I’m not a particularly superstitious person, but it’s rather curious when lightning strikes three times in three days.

Earlier this week I was traveling to visit some friends and do a bit of business. Sometimes both at the same time. And every day I was on the road I got mistaken for someone else by a stranger. Unfortunately none of the mistaken identities were celebrities.

The first time was walking into a wine bar, where after greeting the host he commented how much he liked the wine from before. A confused look from me snapped him back to reality, and he apologized for mistaking me for one of their distributors. (I do take that as a compliment.)

The next day while waiting for friends at lunch, a server commented “thanks for coming in again.” Assuming this was just politeness, I chatted back that it was my first time here and I was looking forward to it. She confidently reverted, “Weren’t you just in here last week?”

Neither of these two triggered me until I was waiting in the lounge for my flight back, and again got asked - “do I know you from somewhere?” Again fairly certain the answer was no, I got a deeply skeptical look in return.

I don’t sleep that well in hotels, but am I pulling a Tyler Durden? This was starting to feel like some twisted version of Fight Club. Potentially even worse, do I have a doppelgänger moving about?

The Germanic folklore around the doppelgänger is rather dark. In the early 19th century several authors explored this idea of another self. The term literally means “double walker” and describes a second person moving through the world, undermining or challenging the existence of self.

Author E. T. A. Hoffmann created in The Devils Elixir’s a doppelgänger who manifested the guilt of the protagonist. In the (eponymous?) poem Der Doppelgänger, Heinrich Heine portrays the other as an alternative self who was burdened with suffering. And the general belief was that encountering your double portended death. Just in time for Día de Muertos.

Twentieth century philosophers have taken this concept further, questioning what the implications of other selves are. Argentine writer Jorge Luis Borges describes in his work “The Other” a man encountering a younger version of himself and how their subsequent interactions challenge their own destinies and existence.

Scientists have taken a more technical approach in the realm of quantum physics. The “many-worlds interpretation” was formulated in 1957 by Hugh Everett, and suggests that “all possible outcomes of quantum measurements are physically realized in different “worlds” {and} the evolution of reality as a whole in MWI is rigidly deterministic.”

I’m not sure which is scarier, so I’ll stick to finance.

Here too, the idea of many worlds is important for understanding future decisions. Anything can happen means many things can and do happen. If there was certainty, there wouldn’t be opportunity.

One of the useful models for understanding what could happen is a decision tree. As time unfolds, different paths are chosen, and each subsequent direction chosen is dependent on the previous outcomes. We can assign probabilities to each of these outcomes, and come up with a quali-quanti-tative idea of the various likelihoods.

Many of the more sophisticated options pricing models rest on trees, where every potential price snapshot is an outcome of the random Brownian motion that drives underlying movements. Depending on predicted volatilities, the nodes have different lengths, and the weighted outcomes come back summarized as a single options price.

The pricing model itself understands that there are many possible worlds, and it distills all of those scenarios back into a single price today. Right now there are people willing to pay a dime that the SPX will move more than 250 points by tomorrow’s close1. That’s something like a 0.5% probability of a 3.2% move, but hey, it could happen.

More than likely the move will be far less dramatic than that. But understanding the texture of where those likely outcomes rest is very important for modeling investment decisions. The most interesting thing about options is that they expire, so where stock lands at that time is but a snapshot of the many possible selves that could have realized.

Right now, the price in the market is about as fair as anyone can get. The deep liquidity in the most popular names keeps options values very close to accurate, and there’s almost no edge in assuming otherwise. The measurement we use to validate that is historical volatility risk premium, and it tends to be low single digit percentage differences over the long term. And to ensure that the implied volatility matches the realized volatility, you hedge the directional moves - the manifestations of different possible outcomes.

Most buy side traders aren’t dynamically hedging their positions, so their PnL is a function of which outcome happens. That sounds obvious, but pre-trade it’s important to understand just how many different ones are possible.

Using options to adjust the risk and domain of outcomes is one of their best use cases. Since we can assume that the current price is true, the next step is mapping how that position looks in various different scenarios.

A Monte Carlo simulation is essentially a world generator, and with a few parameters it can spin thousands (millions if you want) worlds through decision trees and see what happens. In a new tool that I’m building with Jay Soloff, we use Monte Carlo simulations to describe all the possible worlds you could see with an options overwrite.

The OverwriteLab takes the implied and realized volatilities of stocks, applies sector and market beta, and spins up a few thousand worlds to map how your covered call could shake out. Importantly it’s not a pricer; it doesn’t say these calls are under or overvalued. It models all of the different outcomes at expiry, and then visualizes how portfolios with and without calls could perform.

The goal of writing calls is to slightly shift your portfolio’s risk. Truncating the returns of the right tail to bring more outcomes to the slightly positive space. We’re not deciding the price of implied volatility, we’re showing you how and where that give up versus get scenario happens.

The below histogram shows one example. On the X axis we bucket the returns of a portfolio of covered calls, and the Y axis shows the frequency of that return happening during the simulation. The green bars with calls rising above the grey bar of no calls, means there are more worlds that make 4% with calls than without.

As we’d expect, the worlds where returns are +7% or more are dominated by stock only portfolios. The right tail is far less likely, or even impossible with this theoretical portfolio of covered calls. Those scenarios are pulled forward into the return space below the strike.

On the negative return side, the green bars are shifted “one premium bucket to the right”, meaning the downside buffer is simply the notional collected for selling the calls.

There’s a lot more to this so please dig into the guide and ask questions. I’d love any feedback on the beta version, and expect to hear about webinars and launch details soon.

The world we embody today is but one example of the many that could have been. It’s a little spooky to think there’s a doppelgänger walking around embodying that reality, but every existential decision leads us down a different path.

Stocks are no different, and before you put on a position, I think it’s pretty interesting to visualize where those outcomes could land.

The line began to form 15 minutes before opening.

While it’s long been renowned, Le Bon Georges is currently basking in Instagram fame. This classic bistro is the platonic ideal of quintessential. Thick wood banquets, paraphernalia from around France, and windows lined with a who’s who of wine bottles.

The wine list is a binder several inches thick, while the daily specials (there’s only specials) are written on a chalk board. Bistro classics like steak au poivre, or a perfectly pan seared pollock. The ideal pairings for a well curated selection of France’s best domaines. I decided on a special bottle of 2016 Clos de La Roche from Domaine Ponsot, relishing all the little details.

The vineyards sit in the northern part of Burgundy, next door to some of the most muscular expressions of the Cotes de Nuits. The structure would be perfect for the cote de boeuf - saignant. Ponsot itself has several interesting anecdotes. They are one of the few producers to use Ardea Seal stoppers, a shorter synthetic “cork” aimed at preventing the cork taint which ravaged Burgundy in the early 2000s. They are also the farmers of a unique monopole (a single owner vineyard) Clos des Monts-Luisants where a white wine from 100% Aligote is produced amongst a sea of Pinot Noir.

Fourth generation winemaker Laurent Ponsot famously helped nab notorious wine forger Rudy Kurniawan when he attempted to sell bottles of their 1945 Clos St Denis and 1929 Clos de la Roche. Neither of these two wines were produced in that vintage, and Ponsot flew to New York in 2008 to stop the auction and kick off the FBI investigation that led to Kurniawan’s eventual arrest and conviction.

Besides just what’s in the glass, all these little details make the wine interesting and something to appreciate. The complex tapestry of flavor, history, and legend all contribute to the result. The more nuanced and precise details, the better.

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While all that might be true, I can’t say with a straight face that the wine was one hundred point perfect. 2016 was probably a little young. It might have needed more time to decant. Amidst all the interesting details, how and when it arrived in my life mattered. It was exceptional, just not quite what I imagine the full potential to be.

If you’re a sucker for the fine print, the only thing that rivals wine is finance. It doesn’t have to be that way, “SPY and Chill” is a great investment strategy, but for practitioners, complexity and innovation are only bound by creativity. And because creativity is sexy, the headlines it produces can be distracting.

The apogee of this is where layers of nuance rest below the sales pitch of a nicely structured product. While they have long been popular in both Europe and Asia, it’s only been in the last few years that American investors have taken a significant interest again. Pre Great Financial Crisis there was moderate activity, but issuance then went through a ten year slump.

In 2016 there were roughly $38B of notes issued, while in 2025 that number had more than quintupled to $226B. The first half of 2026 saw $146B in volume, on pace for nearly 40% year over year growth.

There are numerous reasons why this is happening. Rising interest rates generally help create more attractive structures. Technology platforms and standardization of offerings makes it easier for RIAs and fund managers to incorporate them into their portfolios. Further packaging these into ETFs makes them accessible to retail investors.

But what people really want is yield. A big distribution rate is the headline figure that draws in investors of all levels of sophistication.

Yield is great because you can annualize the figure and use it to budget your savings. It feels like a paycheck that maps directly to the bills coming in on the other side. How much can I make and how much do I have to save to get there. And to increase yield, all you need to do is take a little bit more risk.

If the yield is coming from a bond, issuers with varying capacities to pay either coupons or principal will be able to demand better or worse terms. The specific risks are creditor specific - are your bonds backed by AI data centers or municipal tax receipts? Repayment risk might be negligible for the highest grade issuers, but it’s a non zero calculation once you want to start seeing double digit rates.

For all the real estate moguls out there, if yield is coming in the form of rental income that has its own suite of gotchas. While naive yields might look like double or triple the Treasury rate, leaks happen, property taxes increase, and sometimes tenants don’t pay. A lot of things need to go right for that full earnings picture to materialize.

Covered calls also seem like an attractive yield engine. But like the apartment building with its own underlying valuation shifting, the equity baseline is going to be the real driver of returns. Yes you can sell a call every month and earn 1% of the spot price, but it’s only in a very narrow range of circumstances that you can say this looks like a 12% per annum yield engine.

All of these yield engines get wrapped into slick little packages. There are bond funds, REITs, and covered call ETFs to make the whole process simpler. They save a lot of operational headaches and simplify many of the tax concerns. You can also get diversified exposure to something that would be impossible to replicate without tens of millions of dollars. But they also obfuscate a lot of the risk.

In April and May of last year, Calamos and Simplify both introduced products designed to give investors exposure to the payouts of autocallable or barrier option products. The yields are very attractive, and a quick glance at the terms seems compelling. They’re now cropping up everywhere. So what’s the risk? As they say in crypto - if you don’t know where the yield comes from, you are the yield.

First it’s important to understand the basics around what an autocallable product, and structured note are generally. Investors give a bank money and receive a note, which under certain conditions pays a coupon and eventually returns the money, in whole or part. Because these are all bespoke issuances, the conditions can be just about anything you could imagine. That said, the vast majority tend to center around benchmark equity indices and liquid single stocks. “So long as XYZ is above this level, you get your money back and a big monthly distribution”.

An autocallable has terms that dictate when and how much of the principal is paid out, as well as when coupons are paid. And if all goes well, the “auto-call” is a feature where a five year note might be eligible to be called away as soon as one year if the reference index is above its barrier. That creates some reinvestment risk, but the more dangerous exposure comes if the index never recovers above the barrier, and there’s significant principal impairment as well as loss of coupons.

The barrier dynamic is what generates the coupon here. The product continues to pay and returns the principal so long as the market stays up. Upside participation is replaced with a high yield, and the downside risk only happens if the index falls and stays down. That derivative is a special flavor of levels and payouts, distinct from what we see in listed options. But it quacks like a short put.

Plenty of folks would be willing to exchange uncertain upside for a healthy coupon, but a lot fewer have intuition about pricing barrier options. Unlike vanilla puts, there is a distinct discontinuity that will happen at the barrier. With a 30% barrier, if the underlying closes at 69, you get $69 back. If it closes at $71 you get $100 back.

To further complicate things, the reference index is often not exactly a standard benchmark like SPX or NDX. As every options trader knows, higher volatility means higher premiums. To meet customer demand for big yield, a higher volatility reference index is created. In the case of Calamos’s CAIE product, this is a 35% implied volatility target on SPX.

This roughly means when SPX is in the “normal” range, your reference is actually moving at something like 2-2.5x leverage. So that 30% or 40% barrier comes into play a lot more quickly, and in a non-linear way. Selloffs increase vol, which reduces leverage. It’s hard enough to visualize what a vanilla market sell off looks like, let alone a vol targeted flavor.

The details don’t stop there. Many of the reference indices include a decrementing feature, where they mechanically decay a fixed percentage every year, creating a hurdle rate for the index to maintain the product’s NAV. While this alone won’t trigger your barrier, it’s a distinct headwind.

As both a cork dork and vol nerd, these nuances are really interesting. To conceptualize the dynamic, I’ve spent both tokens and brain cycles on imagining a vanilla hedge that could help this risk. (Surprising to no one, markets are pretty efficient about rules based strategies.) But so long as the tail risk is clearly understood, there’s a good reason being short that and collecting rich coupons for a piece of your portfolio.

