Co-CIO of Ambrus| (Focus: Volatility Trading / Tail risk hedging )| @penn guy ( These are my personal thoughts and not the opinions of Ambrus)
Follower of Christ ...New York
Joined October 2013
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A little about me: I got started in the volatility trading business about 13 years ago, initially as the sole junior trader to Robert Kanter. From there, I went on to trade at several proprietary trading firms. After having the best year of my trading career, about six years ago, a few partners and I decided to start our own hedge fund.
I like to think I’ve established myself as one of the top volatility traders in my space. Along the way, I’ve been fortunate to receive a few industry awards, recognition, and backings for what I’ve been able to accomplish throughout my career as a trader.
My focus on this app is pretty simple: to have interesting discussions with other traders and PMs, help younger traders navigate their own journeys, and share some of the volatility trading philosophies and lessons that have served me well throughout my career.
This is a HUGE point for any hedge fund investor and trader (when assessing a return stream).
I’ve seen this across a few exceptional funds. A strategy might have a historical CAGR of 15% with a maximum drawdown of just 5%. Excellent numbers on paper. But investors don’t all enter on the first day of that track record.
Suppose you invest when the fund is already up 15% for the year. The next four monthly returns are -1%, -1.5%, -1%, and -1.5%.
Your experience is now a roughly 5% loss. You participated in none of the gains that preceded it, but all of the subsequent drawdown.
Almost immediately, regret can set in. You question the allocation, the manager, and the process, even though those losses could reflect ordinary variance within the strategy rather than any deterioration in its edge. It’s a psychological phenomenon that overtakes even some experienced investors. It’s never a good feeling to see losses when you deploy capital towards a strategy.
But this is something that’s important to distinguish early on and that only comes from truly understanding the process and potential distribution. If you don’t, you’ll just end up becoming a return chaser that crab trades / invests their way into suboptimal returns.
Process before everything and the rest will take care of itself.
Kris Sidial🇺🇸 retweeted
Pretty much.
As of the past few weeks, debt markets have almost entirely shut off access to money for any company that doesn’t have substantial revenue independent of AI data centers.
SpaceX closed $40B of debt for GPUs, but we’re investment grade and have Starlink & launch revenue.
That means the 200+ neoclouds are going to see guppy-level death and consolidation. Some will make it through, but not many.
By nature of being a vol trader, I’ve studied many different market crashes. Not just the common ones in the U.S., but episodes like Britain in 1720, Vienna in 1873, and the Dutch tulip mania of 1637.
There are some interesting behavioral takeaways that aren’t entirely intuitive unless you participate in markets every single day.
One of the biggest for me is that large market moves often need two-way action to develop. Behaviorally, you need participants willing to take the other side, because their eventual need to unwind can help accelerate the move. It’s almost like storing energy that gets released later. To create that dynamic, a “gray catalyst” can be particularly powerful one whose implications aren’t immediately black and white.
Here are two examples that helped produce massive moves in opposite directions that had gray area headlines that led to that two way flow.
COVID (March 2020): What often gets lost in the sauce is that many participants were aggressively betting against the idea that COVID would be severely disruptive. As stocks fell, they bought the dip and sold vol. When stocks kept falling and vol kept rising, some of those positions became fuel for the next leg of the move as participants were forced to unwind.
Looking back, the outcome seems obvious. In real time, the eventual scale of the disruption was far from clear. There was HOPE that it would pass quickly. Headlines about potential treatments, policy support, or a less severe impact repeatedly gave investors reasons to step back in. Stocks would rip 5% higher immediately on that news and hope, only to reverse again even lower when more negative news hit.
Those rallies matter. They give existing longs a reason to stay and new buyers a reason to enter. When the recovery fails, there is another round of positioning that may need to come out. Without that back-and-forth, it can be harder to produce the same degree of forced selling. The uncertainty helps keep replenishing the other side.
Meme mania (January 2021): Companies like GameStop and AMC surged hundreds of percent amid a speculative frenzy and short squeezes. Here, too, there was a gray area. Many investors saw businesses facing serious fundamental challenges, which made shorting them appear rational, especially as their share prices climbed further away from what those investors believed they were worth.
But a compelling fundamental argument does not tell you how far a stock can move before that argument pays off. As prices rose, some shorts covered, while others saw an even more attractive entry point and stepped in. That fresh short exposure created the potential for another round of forced buying if prices continued higher.
