Quarterly Deep Dives… Advanced Option & Vol Trading

I remember reading in David Epstein’s terrific book Range a bit about a long-term study looking at fhigh-powered consultants from top business schools and their ability to effectively tackle problems. What they found was that these so-called “masters of the universe” were actually quite good at quickly assessing simple well-defined problem sets; you know, the kind you typically find while attending business school.

But… when faced with more complex real-world issues, the kind where the first solution that comes to mind isn’t often the right one. They became ineffective and defensive… their personalities “brittle” and incapable of thinking outside the box.

I find that funny. You know, since that’s what their job kinda-sorta is… but I digress. 

Management consultant types are smart, can speak intelligently, but many (if not most) suffer from what’s called “single-loop learning”, which is the kind of learning that favors the first familiar solution that comes to mind.

This type of thinking is great in what Epstein and his peers refer to as narrow domains. These are games or areas with defined rules and linear causal chains. Things like chess, firefighting, and gardening come to mind.

Where this mode of thinking becomes detrimental is in what’s called wicked domains. These are domains where the rules of the game are incomplete, feedback is delayed or non-existent, and the causal chains dynamic. You know, the real world… economics, financial markets, jazz music, etc…

I’m of the belief that… narrow domain single-loop thinking… is the reason most smart people struggle with the “wicked” nature of markets and fail as traders.

They’re too clever by half. Know a lot about a little. And this rigidity of mind is what does them in. The randomness of the tape and the incredible dynamics of the market and economic system, cannot at all fit in their neat little logical minds. Massive square peg, tiny round hole problem.

The best traders I know come in either two types: Hedgehogs or Foxes (and I’m slightly bastardizing Tetlock’s nomenclature here): 

  1. Hedgehogs: They’re naturally smart but think and act simple-minded. They possess zero arrogance and do not pretend to understand many things about the market and why things happen. But, they have a simple and powerful edge that they execute with ruthless efficiency over and over again.
  2. Foxes: They’re smart and deeply curious about nearly everything. As a result, they know a little about a lot and balance this out with a healthy dose of humility. And, instead of having one big edge, they effectively combine many small edges.

In my experience, hedgehogs make higher returns. At least when trading small stakes. It’s often tough for them to scale. While foxes can more effectively manage large pools of capital and typically have more staying power.

This is based on zero research. Just my two cents…

Anyways, I think it’s important one knows which character type they are. You have to know what game you’re playing if you want to win. And it’s crucial that your disposition be aligned with your approach, or else conflict is inevitable.

I myself am a fox. I use trading as an excuse to feed my curiosity. I like to learn a little about a lot of things. That’s why macro discretionary is a good fit. It’s open-ended and I’m not constrained by one particular approach or set of philosophical dogmas.

This, I guess, somewhat brings me to why I’m writing this note but got a bit sidetracked. 

We’re going to kick off our first Quarterly Deep Dive series next week. This is where the team, myself, and whoever from the Collective wants to participate, will go deeeeeeeep into a subject that interests us. And which we think learning about could help us all make more money. 

The idea is that we’ll put together a list of books, papers, courses, and interview subjects curated by those in our group who are already domain experts. We’ll then go down the rabbit hole… take notes, formulate strategies, backtest ideas, etc… At the end, the team and I will collate everything we learned and share it back with the group, through reports and mini-courses. 

We’re going to kick things off with a focus on advanced options and volatility trading

Options make up a good deal of our strategy at MO. But, I consider myself a tourist, especially when it comes to some of the more esoteric realms of the vol domain.

I think this is particularly pertinent to today. The level of options trading is at record highs and these derivative flows are impacting the actual prices of the underlying… Things like Vanna, Charm, and a host of other names that I won’t even pretend to understand.

We’re lucky since the Collective already has a number of some of the smartest professional option/vol traders in the game. So I’m excited to do some brain picking, learning, sharing, and getting a good knowledge fly-wheel going.

We’ll start by putting together a big list of the best materials to dive into. I’ll post this in the slack and we can crowdsource it from there.

One of the main takeaways from Range is that humans are relational analogical thinkers. We’re not great at true originality. Our real genius comes in our combining of ideas. This is why we benefit so much from the cross-seeding of domains. It’s why a hallmark of prolific scientific labs is a team of diverse professional backgrounds. The more varied analogies, the more relational learning, the more breakthroughs.

Our Collective is uniquely enabled to create an ideal environment for this. We’re made up of a bunch of foxes and a good number of hedgehogs. We have wildly diverse personal and professional backgrounds and we’re all passionately devoted to the game of speculation. 

I’m hoping this new Deep Dive venture will help further kick this learning machine into gear.

You start with the fundamentals, get a solid foundation fueled by understanding the principles of your discipline, then you expand and refine your repertoire, guided by your individual predispositions, while keeping in touch, however abstractly, with what you feel to be the essential core of the art. ~ Josh Waitzkin, “The Art of Learning”

Feel free to shoot me any book/paper/podcast/course suggestions you have.


Your Macro Operator, 


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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.