At the end of the day, the only intuition you really need is that you’re getting paid more money, consistently, because you’re taking more risk. That risk might be small, unlikely, or generally just worth the payout, but it’s there. And because there are so many nuances to what, how, and when, it’s hard to model what’s going to happen. It deserves a healthy wrangling before you invest.

Just like the great bottle of wine, all of the complexity and titillating details are there, alongside promises of vinous and alpha outperformance. But randomness does happen and path matters. The perfect outcome you’re drawn to with a steady 14% a year coupon probably has a little bit more risk to evaluate.

We can thank the mafia and bootleggers for the liquor laws in the US.

I’m not talking about the fact that you have to wait until you’re 21 years old, or even that package stores are closed on Sundays. While both are a little frustrating, what happens behind the scenes with layers upon layers of middle men is what really sours the whiskey.

Every state is different, but generally speaking there are bright white lines between the multiple parties required to get booze from its producer to the end consumer. Except for winery/brewery direct sales, if you want to buy a bottle you need to go to a licensed liquor store, restaurant, or bar.

When the retail outlet stocks its shelves, it must purchase from a distributor. They might buy directly from the producer, but unless it’s domestic there’s an importer involved too. Up and down the chain, each party can only buy from the person above, and sell to the person below. And they all take a cut.

Further to this already complex structure, are the details of the “tied-house” rules, where producers and distributors can’t exert economic influence over their customers. There are distinct prohibitions on providing free goods, price/volume discounts, or otherwise compensating a customer for their business. State minimums or wholesale posting requirements attempt to add transparency and fairness - but come at a significant cost to quality.

Recently the largest distributor in the United States - Southern Glazer - admitted fault and paid a (nominal) fine for orchestrating a pay to play scheme. Cash payments, vacations, and luxury goods were doled out to retailers who favored their products. Even worse, they falsified invoices to cover it up. The new VP of compliance will have his or her hands full. And while the cork dork blogs are ablaze about the fine, it barely registers in the national conversation.

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As consumers we expect there to be a certain amount of fat in how the sausage is made. No one opens the door to the back room and is shocked to find gambling happening in Casablanca. Industries from real estate to medicine have had their own recockings with tax deductible seminars and drug company sponsored boondoggles.

While financial services does love a good boondoggle, there’s a long history and culture of regulation. It’s mostly legend that Joseph Kennedy was a bootlegger, but the first chairman of the SEC was someone who had profited from the exact market manipulation and stock pools it was formed to curtail. But ever since the Act of 1934 they’ve held the customer to be priority number one.

Unfortunately for branding, there’s a corner of the market that sounds a lot like payola. Cash payments for orderflow - PFOF. Taken literally, it evokes the payola scandals of the 1950s where DJs were collecting checks from record companies to give specific songs more airplay.

Not only does the name ring of quid pro quo, the notion that a customer’s order is getting sold out the back door gives implications of being taken advantage of. That couldn’t be further from the truth.

Most importantly, PFOF is well disclosed. Brokers are required to file quarterly 606 reports indicating exactly who is getting what types of orderflow. This is broken down into market orders (execute at any price), marketable limit orders (limit price is equal or better than the prevailing bid/ask), and non-marketable limit orders (limit price is not immediately executable). For each category the total payment and payment in cents per share are detailed.

These reports will show you that on average Schwab received about $0.58 per contract for its options orders in the last quarter filed (Q2) while Fidelity only received about $0.28. The difference here is the level of execution quality (EQ) that each of these brokers will demand.

There are two components to a payment for orderflow arrangement, and the cash only explains half. Wholesalers also promise to provide a certain degree of price improvement.

Lower payments demand greater price improvement, such that a market maker is roughly agnostic about the composition of how they pay.

Unfortunately EQ is not in the public data sets. In equities wholesalers are required to file a corresponding 605 report that indicates the degree of price improvement. However due to some of the complex structural issues in options, that’s not as clear of a task. Things like multi legged orders and auction price improvement dynamics make that a little bit muddier to calculate.

But that doesn’t mean the brokers and wholesalers aren’t discussing those levels as part of the agreements. Retail brokers strictly monitor their fills to ensure that their customer orders are getting the best possible experience.

The wholesaler isn’t trying to force you to feed you low grade booze to meet a minimum, they are buying the ability to get you a better price than is publicly displayed. Not only that, they’re paying your market access provider to give you better tools to trade with, and alleviating their costs by managing the routing infrastructure.

The entire system of PFOF is built around getting the customer a better price. While it might look like the same multi-layered system that obfuscates everything from liquor sales to media consumption, unlike any other business it’s about profit margins for the customer, not for the plonk producers.

So why is the wholesaler willing to pay up? Wholesalers are in the business of managing risk and inventory. The more of it they can do, the better. Further, if they can build a diversified and well balanced portfolio, it becomes cheaper to operate and maintain.

Retail orders represent the cream of the crop because they tend to be small and non market moving. They can be just as smart as larger orders, but their size means that any given trade can be easily digested by markets. Concentrated risk is difficult to price at trade time, and it’s more expensive to manage over time.

Every time I pull up a flow chart of the order execution lifecycle it gives people the ick. Why are there so many boxes here? In every other business, the more people are involved the more margins get layered on the true value.

PFOF is the exact opposite. If a customer tried to go directly to a counterparty, not only would it be hard to find someone, but the risks of information asymmetry would cause the price to explode. Brokers and exchanges exist in the middle to solve that coordination problem.

Brokers not only provide access to the markets, but they act as a signal and stamp of approval, validating this orderflow is of a certain character. Exchanges build mechanisms that not only connect the buyers and sellers, but encourage the competition to get involved. Alerts for auction opportunities are broadcast to all participants, meaning every single order sees the maximum number of eyeballs for price improvement.

If a customer order had to go directly to the market, it would get a significantly worse price. The payment economics that flow through are all to support an infrastructure dedicated solely to customer price improvement. PFOF means that the order is being stepped on by several intermediaries, each of whom work to get you a little better fill.

While it could probably do better with branding, payment economics are a core component of the retail traders experience. You’ll never do worse than the posted markets, and most of the time a lot better.

Programming Note: The Till will be off next week to take advantage of school holidays. Happy trading.

The future is both obvious and uncertain.

The sun rises every day in the east, the foliage predictably turns in October, and karma is going to get you - ball don’t lie. But exactly when and how much it’s going to rain is a perennial question.

For events with uncertain timing, the inevitably of that shoe dropping makes the path ahead seem clear. That all twenty milk teeth will fall out is a given, but when the tooth fairy pays distributions is not. Don’t lock her up in private equity.

Even if your biggest concern in life is a tee time, there are numerous different heuristics we use to foretell what will happen in the future. Adjusting for rush hour, packing an extra jacket, even how busy the bar after will be; we make dozens of little decisions based on expected mean and variance.

Most of the models we’re used to relying on in the real world are about predicting the shape of things at t+n. How long will this take, how far can we go, and what’s the error bar around that. I’m here today, right now, 10:30am ET. What will the world look like, and where will I be, two hours, ten days, or a year from now?

There is necessarily a directional bias because time moves in only one direction - forward. You can’t fight the clock.

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In retrospect, what was in fact uncertainty starts to seem obvious. The continued bull march in the equities market seems closer to a pre-ordained truth than the result of a specific path. When savings become investments, the projected returns are framed more like an expectation than a prediction.

No matter how many faults you can find in that projection, it solves a very important planning problem. When choosing between different securities, one needs to make some estimate of how much potential upside, downside, and volatility there will be. The fact that it’s difficult, fuzzy, and sometimes just a shot in the dark, doesn’t obviate the need for a number.

Historical returns are a good benchmark. But the theory behind continued performance relies heavily on a belief in the equity risk premium (ERP). On average, shares of companies - particularly when exposure comes in a low fee diversified vehicle - tend to outperform the risk free rate of return because of their volatility. You don’t have the money exactly when it becomes most valuable.

The most widely used valuation model is CAPM (Capital Asset Pricing Model). When applied to equities, it takes the risk free rate of return, and adds some market premium multiplied by beta. It’s easy enough to put a good estimate on beta, a simple correlation to the market goes a very long way.

The market premium is the difficult part. 8% a year? 12% a year? On a million dollar balance after just 5 years that is $1.76M vs. $1.46M. An entry level Ferrari of difference. Compounding means small estimates can seed chaotic levels of divergence. That’s one hell of a flap of the butterfly’s wings.

“Over the long term” the fuzzy math says the arithmetic mean of ERP is something like 7% a year, depending on whether you use t-bills, ten year bonds, etc. (Geometrically compounded its roughly 6%). So blindly going out a year, the equity markets should expect to return 7% more than risk free.

Keeping to our back of the envelope round numbers, we’ll say the one year rate is 4.5%, so with the SPX at 7600sh, we use our trusty CAPM, layer on a couple asterixes and footnotes, and predict that 7600 * (1+4.5%+7%) = 8475.

All the caveats aside, one might say that’s the best prediction of the market in the future, though clearly with a large error band (pricing 21% annualized vol for the Sep 2027 options). So why do option prices only imply a forward value of ~7800? Why is that forward value only based on risk free rates, rather than some equity drift?

This is a question to make you pause. A bat and a ball cost $1.10 together - the bat costs $1 more than the ball, how much is the ball?

Just because you believe in the equity risk premium, doesn’t change how you should use an options pricing model. They are two fundamentally different things, and substituting a CAPM style forward values places a prediction in the wrong location.

Options are priced using a no arbitrage model. Black Scholes is a replication model, that determines the dollar price of a contract at a given volatility, rate, stock price, etc. The dollars are how much it should be worth to hedge that contract over time, replicating the exposure with stock.

Calls and puts are well priced because they trade at levels where the implied volatility is close to the realized volatility over the life of that contract. The difference between them - volatility risk premium - is relatively small and devilishly inconsistent.

Once you start putting a forward value of stock that is an estimate rather than a cost of carry, you’re applying a directional bias and breaking the arbitrage condition. Naively put, you want to buy all the calls on the board because they are pricing the arbitrage levels of carry below your fuzzy future value.

The interesting question now becomes, assuming you had a solid view on appropriate levels of ERP, what would be the best risk adjusted exposure to that? With a 20% standard deviation (volatility), a mean of 11% starts to look a lot less attractive if you’re long a bunch of SPX call stupids. *

Given that options expire, the timing of the returns becomes very important. Now you’re into complex sizing, strike, and expiration decisions. It’s possible that the best way to get exposure to the equity risk premium is just equities.

Valuation and pricing models sound awfully similar. Predicting future valuations can be a wildly profitable expertise, but it is dependent on taking a delta walk through uncertainty. Pricing options is about a much more obvious future.

Volatility ebbs and flows, and distributions realize in many ways. But the fundamental pricing of those options is based on arbitragable facts in the present here and now. Disagree at your own risk.

Spirituality and belief are BIG questions. I’m not going to dive into them here.

The closest I’ll get is a strong belief that “Ball don’t lie.” There is karmic justice on the court, and it’s often delivered swiftly.

Used in pick-up games everywhere, the fuzzy etymology of this phrase traces back to street ball in Philadelphia. It’s been the title of novels and podcasts, but the most famous usage came in 2012 when Rasheed Wallace shouted the phrase and promptly earned himself a second technical foul and ejection from the game.

This was far from the first time he said it - teammates estimated he’d dropped it hundreds of times over the prior years - but it was directly antagonizing, and the official’s patience had been worn thin after years of being taunted for miscalls.

The NBA is a little bit different than a pickup game, where the referee in theory has an objective duty to both teams. If you’re just messing around with your buddies, foul calls are your responsibility, and that’s difficult. We need a third opinion.

Say what you will about middled aged eye sight, but it’s really hard to make close calls in racquet sports. (Obviously we’re also ripping the ball.) There’s no Hawk Eye technology sponsored by Chase, it’s up to you to make that call for or against yourself, all while being caught up in the heat of the point.

Ball don’t lie happens a lot. We’re pretty generous with each other outside league games, so the first call usually stands and everyone moves on. Thus after a shadowy out of bounds call, you’ll inevitably fault the serve.

By putting the weight of adjudication in this fuzzy little rubber bit, we concede to a higher power. Not a deity that judges you for being right or wrong, but a greater sense of fairness. It absolves the player from the risk, gravity, and shame of making a bad call, and acts as a counterweight to the imperfections of man.

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For the purposes of decorum, it’s generally accepted that the committer of the original sin gets to recognize the ball’s resetting of the scales of justice. When the benefactor of karma starts taunting, that deserves a technical, and is hardly befitting of a game played in all whites.

The only other abstract being I have the same confidence in is the market. Market don’t lie. Sure there are kinks in the curve, and orderflow that temporarily dislocates quotations from fair value, but the arc is decidedly towards truth. And increasingly swiftly.

At face value, it’s an important truth. The market is the best estimate of trillions of dollars of capital. Every opportunity should be framed in the context of proving that the current prices are incorrect. The only way you generate alpha is by consistently showing the market is mispricing something.

