking for help/guidance/opinion/validation on their approaches are the people who don’t need to (this is not a back-handed way of saying don’t reach out btw, it’s just an observation!)

This young portal in the Moontower codex is an attempt to consolidate some specific learning stuff if interested:

🧠Moontower Brain Plug-In

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Money Angle

I made this for you.

🔗Investment Blogs I Read


Money Angle For Masochists

Last week’s masochism had 2 parts.

  1. A hands-on walkthru of spotting a hidden option in an ETFThe walkthru builds intuition socratically and since it’s already in question-and-answer form you can use it with minimal modification to scaffold an interview question.

    Again, that link: Financial Hacking: ETF vs Negative Oil Futures

  2. A bit more advanced was the description of how I actually traded it in real life. A fellow professional option trader endorsed the approach and I’m not above shilling that:

I’m flattered to be given credit for explaining something so anyone can understand it. But recognizing why the pricing was the way it was, is not an act of “galaxy brain” genius. It was experience.

This is worth an explanation with a generous helping of personal color.

Back in 2009, I was trading as an independent (I had a backer deal where I put cash up in escrow that represented the most I could possibly lose and in exchange for that and some economy of scale stuff, the backer got 30% of my profits). I had left SIG a year earlier but because of my non-compete couldn’t trade oil-related derivatives.

I could trade natural gas options though. My backer, despite bankrolling about 100 traders, some of them with large businesses employing as many as 20 people, never had anyone trade natty options for them. My pitch emphasized a “steady hands” approach. As a dyed-in-the-wool market maker, I had little use for opinions or fundamental research. I had an arbitrage mindset — I would focus on my advantages of being a grinder. I stood in the pit, trading order flow that came to the floor, I had a partner who handled all the voice brokers upstairs and we had an assistant who made markets on the screens. The 3 sources of info would allow us to stitch a master vol surface or “sheet” that we would push out to all 3 spokes in an ongoing conversation that provided feedback as to when we should update fair values.

[Multiple times per day…”raise summer small calls 2 clicks, multiple brokers bidding and lower Jan meaty puts a point — I’m seeing consumer flow buying calls on winter fence strips, they haven’t printed yet”. The PitBulls experience rhymes with this. See Mock Trading]

Our backer was focused on futures and futures options but I had spent most of my first 6 years as a trader in ETFs — so I convinced them to let me build out the infra to price and trade options on UNG as a 4th spoke to find relative value trades against our core options book.

I was long UNG options vs a short in NG futures options because UNG vol traded at a discount.

Bad timing.

In the summer of 2009, in the wake of what Goldman deemed the “commodity super cycle” while pushing commodities as an asset class, commodity ETFs were under scrutiny for allowing financial speculators to more easily drive up the price of energy, food, and materials. Natural gas prices were in the crosshairs — the UNG fund announced it would cap the number of shares it would issue.

With a shortage of shares, UNG surged to a large premium over NAV (I don’t remember exactly what it was but something like 20% is lodged in my head). A large player had done their homework placing a smart 9-figure bet — they “created” all the remaining shares betting this would happen. I won’t speculate who that was in print but my hunch is not unironic.

I was in a bad spot.

Every time gas futures sold off, UNG basically stayed unchanged — the premium to NAV would just expand. When NG rallied, UNG still barely moved — the premium simply narrowed. Every day I was forced to pay theta on my UNG options while getting chopped to pieces on my short NG options. Meanwhile, the vol discount widened from about 1 point (the threshold where the arb became interesting) to about 20 points! Without a proper “creation” function, UNG was no longer hinged to NG futures.

I lost about $250k of my own money in under 2 weeks…a multiple standard dev p/l event for that time frame (I realize this is a quaint sum in a world where that’s the cost of a kitchen with red-knobbed ranges but even back then I’m like buy me a drink before you do me so dirty).

[My backers, to their credit, were understanding. They never flinched and allowed us to continue trading and building. We expanded into trading options on SLV, BAL, JO and SGG as our footprint in futures options grew.]

