Surviving TSLA

Just a vignette on the importance of sizing and adjustments-

The week started like any other- "oh 5 more $tsla autopilots blow up and kill a children's hospital"
"ooh the 1 week 2 delta calls are still juiced"

June 25th..  a quaint time when $tsla was in its infancy under 1000.. the nightmare begins with the Jul 2 1200 call for .96cr

June 29th..  Jul 10 1360 calls still juiced at 1.20cr, we can fade another 30% rip in the next week right?

June 30th.. rips to 1100.. things are heating up.  bought  Jul 2 1170/1180 call spread for .94db, a pretty cost effective way to move my breakeven out to ~1210

July 2nd.. expiration day- rip over 1200, and looked like it was holding at perfection ~1190.. a 2nd pop over 1200 spooked me , closing original 1200 short and the call spreads

• bought 1200 back at 9.75 (879 loss)
• sold  1170/1180 call spread @ 8.80 (786 win)

And now needed to flatten the next week out-  bought Jul 10 1320/1340 call spread @ 1.55db and 1.85db  to flatten deltas going into the 1360, giving us an actual profit range from 1340 - 1360

And of course i'm a degenerate and also sold the Jul 10 1700 call .94db since we are so vertical.. (did I learn my lesson at any point here?)

July 6th.. casually ripping through 1300, the 1360 main short looks treacherous.. I added probably the biggest cost adjustment ever here, bought Jul 10 1350/1500 call spread @19.20, basically swapping the uncovered strike from 1360 to 1500, flattening deltas but actually adding downside risk.  Now my profit zone is around 1340 to 1500.

July 8th, middle of the week,not even expiration.. we had 2 days of $tsla basically 'stabilizing' at ~1400.. we found a fair market price!  It looks like almost all theta came in, putting me green on the whole position. I waited a few hours seeing if I could get any theta, and did the responsible thing and took off the main positions.

• sold the shifted 1350/1360 , bought back the 1500c 
• closed the long 1320/1340  @ 15.05cr

With all this, locked in a profit on the Wednesday before expiration.  I looked over to my trusty double barrel shotgun with mouth attachment.. "not today friend"

After doing my weekly $tsla bedside prayer "Dear god, if you see me through my $tsla options this week, I promise I'll never short again", I thought this might be the final one, we are entering such astronomical insanity that it probably should double next week given some higher dimensional geometry/analysis.

All that being said, did I learn my lesson?  Well shortly after closing the main positions.. next week caught my eye , Jul 17 going up to 2100c for 2.16cr...

I don't plan to just list option trades all the time but given the $tsla action this week I almost wanted to journal for myself as in a vacuum without planning,correct sizing, or adjustments, the 'opening' trades would have been:

• Jul 2 1200c .96 -> 9.75 (10x against me)
• Jul 10 1360c 1.20 -> 43.09 (35x against me)

These would be absolute undisputed suicide numbers, optionsellers.com highlight reel stuff.

The most important part about surviving such insane shipwrecks... keep sizing correct!  Survival is because you had a plan going in, surviving doesn't mean you can go back in next week twice as hard. Its not like weightlifting/ progressive overload. Yes account sizes go up and overall size increases, but percentage sizing should stay flat or go down!

Long Dystopia!

I read and recommend Dan McMurtrie's (@supermugatu) recent investor letter, which laid out a few macro points on affordable housing and other political macro themes which I agree with, and some portfolio positions that I agree less with. (although he is coming from a more pure value/balance sheet perspective)

It got me thinking about really crystallizing my own macro views, as I do a lot of yelling about "life short VIX" to random people in the crosswalk or grocery checkout, but something is lost in translation when saying this is just short $UVXY.  There is a lot more nuance that I'm trying to convey about global capital flows (fed, petrodollar), mass crowd psychology (social media, censorship), and blanketing tech structures(FANG, AWS), to the point where "short $UVXY" is an admittedly lazy way to congeal my worldview.

Ultimately my macro ideas will have to be more granular with some sectors, while keeping the long theta wrapper around positions.  (ie. when I say "long" an equity I'm more referring to 'not short', and preferring to stack my downside risk there, while maxing ATM vol and theta - collars, diagonals with short call just OTM with low duration)

So what is the macro idea besides "short VIX"?  I've been trying to simplify it as much as I can, and I've put together: Long Dystopia

What is "Long Dystopia?"  

