Moontower #332

In this issue:

• AI thoughts

• When smarts are as cheap as sunshine

• THE option-101 course for the internet

Friends,

I’ve been burying you with investment material, including an analysis of the TIPs + oil portfolio I strapped on this week. There’s also a tail option piece to it that I’ll write about this coming week. Remember I share what I do for educational purposes only, and while the pieces are detailed, they also make for great seeds to put in an LLM for you to augment your learning by discussing the risk and execution with your favorite bot.

This is the epitome of random, but after I wrote my piece, I called 2 friends who run commodity funds before I executed the trades I laid out. Both of them told me that, independently, a couple of their trader friends who only reach out when something gets interesting raised the idea on the same day. I don’t independently know the people who reached out (one of them is both famous- he was played in a movie- and anonymous, so I know of this individual).

Both managers took it as a sign to look a bit closer.

Anyway, instead of burying you more ahead of more investing posts, I’ll use today’s letter to share some useful, interesting or fun hits that grabbed my attention.

In AI

I feel like I’m getting a big hug when my readers tagged me in the replies to this amazing post by Noah because this is the exact kind of wishlist item I wanted in Socrates 2026: how to use highlights

Noah hacked this together for ~$100:

Why the experience of AI feels so different between people

This puts some numbers on it.

I’ve said it in a number of posts this year, but I’m in the camp that you won’t recognize knowledge work as you’ve come to know it soon enough. I dislike fear as a marketing tactic, but I also think this is true. And if you feel FOMO, you are right to be rethinking how much of your work will be automated and what you would do to move up the value-creation chain in the role.

I’d be very concerned about any well-paying job that looks like a computer jockey, particularly if you can’t immediately name what makes you uniquely special at it.

This doesn’t even account for how much work will be outright commoditized or immediately copied. My friend Fonz was over this week and playtesting a game I’m developing called Market Maker.

If it’s any good, it will be instantly copied. It’s a discouraging thought, but there’s no point in lingering on such a helpless feeling. Instead, you have to identify and orient towards what stays scarce and therefore valuable in the future: trust and distribution. Plus costly signals, like spending time with people in person and all the things that come with that.

[And of course essential attributes like courage, reliability, and self-efficacy or discipline or whatever you want to call it. That thing where, when you need to get something done, you do it excellently and instill confidence amongst other high performers. In a way, I think this is just the plainest advice to give to a young adult. Point to someone who’s like that as a model for quality and tell the young adult that you must become someone who would have a similar reputation. Stick to your word and be accountable. This is what betting on yourself looks like.]

Money Angle

TIPS: Safer Than They Seem | 6 min read

Elm Wealth’s most recent post is, like mine, harping on TIPs.

Key quotes:

This illustrates an important point: while the inflation-adjusted market price of long-term TIPS can fluctuate significantly, they’re remarkably stable when measured using what really matters: the long-term spending they can support…

A boat tied to a floating dock rises and falls with every tide. If you measure it against the seabed it never stops moving, but measure it against the dock, where you’ll step aboard, and it barely moves at all. Long-term TIPS are like that boat: volatile in today’s dollars, but remarkably steady measured against the real spending they’ll support.

Seen this way, most of the confusion about TIPS disappears. They do exactly what they were designed to do. And as the safest asset going, their real yield is the natural benchmark against which to judge the stock market’s expected real return when you decide how much to invest in stocks.

“Moontower, how do the options look”?

Speaking of automation earlier…the original post I’m quote-tweeting below is an example of how the future is going to increasingly be bots reading for you, and of course bots writing for bots. Considering I write a letter for humans, this does not bode well, and I expect a bear market in reading probably for the rest of my life. I have no plans to stop writing, but I suspect it becomes an increasingly niche thing to do, like being an upholsterer. I have no quarrels with that outcome, but intend to be adaptable to whatever medium helps people learn and ultimately flourish.

Oil

If you’re interested in oil markets, you should learn from Dr. Ilia. Here’s just one of his recent tweets:

Money Angle For Masochists

It recently came to my attention that fellow contributor to the upcoming How I Invest Volume 2, Drew Dickson, wrote the following in his essay:

Drew is very nice, ridiculous, if we care about the meaning of words actually, to be so glazy. I’ve thought a bit about why I can be regarded in this way when I know that I’m no smarter than anyone else on that list.

My thinking patterns just seem different and those differences are probably seen as some variant perception when they’re really just the output of doing a niche job like trading options. The job rewired my brain. It’s going to sound ridiculous, but I’ve had so many readers ask me how to adopt a similar way of seeing. Well, I don’t know, trade ten of millions of options contracts for 20 years and nothing else and see what happens. You might not like what happens. If you had a rosy outlook before, say goodbye to that shit. Paranoia is your new mind loop. But then you know you’re paranoid, so you have to tell yourself that’s an illusion, and before you know it, you are in mental exile in that triangle phantom zone in Superman II.

Ok let me be serious for a beat here.