Armchair macro traders can sit in their group chats pontificating about how overvalued the AI trade is or how rates won’t go below 2% for another five years. (I sold that put in the chat this morning.) Opinions are what make money, but it’s an extremely high bar to cross. You might get lucky with one opinion, but ball don’t lie, justice is likely coming back on your next big idea.

How we interact with the market also invites a certain degree of karma. From the market making perspective, there are numerous different styles of how to quote and trade. There are low frequency, large order opportunities to capture, and there are active turnover electronic styles of pricing.

The options market maker must price the cost of liquidity, and that truth is inevitable. Whether it’s upstairs or on the screens, there is a temptation to “carp” markets, or provide just a slightly higher bid or lower offer. Stepping ahead of the collective opinion ensures you will get the first fill, but it’s also a challenge to the consensus pricing.

Just as a buy side trader can generate alpha by proving the market incorrect, dealers can be profitable by challenging the cost of uncertainty. They’re incentivized to - that’s how they win orderflow and directly provide a benefit to the customer. But if they are too aggressive about it, too greedy about carping their competitors, the true value of liquidity will eventually show itself.

Winning a large order upstairs marks well on the daily PnL sheet. Markets may only shift slightly, preserving a fat pile of edge. But as time passes, the cost of managing that will add up, and if there’s a need to trade out of or around the position, it’s unlikely the liquidity will be as good as it once was. Markets don’t lie.

For athletes one of the theories for why the ball doesn’t lie is that humans have an aversion to inequity. A study of NBA foul calls found that after an obviously erroneous foul call, the first free throw percentage dropped from an average of 79% to 55%. Interestingly, the second free throw reverted almost exactly to the mean, and this phenomenon was only significant when the foul shooter was on the winning team.

There are conflicting motives here - while the winner can be subconsciously gracious and prey to inequity aversion, the loser’s competitive drive overshadows that. The ball might not lie, but I also want to win.

Traders are playing their own Inner Game of Tennis. One of the hardest parts about a big win is staying focused and not giving it away or getting too confident about your next trade. And if deep down you know you got lucky, it takes a sociopath to not have some degree of inequity aversion.

Whether there’s some celestial force that ensures pickup games everywhere come as close to their true outcome as possible, is far above my paygrade. It certainly seems like it sometimes. Regardless, the belief in that force has its own benefits, such that it almost doesn’t matter who’s pulling the strings.

With markets it’s easier to point to why karmic justice is delivered so swiftly. There’s capital and competitive incentives to get to the truth as quickly as possible. But the internal forces are as important as the external ones.

If you believe that market don’t lie, you instantly calibrate expectations about how successful a trade can be, recognizing the burden of proof. And on both winners and losers, it gives you the serenity to accept the result. A belief in process over outcomes for losers, and the gracious awareness that all winners come to roost.

Programming Note: If you enjoy this piece about exchanges, check out my “Market Structure and Liquidity” series with The Options Institute. The next installment is 9/23 at 11 CT and you can register here.

This was a dream job for a high school kid.

I could hang out with my friends, make cash money tips, and sling ice cream that was made not 10 feet from the cash register, to lines of summer evening revelers. When someone ordered a milkshake, you quickly learned how to make just a little bit extra to pour off into a Dixie Cup. Quality control.

Folks are usually in a good mood when they’re getting dessert, so we had very few customer service issues. And fortunately being a 15 year old kid who relied on a bike not a car, my metabolism could handle unfettered access to barrels of frozen confections.

Summer turned into winter, and the job migrated to hand packing pints for the wholesale business. The bougie grocery store in town white labeled our product, and we delivered the densest pint around. At a time when organic produce was only available in co-ops, people were already paying $8 a pint for extra fatty milk and direct from Madagascar vanilla ice cream.

While it was only a year of my life, the memories and lessons from that first job are indelible. Sure the boss man could be goofy and would joke around with us, but there were distinct expectations, and he had a quality product and reputation to maintain. To this day it’s my benchmark for good ice cream.

If you think a teenager enjoys this kind of access, imagine what a first grader thinks? My daughter for two years has been incredibly consistent about her career goals - to be an ice cream shopper. Not a buyer, but the owner of an ice cream shop. It’s the logical conclusion of someone who wants to get ice cream whenever she wants. Most people start businesses because they are passionate about the product - but this is distinctly about becoming your own biggest customer.

You know who else does that? Trading firms.

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This week the biggest news was not the FOMC rate decision, but the launch of yet another options exchange. MX2 is the third exchange (second for options) in the “Members Exchange” group.

Back when I was still scooping ice cream, it was common for the members to own the exchange they traded on. Even going back to the Buttonwood tree, the brokers and traders were also the stockholders in the mutual. This was done through “seats” which were a way to purchase access and gain certain trading rights. A great wave of consolidation swept through in the new millennium and slowly exchange groups began consolidating under corporate umbrellas.

Pension fund allocators and quarterly reports replaced the members only dining rooms. Market data fees became the leading source of revenue. The biggest users of exchange services used to have an equity stake, and now they were being increasingly squeezed.

No longer content with this, a group of the largest market participants (retail brokers, financial banks, liquidity providers) formed their own exchange, and started trading equities in 2020. An options exchange was the natural progression, and in 2024, in their first year of launch achieved a roughly total 3% market share (6.1% if you exclude proprietary products like SPX, VIX).

The first exchange was traditional, with maker/taker fees and price/time allocations. (You get paid to post orders, and are charged slightly more to remove liquidity. Orders are allocated on a first come first served basis at each price level. ) As with anything brand new, the differentiating factor was no legacy cruft, and lightening fast matching engines.

But the MX2 exchange does something that is both difficult and rare in market structure - truly innovate on pricing. The biggest non-exchange players in the industry are steering their own transaction venue in a unique direction, posing an interesting threat to legacy groups.

The lifeblood of options markets are customers. Brokers, exchanges, and market makers all lack purpose without natural orderflow. The end customers of liquidity are the reason everyone opens up shop. Protection of the customer is not only commercial, it’s baked deep into the regulatory framework. It is the primary lens by which the Securities and Exchange Commission evaluates any rule changes or product launches.

The fee schedule at exchanges is typically abstracted away from most end users of options. Retail brokers aren’t charging anymore, and that’s thanks to payment for orderflow arrangements combined with the rebates or zero fees wholesalers get upon execution of customer orders. This effective but somewhat convoluted structure is exactly what MX2 is targeting. Here the customer payment is baked right into the transaction fees.

No matter how a customer order is executed on the new venue - the customer gets a rebate. Whether they’re posting liquidity or removing bids and offers, a credit goes back on each contract. And a bigger credit for liquidity taking orders.

Beyond that, the schedule is completely flat. The CBOE fee schedule is 24 pages of tables and codes. MX2 is one table with three rows and four columns. That’s a little unfair to the legacy venue, as they provide a much more complex set of offerings, but it is directionally telling.

Combine this with high participation rates for Lead and Preferred market makers, and there’s a lot of reasons why orderflow would migrate here. The determinism is valuable to a wholesaler who has purchased an order. When routing to MX2, they are guaranteed to get a rebate back on the full customer side of the order, and can trade significant portions of it if they’re on the best quote, regardless of timing.

While there might be better rebates for certain order types elsewhere - particularly at volume tiers - the backstop of knowing a flip from maker to taker doesn’t wreck your economics is a significant benefit.

A diverse ownership pool means there are many parties who want to see this succeed, and benefit from not only individual order fees, but revenue per contract economics as an owner. It’s a toll road where the heaviest users are also the owners, and subsidize their own tolls by encouraging the right kind of drivers to use their road. (Liquidity, unlike highways, benefits from more users.)

This might all seem like the arcane corners of market structure, with the beneficiaries being a bunch of well heeled prop shops. That is true on the face of it. Brokers could certainly start paying customers to trade (Public already does), but my guess is that customers start seeing the benefits elsewhere.

The better the pricing of transactional fees gets for wholesalers, the more competitive they are able to be with price improvement. MX2 is just one component of a complex network of exchanges and routing tables, but it provides a distinctly interesting offering for orders that are taking liquidity. And because that’s the best place for a customer to order to go, more and more market makers want to be there to get those. That increases size, but leads to price competition also.

So the positive feedback cycle continues.

I’m making hot sauce.

The formula isn’t complicated, and there’s a wide margin for error. Rough chop a selection of peppers, mix a few spicy ones in with your sweeter varieties, throw in some garlic and shallot to round it out.

The brine is the most precise part of the recipe, where you’ll want a three percent saline solution. Pull out the trusty scale, dial in thirty grams of salt for every liter of water. Stir. Repeat again fifteen minutes later after you’ve misjudged how much pepper a liter covers.

A lactic acid fermentation triggered by salt and low oxygen is fertile ground for bacteria. All of this comes right off the skin of the peppers. Mostly these are good, but when you’re playing with petri dishes, a few techniques are critical to not spoil the party.

All the peppers need to sit below the water line or they’re inclined to pick up bad yeasts and molds. The trick to doing this is a fermentation weight, which mostly works, but in my case left a few floaters creeping up the side.

Not interested in poisoning my family or enduring the mockery of another failed experiment, I went out and picked up some thin food grade plastic. With a little MacGyver engineering, I cut it to the shape of the jar and hole punched a semblance of a screen. With the glass weight now pushing the entire surface area, the fruit and future sauce was well submerged.

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While unnecessary, I sprung for a pair of jars with fermentation locks. Thirty bucks covers the risk of forgetting to burp the vessel and creating a dirty bomb. While true, moreso I have a bit of a kink for shiny new toys. Whether it’s a culinary or home improvement project, expanding my tool shed is always an ulterior motive.

Dangling the little bobble in the water that will act as a one way exit for carbon dioxide is fun, intellectually stimulating, and most importantly useful. Also useful is the purpose built screen and weight combination. But in neither case should better equipment be confused with a better process.

I was able to jerry rig the underwater cover because I fundamentally understood what the objective was. Seeing little pepper shards scoot around the weight triggered flashbacks of mold ridden Reddit posts. Yes u/firstimesaucer, that fuzzy white stuff is bad.

Acquiring new tools doesn’t solve the problem. Merriam Webster describes a tool as “a physical device or conceptual instrument used to perform a task, fix an object, or achieve a specific goal.” It is an instrument, and the resulting performance, fixing, or achievement comes with the combination of the human and the tool.

AI is the new tool on the block, and it is quickly getting outsourced as more than a tool, but an agent with autonomous creativity. Stop asking chat, just get the peppers underwater.

This is particularly important in trading and investing. Nearly every time we get reader questions or comments on Traders Workshop or the WineDown, someone asks about how to use AI in their trading. The answer is not only are you going to fall behind if you don’t, you’ll do even worse if you use it wrong.

For all the trading tools in the world, there is no solution. There’s no magic box that makes money come out, or even tells you what trades to place. No indicator perfectly describes the market, or strategy guarantees predictable outcomes.

Python scripts, excel spreadsheets, or yellow legal pads are only useful if you understand the fundamental problem you’re trying to solve. Ask why five times. Why do you need tick data? Why are you really using a Hidden Markov Model?

There are infinitely different ways to make money and generate outperformance. None of them start with “hey chat give me a vol trading strategy.” The result will be the slop of a million regressions. Highly likely to give your brokerage account indigestion.

Both independent investors and professional market participants will get left behind by not using AI because the speed of iteration is accelerating. In the same way that great search engines represent a phase shift in accessing information, the deep research and prototyping work that can be done in hours will allow the most competent users of technology to compound their growth.

They must not delegate judgement.

The correct answer for what to ask starts somewhere like “write me a script for how to calculate the daily distribution stock returns.” “Get me options data for AAPL contracts expiring in less than thirty days.”

Creativity is the absence of constraints. With a warm shower unburdening your mind, ideas are free to flow. Fabricating answers from whole cloth is the beginning of any good solution. But the restrictions of implementation build a necessary understanding of how the world really works.

If you proceed down the strategy development cycle of gathering data, then looking for patterns and opportunities, you’ll probably land somewhere like a backtest. These have their own false sense of precision, where an optimized result says something like sell the 14 DTE, 27 delta call.

Why you’re doing that and what your plan is when you inevitably get punched in the face is a much more important question.

The more abstracted you are from the details, the greater the risk. We all have a challenge to let the agents do as much work as possible, without losing our grip on why.

Full disclosure, I used chat to come up with my pepper recipe. Here’s a photo of what my local Whole Foods has in stock. What can I make? We had several good ideas quickly, and I centered on a Nardello/Habanero blend and a Serrano/Thai chili mix. If my initial jar sample batch was any indication, we’ve got something pretty decent.

But behind that was a bit of research and lurking in the fermentation forums. I’ve made enough missteps to know how dumb I can be, and how a little carbon dioxide goes a long way. (Ask me about the Great Carboy Explosion of 2007.) While I was most worried about the gas, it was actually another risk that almost spoiled the batch.

