Moontower #322

In this issue:

• Slop. Counterslop.
• What are retail option traders up to?
• Hedging is for gardeners

Friends,

As of 7/21, Substack has a Pangram integration to scan for how much of a post is written by AI.

You can use it on the web from the Substack inbox. Click on a post, hit the 3 dots:

And voila:

Well done David.

Pangram is capable of false positives, but I ran it on both posts I published this week and it was accurate. One was 100% human and one it said 20% AI and 8% AI-assisted which sounds about right (my Thursday post included synopsis bullet points from my Scale notes).

I subscribe to 140 substacks. I don’t miss a word of about 5% of them. Another 10% there’s a decent chance I’ll read, and then there’s a steep falloff. Many of these emails have instrumental value that is going unmined.

[I should probably unsubscribe to the ones I ignore, but I’m not an inbox zero guy. Gmail search is solid and with the Claude-Gmail connector being an email bloodhound, organizing mail is a waste of time.]

I have scheduled jobs that “read” every distribution I’m on. One of my side projects is operationalizing this intake to get value out of this material (I’m into another phase of this which I’ll write about eventually). Running the Panagram scanner on a sample of the emails I read this week…well, let’s just say a lot of what’s out here is 100% AI-generated. I don’t agree that 100% AI means slop since I see posts from insightful people who I don’t think would write at all if it meant a lot more work than massaging a robot to wordsmith your thoughts. I wouldn’t call them writers, but I might still want the info. I actually think they should lean into their non-writer-but-have-something-to share-status. Dump your prompt in the post and move on. If the AI can write your post, my AI can read it. I don’t need you to bother. I don’t want to read it if I can’t feel anything, and I cannot feel anything from what a robot wrote.

Adam Mastroianni explained it well:

Words themselves don’t contain feelings—they are a recipe for creating that feeling inside your own head, to assemble the right set of emotions out of the experiences you have at hand. If I do a good job, the subjective experience that results inside you might resemble the one that originated inside me, but it will never be identical, because we’re working with different ingredients.

The computer doesn’t know any of this. It can’t know any of this. It can only read the cookbook; it can’t taste the meal. Objective knowledge can make your sentences true, but it can’t make them alive.

If it’s not obvious, only people who care about writing itself as an act of expression will be left writing without AI. Writing will be seen as an act of arrogance. A sense that your point-of-view is worth transmitting personally because the unique way it travels is itself part of the message. I will be clinging to self-importance thank you very much.

In Socrates 2026, I had this non-sequitur:

I spent over an hour walking through the local hills while talking to ChatGPT’s voice functionality Thursday evening. It was the easiest way to think through a large automation project. I won’t discuss the project yet but the sense I had while architecting it with ChatGPT was a new one. It was the feeling I know some friends had about 8 months ago and a smaller group of people (but not a tiny group) had 18 months ago and so on. A tiny group had the feeling a decade ago.

I suspect one’s appreciation for the feeling would be correlated to whatever innate ability one would have for chess even if they never played chess. I know I couldn’t have had the feeling much earlier. I just can’t see enough steps ahead. I can only fathom a little bit of abstraction before my mind begs for a physical demonstration of possibility.

The feeling is that much of what you do is nothing but a loop. Once you see the loop well enough to label its parts, you lose something. Mystery. There’s just less mystery about routine. I wouldn’t have thought anything we called “routine” had mystery in the first place, until that was the thing I felt disappeared. I admit, losing some mystery cost a sense of ego. And yet that feeling was totally overwhelmed by a different mystery. The one the techies and rationalist types have been going on about. “What’s coming next?”

We just finished watching the Mandalorian series. I know, I know. The kids were not interested years ago, so we tried again. In the final season, there’s a utopian city run by Jack Black and Lizzo that is captive to the droids who serve it. Automation has led to Brave New World levels of learned, almost embraced, helplessness. They get bailed out by Din Djarin and Bo-Katan Kryze, which undermines the society’s cautionary tale potential, but alas, Disney. Instead, the city is held up as a UBI-paradise where citizens are freed from scarcity to indulge their passions.