This stems from my original short "life" VIX articles on political risk/disruption being overpriced, as well as true institutional, structural change being a lot further away or impossible than you might think.  At the top level this involves increasing Fed control of the market, and less and less to be done about it.  Just below that in equities, it sees continued snowballing at the top due to network effects, and no 'return to value'/ free market competition.  More specifically on that, Long Dystopia is short antitrust, as we have seen in the last few years of senate hearings on tech and banking that our government regulators don't even understand the industries they are charged with regulating.   

This is different from a pure "winner takes it all"/ momentum type philosophy because of the mass layer of social control/censorship built into these network effects, where I'm projecting a true end state, instead of just TA price action.  Gen Z and beyond are born into a world after the permanent Pavlovian like button is embedded into every  service they use.  A future site/service on employment/hobbies/relationships/government/politics won't even have context without the giant likes/followers/sub count.  Jack Dorsey even let this slip in the Twitter senate hearing that they didn't realize how warping the large LIKE counter would have on behavior.  Ultimately this social media wrapper on every site/service the future will use enforces a layer of social compliance that I think is truly mispriced.  Furthermore, since this "user" (DAU/MAU) monetization model is required for VC funding/earnings/guidance, these systems which neurologically lock users in will remain mandatory.

Along with social media engineering,  where users are somewhat passively along for the ride, the increase in active censorship limits the information equivalent of price discovery (which I know is a big line in the sand for the ZeroHedge crowd).  What were previously huge scandals will now not even be a tick on stock price and other metrics, as we will not even have the language of dissent.  Please take this time to look into the research on language informing thought. Unlike the previous image of the conspiracy theorist being dragged away by the deep state screaming to get the truth out, we will have a next generation where its just more comfortable to retweet the narrative and be surrounded by the warm blanket of establishment likes.

So is this just long FANG? Not necessarily, although there is large overlap with any core infrastructure service that supports this ecosystem and has impossibly high replacement costs (AWS, Google search, etc).  I'm not assuming an absolute blanket long tech as there is a possibility that Twitter, et al might cycle out of consensus social favor, as well as real costs/earnings mattering for DAU etc metrics in the absence of an absolute monopoly (which some of these are right on the edge of).  A social influencer can move around their web presence, but as long as that is all layer 2 on top of google algos/AWS infrastructure. 

"Long Dystopia" is looking for structures that create so many monetary/logistical/psychological/regulatory moats that they can't even be pictured absent from the foreseeable future.    

So for an example, here are my thoughts on long Visa ($V):

As a background, please read this great history and current income analysis, which I won't regurgitate but gets into the projected revenue on transactions keeping up with inflation and the projected increase in online/digital transactions.  As an addendum to the above "Long Dystopia", I would also note that it is "short cash".  (At a physical and inflationary level)

With that, my big takeaway is that this could be a better way of expressing my short crypto/blockchain macro view since 2017.  The fact the $1t behemoth Apple is content to put their Apple pay card onto the Visa infrastructure is the biggest bulletpoint you need for the moat I'm talking about.  Short crypto/blockchain is effectively long traditional payment processing, existing network effects and regulatory structures. 
If the precedent is set that any new flashy payment system can exist, bring in revenue and new users, as long as it is layer 2 on Visa/Mastercard, then how can an even smaller service than Apple make the argument to stray from the pack? 

When turning this into the actual trade idea, remember "long Visa" to me is "picking my downside risk here vs SPY, etc. A sample trade with $V recently around $200 would be the 205 covered call w <1mo duration, rolling, + further OTM puts (collar), or a diagonal- several month out deep 90 delta ITM call, plus rolling short calls ~atm.  (Note $V does have a dividend if you want to use the capital req to hold shares)



Anyway I hope that gets the ball rolling and gears turning on other ideas for "Long Dystopia" stocks, commodities, or ideas.  Let me know on twitter! (the censorship platform which is part of my macro thesis)

Short VIX'ing the Coronavirus

What a month- I've been in some 'low vol' calendar positions in SPX, moving strikes by the skin of my teeth, ultimately trying to stay in the game with 0 IV rank, and getting what I asked for with a ~25% UVXY pop.
I'm just waiting on the last day or so of theta and ideally getting out of these positions to move into a more midrange/short strangle vol setup.

I'm specifically waiting for the next ~1-2 weeks on the long term UVXY entry opportunities due to the timed 'incubation' period on the current Coronavirus.  If there was a wait and see moment for an underpriced tail risk, I think this could be a textbook case.  Again as I posted last time, the structural changes in UVXY might have permanently dropped the 1yr duration position value, so I would be more cautious in picking entries.   

With all that being said, and semi anticipating a further VIX spike going into this month, (and into March due to Fed/Treasury liquidity) this is one of the exact type of examples of the"life short VIX" thesis I muse about.  A chance to short a "world is ending" fear event, which these days is good for a ~16 VIX.  