MacGyvering a solution is where true expertise shows itself. That simple little homemade gadget gets a much bigger W than the thirty dollar contraption. Use the fancy new toys to solve problems where you can, but own the fundamental question of why.

“EMP”

Eleven Madison Park. The renowned Michelin three star restaurant. Their location is incredible, the service is impeccable, and for nearly thirty years they have been turning out some of the world’s most elite cuisine.

They are so goated in the service industry, that when I heard the acronym dropped earlier this week it was not as a proper noun, but as an adjective and call to action. A way to contextualize why my favorite barman asked me to “find out what she likes.”

Friends are coming into town this weekend and I know where to direct my old roommate - right to the selection of Weller bourbon. But I didn’t have an immediate answer for her, and was instructed to report back. Because there is absolutely nothing like the grace of knowledgeable hospitality.

On each of my own visits to the shrine in Flatiron, we were met with exactly the same experience. The first time was circa 2012 with an old boss and two exchange big wigs - I was way above my pay grade and wondering how much of this bill I was going to have to foot. ($0, thanks again.)

For over twenty years the honey lavender duck has been a signature item. Sadly, it wasn’t on their fall tasting menu. Can we add in two of the Duck for Two? The ceremony of cutting the fowl tableside was one of the most elaborate presentations I’d ever seen.

Several years later I went back again with colleagues, and our invited guest had a special request. There used to be a clarified milk punch cocktail on the menu - would it be possible for the bar to recreate that? Of course they could, and a round for the table followed. One dinner clipped half my paycheck, but being seated in a private dining room overlooking the floor is unforgettable.

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To get to the pinnacle of fine dining, there’s a precise recipe. So much so that a reasonable critique of the tire company’s rubric is that all two and three star establishments become homogenous. Fresh ingredients, perfectly combined with elaborate technique is just the start. What gets you on the short list of the world’s greatest restaurants is far more than caviar and truffles - it’s the performance of knowing what your guests want before they do.

The hostess that welcomes you by name before you’ve ever met. Perfectly timed plate drops, and glasses that are never empty but also never quite full. A sommelier that gently interrupts your second course to alert you of the possible need for another glass of wine - “a bridge” - so the red you picked out to go with the meat course doesn’t come too soon.

It’s not just restaurants that live and die by their service. When you start to run down the list of professions, nearly all of them define themselves by their superior attention to the customer’s needs. Whether you have a constituency, a classroom, or just a regular old client, everybody reports to somebody. The childhood fantasy of wanting to be the boss completely inverts the reality of being a CEO.

The knowledge to perform most jobs is widely available. Working your way up, the hard skills are relatively easier to come by. And generally speaking, these technical skills have an asymptote. How steep or flat that is varies, but at the highest levels it takes an enormous amount of work to get only a teeny bit better.

Service on the other hand, is linear. Maybe even parabolic. There is no bound to the potential impact you can make on a customer when you create an intangible experience.

For all the talk about performance in finance, mostly it’s a service job. Plenty of acumen required, but that’s insufficient on its own. Whether you’re an investment banker, teller, or financial advisor; the dollar volume of financial activity that is service adjacent dwarfs that of activity based purely on skill.

Traders hold a certain lore - they are risk takers who make money because they are smarter than everyone else. No need for politesse or corporate platitudes, because nothing speaks louder than PnL.

For a very limited set of activities, that is true. Plenty of complete assholes have kept their jobs or made a lot of money without even batting an eye in the direction of good service. But you’re threading a very very fine needle.

Humans are social animals. And the best way to be successful is to be nice to your peers. The much fatter pitch is to get great at service - whatever that means in your context - while keeping your technical expertise up to snuff.

If you are particularly adept at finding great trading opportunities or market mispricings, that’s a recipe for making a lot of money. But scaling your own dollars has a limit - you’d do far better managing other people’s money. For all the Sharpe ratios and cumulative returns, what seals deals is trust and confidence.

Even if you want to go the completely independent route, you’re going to learn faster in a community, even with a mentor, and people like it when you treat them well. You’re just as likely to get a pro tip from remembering someone’s birthday or recommending a great sandwich spot.

We’re fortunate that most products and experiences are commoditized. It makes them cheaper and more accessible. Whether that’s Chinese food or an ETF, the customer is better off. The fact that the tools for an investment plan that fits 98% of the population are essentially free is a boon.

To differentiate between providers of nearly commoditized offerings we judge based on customer service. There are plenty of advisors that can put you into a target date fund. It’s not that hard to understand what the best portfolios are for different life situations. Exactly why you should be wary of special sauce, it rarely works as advertised. The real reason to pick someone to invest with is because they understand you on a human level.

Even if you’re crazy enough to distinguish yourself based on performance and complexity, that alone isn’t enough. One of my new projects has a compelling set of trading strategies. Through some clever operations, it also solves an inconvenient problem for a significant subset of investors. Both of those domains contain multitudes of fascinating considerations. But if it’s going to be successful, a consistent requirement will also be EMP level service.

The baseline to be elite will always require tremendous skill, knowledge, and experience. There is no substitute for objectively defined expertise. For certain technical matters there might only be a limited number of providers that have reached that level. Good service isn’t a replacement for that, it’s the cherry on top.

Market edges are notoriously fickle, they shift and get traded away. It’s Sisyphean work to find opportunities that aren’t just another form of beta. For a durable edge, pair that with a few lessons from hospitality, and it starts to look suspiciously like alpha.

I’m new. Forgive me for being giddy and please pardon the slobber. I just like the cut of your sample bag.

A little taste before you buy. The ritual of pulling out the bottles and rotating the labels sends anticipatory butterflies of rose petal and violet across my palette. Have I had that one before? Which will go best with our program? Damn I love a good Châteauneuf-du-Pape.

Sampling for wholesale purchase doesn’t have the pomp and circumstance of a customer oriented tasting. One glass, rinse with wine, spit a little bit if you have to. Dumping encouraged. Noses deep in the glass, gargling noises as the juice rolls over every part of your tongue.

Most importantly, there’s only one opinion that matters; it’s yours.

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Mano y mano, at most a doubles match, there’s no hiding here. Tastemaker and list curator, the buyer is responsible for what gets offered to their customers. A balance of price points and regions adds some objective structure, but at the end of the day it’s all about feels - what do you think?

Small tables lead to big discussions.

There’s no hiding behind nods and hummed affirmations. “I like this” doesn’t quite cut it. And at the other end of the spectrum, pontificating around WSET classifications of medium acidity and a garnet hue aren’t exactly answering the real question. Screw your 92 point rating.

Romantically that question is “does this wine bring people joy”; commercially it’s just a question of whether it sells. If you believe the utilitarians, the latter indicates the former.

Earlier this week I found myself sitting at a more familiar small table, but with equally few places to hide my opinions. A few series 65 registered dorks in a conference room, and someone posed the point blank question that every client asks - what’s the market going to do? No prospects to impress or regulators to surveil the conversation - whaddya got?

My defensive reaction when I have absolutely no clue what to say is some hemming and hawing about more buyers than sellers, and that the market can stay irrational longer than you can. Dash it with contemporaneous examples of the AI bubble and a nodding wink to how “this time is different.” But that’s cocktail party repartee, not any real pearl of wisdom.

If you’re in the right circles, too strong of an opinion about what’s going to happen is appropriately and quickly dismissed as clueless. Uncertainty is a given. But a wishy-washy answer that sounds pre-hedged isn’t helpful when all the inquisitor wants is a matchstick in a cavern.

There are some medium strength opinions that carry water. The skyward bend in equity prices gives reason for pause. Four years ago the S&P 500 was half what it is today. The US GDP in Q3 of 2022 was $26T. Currently we’re running about $32T. 100% growth versus 23% growth. Far from a complete story, but worth raising an eyebrow.

Even the most common and benign position is an opinion. If you’re following conventional wisdom and buying low fee diversified market exposure for the long run - that’s still a vote for a general class of outcomes.

That’s as close as I’ll get to a directional call about the market. “Most likely up in the long term.” When it gets there I don’t know, but I do have an opinion on how. It’s going to be more volatile.

The evolution of market structure in both equities and options will be a significant contributing factor. With the proliferation of exchanges, while customers have more and better ways to execute, the inherent nature of this liquidity fragmentation creates microstructure chop.

Options market makers must display their interest across multiple different venues, and their risk tolerance doesn’t scale with the count of exchanges. This leads to phantom bids and offers that disappear when something else shifts, and the ripples of oversizing trickle back into the underlying markets.

On the equities front we’re seeing a trend away from lit markets. Not only has dark pool activity risen to nearly 50% of US share volume, there’s a simultaneous erosion of regulatory structure with the proposed elimination of the order protection rule. As more shares trade less transparently, the price discovery process gets inherently more choppy.

The speed of trading continues to accelerate. A human eye can recognize flashes of light in about 15 milliseconds, but takes up to 250 milliseconds to push a button. Matching engines move more than 100x faster. Before you can blink trades, updates, and more trades will happen.

Particularly with order entry code accessible to anyone, the second, third, and tenth order consequences of this are highly unpredictable. Interactions and their subsequent reactions quickly push into the wilds of randomness.

High frequency trading has been around for more than a decade, and that alone will not increase the volatility of markets. In general it should hasten and improve the price discovery process. But trading can happen so much faster than the human brain can process it. On time scales more like hours and days, we’re seeing market moving information quickly traded on before it can be fully digested.

Artificial intelligence will quickly be able to handle that cognition back at the high freak time scale. But that will only increase the value of a human weighing the decisions at their relatively glacial pace. In a world of generative content and fake news, volatility is a given.

As the bots distance themselves from humans, so we distance ourselves from each other. The Overton window continues to widen, and the definition of centrist has never been more off kilter. Politicians left and right are playing eyeball grabbing games that will only get more extreme, and the incentives are all about stirring the pot.

Volatility begets volatility. With choppy seas forecasted, the best reaction is to rock the boat. Much like inflation expectations drive interest rates, wider distributions of outcomes encourage behavior that perpetuates that variance.

So what’s the trade?

Volatility isn’t necessarily mispriced. Long term options have always been priced at an elevated level to the present. Contango is the norm, and only in periods of panic do we see the short term spike into backwardation. Between now and next month’s expiry I can clearly see the possibilities, but the further out you go the more unknown unknowns exist, so buyers pay more for options.

Not only can’t I pitch you a security to buy, there’s no good answer here. The closest thing I’ve got is to grok the concept of being long vol of vol, antifragile, or just convexity acceptant.

I’ve got strong opinions about wine, and weaker ones about the market. But neither matter as much as the expectation of uncertainty.

Flaws are personal.

Is the gap in your teeth charming or begging an orthodontic appointment? Being pedantic, all virtues and sin are relative. But a flaw is not an absolute judgement. It’s a splash of local color, with a range of impacts, depending on who, what, and when.

Flaws can be fatal of course, especially to Greek heroes with deeply embedded character traits. The flaw in a plan can be the unwinding of a villain’s coup de grace, or overlooked factor that flubs your million dollar strategy.

The more benign flaws are the paint chipped bureau that’s shabby to some, chic to others. For wine drinkers there’s a whole category of faults that are objectively defined but subjectively appreciated.

While it’s difficult to measure the level of brett (barny-ness) or cork taint, volatile acidity has a threshold definition of 1.4 g/l of acetic acid allowed in red wines from the United States. The line where your wine becomes vinegar.

Volatile acidity is slightly more complex than the single acid they measure - there are other esters that contribute to this experience. A high measurement typically indicates sloppy cellar practices, so it’s a well intentioned benchmark to monitor. Wines with too much volatile acidity also simply taste bad.

But context is key here, and the European Union has recognized that in their own rulemaking. The starting point is similar to the United States, but the limit climbs with alcohol levels, allowing higher strength and aged wines greater degrees of acetic acid.

At the right levels in the right wines, this “flaw” will provide lift and balance. Sweet botrytized white wines with large amounts of residual sugar demand that counterpoint, as do ripe high alcohol reds.

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Other flaws in wine are even more personal. Eucalyptus taint is something the Australians battle with, as many vineyards are planted in close proximity to the plant. A moderate breeze will pepper the ripening grapes with the eucalyptol oils. This lends a medicinal freshness to the wine, with notes of mint, menthol, and eucalyptus leaf.

Wine drinkers start to consistently reject a red wine containing more than 27.5 ppb (parts per billion). Below that level, there’s a sweet spot where a little bit actually complements the big ripe grapes, and is chosen more often by tasters. But even at the “taint” threshold, 38% of consumers prefer the “bad” wine.

Don’t let someone else tell you what’s a flaw. Small doses of toxic traits lend complexity, even an edge.

Floor trading and the mano y mano connection of the call around market are appropriately called “high touch” to distinguish them from the automated, impersonal, “low touch” electronic executions. Order book queue tactics and blind auction strategy are replaced by a very personal connection with your counter party.

But unlike dating or making friends at the playground, the most remunerative relationships are laced with their own acidities, tensions, and flaws. The character traits that make someone unpleasant to share a beer with or unproductive in a collaborative meeting tend to generate more PnL.