I personally don’t believe UBI can be sold to Americans en masse unless it is imposed from the kind of authoritarian control that we have thus far resisted. Thus far. We’re supposed to be the pole that rejects the social credit score for safety bargain. Our culture (again, thus far) is imprinted with the knowledge that UBI is incoherent because our spirits are blind to whether competition is for physical or positional scarcity. We know better than to “exchange a walk-on part in the war for a lead role in a cage?”

If we are not on our knees, UBI may come anyway but in disguise. TBTF equity markets, voluntarily scrolling ourselves into the Matrix, or whatever the grade inflation version of employment is, financed by literal inflation.

I only say these things to acknowledge the singularity backdrop of anything pertaining to our industrial future. I am not dismissing them. I have no clue what’s coming. But my feeling is I won’t recognize the way I worked for much of my adult life in the same way that a recent grad would not recognize the White Pages (yes, there used to be a list of landlines alphabetized by last name for everyone in your town).

I don’t feel a sense of doom but a feeling that technology will free us from the least human parts of our work. If you wonder how, it ties back to the beginning of this 100% organic post. The world we’re heading into will elevate reading because what will remain of human writing, the writing that is actually read by humans, will have no reason to exist other than its humanity.

That metaphor will apply everywhere.

I’m hopeful that we will look back at the past 10-20 years as the terrible twos of a connected world. A transition marked by phone-neck and expectations running ahead of reality. But if our anxiety is peaking just before reality gets significantly better, that would make perfect sense.

Every generation believes it lives in interesting times. It sure beats apathy.

Counterslop

Peter Yang shared his “No AI slop” skill which you can just tell your LLM to ingest.

https://github.com/petergyang/no-ai-slop/blob/main/SKILL.md

Major Ralph and Sam checking into work energy:

Money Angle

Here’s an example of a post that could have been 100% AI written and it would still be useful. I ran it through Pangram’s web app and it’s 100% human.

The Market Impact of Retail Options Trading | Nam Nguyen Ph.D.

The letter summarizes and links to 3 papers. The points below are the ones I found most interesting.

“Retail Trading in Options and the Rise of the Big Three Wholesalers”

Authors: Bryzgalova, Pavlova & Sikorskaya. Last revised Sep 2023.

• Developed a novel measure of retail options activity using transaction-level data and new regulatory reporting requirements.
• Validated the measure by showing it drops sharply during brokerage outages and trading restrictions.
• Retail traders strongly prefer cheap, weekly options.
• Those options carry very wide bid-ask spreads — averaging around 12% — making them costly to trade.
• Many retail investors fail to exercise call options optimally before ex-dividend dates.
• Retail trading now accounts for over 60% of total U.S. options volume.
• Nearly 90% of payment-for-order-flow revenue comes from just three wholesalers.

“Retail Option Traders and the Implied Volatility Surface”

Authors: Eaton, Green, Roseman & Wu

• Retail activity concentrates in short-dated, out-of-the-money call options.
• Retail investors are typically net sellers of long-dated options.
• Used 82 brokerage outages (2019–2021) as natural experiments to isolate retail trading effects. During outages, buying volume falls for retail-favored contracts but rises for long-dated options.
• Implied volatility declines during outages for short-dated/OTM calls, but rises for long-dated options.
• Retail demand affects not just the level of implied volatility but also the term structure, moneyness curve, and call-put spread of the entire IV surface.
• Effects held up under robustness checks, ruling out a few heavily-traded options or dataset choice as the driver.

Quant Radio Podcast segment (this is an AI-generated podcast)

• The classic signal “high option-to-stock volume = informed institutional trading” has broken down since 2020 as retail flow now dominates volume.

Money Angle For Masochists

Let’s start with this YouTube/Podcast episode where Erik and I discuss hedging.

