Jason Macfarquhar

[Ethan Kho @ethanrkho]

10 market-neutral PMs, each 80% idiosyncratic. Put them in one book and the math quietly breaks:

Rich Falk-Wallace (@richfalkwallace, ex-Citadel PM, founder of Arcana) explains:

"Say you have 10 books with momentum exposure. They're long tech, long the latest exciting thing — but they're market neutral. Even if they each have 80% idio, at scale, that 80 comes down.

If every one of your PMs has a similar-ish exposure, that book average — even though you've gotten more breadth — is actually much lower. Your idio might be 60.

The reason is that factor bets compound on each other. They've been designed to be those things which are sources of correlation. So those things compound.

Whereas the remainder — whatever's not a factor bet — diversifies. It becomes like a loaded coin with a 52% hit rate. Take 10,000 coin flips, and the average reduces to the hit rate.

Those things diversify. The factor bets don't. You could add 100, you could add 10,000 — it wouldn't reduce the volatility driven by that similarly pointed factor exposure.

The independent, idiosyncratic bets diversify away at scale."

[Citrini @citrini]

@AlessioTMAD No they’re not

[VolSignals @VolSignals]

@options_insight Can confirm 🙃

[Dan Nystedt @dnystedt]

Google plans to unveil its new Pixel 11-series smartphones on August 12, equipped with its self-developed Tensor G6 chip manufactured by TSMC on 2nm, media report, noting 3 other major TSMC 2nm projects in smarpthones to be released in September or Q4:
-Apple A20
-MediaTek Dimensity 9600
-Qualcomm Snapdragon Elite Gen 6
$GOOGL $TSM $AAPL $QCOM #Mediatek #semiconductors https://t.co/qelNw4zvBx

[DYOptions @data168]

The most uncertain time I can relate to the current geopolitical one was after 2008 GFC. Many didn’t understand what QE was or dislike the concept of printing money. Most new traders stayed bearish for years wishing for another market crash to come. I was one of them. Trading was never easy. Flexibility and objectivity are another key ingredients to successful trading.

[DYOptions @data168]

Forget the macro noise and the dilution debates, $IREN is purely a mechanical trade right now. It is all about rising short interest, others don't matter.

[Hunter 🌆 @rhunterh]

https://t.co/mchaZSOeZa

[Kris @KrisAbdelmessih]

Moontower Sunday

🌙investing orbits...some thoughts on the modern market
🌙the present tense

https://t.co/a49PzxQkEJ

refs:
@matt_levine
@jeremygiffon
@Jesse_Livermore
@choffstein
@jam_croissant

[Cem Karsan 🥐 @jam_croissant]

@KrisAbdelmessih @matt_levine @jeremygiffon @Jesse_Livermore @choffstein Happy birthday, Kris! 🎈

In our late 40’s We’re standing on the 🔝 of the 🏔️ & are lucky to be in a position survey the landscape.

You are a treasure… Thanks for sharing your thoughts and journey with us all these years. 💙

[taobanker @taobanker]

Pangolin Asia, on investing 2% into $WMT IPO, and similarities with Indonesia's Alfamart

[Citrini @citrini]

We can call this the “Google at $150” phenomenon

[Nations Indexes - Better Ideas Better Indexes @Nations_Indexes]

This week's Volatility Insights!

Why is the Nasdaq-100 priced for chaos while the S&P 500 is priced for a nap?

Record vol premium. MSFT & META VolDex near 52-week highs into earnings. A bullish "lean" that may be too complacent.

This week's read 👇

https://t.co/QkJ1ipEwC7

[Thalex @ThalexGlobal]

Let's approach trading as a business.

A good business has recurring income. You'll need an edge, a system that turns probability x payoff into profitability over time.

Edge comes from risk premia or inefficiencies. Inefficiencies are fleeting, short-lived. Nice for ancillary income, but not as the core. Risk premia are structural, it's about warehousing a risk that other people like to pay for to avoid. This is the foundation you can build your business on.

Are there risk premia in perpetuals?

Your best bet is probably cross-exchange arbitrage and market making on dexes where you can farm points. The problem is that you need to be smart... like really smart. You need trade execution automation, real-time signal processing, collateral rebalancing, and that means anticipating all the ways in which exchange APIs will lie to you, and all the ways your competitors can trick you. AI will help, but at great risk to the safety of your funds, and to your mental sanity. Furthermore, it arguably amplifies skills of those who already know how to code and infra even more.

It's tough, so is there a better way?

Go down the road less travelled. Why are you trying to compete with the best of the best in the most brutally competitive 24/7 open markets out there? A good business is defined by its resilience to being run by absolute morons. What if you are the moron? What risk premium is so resilient, that it can overcome your incompetence?

Options selling, and there is no second best.

Earn VRP. It's one of the few reliable risk premia, and it's present in every options market. Options are asymmetric, the payoff of a short is structurally unattractive, so you get compensated for taking on negative asymmetry risk.

How to get as much VRP as possible?

Sell short-dated straddles.

Good thing is, you'll make money. Bad thing is, you'll also give a lot of it back. Drawdowns are brutal. Look at the short straddle P&L below. That's not a bad business but it's psychologically hard to run something this volatile.

How do we improve our business?

Hedge delta. VRP is about selling implied variance above future realized variance. By hedging, our P&L gets rid of unwanted directional risk we pick and we periodically re-focus the P&L on our gamma-scaled variance spread, which is the source of VRP.

This might sound complex, but it is easy.

You can fully systematize this. Baseline is to sell 7D straddles every Friday, and hedge every 24h. You'll sample close-to-close vol which is lower than intra-day and to save trading costs. Very measurable, very testable, takes 10' per week to execute.

The opportunity here remains that people assume options are hard and perps easy, whereas it is, in fact, the other way around.

[686 Ebullient Prism @686Prism]

oh no the macro boomers are upset again

[Nations Indexes - Better Ideas Better Indexes @Nations_Indexes]

This week's Volatility Insights:

S&P 500 VolDex: 10th percentile of its 52-week range. Basically asleep.

Nasdaq-100 VolDex: a 79.78% premium to it — and on July 2 that gap hit 89.65%, the widest we've EVER recorded.

https://t.co/QkJ1ipEwC7

[Tipswatch @TipsWatch]

This week, a rare thing happened: Real yields rose above 2% across the entire traditional TIPS yield curve. It is significant: 2% is historically an attractive real yield for U.S. Treasurys.

[HFI Research @HFI_Research]

China had 1.7 billion bbls for crude storage, not 1.3 billion bbls.

Yeesh.

[Nations Indexes - Better Ideas Better Indexes @Nations_Indexes]

Bitcoin CallDex is hit the bottom of its 52-week range.

No love for Bitcoin right now.

[Lance Lambert @NewsLambert]

Shift in Florida home prices since their 2022 peak, by ZIP Code

via ResiClub Terminal