Now for every aspiring trader who will take this as license to be a jerk - that’s not the full story. I know plenty of very successful people who are catching their flies with honey. If you head out with the idea of making a flaw your personality, there’s a very good chance you’ll overdose.

Tight lipped-ness is the high touch equivalent of volatile acidity. When a broker walks into the pit, a good market maker is a stone wall of information flow. They give no indication about the size or bias of their position. Even if they’re bleeding from deadweight open interest on the line, they mustn’t let the broker or other traders in the pit see anything that can’t be deduced from public information.

By keeping the counter party guessing, you preserve the ability to navigate the order, size up when appropriate, and fade quickly when not. There’s no leakage about the tools you’re using, or your opinion on what that order means. A poker face must hold whether you’ve got pocket aces or nothing at all.

In the wrong context though, this flaw becomes destructive. High touch trading might be the big jammy red that can handle volatile acidity and eucalyptus taint, but when interacting with colleagues on the same team we’re looking at a delicate white grape. Too much self interest means the support team can’t help you as easily and you miss out on the net positive effects of information trading with your peers.

The same holds true for many volatile characteristics that are required of successful traders or investors. A dose of contrarianism is powerful for identifying opportunities, but being stuck in a permanent haze of suspicion is blinding. ZeroHedge gets exhausting.

The overzealous risk manager that closes everything down, also cuts the tail on a lot of edge and potential. This is the fundamental problem with blindly using condors to collect the volatility risk premium - the leg you buy for defined risk is where the VRP tends to be best monetized.

I could go on. Letting winners run is also a failure to monetize. Conviction becomes stubbornness. Complexity is explanatory until it is obfuscatory.

It’s well known that CEOs tend to exhibit psychopathic tendencies at a far higher rate than the general population. The charm and ruthlessness have their place, but again too much creates a toxic culture and impulsive risk taking. None of this means you go hunting for your next chief in a psych ward.

Finding a personal style - as an investor or just an individual - is all about balance. Every trait has a toxic level, but there’s rarely a hard line of where that should be. Some folks like their Shiraz to taste like toothpaste.

When a secret is broadcast wide, it loses its luster.

The charming bodega down a side street in Barcelona is no longer an authentic local spot when the denizen fans of a celebrity travel journo descend en masse. Under the radar wines catapult in value once their price to quality ratio becomes known.

Insider knowledge is valuable because it is exclusive. Now that everyone knows the best pizza in New York City comes from a small shop in Midwood, you can spot the tourists on the Q train several stops before Avenue J.

Fragility must be protected. There’s only so much fresh basil that Dom DeMarco can hand cut.

The temptation of privileged information is that it begs to be shared. Blog subscribers demand new and exciting tidbits with every weekly missive, but the expert gains credibility and earns a living by spreading the knowledge.

Stature can come at a significant cost. If you tell everyone about your favorite spot, and then find yourself waiting in line there, you’ve polluted your own well. Less selfishly, you’ve changed the dynamic for the locals who just wanted a slice. One less piece of authenticity in this world.

There is a complicated duty that comes with knowing something exclusive.

Insider-trading rules offer an extreme example. Material nonpublic information is privileged and burdened by duty. Corporate insiders can’t simply exploit their early access to earnings because possession of information does not necessarily confer an unrestricted right to use it.

But the travel writer owes a duty to their clients. Their readers compensate them with eyeballs or subscription fees and expect something in return. There is a tension between curating the best possible selection and defending the delicate balance where that “best-ness” thrives.

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While the most exclusive Michelin star restaurants command prices that hardly look inefficient, for the most part hidden gems look very similar to edges in markets. The quality, experience, or return, is disproportionate to the price you paid or risk you take.

Edges go away as inefficiencies are stamped out; that’s the power of the invisible hand. With traders selfishly seeking returns for themselves or their clients, they are serving a greater good. Casual participants get significantly better pricing because hedgies are constantly looking for the asset equivalent of the world’s best tapas bar.

Active traders are notoriously protective of their strategies. Everybody loves a little bit of cloak and dagger, but once that secret is known, far worse than a queue is a missing revenue stream.

The key to exploiting a market opportunity is also about balance. Maximizing total returns is a function of present day capture and long term preservation. Get some while the going is good, but keep the gravy train moving.

Solo traders have the benefit of being fast and nimble to new opportunities, while professional trading shops - whether they’re asset managers or prop style - have the infrastructure to persistently capture edge. A big part of that overhead is dedicated to solving coordination problems and preserving that equilibrium.

Managing the liquidity footprint of a market maker was an exercise in gatekeeping. The “best” products aren’t necessarily a secret, but to squeeze the most revenue potential out of an opportunity, it can be necessary to limit the size or number of traders.

You can’t control what other market participants are going to do, but you can selfishly act responsibly by managing access to not overwhelm a fragile edge. Intentional exploitation conveniently pads your pockets, but it also serves the greater good of liquidity. Excess is as bad as a deficit, and short term greed from showing too much size or too tight of a market hampers price discovery.

When the gatekeeper’s duty is to maximize revenue for their clients, it conveniently aligns with improving the overall ecosystem. But that obligation becomes muddy when there’s a question of education and stewardship involved.

As a software provider, I have an obligation to my customers to deliver timely and accurate analytics. Beyond just being quantitatively correct, there is an ethical responsibility to provide information that is reasonable, useful, and more than glitzy marketing. More along the lines of the fuzzier journalistic search for “Truth”.

Options liquidity varies significantly across the thousands of names listed. The SPX is several orders of magnitude more liquid than even the names at the top 20th percentile of liquidity. Forget about the markets in name 6000. This has massive implications for both pricing and analysis. Liquidity means more strikes and tighter markets and far richer information content.

So I built my own arbitrary gate around the top 250 issues. This was roughly where the markets started looking different enough that you couldn’t reliably calculate consistent metrics on volatility, because the issue lacked expirations or strike listings to interpolate from.

But times change. Not only has overall liquidity in the market improved, but philosophically I’ve broadened my horizons. While the information content on name 1,000 may be far lower than Apple or Microsoft, that doesn’t make the information worthless.

The line in the sand here exists out of a duty to my customers, but it’s not set in stone, nor is it the only tool at my disposal. With the right context, even lower quality data can provide a signal. Showing users where information becomes fragile is more helpful than deciding on their behalf.

That distinction matters because while the liquidity is fragile in lower tier issues, it’s not quite the same as the insiders only taco bar. Some secrets lose their value when shared, and other opportunities collapse when overcrowded. But the gate looks different when externalities are limited.

The gatekeeper’s duties are multiple, and are dependent on the situation. You may owe something to clients, customers, or readers - or the object itself. Lines in the sand must be drawn. But does that duty require you to guard the gate - or inform what’s on the other side?

By the time we arrived at Blockbuster the new release shelves were a row of empty VHS cartons, no tapes behind them. Not because we were late per se, just not especially early.

There were plenty of other good movies to choose from. The hard part was negotiating consensus with my sister. Next stop was Lotus for Chinese food, or Venice for pizza. No disagreements with either.

One week I managed to sneak home Wayne’s World, but made the mistake of starting before my parents left for their dinner party. A particularly acute line about “spew into this” red flagged the movie for that evening and set my film studies back several months.

By high school I thought my tastes were maturing, and I’d upgraded from VHS to DVD. No matter that I could only play them on the laptop - watching the third director’s commentary on Fight Club alone in my room was a perfectly good use of two and a half hours.

The more you wanted to learn about film the longer and weirder things got. The Kubrick Collection was an eye opening. You had everything from the ultra long shots of 2001 Space Odysesy to the insanity of war in Full Metal Jacket and the raw sexual violence of Clockwork Orange.

This wasn’t the feel good ninety four minutes of Mike Meyers making puke jokes, but a piece of art that made you shift in your seat. And you came back for more. I never quite got to the beret wearing level of film studies, but I did briefly pretend that Citizen Kane was the greatest film of all time.

It actually took me three tries to find out what “rosebud” was. I was downloading movies on Limewire, and a material percentage of the files out there were garbage. Ten minutes in, fuzz appears. The free for all with media once again meant I didn’t have to leave my room, but also didn’t have to pay. They weren’t yet talking about it in my econ classes, but we were seeing first hand how the economic landscape dictates what kind of content gets created.

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Regardless of the display medium, many of the films I’ve been consistently drawn to come from a very specific era. Which was itself a function of the business environment that opened opportunities for visionary directors creating art that made you uncomfortable. And coming back for more.

The 1970s saw some of the greatest films of the century. The Best Picture Oscar nominees would each have swept the field in a lesser decade. And the weakened hold of the old studio system opened the gateway for people like Stanely Kubrick, Martin Scorsese, Francis Ford Coppola, and Steven Spielberg to step in. Imagine a 27 year old filming Jaws today?

Having lost their hit making and culture defining influence, old Hollywood was searching for an answer to what people wanted. They were willing to let auteurs make the final cut instead of a boardroom of suits. And the socio-political backdrop was en feugo.

This was a crucible for pure, authentic, and emotional art. The kind of filme you have to get invested in and give yourself over to the whole process. The droogs hurtling a massive phallic statue doesn’t have quite the same impact when you’re also doom scrolling.

But not everything has to be high art. The Motel 6 also needs something to put on the walls of their 150,000 bedrooms. Just like mediocre noise from Netflix in the background is a genre and AI slop writing is helpful. The good enough bar already includes summaries and interactive wiki use cases. A lot more is inevitably coming soon.

So without diminishing the beauty and glory of what the silver screen can do at its best, it’s important to first accept that slop is a useful and distinct type of content. And given that, we have to consider whether the purpose of any product is slop friendly or not.

Large language models are the ultimate decision by committee. There is a genericism and inoffensiveness to what gets produced. The perfect wall hanging for a traveling salesman, but certainly not something we’re writing about fifty years later. You’ve got to piss some people off to earn that.

Committees work well for endeavors where consistency and risk management are important. The investment committee at a fund acts as a steward and allocator of capital. Multiple interests are intended to dampen rash decisions and the group provides consistency through a procedural framework.

I think an AI will actually become fairly good at making capital allocation decisions. Perhaps at sourcing alpha, but more so for the beta exposure that so many general purpose investors need. Robo advisors have long been doing most of the mechanics, and the softer touch personalization is ripe for a good bot. (The compliance discussions around this must be fascinating.)

For my dear and beloved options, the skip isn’t that much further. The risk transfer implementations crave tools that leverage well guided committee style slop. (I’m thinking “good” slop needs its own non pejorative word. Chip-chat?) The tools currently available to retail investors are helping drive significant volume.

Andy Warhol said “Making money is art and working is art and good business is the best art.” If you want your metier to be an art and not just slop management, you have to tap into something raw. Really get your hands dirty and own the final cut. If you’re going to half ass it, chip-chat already has you beat. Own that. Focus on something more interesting.

Both buy side alpha and structural alpha are inherently orthogonal to the consensus of beta. That’s going to be uncomfortable at times. But there are plenty of opportunities. Everything is an AI bet right now, so individual art - however that’s expressed - is the contrarian trade.

You are not special. You are not a beautiful or unique snowflake.

You’re the same order as everyone else.

Human beings have an innate sense of fairness. We chafe at the vehicles cutting an obvious line at Exit 31. Game theory experiments with the ultimatum game shows that players will refuse to accept an opponent’s proposed split of the pot if it is unfair - leaving both empty handed.

Whether observers or participants, we like a good sporting fight.

Our justice instinct isn’t based on some rational calculation. Even in versions of the ultimatum game where the recipients cannot reject the offer, the proposer will still offer some (meager) allocation to his counter party.

Yes we understand that life and society are mostly a series of repeated games, and that reputations are prized and retaliations will come due. But there is something deeper than calculus here, where a sense of societal norms must be maintained and exploitative behavior must be punished.

A red card might carry over to the next game, but that’s a rare exception in competitive interactions. Whether it’s sports, markets, or markets on sports - most rules are structured to make sure things are fair in every single interaction.

There’s less to grumble about when the rules are clearly posted and everyone is bound by the same obligations, responsibilities, and queue position. You might not like waiting in the slow line at the grocery store, but it’s hardly “unfair.”

But here’s where another part of human nature seeps in. 73% of Americans think they’re above average drivers. I’m in an important hurry - just this once. Can you please make an exception here?

Hold the line.

Simple presents invaluable clarity in the face of complex and dynamic forces. Eroding that with asterixis, carve-outs, and regulatory pork maligns the integrity of competition.

The bedrock of markets is fairness. Price discovery and the resulting efficiency of capital allocation can only be achieved through mechanisms that cleanly promote equilibrium.

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Seeing the proposal from the SEC to eliminate the provisions of Rule 611 regarding trade through protections rankles everything I believe about order handling and market structure. Top of book should be respected by everyone, not ignored because you have a fancy compliance department who can justify it ex-post.

