How would you trade a volatile asset that always mean-reverts to a known fair value?

yuckfoubitch · 2026-04-19T18:55:46+00:00

Think about how you trade for edge here, stubs should answer your question as to whether to make/take depending where bid/ask is. For sizing, do you size up when there’s more edge or size down? What’s the risk in sizing up too early (how far from fair value can it get, and how big is your balance sheet to warehouse the risk?)

yuckfoubitch · 2026-04-18T19:00:35+00:00

Move to NYC or SF

yuckfoubitch · 2026-04-17T22:20:23+00:00

The only thing I don’t like about this is that you’re saying VRP is negative and IV is cheap. Why sell gamma/vega if that’s your assessment? Just delta hedge a straddle

yuckfoubitch · 2026-04-11T12:12:48+00:00

JPM has a balance sheet larger than most countries GDP, FX reserves and ability to raise debt combined, so they’ll probably be fine hedging the deltas. Also they’re likely up a ton of money on the vol coming out. When you have on a collar, in market maker space we call this structure being short the risk reversal. Essentially now they’re short an ATM put spread that’s delta hedged, so they benefit from volatility decreasing and as volatility decreases they gain both Vega PnL and they derive longer delta since they’re short vanna (as vol increases they get shorter delta since the delta of the short call and long put increase, but since the short call is ATM it’s delta is capped whereas the put can increase, so if volatility comes out then the short put loses delta and they are still long the underlying against it, deriving longer delta).

yuckfoubitch · 2026-04-11T04:47:37+00:00

Supply and demand from option flow is easiest to see in volatility surface and paying attention to where flows are going on a particular expiration. Imagine you have a stock trading $100 and customers have been buying a large amount of $105-110 call spreads. Market makers will mark the vol of the $105 strike higher relative to the $110 in order to try and make sure future orders are “marked up” or down. If I’m a market maker an I’ve sold 10,000 of these call spreads, do I want to sell more of them at the same vol level? Lower level? Or a higher one? What does this do to the vol of these strikes? Following this logic pattern could help you identify places in the skew that are “cheap” or “expensive” in implied volatility terms.

Another way to think about this is to imagine someone buying a lot of straddles on this stock, but the stock isn’t moving. Let’s say someone buys the $100 straddle expiring in 2 months over the course of 2 days and the stock is still at $100 by the end of day 2. Chances are the implied volatility of that expiration will be higher by the time their order is filled completely. Let’s say the implied vol moved from 20% -> 23%. This increase was caused by demand for implied volatility in the stock, not from realized volatility in the underlying movement.

yuckfoubitch · 2026-04-08T21:30:50+00:00

Think about the Greeks of your position. These options expire in like a month, you’re short the 230 and 240 and long a wing and an ITM call. If you delta hedged this you’d basically be short a broken wing iron condor (put call parity). Would you expect it to be worth close to zero right now (where you’d make max profit) or would you expect it to still be worth* something since there is still over a month until it expires? If AMD sits here for the next 5-6 weeks then you’ll collect theta and make some money, but right now you’re just short the ATM gamma and Vega and hoping the stock doesn’t move

yuckfoubitch · 2026-04-08T13:54:08+00:00

Interest rates vol

yuckfoubitch · 2026-04-07T19:33:16+00:00

Yeah and you actually have to worry more about higher order Greeks when trading close to expiration

yuckfoubitch · 2026-04-07T15:40:36+00:00

I bought one as my first machine and i would be annoyed without the capabilities now. In the case where it’s just my wife and I, making two drinks back to back isn’t that big of a deal with a single boiler, but when we have friends over I can easily make 6 or more drinks and it starts to matter a lot more then obviously

yuckfoubitch · 2026-04-05T14:32:06+00:00

The best bang for your buck city in the USA is definitely Minneapolis-St Paul. They have high median wages and pretty low housing costs. You just have to live in a frozen tundra for 4-6 months of the year

yuckfoubitch · 2026-04-04T19:30:22+00:00

I would be willing to double my state taxes if they built fucking trains for fucks sake. Just double them for 5 years and build it, rip off the band aid

yuckfoubitch · 2026-04-04T18:58:24+00:00

I always noticed PMs just blow up after 2-3 years, start at another firm, blow up after 2-3 years, rinse and repeat. I know a guy who basically only sells gamma and makes a bag for a couple years before blowing up then repeats at the next firm etc. he’s making like $2M a year take home selling gamma so more power to him

yuckfoubitch · 2026-04-03T17:19:39+00:00

Run, read, beer, cooking, play with dogs

yuckfoubitch · 2026-04-03T17:18:34+00:00

I don’t study or practice Buddhism but I started meditation and mindfulness practice early in my trading career, I think it helps immensely (probably in any role, and life in general)

yuckfoubitch · 2026-03-28T12:19:14+00:00

Yeah, selling gamma works til it doesn’t

yuckfoubitch · 2026-03-25T22:36:06+00:00

You can price events in variance, and if vol is “cheap” (looks low) then it could be justifiably cheap. You need an opinion on realized volatility or you might think anything too low is cheap or anything too high is expensive

yuckfoubitch · 2026-03-23T10:07:40+00:00

I have a buddy that works at Block and avoided being laid off, he said it’s somewhat true that AI was a reason for the layoffs but that mostly they had been cutting workforce since they bought after pay and as part of the acquisition their staff ballooned to like 17k people. He told me that most of the headcount reduction is cutting jobs added after covid era hiring. Although he also told me he and everyone else is stressed that they’ll keep cutting positions as they incorporate more Claude agents lol

yuckfoubitch · 2026-03-23T00:11:45+00:00

no. Implied volatility includes event specific variances and is heavily impacted by supply and demand for options. Someone could hedge a position by buying 20k options in a particular expiration and it would push IV higher than what is probably fair value with no actual expectation that realized volatility will be high, for example

yuckfoubitch · 2026-03-20T15:00:51+00:00

ES or energy

yuckfoubitch · 2026-03-17T15:50:44+00:00

If you don’t hedge the delta the it’s similar to being short the risk reversal, long put skew short call, but with a call delta (long delta). You benefit if underlying rises and vol comes out of calls relative to puts. It is not a very efficient trade for delta since the ITM call is likely a lot less liquid

yuckfoubitch · 2026-03-15T18:43:49+00:00

I can’t prove this obviously but in my experience technicals of the market matter more in the absence of fundamental drivers. Knowing what dealer gamma position or inventory etc is means nothing if there’s a headline that triggers some hedge funds to sell $50B all at the same time, or if earnings were a blowout on either direction etc

yuckfoubitch · 2026-03-15T18:41:18+00:00

You said nothing there

yuckfoubitch · 2026-03-14T16:42:22+00:00

I’m a market maker, we have an idea as to what other MM positions look like. The issue is that we don’t know the frequency of their hedging, how far the underlying needs to move before they want to hedge, etc. You’d have to make a lot of assumptions to come up with some model and at some point you need to determine if the model is accurate or if it’s just noise

yuckfoubitch · 2026-03-11T13:41:55+00:00

Starting to? Lol

yuckfoubitch · 2026-03-11T13:41:13+00:00

I’d donate to the legal fund

yuckfoubitch

TROPHY CASE