At the risk of overgeneralizing, a few things stand out:

  1. Market risks (ie prices moving up and down) are the most trivial. It’s the ever-present possibility of rule changes (and the politics that can drive them) that remind you that the last line of defense in risk management are constraints to gross exposures not just nets.The UNG trade is also reminiscent of that trope about how a casino’s risk manager is more likely to lose sleep over an Ocean’s Eleven heist scenario than a string of bad luck at the tables.
  2. Battle scars are great teachers. When USO traded at a premium as CL futures went negative, my reflex was not “that’s stupid” but “there’s more to this”. Even though UNG and USO went premium for different reasons I wouldn’t have figured out the gameplan as fast as I needed if I didn’t have that prior weird (and painful) pattern to match to. This is also an argument for having a team of trusted people to bounce ideas off. You don’t have to touch every stove yourself.

With this fuller context, you can re-visit the “galaxy brain” approach to trading USO options during that Covid dislocation:

🔗Options on USO when oil went negative


From My Actual Life

Is this just a Bay Area thing?

This is a promo to tour your rich neighbors’ homes.

It’s a thing that happens every year to raise money for some great causes so restraint is in order…but also…gag me with your maître d’s handkerchief.

They used to be “kitchen tours” so you could at least pretend you were getting re-model inspiration. But the title now feels like saying the quiet part out loud. I’ll admit — the setup is quite clever. Since the ticket proceeds go to charity, all parties can whitewash the White Lotus psychology off their bodies.

Yinh was just telling me of an interview she listened to where the guest’s goal was to be a “billionaire”. Not to create X or Y or whatever where wealth would be a byproduct, but literally to be a billionaire.

To have your mind preoccupied with attaining an amount of money you could never spend well beyond the point of diminishing returns is a way to spend your attention I suppose. If fetishes are any indication there’s no limit to the breadth of what humans get off on. Fine, you do you. But this desire to be a billionaire, a feat as unlikely as playing in the NBA, does feel like a modern virus.

Sometimes I wonder what it must be like to not have a 90s teen, haterade, shoegaze disposition. It’s quite maladapted for the times we live in. Times where if you don’t aspire to “generational wealth”, the Gary V tribe will tar-and-feather you as a commie.

There’s a certain cringe I feel around such hustle-types that is partially my own un-therapized hangups and partially captured by Venkatesh’s sentiment here (bold is mine):

The phrase “man in the arena” has recently been doing the rounds. It comes from a 1910 Teddy Roosevelt speech, and points to an archetype of a risk-taking doer who is in the fray making the hard decisions, even as self-important spectators keep up ceaseless unhelpful commentary. It is an elevated version of the more familiar solutionist/doerist/builder (builder in Web3) archetype.

In theory, the “man in the arena” has the highest agency in a situation, and is positioned to either reap the biggest reward in case of success, or pay the highest cost in case of failure. At their notional best, men in the arena are warrior-saint-heroes who take on great risks on behalf of humanity, and steal promethean fires from the heavens for the rest of us to enjoy. Even if it means risking eternal torment of the sort Prometheus had to endure. Though the archetype does not address accountability to others, it has strong connotations of virtuous responsibility and conscientiousness. The “man in the arena” believes in noblesse oblige.

In practice, the typical “man in the arena” is usually executing a cunning heads-I-win-tails-you-lose gambit, and isn’t quite the saint the pious startup discourses makes him out to be. But that’s fine. The man in the arena is after all merely human, with very human levels of lust for rewards and aversion to losses.

I’m generally sympathetic to people in the arena, even if I don’t take their self-serving accounts of themselves at face value. I like making Arena Man jokes (by analogy to The Onion’s stock character, Area Man) to poke fun at their self-importance and pious posturing, but in general, I am not ill-disposed towards them. Of course, Arena Men look to privatize gains and socialize losses, and try to come across as martyrs to greater causes whatever the outcome, but then, so do most people in most situations.

When Midjourney-esque AI models extend to video the first prompt I’m giving it:

“Create a celebrity deathmatch where Arena Man fights Area Man with 90s Teen As the ref and Florida man in the stands”

And for love of zeus, if your definition of being a man-in-the-arena invokes the words “self-storage” or “passive income”…you’re telling on yourself.

The 90s Thing

Chris Eberly pointed me to Chuck Klosterman’s The Nineties with the comment:

I’ve had this theory for a while that we are unable to fit in today because the 90s was about slackers, anti brand, Office Space, etc. this book actually covers quite a bit of it with facts both for and against this idea ..

I’ve read many of Chuck’s books (one of the most popular investing posts I’ve ever written references my favorite What If We’re Wrong) so this 90s book is going straight into my veins. I’m sure you’ll hear about it.

Stay groovy


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