When the “National Market System” was formalized via the implementation of Reg-NMS in 2007, the idea was simple - if there’s a market center with a better price, that had to be traded first. Exchanges became protected venues, where brokers had an obligation to trade the cheaper offer or higher bid before executing at a better price.

There are various self interested reasons why a broker might not want to trade there. Perhaps there’s the benefit of hitting a fee tier by doing a certain amount of volume. Or more sinisterly they know the counterparty at a different venue. Maybe it’s just a pain to manage such complexity.

This provided an order by order imperative that the customer was going to get the best price. No wishy washy promises of best efforts and lutte raisonnée, this was a nearly pure black and white line.

But now less than twenty years later, apparently the leaps and bounds of technological advance have obviated the need for customer protections. And the lobbyists have convinced the Commission that the burden of connecting to different venues is too much for a well compensated industry. And woe be them, the compliance is such a headache.

I’m rather unsympathetic to those arguments, because if you want to be a broker, that’s your job. That’s what the money’s for.

Are there venues that are part of the NMS system with extremely low volume and present a moderate headache - absolutely. But that can easily be solved with a better definition of who’s part of the system (e.g. a market share minimum resolved every quarter). Far better than throwing out the entire rule.

Larger orders are always brandished as something that deserves special treatment. They’re not looking for volume discounts on transaction costs (those are already baked in), but rather a privileged lane to execute in, immune from their own market impact and pesky reverberations of a market digesting new information.

Block orders come from many sources. Sometimes it’s a hedge fund or large active participant trying to lock in an edge. But just as often the end customers of that block order are the thousands of retail holders of a mutual fund or ETF. When an asset manager wants to rebalance, they represent thousands of tiny mom and pop orders, who are the ultimate beneficiaries of better pricing.

The best argument for open outcry trading and the source of resilience of manually negotiated orderflow is that outsized liquidity is better handled mano y mano. Markets might overreact to 100 x 10 lots coming in, and while a single 1000 lot will move the market, there will be less turbulence if the whole size is digested at once.

What the prosecutors of Rule 611 ignore, is that there are already specific exceptions that allow large/block orders to execute more cleanly while also maintaining the purity of the rule. Intermarket Sweep Orders (ISOs) are the primary mechanism that allow large orders to trade immediately, and they are a straight forward way to deterministically get size and price. There might be room to strengthen this by looking at depth and timing considerations, but throwing out the full kit is not the answer.

What I find particularly ironic about the proposal to remove trade through protections is that while the current burden is poorly quantified, the cost of implementation is significant, and the impact of an altered market structure will be borne by the least sophisticated participants.

Trade through protections have been a fundamental pillar of order routing for almost two decades. Broker and exchange software has been built around this assumption. The algorithms that drive better executions for every class of participants will need to have their assumptions completely rewritten.

Does everyone remember the demonized High Freak Traders? When Reg-NMS was implemented, there was a several year period where sophisticated firms were making a killing taking advantage of the new microstructure. Faster connections between venues and order type gaming skimmed billions of dollars into a few pockets before the rest of the market caught up.

Market fragmentation is a difficult problem. Dark pools are eating the lit venues’ lunch, and that has its own structural risks. Without good lit markets to lean on, dark risks becoming less efficient. And tiny venues with niche customer bases create an outsized impact on the smooth functioning of a larger exchange.

But a better price is a better price. And large orders need to pay for the cost of their impact.

We already have a principles based review of best execution responsibilities. There exist allowances for trade throughs in appropriately limited scenarios. Removing the structural line and codifying exceptionalism opens a wide lane for abuse.

There’s a Pandora’s box of excuses and exceptions for why this order is different. I’m skeptical about how removing the basic concept of “no cutting in line” does anything to support better price discovery or customer protection.

If you’re even 10% as passionate as me about market structure, there’s still an opportunity to comment on this. You can submit one here, and view the other responses, which have been overwhelmingly against the removal of Rule 611.

Liquidity is my favorite subject.

Options liquidity, stock liquidity… liquid liquidity.

I find it cropping up in the places I least expect. Like the clickbait ads that are so ridiculously precisely targeted, I can’t help but fork over my personal information for more details about bourbon futures.

Buy brand new whiskey, let it sit for a couple of years, and voila you’re earning 14-18% CAGR. I’m no stranger to liquid alternatives, and this one is missing the burn.

Storage fees were taken care of, and there was even a portfolio manager who could recommend a ladder of different ryes and wheated bourbons. As the angel’s share left the barrels, offers would start pouring in.

Trying not to let the subject matter distract me, I wanted to poke holes in this. Pricing was twenty cents on the dollar compared to what I saw on retail shelves. I know there are a lot of mouths to feed in the distribution chain, but doubling your money in four years still leaves plenty of fat for wholesalers and liquor stores.

The liquid in the barrel comes from some esteemed producers, so pedigree isn’t the concern. The liquidity to be concerned about here is where the buyers come from and at what price.

There is absolutely a secondary market for bourbon. Outfits like MGP offer an outsourced distilling solution, and a selection of pre-aged spirits for impatient whiskey entrepreneurs. No need to wait four years, you can build a custom blend today. Buy it from this guy who clicked on an Instagram ad.

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So why aren’t they or anyone else involved buying these spirits up at pennies on the dollar? Structural edges like that are usually the reward of active participants. If the return is such a lock, why aren’t there distillers, banks, or funds that are scooping this up? In commodity markets the difference between delivery now and later is the cost of carry. That’s not free money.

If the carry is already baked in, some other factor is massively discounting the grand inevitably of life and markets - the passage of time. A product that gets better with age, and you’re being offered it at four to five times the risk free rate. What kind of hidden risk makes packaging this up in a 506(b) offering the best source of capital?

The heartstrings pull strong here. If I took just one of the barrels and bottled it myself I’d have Christmas gifts for 20 years. There’s a very significant cool factor. Supporting an industry, and being able to fancifully claim your small but important role in the f-eye-nahn-sing of American whisky makes for great cocktail party chatter.

But that’s all the more reason to be suspicious from the get-go. The fantasy of being a bourbon baron fuzzes the arithmetic faster than what’s in your glass. Even if they use financial words like returns, ladders, and diversification, this is just a bet that someone wants to buy your booze.

It’s hard enough to look at the most liquid markets in the world and guess what the experience of the future return path looks like, but at least I know I can sell or buy when I need to. How the hell do I have any confidence about moving 25 barrels of old corn juice?

The numbers only matter when it’s your turn to get out. Liquidity is a metric that we can analyze through bid ask spreads and market depth. We can talk about activity, turnover, and open interest as other symptoms of fair and durable pricing.

But liquidity is also an experience. Every trade is different. When you interact with the market you change the landscape and risk will never look the same again. Dramatic emphasis mine, but trade execution is far from a predictable controlled physics experiment.

Over time if you make enough trades the winners and the losers start to balance out. A good fill here nets against a bad one later on, and some meaningful conclusions can be drawn about the average cost to transact and price impact.

The ultimate price you pay or receive on a transaction is unknowable until the fill hits. Most retail orders aren’t going to choke a market maker’s position sizing, so while that’s more intuitive than impactful, it could absolutely happen around the margin.

What’s far more likely is something benign like a senior trader being on summer vacation and the trainee covering is brand new so he turned off their dark pool responses. Or she was out for a delta walk buying a $10,000 burrito.

Little bumps in the road like that might leave a ding, but they’re an afterthought in most of the liquid stocks and options. The real risk is that no one is there at all.

The worst thing about bad liquidity is that it usually looks like good liquidity when you dip your toes in. C’mon in, the waters warm, we’re all beating the S&P with no downside risk.

If the liquidity is bad when you’re putting on the trade, you at least know what you’re up for. If I’m hunting down bourbon barrels, knocking on distillery doors, it starts to make sense why there might be some premium. That’s a return on effort.

The problem with fancy sounding investments is not a lack of optimism. Which is all the more reason to double click until you find the catch. The opportunities all look rock solid and boundless until something completely unknowable happens.

Even as I talk myself out of this, there’s still a little bit of me that’s intrigued. The sizzle is really selling this hard. Maybe there is an untapped bourbon financing market. A curiosity I’ll ponder from afar with a rocks glass in hand.

I’ll have to pass and settle for what could have been. Not only do I not see the clear path out of the trade, someone bought my eyeballs to get into it. If bourbon comes with a headache, I at least want a taste.

The first vodka distillery in America was in a quaint Connecticut town.

Today the only reminder is an empty brick warehouse sitting across the tracks from the train station. No plaque or rusted sign, simply a bit of folklore from the brief time when a soon to be powerhouse was a curious foreign upstart.

The Smirnov family had been wildly successful in Russia, and along with a thirsty client base of nobles, their spirit was regularly served in the Tsar’s court. Things turned upside down with the Bolshevik revolution, and only one son managed to flee for Paris. Vladimir carried on the family business, but struggled in the land of wine and cognac. After several years he finally sold the exclusive rights to American distribution to a vacationing cosmetics executive named Rudolph Kunett.

Kunett wasn’t long for the spirits business, and neither was his founding warehouse in Bethel CT. After only five short years, he sold the company to a larger Hartford operation and the facility moved to the capitol. Today the brewpub across the street is booming, but the clear spirit has left almost no trace on the town.

And that’s just how Smirnoff would have liked it. Just as they worked for decades to find a place behind the bar, their most lasting mark would be a notable absence.

Prohibition threw a wrench in American drinking habits. After almost 150 years of innovation in both the quality and service of spirits, the bartender’s Library of Alexandria was torched. Tipplers began to drown their wretched substitutes with sugars, juices, and anything else they could find to mask the flavor of bathtub gin. Depression leading into another war didn’t help.

The men and women of the new post World War II economy took drinking culture in a different direction. The new era was about clean, modern, and most importantly not stinking of booze. Plenty of spirits got drunk, but the lovely feeling that whiskey, rum, and beer delivered, also left unwanted side effects.

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Smirnoff was able to slide in with a deft marketing campaign that tackled its (fully American owned and produced) Russian heritage with irreverence and savvy. The Moscow Mule was popularized despite its Red associations through a Hollywood connection, and the great white whiskey leaned into its odorless aftertaste.

“It leaves you breathless,” their marketing copy sang. Said otherwise, the best part about this product is that no one else has to know you’ve been using it.

If you’re hiding your drinking, you’ve got some other problems to reckon with. And whether you drown it in ginger beer, orange juice, or take a chilled shot neat - it isn’t going to fool many people for long.

But in the spirit of David Ogilvy - the key to success (in advertising) is to provide the customer with a benefit. A product that both inebriates and obfuscates seems to have two.

Alcoholic beverages are nearly as regulated as financial products, and both share a hangover of consequences if you over indulge. It used to be that stocks were stocks and bonds were bonds- caveat emptor, but there was no hiding from yourself or others what you were doing.

Now we’ve reached a Smirnoff moment, where the most attractive thing about new financial products is that they obscure what’s actually happening. Breathless.

The most obvious example here is prediction markets. It’s not exactly new or novel to point out that these are gambling instruments masquerading as financial products. Sure the line is grey, and in whatever iteration of the meme you prefer - it always has been. Abstractally the difference is philosophical intent, but practically the CFTC has to draw a line somewhere.

With a definition for gambling as something like the obscenity test - “I know it when I see it”, plenty of slick marketing will have you believe that hedging event risk is a perfectly appropriate role for your brokerage account. So long as there’s a soccer team that needs to mitigate the financial impact of a potential relegation, the contract can pass the “economic purpose test.”

But one valid use case doesn’t justify taking the same instrument to roll the dice for a dopamine hit.

The same logic holds for 0DTEs. The valid use cases for hedging and strategy design are a distraction from when that same theta hit is used for disingenuous copy to promote short term income or feeding yolo bets.

Various options based ETFs pitch themselves as alleviating the pain of trading derivatives. The holy trinity of easy, consistent, returns are neatly wrapped up in a breathless package. Pick your specific flavor and let the fund do the rest.

Managing overlays, buy writes, or put spread collars gets to be a pain. Take away all the side effects of that exposure and you have all the gain without the pain. That is a reasonable solution to a real problem. So are the sizing benefits - with only 1 share of an ETF you can get the exposure of something that would take hundreds of shares to do on your own.

But you can’t hide from the downstream impacts of ethanol forever. Selling calls will always be about the short upside convexity and downside exposure in exchange for a fixed payment based on the best estimate of volatility. That’s what you get. For all it’s pain or gain - that’s the point.

Smooth over every detail about strike or expiration or ticker selection or size, it’s still a covered call. Or a 2x leverage play. Or an inverse CPI trade with a yen kicker. Structured note parlays in an ETF are going to be epic.

Easy is nice. Easy takes the pain away. But easy access demands strong opinions.

Vodka is a middling spirit, and sports gambling doesn’t belong next to my low fee diversified retirement vehicles. Options ETFs lean too far into their marketing, and know the package isn’t ever as neat as presented. I could go on. But as my friend Andrew reminds me when I start expounding about wine - “nobody gives a f&ck.”