📺Delta Hedging Cost Benefit Analysis | The Options Trench

• What hedging is: reducing or isolating risks you do not want, to maximize exposure to ones you intend to get paid on
• The difference between direct hedges and correlated, indirect hedges with basis risk.
• Why every hedge has a cost, including premiums, bid-ask spreads, commissions, slippage, and opportunity cost.
• Why you will almost always have “ragrets”: if the hedge works, you wish you hedged more; if it does not, you regret paying for it.
• How protective puts, put spreads, collars, and covered calls change risk and cost.
• The tradeoff between cheaper short-dated protection and more expensive long-dated protection.
• How rising stock prices can make an old put hedge less effective by increasing your unprotected “deductible.”
• Two ways to manage hedges: rebalance on a fixed schedule or act when risk crosses a predetermined band.
• How hedges can preserve capital and buying power during market stress, when the best opportunities may appear.
• An introduction to delta hedging, active delta management, gamma scalping, and how these concepts apply to options strategies.

I noticed this tweet a few weeks ago and it reminded me an example of my training days back in my AMEX days with SIG.

You had full discretion to delta hedge against the option orders you’d do. But as you learn in the podcast, hedging is a cost. You don’t want to hedge if the risk is tolerable. “Hedging is for gardeners.”

SIG had a big balance sheet and very tolerant of letting deltas ride so the bias to hedge was to hedge only if you thought the option order was “smart”. For example, if a cust has a pattern of selling puts right before the stock price rips higher, you want to hedge aggressively when you buy the puts. In fact, you might want to “overhedge.” Instead of buying the amount of shares prescribed by the delta you hedge “1-to-1” or “1 up” meaning you buy 100 deltas worth, effectively turning the put into synthetic calls.

Fast forward to 2026:

This is conceptually similar to our point above about how rising stock prices can make an old put hedge less effective by increasing your unprotected “deductible.” You need to roll the position if your exposure strays sufficiently far from the one you intend to have on. In this case, jbulltard who wants to be short puts wants to be shorter more substantial puts than the 60 strike so he “rolled up” either to re-strike his delta or vol position (or both).

In training, we discussed a scenario which the tweet reminded me of, but in the opposite direction. The question posed by an instructor was:

Imagine a customer coming in to roll his or her put down. They will need to sell a put spread as they close the higher strike and buy the lower one. If you are a market-maker providing liquidity to the seller by buying the put spread to hedge, you buy the stock.

Hold it right there.

If this customer is taking a profit by selling the higher strike put and opening a long position in the lower strike, they are actually still bearish. This customer that has been correct is not covering their short. Technically, they are less short than they were before rolling, but the roll is to get more option firepower in the next leg down. Think of the intent.

As a market-maker, you don’t want to hedge when you buy this put spread. The customer has given you the position you want. You’re short deltas, betting on the same side as the smart customer!

The option flow service above seems like it correctly identified that the trade was a put spread, but it presented the trade as someone buying the put spread. Technically, someone did buy it since there’s a buyer and seller on every trade, but the presumption when you say someone bought the spread is that a customer or “paper” bought the spread, not the market-maker.

From My Actual Life

It’s hard to believe, but we have 2 weeks before school starts again. You get some depressingly small number of summers with your kids in the grand scheme of things and they’re just too short. We’re trying to pack it in. We saw The Odyssey this past week and Ed Sheeran last night at Levi’s. Our 13-year-old couldn’t come. He was living the Boys of Summer song…

His friend’s birthday was this weekend so the dad took this crew to Lake Tahoe. He sent us this picture to the parent chat yesterday morning. Yinh and I were in immediate sync. “One of the best photos we’ve ever seen”.

There’s no future and no past in that shot. It’s pure presence with your friends.

I’m going to get it framed today to give to the birthday boy when they return.

 

 

Stay groovy

☮️

Moontower Weekly Recap

• Cracks in the “Singularity Trade”?
• Socrates 2026: how to use highlights