Explained! Systematic Options Strategies with David Sun - David Sun

So looking at call contraction and looking at put expansion can give you the same type of signal, but the timing and flavor will be a little different.

It's honestly, that's been the, the gift that I keeps on giving because the kind of ideas that, you talked about, especially towards the end with regards to ensemble methodologies and just. Not having to focus too much on one particular, you know, way of doing a strategy and just being able to diversify and have a robust portfolio. that, that's been kind of the fundamental premise from which all of our ideas, you know, move from.

And again, you may not remember, but I, I sent you a DM on Twitter maybe a year and a half, couple years ago, just letting you know that I had really lashed onto that. So again, uh, it's really come full circle. So like I'm

Right around 2008, 2009, there was a friend there who, you know, that was a time where the market was gonna be on your mind regardless if you intended it or not. And uh, I had a buddy there that traded options, you know, really nothing too sophisticated, but he got me into that.

So, interestingly enough, I started with my foray into the markets by trading options, but not only that, but from selling options and selling premium, which is usually kind of backwards 'cause I think most retail get into it as way of speculative leverage and having big payouts and lotto, so on and so forth. So I got my start with that. Again, nothing really sophisticated.

I was just selling, you know, randomly selling, put options on various symbols, whatever it was, you know, on mad money, whatever Jim Cramer said that would come, come to my attention. So again, nothing really sophisticated, uh, was just doing that for a number of years.

It was really around 20 17, 18 that I found more, I don't know if it's books, but it was like online communities, online kind of options, education, where I started to try and be a little more systematic again with that kind of engineering and math background and trying to do something that's more repeatable.

And probably a couple years later, and, and this was the time where I was kind of accelerating my own learning curve, but, around 2018, late 2018, you know, things were going well and, and I got the confidence to launch my first, private options based hedge fund. Nothing really big, no small shop. Uh, that went well. a couple years later, 2021 launched the second one. We can talk about why two and the differences, so on and so forth. But, um, along the way I've, I've always been kind of.

Still found myself associated with toward the retail community because that's kind of where I got my legs. And I still collaborate and communicate with a lot of people in the retail community through online groups. I have my own podcast, which is sort of a focus on retail education, but with a focus on options. But lately has also grown into not just like options and strategies, but more about portfolio building, ensemble methodologies. I had people like Cory on the podcast.

I had Andrew Beer talking about trend following and ETFs and how to utilize that to build your book. I think that's some topics we may touch on as well. so that's all kind of been going on and that's been the last few years. Uh, and that kind of catches you up to where I am today, I guess.

And it was a simple concept of if I can take, you know, buy and hold the market right, get my pure beta exposure, well, options are an instrument which you can trade a margin so you're, you don't have to have cash in the account If you have equities, those equities are marginable and you can basically overlay an option strategy on top of that.

So the idea was just to get a pure beta exposure and trade varying option strategies to generate, you know, some marginal, couple percent alpha for instance. And if you can, consistently outperform the market, 'cause you're stacking that little bit of alpha on any given year, you're not gonna beat it by very much. But over time you let that compound, right? A 10% keger versus a 12% keger after 10 years, it's pretty meaningful. So that was kind of the original idea.

And then throughout the, the few years after that fund was launched, we were always like investigating and developing new strategies, looking at different tenors. You know, in the beginning was treating a lot of weekly options out seven days, we explored forty-five days, 90 days. And we start going the other way, going shorter duration, two to three days overnight basically. And of course now zero DTE is kind of the, the buzzword in the last couple years.

So we, we did a lot of intra basically intraday, zero DTE options trading. And the interesting about zero DTE is the fact that it's intraday, right? So there is no, there, there's no overnight exposure. You go flat, by the end of the day. And so, there was, some demand from existing investors and also new prospects for a focus on trading just zero DTE strategies.

So. My now partner who then wasn't partner, but my business partner who I launched the second fund with, he basically, he's sort of the, the tech guy. so he built the, the backend automation for us to scale up trading pure zero DTE. And we spun that out and just made a separate product, separate fund. So it was, the focus was zero DTE. And so that was the reason. So you kind of get a little different flavor.

with the zero DTE, no overnight exposure, you can kind of keep the, the volatility of your portfolio very low. There's no equity holdings, there's no holdings. It's just we're in t-builds basically overnight. So that was kind of the reason and fundamentally the difference in why that second fund came about.

So a simple strategy we might have is just, you know, a naive one, and I mentioned this on Corey's podcast, we're just naively selling puts and calls. When you say put and call and we spread 'em off, let's call it an iron condor. But the idea is, I think sometimes these kind of strategies get a bad rap because people think you just sell iron condors, leave it like it is, and you're quote unquote, harvest the VRP and you don't have to manage them.