I’ve said it repeatedly. To understand options requires understanding arbitrage pricing theory, which means crossing the “bridge of asses” in the field of investing. The underpinning of that theory makes concepts like opportunity cost, value over replacement, the idea of an equilibrium, higher-order effects (ie greeks) and a humbling appreciation for counterfactuals explicit and visceral. Notice how central these concepts are to decision-making generally. Jeff Yass minces no words on the topic. He doesn’t think a person can have sound judgement and decision-making skills without an understanding of option theory. Of course this is a maximalist claim, but the point is that being soaked in this stuff will make you think differently. And those differences are what I think are being, for better or worse, perceived as “smart”.

[I know many an option wizard whose decision-making leads them to disaster in relationships, addictions, or any number of objectionable choices. Are they “smart”? In a pointy sense, yes. But when we talk about smart in the general sense, photographic memory ranks far below “I am getting what I want out of life.” A lot of god-given horsepower is a party trick to be fetishized by Mensa members who can’t wait to advertise their membership in said club. You all get a yellow star sticker. But in case you haven’t noticed, the thing you hang your hat on is now commoditized by electricity, and if we’re getting to the root, it’s sunshine and black rocks. “Smart” is great, but we have plenty of it in isolation. For a short window in the 20th century, a nerd might have been able to have a great life with just ore and trading it for wheat, brick, and lumber at the port of “STEM job”. But the island is flooding with ore with each passing day.]

What does this all mean?

If you learn option theory, I can’t promise it will make you smarter, but it will make you think differently in ways that make people think you’re smart. That doesn’t hurt (unless you’re trying to hustle someone).

But I have a better pitch.

It’s fun! It’s a bicycle for the mind. It’s a puzzle.

Whatever draws you to it, you should know about THIS:

I’m putting together a bunch of the 201 materials which will come out next year but the 101 materials are starting to be available, including Agustin’s lecture videos and slides at Charles University in Prague.

Some background

The course teaches options the way professional trading firms train new people. Agustin trained as an electrical engineer, joined Jane Street as a trader in 2008, and by 2011 was running all EMEA options trading out of London. He later wrote the excellent Laws of Trading.

The content is nearly identical to the intern and new-hire training they ran for years at Jane Street. And since Jane was born from SIG, I’m not surprised to see the overlap in how this material was covered in my own training.

Why you should care: options and option-like payoffs show up all over finance and daily life, the math ties together probability, calculus, optimization, and economics, you may need to value stock options you get as compensation, and it can become a career.

Learning goals. By the end, students should be able to:

• Explain what options are and how they’re used

• Relate options to each other and find value bounds with arbitrage arguments

• Price vanilla options with both closed-form and numerical methods

• Manage the risks of an options portfolio

• Build and use volatility models of option curves and surfaces

Non-goals
The course explicitly won’t teach profitable trading strategies. The slide says anyone hoping for “how to make money trading” should take a different course.

Prerequisites

• Basic single-variable calculus

• Basic Python programming

• No prior experience with markets or trading is expected

Format
One lecture a week plus one supervision session a week.

Syllabus

1. What Is an Option? Contracts, payoffs, exercise rights

2. The Value of Optionality: Uncertainty, distributions, time value

3. Put-Call Parity and Synthetic Equivalence: Synthetic positions, static arbitrage

4. Pricing by Replication: Binomial hedges, cash, fair price

5. Black-Scholes: Dynamic hedging and the pricing argument

6. Implied Volatility: Turning option prices into vol quotes

7. Delta and Directional Hedging: Hedge ratios, changing exposure

8. Gamma, Theta, Vega, and P&L: Convexity, decay, volatility risk

9. Volatility Curves and Surfaces: Smiles, skew, strike, expiry

10. No-Arbitrage and Distributions: Bounds, convexity, implied probabilities

11. Financial Time and Variance-Time: Trading time, calendar time, events

12. Stochastic Volatility Models: Random volatility, jumps, calibration

Random but related

My mother recently called to tell me she’s taking an options course at a local college in NJ. Her sister (my aunt) is trading the “wheel” strategy and has encouraged her to learn about options. My mother will never trade as she’s very skittish about anything that looks like gambling, but she enjoys math and puzzles and is always wanting to make sure her brain health is ok so she’s using options as her latest challenge. Plus she knows someone who can help when she’s stuck.

Separately, my uncle, my mother’s brother, has actually been a retail options trader for over 20 years (he was on an fx desk in the late 80s or early 90s) but has been a self-employed tax accountant and trader since.

If you’re wondering whether we talk shop at gatherings…nope. I say my boilerplate “don’t bet more than you are comfortable losing” as I’m in violent agreement with Victor Haghani when he says you can’t change minds.

From My Actual Life

Just a reminder that you can follow on Instagram @kris_to_the_max where I post educational IG stories. I made a couple real estate-related ones this week, including: You are about to incinerate $188,000

And something of a manifesto for my presence on IG: what’s the point

Stay groovy

☮️

Moontower Weekly Recap

• you can’t change minds

• 2 risk premiums that work together