  

Trades while waiting for VIX and a poker metaphor-

A little update while waiting for a vol pop as I closed out of the long duration UVXY shorts from this last year...
First a little context and my clickbait "THE ONE CHART THAT SCARES ME"

 This is 1yr rolling % change for UVXY going back to ~1yr after inception (so we can have 1yr rolling data points)

What scares me is that little tip there in 2018, meaning for the 1st time in this product, the 1 year rolling decay couldn't offset a vol spike (which is pretty significant given the average decay is ~80%). The main factor here is the deleverage of the ETF from 2x to 1.5x, while the same time period had the Feb 5 2018 vixtermination.  Its hard to split up how much of each factor contributed to this chart, and if they are multiplicative. (leveraged on the VIX spike, and deleveraged on the way down) 
A future vol spike will have the benefit of equal leverage on the way up and down, although that will cause the product to more closely resemble VXX 1 year rolling.

Because of the uncertainty around this, as well as the possibility of mid spike leverage changes by the funds, I still don't think we can have a constant 1yr+ duration rolling short UVXY position, so I want to wait for some amount of spike before re adding the position.

With that context, what am I doing now?

Given the mid/low VIX range at ~12/13 and SPX IVR at 0-10 this last month, I have been very active with short term calendars (~7dte/21dte) to keep a low delta/positive vega and long theta position on while waiting for a big vol move.  I've specifically been trying to take them off at 5-10% profit or at a loss when theta goes negative.

  And here is my poker metaphor for these trades-

2 types of "I've got you"...

1. I have the nuts, just salivating to see what you will bet, or if I can get a check raise.  The sense of skill is from how much can I win in this hand- trapping, etc

2. I am defending... I know from the opponents betting pattern/ranges that they probably have the nuts/ top of their range and they are salivating to see how much they can get from me.  The real skill/strategy is from seeing if I can get a free card in this hand, do everything to not get trapped and lose the minimum. When they finally bet and you insta-fold, you both know that even though you 'lost' the hand, you got them.  As the defender you more correctly assessed both hands and took their big spot that would normally be a big % of their winning session.

With these short term, at the money SPX calendars I'm specifically trying to get small wins and losses, just flip the weighted coin as much as I can.  If you are primarily used to short options/ spreads and rolling the other side/ rolling for duration, it might be harder to mentally click over to at the money delta/theta adjustments to be most capital efficient.  Ultimately I'm trying to be conscious of that 2nd bulletpoint of poker which gets lost in the 'win the maximum' $TSLA meltup we have been in.  

Impeach trade blowup, Elephant metaphor

Well we did it, another blowup in the vein of 2/5/18 (not in notional value, but in the conceptual "well what was that?" aesthetic)

For Vixtermination I specifically made  a flowchart:

Where long SVXY right at that exact moment was the only real way to get popped in the long duration short VIX system.
Again, we have a similar setup of "Trump impeached vs trump in office" vs similar trades where the outcome is the same (dismissed in the Senate) but one exact trade blows up. 

Well I fucked this one up again- I truly couldn't foresee them going this far on 0 evidence, running back the 3rd or 4th impeachment vote of the year and finally tipping the vending machine over.  And for all the distressed liberals "HE REALLY SHOULD BE IMPEACHED AND DESTROYED" - there are infinite legitimate articles ie. executive order ban on bump stocks, executive order on hate speech-
He was sworn in on the oath to uphold and protect the constitution, and is making literal executive orders against the 1st and 2nd amendment - which no one is disputing/ hiding/obfuscating. Yet they went forward with the most vague impeachment articles that were thrown out by every legal scholar.

I'm getting back to short VIX as this ties into my broader market/elephant metaphor-
All these actions are interlinked with fake trade deals/ tax rate policy and thus liquidity.

If the closest actions thus far to removing Trump (the tax cuts/ 'we need lower rates/ bigger bubbles') president and trying to force in a Warren/Bernie 'we need to blow up wall street' candidate is good for SPY all time high, then what is the point? Its 100% liquidity (Fed 500b by Jan)

Is this what the permabears sound like? "there is no real market, no actual price discovery:
Is there no real government? If 1 party controlled house and senate, then what stops this process going to completion and invalidating the executive branch?

I guess I'm a little tense as my short VIX deltas have dwindled this year so I guess I'm not full capitalizing on the elephant path we are on.  Even going into the year with the core thesis that nothing happens, its getting a little fucked even for me.