Advertising is there to sell you on a solution. Customers don’t want features or products, they want an end to the little nuisances. And more money. It doesn’t matter whether they’re worried about boredom or economic risk.

Returning breathless from your three martini lunch doesn’t change anything about the effects you’re feeling. Now there are as many good reasons to raise a glass as there are good calls to sell. There’s nothing wrong with the product, the trade, or regulation of vices.

Only to know that the packaging and marketing exist for a completely different purpose than yours. Without an opinion about what makes sense in the first place, you’ll be caught breathless. Bourbon tastes better anyway, just own it.

Despite an incredibly disappointing loss earlier this week, America has finally become a soccer nation.

World Cup fever has swept the nation from Seattle to MetLife stadium. Millions of tourists ventured across the Atlantic or Pacific to watch their home country’s team battle for the biggest prize in sports. And Americans are right there with them.

Every restaurant with a television has become a de facto watch party, with new teams like Cape Verde seizing hearts and minds, while the old guard like Argentina continue to show their charm. You might not see soccer for another four years, but everyone is caught up in the here and now.

Whether you’re still learning the intricacies of the offsides rule, or grappling with what video review has done for the beautiful game, football fever is inescapable. Even your average New York Times reader who’s never set foot in a stadium knows what “Ro!” means.

But what has earned the US Men’s National Team its international stripes, is a far darker element. Even worse than flopping, we’ve learned how to put our finger on FIFA’s corruption scale.

Few public organizations have as bad of a reputation as the governing body of international football. Systemic corruption, bribes, and financial self-enrichment are the hallmarks of the most popular sport in the world. Kick backs and vote trading decide who gets into the cup, and apparently now, ex-post, the backrooms determine the validity of penalty calls.

While I was happy to learn that US striker Folarin Balogun’s red card was thrown out, it cast a dark shadow over the game against Belgium. Say what you will about the call, the maneuvering by the US President to cash in his loyalty check with FIFA tarnishes any benefits. Now instead of the USMNT being fired up by an injustice, they were hiding under a shadow, while all the retributive power had been transferred to their opponents.

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“Working the ref” is nothing new in either sport or business. Baseball coaches get in the face of an umpire’s bad calls not in hopes of overturning the result, but to galvanize their team. Soccer players defend their actions to let the referee know that they are under scrutiny, and plant a festering, self conscious seed of doubt.

Just the suggestion of unfairness is powerful, and subtly warps the arbitrator’s mind. Referees more than anyone want the game to be considered as fair and well chaperoned. In a firm but reasonable manner, just as important as playing fairly is reminding everyone else you’re doing the same.

One of my most difficult professional responsibilities was a referee like position. At least with trading you can live and die by PnL without hurting anyone else’s feelings. Deciding who got access to trade what products and when, was an absolutely thankless job.

There was one trader who drove me crazy. Anyone around at the time knows who I’m talking about. While he was a solid performer, he wasn’t the best of the best, and knew that. So he worked the ref like it was nobody’s business.

Sometimes it came as a charm offensive - “oh man, it’s going to be really tough allocating the first traders to UBER, how are you going to do that?” Underhanded commiseration that let me know he was watching.

Other times it was more direct - “Why did so and so get allocated Facebook?” Even a profanity laced tirade once or twice.

This trader was even willing to play the long game, and advocate to anyone who would listen that there should be a more automated and predictable internal allocation process, figuring he could game the system in some other way.

And you know what he got out of this? Better allocations than he deserved. Not every time, but consistently enough that it probably made him a little bit of extra money. Even in the most black and white of games, where the only thing that makes cents are dollars, working the ref still provided an advantage.

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Every company has their own internal politics, but the market referees were someone to be worked also. To varying degrees every pit has a floor official who is responsible for arbitrating the contentious decisions. Who yelled the price first? Was his foot inside the white circle of the pit allowing him to respond?

The rules are firm in what goes where, but if you’re relying on human judgement, there’s going to be grey. No VAR in the trading pits (thankfully). If you’re friendly enough with the floor official and consistently remind him how quick you are, claims become ideas and then they become facts.

It even happens in the rule making process, where nudging the higher level authorities to see the game your way starts to bend the rules of the playing field. The white circle I mentioned delineating pits? That only came about in Philadelphia because someone with regulatory muscle didn’t like getting beat at their own game.

If you don’t advocate for yourself, nobody else will. Just as in sports this politicking can be wildly public and transparent, peacocking ostentatiousness. Sunlight and theatrics give it more power.

No retail trader is going to have to fight over allocations of either products or trade sizes. But even if you’re the type of investor who dreads his quarterly call from the advisor, you’re going to have to work the ref a little bit.

The active trader should focus on their broker, and squeeze as many freebies as they can get. While commissions are already approaching zero, margin rates and minutiae like transfer fees, or exercise charges. are still very much on the table. You’re not going to get ACATs waived if you don’t ask. And that $100k, $250k, etc. minimum is completely arbitrary - ask anyways.

Here’s a secret - I’ve never turned anyone down who asked for a discount on my software. It’s good business for me and a better deal for you. Go ahead and ask.

If you’re a passive investor and focused mostly on long term allocation decisions, the incidentals don’t matter as much. But if you’re working with someone to help steer the ship, you need to advocate for your risk tolerance and objectives. Far too many clients get put in a generic bucket because they don’t speak up.

Working the ref takes many forms. A gentle ask is harmless and free. Backroom arm twisting and quid pro quo is a step too far.

If the USMNT loss to Belgium teaches us anything, it’s a reminder that someone out there is inevitably trying to put their fingers on the scale. We should condemn and police corruption where it crosses the line. But no one’s going to jail for speaking up for themselves. They might even make a little bit more money.

I’ve come to learn that the golf outing is an event unlike any other.

No other sport has quite the same dynamic or duration. So it was only fitting that when we had to pick a team name, we chose to represent a spirit that is equally unmatched - Jeppson’s Malört.

For this charity event there were gimmicks scattered around the course. They were the standard longest drive and closest to the pin contents, but in the interest of raising money for the doggies, each challenge had a bit of extra spice.

Walking up to the 4th hole, a straight shot par 3 with lots of trouble around the green, we were offered the ability to buy down our score. Shave a stroke or two for a donation to the cause. Beat the pro’s shot and you get entered into a lottery for a trip to Hawaii. Nail the ace, and the trip is yours.

Earlier that morning we’d been joking about the infamous spirit - I like to call it Chicago Chartreuse - that has a dedicated following of fans who hate it. The extremely bitter liqueur is based on an old Swedish recipe, and is so potent that during prohibition Jeppson was able to continue to sell it door to door. Every inspector that asked was offered a taste, and clearly this was medicinal, no one would drink it for pleasure.

Malört survived some lean times, and nearly went out of business when production fell so low they could only find one distiller in Florida willing to make their small batches. But thanks to true believers, it has gained new popularity as a right of passage in the Chicago bar scene, and embracing the joke about its flavor. Current advertising features a theme of “Malort Tastes Like”: Liquified existential dread; If shag carpet could be juiced; and octane fueled Chicago gutter water.

So Team Malört paid down their score to card up a one. I’d already written down the ace before anyone stepped onto the tee box. Then someone hit the bottom of the cup. (Obviously not me.)

Celebrations ensued, our boy was going to Hawaii. A quick text to the bar ensured we’d have shots of Jeppson’s bäsk at the turn, and a story that got better with each telling.

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While the only score that really matters is how much money was raised, I got to thinking about how we should have actually marked that hole. If we bought two strokes off, does that mean one becomes a negative one? I couldn’t in good conscience write that down.

And if I start getting too financial, we’ve unnecessarily and expensively capped our gains. There were certainly other places we could have used two strokes, hedging our expected fortunes here cost us money for no benefit.

Most of the hedges we worry about are to the downside. You only want an offset if things get worse. The organization sponsoring the hole in one buys insurance in case someone wins the trip to Hawaii or keys to the Mercedes. There’s a one in X chance a bunch of recreational golfers hit that, so for 1/x times trip value + markup you can offer up that prize.

The other common form of hedging is less transparent. We swap potential upside for protecting the downside. Collars, hedged equity, even a covered call are all forms of this trade off. With options you can construct any degree of hedge by selling away possibilities in exchange for certainty.

Both upfront premium and potential energy cost money. Getting rid of something bad - whether it’s wet concrete or equity volatility - doesn’t come for free.

When a hedge is but a single trade, it’s easy enough to analyze the tradeoffs. Even with systematic overlays we can come up with a fairly good estimate of what a given amount of protection will cost you over time. But as things get more dynamic, and hedges are little nips and tucks to maintain consistent exposure, the waters get muddy.

Market makers will regularly hedge their positions to remain delta neutral. The entire book gets consolidated to one delta figure, and periodically (but not predictably!) they will trade stock or options to get that directional exposure back to flat. The business here is inventory management, not equity positioning.

Hedging is an expected cost of doing business. One year we went through the exercise of tabulating all our stock PnL independent of options trades and the figure was atrocious. But minimizing the volatility of returns meant we could pay rent and bonuses. Reducing the risk of blow ups meant we could keep stacking nickels and pennies every day.

But investors also might find themselves in a position where they’re hedging exposure on a more dynamic basis. Their objectives are not just positioning for structural alpha like brokers and dealers, but to participate in the maximum amount of gains their risk tolerance allows for.

For strategies that include some variant of volatility targeting, stock replication, or risk parity, adjusting the exposure as convex instruments move and decay is a necessary evil. If you have a short put component that’s giving you long delta exposure, you don’t want that delta to get longer and longer as stock goes down.

But on the flip side, if you’re using calls to replicate long deltas, when the underlying goes up, there’s a good argument that you do want to be getting longer. An investor with long gamma in an upside rally is happy - what’s the gain in hedge this away? The deltas will naturally lighten up if the market reverses before a position reset.

Most hedging proscriptions for these strategies use exposure bands to flag when it’s time to trim the position. The default for these tends to be symmetrical, but that isn’t necessarily in line with the objectives. Especially if you’re bullish.

Recently we’ve seen some pretty sharp jumps in the stock market. Volatility is on the upside. This means for certain strategies you’ll find yourself selling stock into a rally, going against every compounder’s intuition.

There’s no generic answer for how to handle this. Every delta targeting strategy has its own objectives and place in a portfolio that must be considered. But if you’re using options to replicate stock exposure as a long term investor, it’s worth considering how your hedges differ on the upside versus the downside.

This could be achieved by setting different bands, allowing deltas to grow larger if you’re above a reference price, and keeping them tighter below. Options strategies necessarily have regular resets, so above/below is a constantly moving target.

Hedging successfully is about minimizing costs. Transactions, fees, and insurance premiums are all costs, but so is missed opportunity. When you’re long and strong, hedging the same way you would to the downside is paying for a risk that isn’t really there.

No matter where it comes from, we’re always happy with an upside surprise - particularly when it’s a hole in one. But investing is about squeezing maximum value for your risk, so don’t pay for (or give away) any strokes you don’t need.

“Hold the line!”

In the epic opening battle scene of the film Gladiator, General Maximus rallies his troops for yet another campaign on the Germanic front. Before the attack, he inspects the troop placements, and ensures the various components of their attack are perfectly timed. With nothing but bludgeoning hand to hand combat ahead of them, maintaining proper position is a matter of life and death.

While the Romans were likely better fed and equipped, the key to their success was more about discipline and training. A cohesive unit was able to grind down enemy forces, but as soon as it broke they became vulnerable.

It’s unlikely that they would have been using fire pots in a deep woodland battle, and the Germanic tribes were a bit more sophisticated than the portrayed furry woodland gnomes- that’s all Hollywood. But the discipline and strategy of the army is fairly accurate. Bolstered by deep supply lines that allowed Emperor Marcus Aurelieus to quickly arrive and celebrate, the Roman army succeeded through organization.

Set around 180AD, this was peak Rome. While the cracks were showing in domestic politics, the empire expansion engine was functioning at its best. A well oiled machine, built on trust, discipline, and infrastructure.

It’s no surprise that success comes from hard work. Whether you’re training for a marathon or studying to pass the Bar exam, the grind is what’s real. It takes hours and endless repetitions to earn those muscles and get something right. A series of little decisions and discipline results in productive outcomes.

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Missing one training session isn’t going to put you out of contention. Life happens. But the tiniest lack of discipline is insidious. The successive excuses get easier. ‘I only ran twice this week’ becomes ‘I got a run in’, becomes ‘its been two weeks since I ran.’

Russell Crowe’s character isn’t bellowing at the top of his lungs for the army to hold the line because it’s easy.

The pressures and temptations creep in from every angle. Our inner foil is arguably the most difficult enemy, but external forces with competing agendas also pressure decisions and lobby for their own self interest.

A single trader has to worry about buying low and selling high. No matter what your style of edge capture, you are focused on extracting the most possible value from a given opportunity - while at the same time reducing to a minimum the risk of negative value.

