Option Alpha

@Jesse_Livermore Yes

Everyone bonkers over AI right now, but my recent experience is that it's been getting worse. ChatGPT and Claude. Frequent hallucinations. Maybe 25% of the time if I say, "That sounds wrong, double check it", I get a backtrack & a different answer. Is it just compute scarcity?

@TheSpeculator0 I’m 90 bid

Jane street, where you show up in a suit + airpods + zoomer haircut and show off that you work there

@__paleologo My personal belief is that fractional Kelly is practically “correct” but should/could be generalized to with CRRA utility. Any thoughts on this? Fractional Kelly and CRRA agree for joint log normal, but CRRA will extend this for general distributions

There is a way to reconcile the Buffett/Druckenmiller school with the diversification-as-only-free-lunch. The intuitive explanation is: 1. if you have good skills in *sorting* investment opportunities 2. *and* high risk tolerance, your portfolio can be quite-to-very concentrated. Those trading on their own accounts or having patient investors, and being very skilled are welcome to hold ten securities or even fewer. Two other (sell desirable) reasons to concentrate: 1. you have limited access to leverage. Given your theses, there is a well-defined trade-off between Sharpe and returns, by controlling diversification. Lower diversification -> higher returns, lower Sharpe (see point 2 above) 2. you just *know* in your bones you're gonna get lucky. Regarding 1., though, it's recommended to be within the bounds of Kelly, or fractional Kelly, otherwise your hair will become white by 30 and your sex life will suffer. This is the intuitive explanation. There is a longer quantitative version of this story that didn't make into my red book. As per "is the (blue) book a good book to read?", I honestly don't know for sure. And I wrote it. Not a joke: I really would like *to rewrite* it. It could be better.

@bennpeifert @Google The oracle has given you your prophecy. You can’t fight destiny

okay @Google this is ridiculous, lots of people internally have tried to fix it and apparently can't? how exactly am i supposed to contact my own representative

@pansareV I’ve had this thought. What if go crazy in my old age and forget appropriate risk controls? Or just have a really bad fat finger and don’t realize I put on a ton of risk. I guess time to build the risk dashboard…

It’s scary how easily one could lose everything using derivatives Like tomorrow i could liquidate my entire account, buy otm 0dte options with 2 clicks, and end the day with 0 most likely. A lifetime of hard work and disciplined saving And investing can be wiped out in a day

@jimdelisle @j_fishback I gotcha

Can someone who follows me and is not blocked please reply "Where can I get a borrow"? @j_fishback

@j_fishback Where can I get borrow?

Today, after spending 10 years trading interest rate derivatives at two hedge funds, I’m launching the first of its kind leveraged ETF on Tesla (the most transformative company in the world) that buys asymmetric, limited-loss call options on Tesla on top of a core long position in the stock. Grateful to our team for working so hard on this and my dad who has been trading options since I was a kid and piqued my interest early on. @elonmusk, we ride.

@buccocapital @TheShortBear It’s done well

@TheShortBear Video is literally a year old. You should mention that in your post

Whenever a major investor and historical outperformer puts all his eggs in one basket, it’s at least a good idea to explore the idea.

@jaydubs83 @patrick_oshag Double in 18 months pretty good call

@patrick_oshag Clip is from 18 months ago.

The end of this clip is absolutely hilarious God I need to interview him. If anyone knows him well please let me know.

@KrisAbdelmessih @moreproteinbars Wish there were more opportunities on west coast

Pairs well with @moreproteinbars tweet x.com/moreproteinbar…

@BeTheGrayMan @profplum99 @KrisAbdelmessih Here’s a fun exercise: Suppose hypothetically QQQ goes up 1% a day everyday until it doubles in price from where it started. Ignoring borrow costs, ER, etc., how much is TQQQ up from where it started? I’ll just say: QQQ -> 2x TQQQ -> 8x. It replicates a cubic payoff before drag

@BeTheGrayMan @profplum99 @KrisAbdelmessih Vol drag isn’t a true drag. It’s the price of convexity. 2x ETFs are convex in the spot price on time spans longer than days. The vol drag is what balances the convexity. You can short the vol drag and gain from realized vol but you are also short convexity in the underlying

Very nice thread from @KrisAbdelmessih. Also an unintentional illustration why 2x levered ETFs are typically such bad investments. 2x levered $MSTR (84 realized vol) has vol drag of 113% (-0.5 x (84%x2)^2) AND financing costs of ~5%. So EXPECTED return on $MSTR underlying has to exceed 74% to break even on an expected value basis for $MSTU and 111% return for 2x to deliver same expected return as underlying. Tough burden. Definitely not advice.

@searching4value From my POV, you found a nice, temporary edge that works with low capacity. Again from my POV, low capacity edges maybe more common than most people would think. I would give yourself credit and wouldn’t be so skeptical. The trades speak for themselves. That isn’t a random walk

Early in 2025 I did a lot of trades in a certain basket of stocks and I (want to) believe I had a real edge in this series of Slovenian stock trades. searching4value.wordpress.com/2025/07/11/hat…

Call me crazy, but @BillAckman should have played in the Wimbledon final today

@TheSpeculator0 lol so true. But it might be less than 40h tbh..

@profplum99 @EmanuelDerman Mike, with all due respect, please stop using this chart. Alpha is NOT the intercept when plotting returns vs TIME. Am I crazy here?

@EmanuelDerman Perhaps should be rephrased... "When time becomes a proxy for ChatGPT usage, alpha vanishes for human writers"

An analogy between the capital asset pricing model (CAPM) and writing with chatGPT I was stuck with the next sentence of dialogue in something I was writing. I had described someone being appalled at something someone said but couldn’t think of a good sentence indicate it . 1/n

@bennpeifert ChatGPT wrote this for sure…

"market neutral theta arbitrage" ☠️

@puppyeh1 First moves always wrong!

This is the right take. Dollar down in a massive flight to geopolitical safety moment is…something else entirely.

I guess you Ark is just marketing to target audience? 🤷

They’re serious… (skip to flow chart under “Yes” option).