So do we just throw it all to the wind and go 100% all in SPY and just give it up?  There is no political mechanism to stop the Fed pump so why even try to flatten deltas. This is not coming from a permabear that is all in short- I'm just trying to hit that theta and see if we can even stay inside a 1-2 std dev rip, not a vertical line rip.
My only concern is when the vertical line capitulation kicks in and the max short pain points get hit is when we get the reversal, but again its only temporary until the Fed can re pump.  The most maddening thing about this though, is any "all in SPY" boglehead can't even articulate 1% of these back end processes that are key to their thesis, they just point to a straight vertical chart.


I'm still not quite there, I'll still be trudging through on the low delta, maxing theta plan.  Who knows, maybe we might get a single year this decade inside 1 std dev.

Please tweet me, refute any of this...

The market "elephant" metaphor

I've had this stewing for a while, and it once again came to a head when I got in a twitter argument culminating in "real capitalism has never been tried"

 

I run into these conversations a lot, either viewing or participating, ultimately dealing with "real socialism/capitalism/ X" has never been tried, addressing something as a fiscal/monetary policy ONLY, or some other type of "no true scotsman" argument when related to markets/economics.  

The biggest recurring frustrations I see, specifically in market/econ/trading podcasts (and tell me if this sounds familiar):

• "I want to talk about SPX catalysts/ trades coming up this week, WITHOUT BEING POLITICAL"

• "I don't want to get into the Fed POLITICALLY, but lets discuss the fomc bulletpoints"

• "Without talking about the POLITICS of MMT, lets look at this gold chart..."

Thus comes the Elephant metaphor- 

I see a world of people specifically setting out to put on the blindfold:

• Looking at valuation fundamentals without acknowledging the global liquidity/monetary regime

• Talking about pure political power/influence and not the real dollar amounts/paper trail flows behind it.

• Never following incentives all the way up the chain in any policy/financial structure. 

 So when we talk about liquidity, those are the tusks, "fundamentals" are legs, political influence on these markets are ears...

I just don't have a name for the whole elephant... the system? I don't think that reflects the specificity I'm trying to get at. 
In the meantime just remember when you see an article on any of these bulletpoints, it is not looking at the whole.  Any micro-level inefficiency is explained by at the macro level.

Let me know if you have a catchy name... once there is a name, the ease of understanding soon follows...
Until then, we are dealing with the whole elephant...

A Nat Gas/ wheel trade Odyssey

I thought I would share a little trade example of my "premium over everything" life philosophy: a nat gas trade which started out as a short put after it got crushed from the huge late 2018 rip which notably wiped out Optionsellers.com --->
"It was a rogue wave.... I wake up every morning trying to steer the ship..."
That was a case study in itself, where he liquidated all client funds before spot was even at or near his short call strike prices.

Back to $UNG... anyway after that rip and drop, here you see spot around ~$22 which was a multi year low/ semi support if you believe in that, and where I got in with the first short put .. the 21.5p for 33c , which was my target range of 15%+ annualized premium, and an additional ~4% downside to breakeven, already at extreme lows.
 While this is an actual underlying/commodity, this is going in with the short VIX mindset/ short premium at least.

Well it turned ugly quickly!



Over the next ~month we went from $22 to $18.50, a nice ~20% bloodbath..

And here is where a live example of the clenched wheel strategy comes in.  Again, for trades like this always leg in, giving the option to lower your basis as it murders you like the above.  The green lines are the short puts, from the trade date spot to the option expiration date and strike.

I was assigned several tranches from 21.5 down to 19, getting the average cost around $20 by July

Once I've averaged down til the July range, you see the orange lines for short calls, to start lowering the basis on my assigned stock position.  (some of these were 1 lots, some bigger, I just wanted to give the feel of trajectories)

The final rightmost short calls you can see targeting my avg assigned stock price which was only 19.50/ $20, meaning the last big rip up was unnecessary for breakeven, but a welcome kick in the face from the fates nonetheless.

All in all, a grueling ~1% profit over 4 months on a 20% bloodbath underlying...

The most important thing being I didn't need the last rip, every trade is centered around the assumption in no move for you in the underlying.
This applies to $UVXY short call spreads/condors, very close ATM covered calls on dividend underlyings, or ITM covered calls.

LIFE NEVER GOES MY WAY, so trade like it!  Maybe this philosophy isn't for everyone, but it works for my mix of nihilism, fatalism, solipsism, simulation theory-ism, and if you believe in "late cycle."

I hope this was worth it for at least one of you! I'm trying to be the change I wish to see in the world- post bad trades, many adjustments, perseverance! 99% of financial interviews are just ignoring the guest's last missed prediction and moving on... That isn't real life!  The wheel trade is the grueling metaphor for the actual grind.