The gray area was the gap between the fundamental thesis and the path the market could take. Of course these weren’t great stocks, and the fact that people came in on that helped the waves move higher and higher.
That’s the behavioral dynamic I find so interesting. Uncertainty can keep attracting participants to the other side of a move. As the move extends, their conviction runs into their capital constraints, and an opinion can turn into a forced transaction.
Everyone who keeps sharing these short interest charts is missing the flows behind them. Most shops are not taking outright short bets. This is another effort to ease margin requirements across the street: banks providing balance sheet for more speculative bets are asking clients to post more short exposure.
The sequence on the street looks like this:
HF manager: “I want more margin.”
Bank: “Things look risky in public AI bets, and we’re already lending a lot against private AI bets. For some clients, we’ll extend more financing, but only if they add more short exposure to improve their collateral scores.”
HF manager: “Okay, I’ll short more stock against my main bet.”
That is how you end up with short exposures that look astronomically high while many end users remain heavily long tech. The additional shorts are supporting the financing of their main bets.
Which also tells the bigger story on why raw equity financing rates haven’t blown out the way they did ahead of the big SpaceX IPO in June, despite the fact that lending is slowing.
This continues to be a theme since June, but the massive slowdown in equity financing continues to lead to stalling flows in public equity markets.
The firepower that traditionally creates fresh price discovery is just not there.
I’ve seen this quite a bit as well. One of the easiest ways to identify someone who lacks real market experience is to listen to the narratives they construct around the market-making community.
It’s a huge red flag whenever someone speaks about market makers as though they’re some divine hand from the sky that sees all, knows all, and controls every movement in the market.
More often than not, these narratives serve as convenient scapegoats for price action that someone doesn’t fully understand. And when you actually tap the Street, examine positioning, or dig into the underlying data to validate those claims, they frequently fall apart.
The irony is that market makers are often just as constrained by inventory, risk limits, adverse selection, and imperfect information as everyone else. They are not omniscient, nor are they some coordinated entity operating with a singular objective.
Ultimately the “market makers are pinning the gamma bro” type of arguments are similar to the statements you hear from a fish blaming the dealer at the casino for “bad luck” on a few hands.
ken griffin, founder of the $77 bn hedge fund firm citadel, has little patience for blaming every losing trade on hedge fund deleveraging.
he says people love that explanation because it removes their own accountability.
his first questions are about the prices changing, the information his team lacks, and what other investors may have worked out.
only after exhausting those paths does he want to discuss who might be forced to sell.
his concern with reaching for that explanation too quickly:
“I actually stop learning.”
Kris Sidial🇺🇸 retweeted
First of all, this glorification is not new. I remember reading TRADER Magazine (yeah, bet yah too young to know about that). At least those were real traders.
Ask the real OG traders who they looked up to and you'll hear names like PTJ, John Arnold, Steve Cohen, Soros, Druckenmiller, Ken Griffin, and Jim Simons.
This doesn't even include the countless other unknowns
Ask them who Kimchi is and you'll probably get a blank stare.
There's this bizarre celebrity trader culture developing where people with large audiences and livestreams are being treated like some of the greatest traders alive.
Somewhere along the way, people started confusing being famous for trading with being famous because you're actually good at trading.
Those are two very different things.
the rise of traders as celebrities makes a lot of sense to me
most people can't realistically become the next LeBron, but they can learn how to trade from someone who started out just like them
that relatability, combined with the potential to make money, creates a different kind of connection between traders and their audiences
i expect that to become a bigger part of the social trading
You are starting to see the largest hoarding equity stimulus attempt ever.
“Let’s attach the general public to direct exposure to our stock. It naturally creates greater attachment to broad inflows and also incentivizes government intervention and support in the event of a crisis.”
I would watch for more companies to begin pursuing similar efforts.
We’re committing a portion of Anthropic’s shares to the Anthropic Public Benefit Fund, a new wholly owned entity dedicated entirely to the public benefit.
It will start off with 5% of our shares. For every 50% increase in the company’s value over a set baseline, we can contribute up to an extra 2%, subject to our board’s discretion.
In total, this means that roughly 20% of Anthropic’s shares are committed to the public good. Our co-founders have already pledged to donate 80% of their equity, and around half our employees are donating a portion of their equity as part of a donation matching program we’ve run since our founding.
In the post below, we share more details about our new fund.
anthropic.com/news/public-be…
Very often, I’ll speak to allocators who have target return objectives for their investments. I usually express that I’m not a fan of this approach, particularly when it comes to long volatility strategies.
