Mcgee

living the dream

[Mcgee @mcgeeliquidity]

@hamptonism Which part? Or are we still larping?

[NBA @NBA]

For NBA Assist Week...

The best of THE BLENDER, aka the nonstop slashing and kicking that powered the Knicks' championship recipe!

[Negligible Capital @negligible_cap]

The Cheesecake Factory has outperformed Nvidia by 120% YTD

Thank you for your attention to this matter

[zerohedge @zerohedge]

um, guys...

[Mcgee @mcgeeliquidity]

@Merridew__ I think by today’s standards you’re quite mentally sound lol

[Prolific Trucking & Logistics LLC @Earl_Handsome]

Y’all went from:
The Knicks won’t win their first round series, to
The Knicks won’t win their second round series, to
The Knicks won’t make it to the finals, to
The Knicks won’t beat whoever comes out of the West, to
The Knicks got lucky and they can’t repeat 😂😂😂 NO DIGNITY

[Mcgee @mcgeeliquidity]

@Pedalo1979 Its not unexpected per say lol. Im commenting on it

[Mcgee @mcgeeliquidity]

Probably the fourth post ive seen so far ab this print. Fintwit loves to point these out but not sure they really understand. Prints like these are more a volga play to get exposure to vol of vol convexity, in most cases to hedge the tails. Its not a true view of vega necessarily

[Flow God @FL0WG0D]

$11.7 million into these $VIX calls 👀

[Mcgee @mcgeeliquidity]

@improvingtrader @hekyoda The vol surface lol

[Mcgee @mcgeeliquidity]

@PointNinetyNine @hekyoda Skew noticeably steeper today across the curve.

[Mcgee @mcgeeliquidity]

@improvingtrader @hekyoda Vix =/= fixed strike vol!!!

[Mcgee @mcgeeliquidity]

Consider for a moment too that market was down today. Spotvol corr still very much so running strong

[Mcgee @mcgeeliquidity]

Term structure is normalizing quite dramatically into opex. I know lots are frustrated with the front of the curve, but theres been fair bit of action looking at belly and back today.

Skew across the curve is very noticeably steeper too

[Mcgee @mcgeeliquidity]

@positive_gains @VolSignals Those damn hamsters

[Mcgee @mcgeeliquidity]

@positive_gains @VolSignals Looks like bbg options snapshot confirming a buy on these.

[Mcgee @mcgeeliquidity]

@VolSignals Looks like opens per BTM

[Mcgee @mcgeeliquidity]

@VolSignals May have to hit it just to feel something again🤣

[Mcgee @mcgeeliquidity]

@options_insight Hit the nail on the head brother

[fdf @0xfdf]

Another hangup I'm seeing: why did Jane Street have long momentum exposure? Not because they're yoloing a factor. Because many stat arb strategies organically accrue momentum exposure and residualizing it out would reduce risk-adjusted returns.

A stylized example with no IP since it's in the literature: your signal is xsection(analyst earnings revision). Long equities with upside revision acceleration, short equities with downside revision acceleration. This is _not_ a bet on price continuation/trend.

However! Analysts empirically cluster around news that has already moved the price. The legitimate fundamental information seeding the cross-section has a latent loading on momentum, via human behavior.

If you try to orthogonalize this signal to momentum, you linearly downweight the equities in the cross-section which report the highest analyst conviction, because that conviction is mechanically reflexive on momentum, even though it is a qualitatively distinct source of information!

Consequently, your residualization will flatten the distribution: post-resid top quintile of the xsection has shifted names with weaker signal from the middle three quintiles, and likewise for the bottom quintile.

Realistic numbers - you squeeze a 1.0 Sharpe out of analyst revisions, 8% annualized on 8% vol. You residualize out momentum, your vol does drop because you took out the momentum risk. Maybe it goes to 6%. But oops - because of the distribution smearing effect, your returns have fallen faster, to around 5%, and now you've got like a 0.85 Sharpe.

Jane Street are not idiots. They understand this intimately well, and far better than I'm even describing here. They're still up $40B net revenue YTD after losing $15B because they rationally accept the higher risk adjusted returns that keep in the factor prone to sharp drawdowns.