When you put together a group of traders, the calculus shifts. The combinatorics fly. The firm has to think about how to allocate capital and make adjustments for offsetting positions. Every individual wants to see the collective succeed, while also being the biggest possible share of that pie.

For market makers one of the biggest sources of competition is access to listings. When open outcry trading dominated, this was all about pit selection. Within the pit you might be competing for position against other firms, but internally trading shops had to decide who went into GOOG and who went to MSFT.

Today those opportunities might look roughly similar, and you can placate two traders with a divide and conquer strategy. Everyone’s better off with diversified revenue, and neither product gets saturated.

The questions start to come when Google volume spikes. Maybe it’s a takeover, maybe it’s a corporate scandal. Now we have an imbalance of opportunity, and the Google trader is doing twice the volume. When the Microsoft trader comes asking to switch pits, when do you hold the line?

Over supply of liquidity is a tragedy of the commons. Both within your firm and amongst other shops, traders want to trade the good stuff. That’s all well and good when the demand for liquidity is roughly matched by its supply. Too few market makers means a given order will have an outsized impact on price movements, and too many yields the reverse.

When inputs aren’t moving appropriately, pricing gets distorted, and outcomes become chunkier. If liquidity providers collectively get too greedy and step in front of orders or show too much size, the natural ebb and flow of price discovery is muted.

The flip side is if you become too dogmatic about what the “right” level of liquidity is, you’re missing getting yours while the going is hot. A good trader should know when to push the gas to the max, and when to back off because they’re starting to get burned. With the revenue from the former dramatically outweighing the losses in the latter. Besides, you can only control so much and plenty of other firms are going to get aggressive too.

This week no one is worried about what’s happening in either of those pits though. SpaceX is the one and only allocation that matters. With the IPO on June 12th, the options will list five days later. We all expect volume.

There are a number of options questions that will need to be resolved. What is the right level of implied volatility or borrow rate, and how steep is that call skew going to be? Trading firms will be debating how to most effectively deploy their collective liquidity resources. There are going to be a lot of quotes flying.

Otherwise though this looks like a normal IPO. The same process will take place for listings, just on a different order of magnitude. We can’t say the same for the equity and index side of things.

Much has already been written about how the index providers have been pressured to adjust their rules to include SpaceX in market benchmarks like the Nasdaq 100 and Russell 2000. The argument goes that this company will immediately be so significant to the market, it would be a tracking error to not include it even for a quarter or two.

It’s not just semantics, there are tremendous flows that follow index composition, effectively forcing passive investors to buy into the stock.

The only one that held the line was S&P Global. SpaceX will not be in the S&P 500 until it meets the existing listing and profitability standards. This was considered a momentous decision, even though the firm was following its well hammered rule structure.

It’s undeniable that SpaceX is different. But the time to litigate the listings rules is not when something new comes down the pike. The purpose of indices is to provide a rule based measurement of the market. You can’t be objective when a single issue is at stake.

Perhaps some of the outrage over this kowtowing is overblown. Is it the bread and circus moment for US equities? Probably not. Maybe there does need to be a special process for the megacap IPOs that have grown so large in private markets.

But you don’t debate strategy when you’re face to face with the enemy. That’s for after the battle. Right now your only job is to hold the line.

It’s not always what or how you win, but when you win.

In a tennis game the other night, the winners in a best of three sets match took the series 6-4, 1-6, 6-4. The losers won more individual games (14 vs 13), and therefore more points. But they still lost.

There are several ways that could happen, and all of them are frustrating. You see this in any sport where matches are tallied as the aggregate of individual scores. And it’s not just beer league tennis - the 2013 NBA finals saw the Spurs scoring five more total points but losing in seven games to the Heat.

The obvious similarity between these two examples (besides the level of competition) is that the loser lands a major blowout in one of their winning games. Dominating your opponent in one feat might feel good at the moment, but it still only notches one win.

The rules are known well in advance to all, and taking advantage of scoring aggregation dynamics is its own form of strategy. If the players who won the first set find themselves down 4-1 in the second, it might make sense to quickly drop the next two games and save your energy for the rubber match.

For sports that are won in best-of series, or playoffs that are earned across the wins and losses of a season, consistency is rewarded. It’s better to win a lot of close matches than to put on a performance clinic one lonely evening.

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The teams that can deliver the blowouts are often the same ones who win the close matches. But there are many exceptions. Lots of games are played because you want to eliminate the luck factor.

Another way of thinking about that is you want to remove volatility from the results. Variance is not just constrained to financial markets - they just happen to be a very quantifiable demonstration of it. Choosing the victor of New Canaan vs. Redding is no different than measuring the best performing stock of the year. The overall winner doesn’t take every game or close the highest on every single day.

If you’re going to disaggregate performance into the daily, weekly, or monthly slices that make up a year, where you draw the lines matters. Trading an options strategy, every expiration is a performance line in the sand. Settlement doesn’t care about what you did last week or will do next month, it’s all about the print at 4:00PM eastern on any given Friday.

By creating time buckets of performance, you’re taking an opinion on volatility. Direction comes on its own schedule, and the path is never straight. The weighting flows of buyers and sellers bring valuations closer to truth - over time. When the true value is uncertain, we will see a wider range of prices along the way.

Selling a covered call is defining a stock’s performance within a specific period. If you own equity outright, the best case scenario this month is unlimited. With a short call option it’s the strike price plus whatever you collected in premium.

The biggest question in an overwriting strategy is where to draw those lines in time and strike space. If we look at a stock’s history and expect it to go up 12% in a year, you can’t just sell 1% OTM calls every month. For reasons of path and compounding, it doesn’t break down neatly.

Last year SPX was up 16.3%, and 92% of those dollar gains took place in only three calendar months. May, June, and September saw 6.1%, 4.2% and 4.4% gains. If you sold a 1.33% OTM call (16% total performance divided by 12 months) it seems like you might be giving away a lot of upside. Is the premium worth it?

In June and September implieds were similar - around 12-14% - and so the 1.33% out of the money call was a 40 delta, and worth just over 1% of the underlying. May was still spooked by the great Tariff Tantrum, so you had an 18% vol call worth 1.5% of the spot. The best case scenario for June/September you can make up to 2.3% in a month with about 50bps more in May. Which leaves almost 9% on the table across these three blowout months.

But overall the premium collections are meaningful - this is the real draw to the strategy. At an average of 1.19% per month there is significant cash flow. That cash can compound both for and against you. When stocks are realizing less than that 1.33% increase, you have extra cash to buy more shares at lower, or at least less high prices.

While drawdowns are painful and less money is usually worse, upside volatility is your drag versus the benchmark. We can see below that it’s the May, June, and September periods when the covered call underperforms. When the benchmark is compounding above your strike, the strategy falls further behind.

For calendar year 2025 the monthly 1.33% covered call runs very close to the index. But this whole experiment was stylized knowing the total returns of the index. Even if you had a Magic 8 Ball, a covered call is basically even with buy and hold. The SPX-Write also assumes perfectly frictionless compounding, and the ability to overwrite 100% of your shares at all times - not practical without very large sums of money.

Longer term average returns are closer to 10%, so selling a closer to the money call at 83bps might be more reasonable. Interestingly, there’s hardly any difference in returns. Slightly higher lows, and a few bucks more at the end of the day.

As I’m fond of saying, it’s incredible how well volatility is priced these days. The upside premium collected in exchange for the right tail of returns was a very fair trade in 2025. That’s not always the case though.

In downward trending markets the 1.2% a month cash is some padding, but it’s not exactly a real offset. What you really want to think about with the covered call, is the upside directional volatility. Does this stock or index have the possibility to spiral up all at once and leave me totally behind?

Sports scores don’t compound, so there’s no advantage to winning when you’re already ahead. A game is a game and a point is a point. When your financial returns come is very meaningful. Volatile results hurt a team because they’re going to notch up more losses. But as we get into higher volatility stocks, the drag on compounding becomes more significant.

If you look at the skew curve, and plot the covered call strike, it’s fairly obvious that you’re selling upside volatility. But what exactly that means gets obfuscated by premiums and potential upside.

Whether buying or selling options, when matters. If the sequence of returns is unfavorable, you might find yourself winning games but losing matches.

We live in a world of very powerful tools.

I’m not just talking about the chainsaw I picked up last summer. My wife is still (rightfully) scared of it, but it has been impactful on several important occasions. Helpful in resolving issues of tree level complexity.

This is not yet a rant about AI agents either. The Opus 4.8 model is pretty dope, and whether I’m coding or searching tasting notes, the world is increasingly and usefully being filtered through an LLM.

The right tool in the wrong person’s hands can quickly have a dramatic impact. Don’t hand your child a garden hose to wash the car if you don’t want to get wet too.

Markets are a tool. They are an agreed upon set of rules, coded into a pile of servers, that allow for participants to exchange cash for securities or vice versa. The more activity there is, the better the tool becomes. Unlike an axe, heavy usage at high frequency is very desirable.

Activity and liquidity are a self reinforcing flywheel. Everyone benefits from greater participation. Spreads get tighter, size gets deeper, and trading gets cheaper. A vibrant marketplace becomes a fertile ground for innovation, and more new products get the chance to see the light of day. Even if most of them fail, you only need one VIX to build an empire.

The improvement of tooling is generally referred to as technology. But that’s only part of the story here. While that adds fuel to the fire, the real boost to the market flywheel is access.

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To a professional trader, market access means which exchange allows you to pull FIX lines into a matching engine. It’s a quasi-technical term about permissionings which defines whether you can directly place bids and offers on an exchange or whether an executing broker does so on your behalf. DMA (Direct Market Access) requires both capital and savvy.

In a broader sense market access defines how the buy side brings their orderflow to the table. This is a soup of technical, political, and educational factors.

Innovations like mobile trading apps clearly facilitate retail trading. Putting options markets in a palm sized device goes a long way to making markets more accessible, and has a direct impact on the amount of non-toxic orderflow that hits the tape. This raises the quality of markets for all, as liquidity providers compete to drive prices tighter and tighter.

Technology also has an impact on the operational side of trading. Even with a fancy user interface, brokers need the backoffice tooling to manage their own risk books. The adjustments to the pattern day trading rule are long overdue (but less than a week away!), but the new intraday margin system couldn’t exist without innovations in backoffice technology.

Policy and lack of policy play an important role here. We don’t get rule changes without the regulatory bodies getting involved. The Exchange Act of 1934 is the benchmark text that defines the high level goals of markets - most importantly the protection of customers. While 90 years of pushing at every corner case to make an extra buck has stamped out a lot of precedent, money invites creativity.

While it’s not written anywhere, the distinct policy goal of the last decade seems to be market access over everything. Feed the retail beast, and give them any product with remotely financialized applications. Digital assets tested Howey so that prediction markets and sports gambling could run wild.

More participants accessing markets might improve liquidity - but it doesn’t necessarily improve the customer experience. The potential is there, but it only manifests in your results with the right amount of education. With more choices than ever, King Retail is in desperate need of guidance.

The good news is that there are dozens of widely accessible sources. The bad news is there are thousands of charlatans and promoters chirping in the feeds. Access to markets and content creation does not discriminate by honesty.

Depending on your point of view, certain institutions are also pushing this limit. Brokers have famously been chided for adding confetti to their trade confirmations, but more subtle product nudges and offerings can be just as dangerous.

Agentic solutions are the buzzword across every industry - so it’s only logical that they are coming to retail trading. Thanks to technology and easy access to liquid markets, artificial intelligence driven trading will soon be possible at the world’s largest options brokerage house.

Both packaging and automating solutions have been core competencies of the financial industry for years. Whether it’s direct indexing or the proliferation of systematic ETF strategies, wrapping the unique and complicated up with a neat little bow pays a lot of bills.

There are now more ETFs than individual stocks, and the count of grocery store sushi options strategies has exploded. We may see the tide turning here as one major provider announced the shuttering of a half dozen with low AUM.

The conflict here is a choice between adding paternalistic guardrails or leaning into better educating the consumer. Regulations are notoriously difficult to get correct, and even if you think it’s not responsible for a small account to actively flip round turns, rules like pattern day trading show the adverse effects of codifying that.

Market access is important to maintain not only because it feeds liquidity and raises the tide for all boats, but also because the only way to learn is to get your feet wet.

The only solution is to double down not on parlays, but on education and guidance. I’m talking my book as an advisor, and while I’m strongly in favor of making all these tools and products available, I’d issue just as strong a word of caution.

A tool that automatically trades when certain criteria are met, or rebalances your strategy so you can spend Friday afternoon elsewhere is very powerful. But just because you can doesn’t mean you should.

Every trade needs to have a reason behind it. Weekly options aren’t listed in COIN and HOOD so you can turbocharge distributions. The best trades exist because there are structural dislocations or risk transfer opportunities.

The path to finding those is littered with bad trades, self reflection, and lots of reading. I’m excited to use and even help develop some of the new ways that retail traders can access the markets. Just make sure that before you launch autopilot, that the chartered course is true.