It’s been a week. I got quoted in Bloomberg again for some reason, talking about meme stocks again.
As I discussed in my previous post, the art of prediction is a dangerous game. It’s quite easy to fall prey to biases, especially given the natural optimism of humans and desire for explanation of pure randomness.
Let’s take a step back. What does prediction even mean?
Most echo the axiom “correlation does not imply causation” without really understanding what it means.
It’s been a while since my last post, mainly due to real life factors like well, the end of the quarter of my Ph.D. program fast approaching. I’ve been extremely lucky to be on some fantastic podcasts to muse about life, the universe and everything, and ended up in some bizarre Twitter drama — which is doubly hilarious given it’s been mostly mid-career finance professionals and sir, this is a Denny’s.
In this weird niche of the internet we find ourselves, financial Twitter, you see an interesting confluence of people throughout the financial spectrum: ambitious youngsters (myself included) exchanging clout…
One of my favorite comments when I started first appearing in media around the dawn of the Gamestop saga (ages ago in internet time, last month in reality) was along the lines of “I honestly didn’t believe you were a real person, I thought your photo was generated from https://thispersondoesnotexist.com/”. It was innocent and on its face almost a compliment; throughout my life, and especially since I started in trading communities, for one reason or another I was always compared to an AI, usually in an assumably-complimentary way.
Much like our ersatz internet hero of the monomyth Keith Gill (the…
So, it’s been a while. This month has been quite surreal. It’s a bit difficult to focus on schoolwork and writing itself when stuff like this happens:
So this part, the ending part of Options Degenerate Marketplaces, was a bit delayed. Similarly, I did not expect that in the interim, the concept of options dominance and NOPE itself would blow up so heavily.
In the first part, we discussed simply the concept of options dominance, or a market state — which we find ourselves in — which the weight of the options market (measured of course in the hedge ratio…
The great part about being a windbag writer is I know before I even put pen to paper I know that I need to call this ‘Part 1’.
With that out of the way, let’s begin discussing the Net Options Pricing Effect (NOPE), how we got here, and what it might mean for the marketplace.
The original derivation for NOPE, except for my story about getting high one night and just thinking about it (which actually happened), comes from a situation I call succinctly the Toy Model.
We can imagine for simplicity a universe where all the following conditions…
And we’re back. This week has been legitimately crazy with the Gamestop saga. I’ve taken the self-imposed position of playing financial reporter through the whole charade, including being one of the first to break the news that Robinhood (and, as we found out later, other brokers) was de facto manipulating the price of Gamestop and other meme stocks by refusing to allow new opening of positions (and later, refusing even the purchase of shares over a cap).
Hello again readers, it’s your favorite snark machine.
It seems the timing of my first post was serendipity, because just as anticipated in the proposed salience-based trading paradigm, we saw some unique fun during Tuesday’s trading session.
Unlike most of my posts, this will veer largely into philosophy and maybe some poorly interpreted behavioral economics. As I have a computer science and business background, this of course qualifies me as a subject expert on both of those topics.
As I’ve mentioned before, I’m fairly new at trading in general — although I’ve invested for many years - which brings both some downsides (a lack of perspective on historical trends) and upsides (potentially a novel lens). However, similar to most of my generation, I am a true native of the internet, learning to type slightly after learning how…
I of course, got a nice Twitter hug for Part 1. To clarify — I do think shorts are being squeezed in Gamestop, although this is auxiliary to the main driver of the stock’s momentum (and not, in my opinion, the primary driver of Friday’s exponential rise).
So okay, let’s go to the obvious question — if hedge fund tears didn’t cause Gamestop to rocket, what did cause it?
Gamestop in many ways is an extraordinary story, and has all the properties…
Well, unless you were under a few different rocks on Friday, you probably saw this at some point.
Apparently we all decided it’s 2006 again, because the hottest tech stocks around are $GME and $BB. I can’t wait until we can use AIM again and I can break out my Zune. So what’s going on exactly?
If you’ve been anywhere in the trading universe, it’s been partly a meme and partly a higher calling to long $GME since about July/August 2020, when everyone suddenly realized the short interest on $GME actually exceeded its available float. In English, this meant that…