Let me explain why.
Imagine you have a friend who tells you, “Hey, I’m a good poker player. I’m going to play at this casino tonight, and I’m not leaving until I make $500K.”
He starts with a bankroll of $50K. He’s a skilled player, and fortunately, he’s seated at a table with players who are considerably worse than him.
Nine hours go by, and he’s now up $450K. However, the table dynamics change. A few players rotate out, and two players he recognizes from other circuits sit down. He knows both are significantly better than him.
To me, a good poker player would recognize that the opportunity set has deteriorated. He might play a few more hands with a strict floor in mind, but if that floor is breached, he picks up his chips and calls it a night.
Unfortunately, our friend has committed himself to his original rule: He cannot leave until he makes $500K.
So he continues playing. Nine hours later, he has lost everything.
Now, let’s change the scenario.
Instead of two superior players joining the table, imagine two more fish sit down. Our friend plays another hour, makes the additional $50K, reaches his $500K target, and walks away.
Unfortunately, those two fish each have an additional $2M bankroll and are willing to keep playing all night.
In the first scenario, had he recognized the deterioration in the opportunity set, he could have walked away with $450K instead of nothing.
In the second scenario, had he recognized the improvement in the opportunity set, he might have walked away with $2M instead of $500K.
So what went wrong in both scenarios?
He allowed an arbitrary return target to dictate his decisions rather than the underlying conditions that actually determined his expected profitability.
This is the fundamental problem I have with target-based investment frameworks.
When you establish external parameters that have no meaningful relationship to the underlying distribution of outcomes, you risk systematically making the wrong decisions. You end up taking too much risk when the opportunity set deteriorates and taking too little when it improves.
Now, bring this back to volatility investing.
I often speak with allocators who say things like, “We want our hedging program to generate a 40% return if the market declines 20%, and we want to monetize when that happens.”
I try my best to explain that the parameters you establish for your hedging program have absolutely no influence on the path the market takes or the opportunity set that develops along the way.
A 20% market decline tells you very little, in isolation, about whether the remaining convexity is attractively priced, whether volatility is likely to continue expanding, or whether the positioning dynamics that created the opportunity have been exhausted.
This is precisely why so many hedging programs struggle with monetization. They either monetize too early, leaving substantial profits on the table, or monetize too late, allowing significant gains to evaporate.
The problem isn’t necessarily the hedge itself. It’s that the decision to monetize is being driven by an arbitrary objective rather than the variables that actually determine the expected value of continuing to hold the position.
The objective should never be to maximize returns relative to an arbitrary target. It should be to maximize the value extracted from the opportunity set as it evolves.
This year Ambrus donated $100k to @sonofasaintorg .
This is an organization that does real hands on work to provide long-term mentorship and support to boys and young men who are growing up without their fathers, in socioeconomically deprived areas.
If you are a trader/ investor looking to pay back your blessings. This is an organization worth looking into.
Kris Sidial🇺🇸 retweeted
Jim Nantz says Mike Ditka used to pay and tip for everything with $100 bills, and never ask for change
“I noticed early on that all he carried were $100 bills. All he did was peel off hundreds all the time. Buy a beer at the bar on the way out to dinner, ‘Yeah, give me a Budweiser.’ $100. Keep the change.”
“Coat check, comes into a restaurant, comes out, $100. Man on the street, homeless, there was one guy that kind of understood the routine and he was there every week. Mike, every time, $100 bill.”
“I finally got up the nerve to say, ‘Hey coach, why don’t you ever get change? Why just the hundreds?’ He says, ‘Hey, what’s the difference anyway?’”
“He said, ‘You know, the way I look at it, when I die and they drop me down into the ground, I hope there’s a little opening in that coffin and my last $100 bill comes flying out and goes up into the sky and drifts away. That would make me happy.’”
“So I said, ‘This gets a little pricey, doesn’t it?’ ‘It’s not that bad, Jim.’ He said, ‘Here’s the way I rationalize it in my head. We got 20 weeks. I come every single Friday to New York. I come in with 50 $100 bills, $5,000. And at the end of the season, I’m spending $100,000.’”
“He would say, ‘I’ve allocated $100,000 to the football season to go enjoy myself in New York. And that’s the way it is.’ I take $5,000 in cash in hundreds every single week. And that’s what he did.”
