143 - Throw it on the Pile, Erase your Memory w/ Kris Abdelmessih
Feb 20, 2025
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Kris Abdelmessih, an options trading expert and creator of Moontower AI, shares insights from a year of his project's journey and the power of community in trading. He delves into the differences between trading and investing, specifically regarding volatility, and discusses the importance of risk management strategies like straddles and strangles. Kris emphasizes personalized approaches to trading, including the significance of unit economics and using tools to manage Delta and Vega risks, illuminating the path for retail traders in a complex market.
Moon Tower AI's growth reflects a market-driven demand, showcasing the importance of personal insights in resonating with user needs.
The podcast emphasizes the crucial distinction between trading volatility and investing in persistent risk premiums for informed decision-making.
Active daily reviews of trades are essential for adapting strategies and capturing market shifts, ensuring traders remain responsive and engaged.
Deep dives
Growth of Moon Tower AI
Moon Tower AI has experienced significant growth since its initial launch to the public, driven by a previously unmet need in the market. The project began with the founders' personal experiences and insights into the market, suggesting that if it resonated with them, it would likely resonate with others as well. This hypothesis proved correct, as demonstrated by the influx of several hundred paying users and the successful launch of a dedicated Discord community for support and engagement. The platform continues to evolve, introducing new features and instructional content, allowing users to gain a better understanding of trading strategies and market dynamics.
Distinguishing Trading from Investing
The podcast emphasizes the distinction between trading volatility and investing in it, highlighting the difference between pursuing fleeting anomalies and understanding persistent risk premiums. Anomalies are short-lived and often require a structured approach to capitalize on them, similar to making a bet, while risk premiums exist continuously, rewarding the patient investor who endures market fluctuations. Understanding these distinctions helps traders navigate the complex landscape of options trading, as it reveals whether they are merely reacting to market movements or strategically positioning themselves for long-term benefits. This perspective allows for a more nuanced approach to trading, focusing on the larger picture rather than short-term noise.
Approach to Risk Management
Effective risk management is crucial in trading, where the podcast highlights a proactive rather than reactive strategy, ensuring that traders remain in control during volatile market conditions. The speakers suggest looking at how a portfolio behaves in various historical shock scenarios to determine acceptable levels of risk and volatility. Rather than simply adhering to P&L milestones, the discussion advocates for maintaining a robust understanding of underlying forces that may influence market behavior. This method not only helps to prevent decision-making driven by emotional responses but also fosters sustained profitability through informed risk-taking.
Re-evaluating Position Management
The need for continual re-evaluation of positions is underscored, with the podcast presenting a daily review of each trade to determine whether it still meets the criteria for being cheap or expensive. This ongoing analysis encourages traders to adjust their strategies based on market conditions, emphasizing that each new day presents a fresh opportunity. Additionally, positions should not be treated as fixed but instead should be actively managed to capture value in response to market shifts. This approach ensures that traders remain engaged, responsive, and adaptable in their strategies.
Sizing and Unit Economics
The podcast discusses the importance of sizing and the concept of unit economics when managing options portfolios. By understanding how the business is expected to perform over time, traders can effectively gauge their acceptable levels of risk and overall strategy efficacy. Assessing the relationship between expected returns and P&L volatility allows for a more informed decision-making process, helping to identify risks before they become detrimental. The conversation encourages traders to focus on the dynamics of their strategies rather than relying solely on past performance figures, emphasizing the need for an ongoing reassessment of risk and return expectations.
The Trade Busters provides actionable ideas to take your option trading to the next level. Through our educational podcast and instructional spreadsheets, we aim to empower the everyday retail trader. Discover unique ways of thinking through sizing, risk and leverage in your option strategies.
