Formerly running Thiel Macro, Mike Green from Logica discusses monetizing options, market history, and Fed seminars. He shares insights on passive investing, long volatility challenges, gamma scalping, and historical market dynamics. The conversation also explores the Federal Reserve's influence, options market dynamics, and the Princess Bride analogy.
Leveraging both puts and calls in options trading minimizes risk while maximizing gains.
Monetizing options through 'value investing' and strategic approaches helps stabilize returns.
Adopting a contrarian view on tail risk pricing can lead to advantageous options trading decisions.
Deep dives
The Importance of Non-Recourse Leverage in Options Trading
In options trading, having non-recourse leverage is crucial. By holding both puts and calls, traders limit potential losses to the premium paid for the options, while still having unlimited gains. This strategy allows for taking advantage of market movements in either direction without excessive risk. Non-recourse leverage provides a more controlled way to express market views, especially during volatile times, offering a lower-risk approach compared to solely holding stocks.
Unique Approach to Monetization in Options Trading
Monetizing options positions is a significant challenge for long volatility strategies due to the high cost associated with maintaining them. Unlike many strategies that sell volatility in order to buy volatility, the discussed approach focuses on 'value investing in options.' By considering all options mispriced and using a straddle strategy combined with gamma scalping, the aim is to extract profits through a more stable return stream. This method allows for proactive decisions and controlled monetization, preventing excessive losses during market fluctuations.
The Strategy of Buying the 'Shoulders' in Options Trading
A contrarian approach to options trading involves buying the 'shoulders' instead of following the conventional wisdom of selling them. This strategy challenges the notion that tails are mispriced and seeks to capitalize on the overpricing caused by regulatory requirements and market dynamics. By flipping the perspective on tail risk pricing, traders can potentially benefit from the differences in expectancy and market imbalances, leading to more informed and potentially advantageous options trading decisions.
Strategies in Trading and Market Dynamics
The podcast delves into the essence of trading strategies by emphasizing the significance of exploiting market conditions rather than relying on luck. By focusing on shorter, incremental gains rather than aiming for large wins, the discussion highlights the concept of positive expectancy trades and the importance of consistent, deliberate trading actions. It underscores the effectiveness of pursuing smaller gains repeatedly, drawing a parallel to hitting singles rather than aiming for home runs in trading.
Fed's Role and Market Structure Insights
Another key point explored in the podcast relates to the role of the Fed and market structure complexities. The discussion challenges common misconceptions about the Fed's direct impact on markets, emphasizing the importance of understanding underlying mechanisms and systemic influences. It sheds light on options trading dynamics, highlighting the nuanced relationship between dealers, bid-ass spreads, and market dynamics that contribute to options skew and pricing variations. The conversation underscores the dynamic nature of markets driven by transaction facilitation and the intricate interplay of pricing models in options trading.
In this episode, we talk with Mike Green of Logica. Mike formerly ran Thiel Macro, Peter Thiel’s family office macro fund. We talked with Mike about knowing when and how to monetize your options, what he means when he says a history of markets is a history of transactions, and what he would teach in a one day seminar about the Fed.
Also, be sure to check out The Grant Williams Podcast where Mike Green has been interviewed by Bill Fleckenstein and Grant Williams. They discuss the role passive investing may have to play in The End Game.
I hope you enjoyed this conversation as much as I did.
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