There’s this persistent narrative in trading that the smartest guys in the room are inevitably the ones who make the most money.
You constantly hear things like, “How could you ever compete with a firm like XYZ?”
I’ve said this before, but I think that couldn’t be further from the truth.
In my experience, a few attributes consistently separate good traders from everyone else:
1) A relentless desire to progress.
2) An exceptional work ethic.
3) Slightly above-average intelligence.
4) Genuine self-awareness and humility.
5) Unwavering discipline.
6) Mental flexibility and the ability to adapt.
7) Natural gravitation to take risk.
If you genuinely possess these attributes and dedicate yourself to the craft, it becomes very difficult not to develop into a good trader over time. It’s actually quite rare the giga brain that is strictly exceptional raw intelligence ends up lasting long in this game.
my friend worked with sbf at jane st. everyday they could bet on brain teasers, ie "what's the average weight of an asian elephant?" evidently sbf would consistently bet the most. on wildly incorrect guesses. everyday. without ever modifying his strategy.
everyone thought he was the biggest moron they had ever met.
Kris Sidial🇺🇸 retweeted
Hedge fund borrowing from banks has tripled since 2020, and prime brokerage is now one of Wall Street's biggest profit pools
Equity and fixed-income prime brokerage revenue is expected to hit $47.9B this year, per Coalition Greenwich. Prime services will make up about 38% of bank's equities revenue, up from 10% in 2005.
A single large multi-manager or prop trading client can generate up to $200M a year for a bank after trading costs.
The leverage, per Fed and bank data:
- Top 50 hedge funds borrow about $3 per $1 of AUM
- Top 15 borrow about $11 per $1
- Largest funds run 20-25x including derivatives, per one bank executive
- Market makers can reach 40x
The Bank of England said in July that prime brokerage balances rose about 40% year over year.
Goldman and Morgan Stanley still lead. JPMorgan, Citi and Bank of America are pushing for share, alongside BNP Paribas, Barclays and ABN Amro.
Competition is loosening terms. Financing commitments for top clients have stretched from about two weeks to one, three and in some cases six months.
Post-2008 rules pushed risk-taking off bank balance sheets and into the multi-managers. The biggest platforms ran more than a third of industry trading last year on under a tenth of assets.
Funds split positions across several prime brokers, so no single lender sees total leverage. Regulators could look into requiring consolidated position reporting across primes.
Fingers crossed that we actually get some good trading opportunities into the end of the year. Welcoming stocks moving higher or lower.
Three months of nothingness and headfakes in equity land has been a boring torture chamber.
I don’t invest in other hedge funds because all of my investable capital is committed to my own.
But if I ever decided to start allocating to other managers, rather than going through a barrage of questions attempting to assess areas where I lack genuine expertise, I would focus on understanding the broad risks and then dial in on two main principles.
1) Does management have meaningful personal capital invested alongside its investors?
It’s a relatively straightforward yes-or-no question, but I think the answer reveals quite a bit. You can rationalize all sorts of reasons why management shouldn’t have its own capital at risk, but to me, there is no substitute for genuine alignment of incentives.
2) Is management genuinely obsessed with its craft?
I think this is one of the most underappreciated qualities in evaluating any business. And I genuinely believe it’s what gets people from being in the top 10% to top 1%.
When someone is genuinely obsessed with what they do, late-night strategy discussions, weekend meetings, and countless hours refining the business stop feeling like obligations. They become problems that people have a burning desire to solve.
That obsession drives deeper thinking, better questions, and an unwillingness to settle for satisfactory answers when better ones might exist.
Over time, that passion and attention to detail compound. Small improvements accumulate, processes become more robust, and ultimately, that obsession manifests itself in the quality of the product and its results.
As humans it’s kinda hard to be bad at something you are obsessed and passionate about especially if your work ethic aligns.
Going from the top 10% to 1% at something takes so much effort that it makes no sense if you are looking at it purely from a time efficiency perspective
But that valley is where all of the returns sit if you want to go from being good to being great
Most people overestimate how hard it is to be the top 10% at something, and underestimate how hard it is to be top 1% at something
The ones who are willing to do the work to cross from one line to the other receive all of the glory
I’ve been preaching this story for a few years now. Notional short Vega in the street remains massive relative to where it has ever been.
It doesn’t mean go and naively buy puts because that’s entirely silly.
But whenever vol is rising this is something people should be cognizant of, contrary to the one dimensional view of “just short vol on spikes”.