Well, we know that that's not the case because if, and especially recently realized volatility has been quite a bit above the implied, so you can get easily blown out. So we're gonna manage the risk, you know, take the positions off, you know, stop out at a certain percent loss or whatever. But the main difference is when you're trading zero DTE, you can get a lot of occurrences because number one, there's expirations every day. So that gives you, you know, 250 trading days.

But number two, you know, we can kind of deploy positions throughout the day. So we're t tranching into, and I guess on the surface it almost just looks like deploying iron condor, re-centered every, You know, let's call it 30 minutes for instance. And because the market's moving around now, it's a little bit more than that. But the idea is when you have so many occurrences, you know, people that deal with options and probabilities, you know, there's a concept of law of large numbers.

And when you can trade this many occurrences, you can really get that law of large numbers to play out. So if you can trade, you know, a dozen times a day, then you multiply by 2 52, how many samples is that? And so it's really about being able to trade very small positions and having a lot of occurrences so that you can kind of really control the volatility in the drawdowns.

But yes, for us we we're focusing primarily or exclusively on index options. S&P,

And I'm trying to exit at $3, which is a $2 loss, 200%, well, we might kind of adjust that a bit and split that up. Part of it gets out 150%, part of it gets out at 200%, part of it gets out at 250%. The analogy I use is you're building three fire exits instead of one, right? So anything we can do to kind of push that liquidity. But to kind of answer your question more directly, we might be per trade, you know, a couple dozen contracts.

Now that sounds small, but we're doing lots of trades, so I, I don't think we've ever really pushed, like you can watch the tape and sometimes you'll see these trades, 500 contracts, a thousand contracts go through, which maybe at a one-time basis, that's fine. There's a lot, there's a lot of liquidity now, I think with the market makers, you know, coming to, to provide that liquidity. But if we suddenly had to, you know, pull thousand lots in rapid succession, I don't, I don't know.

I don't know, nor do I necessarily wanna find out because once you find out, you know, usually something, not, something bad is happening.

Now, if, if there's a sudden move and it's one sided and we gotta close out all the positions on one side, that's a lot different. Yes. It's nice to be able to tranche in over time, but then if you had to pull everything out, you know, and we've traded through Covid for instance, and even then the market was fairly orderly.

there were some times when the spreads got kind of wide, but I don't, I haven't lived through like, or I've lived through, I didn't trade through, like for instance, the flash crash situations where market makers pull all the liquidity and you know, that's, We have some contingencies for that as well. But you know, that that's not something I necessarily look forward to, uh, to witnessing again.

So in the beginning I mentioned there's some kind of just naive strategies where there's no signal, you're just selling premium and you have kind of basic risk management, but you're generally just trying to harvest that, that VRP again, it's sometimes it's there, sometimes it's not. Especially, you know, lately market's been moving a lot intraday.

To some definition, yes, if it's going up, I wanna buy, if it go down, I wanna sell it. But how is that measured? How is it defined? And some people can look at moving averages, you know, this moving average cross over that moving average. Okay? That means it's, it's a plus sell puts 'cause it's going long or sell calls because it's going down. But what we do is we look at different ways to kind of perceive or try to predict where a market might be going. So there's there a couple ways.

One is we can look at the rate of volatility contraction. So if the market's going down. The call premiums are decreasing. If we see call premiums at a certain part of the surface contracting at a certain rate, that will be our signal that it's a downtrend. And so when we deploy the premium, we'll lean short we'll sell calls instead of puts. Conversely, if put premiums are expanding, that's another way to indicate market's probably going down.

And yes, they're mirror images of each other, but they're not gonna react exactly the same. So looking at call contraction and looking at put expansion can give you the same type of signal, but the timing and flavor will be a little different. And so what we've done is we have multiple strategies that are sort of trend following and they'll kind of lean our exposure long or short, but they all kind of end up at slightly different timing.

So if we look at the plot to equity curves or kind of the the return or the time series. It isn't a perfect correlation between the various strategies, even though they're all quote unquote trend following. And so that's kind of one way we've used that concept. And we tend to, whenever we're researching and developing new strategies, rather than trying to overfit one and trying to be like, okay, well this, this month we did bad 'cause of this, so what do we do to address that? Right.

And we all know that's kind of a, futile, um, it, it's not gonna end well because it never matches exactly. So usually whenever we find a new signal or something that shows good expectancy, we'll just add it to the ensemble and size everything down accordingly. And I say size down because for us, one way to vol target, if you will, is just to control how much premium we're selling. It's interesting because.

If I sell X amount of premium and I've determined I'm only gonna take a loss, equal to a certain multiple of the credit I've sold, Then the credit I sell is a proxy for how much risk and practice I'm willing to take. And so we call it the way we view a risk budget, we call it a credit target. And so we will basically allocate how much premium we're willing to sell to the various strategies, and then we kind of weight them that way.

And so this idea of adding different, you know, expanding the ensemble and adding as many low correlated strategies as possible, and using that as a way to increase the, the sharp ratio of the overall book.

I wonder what happens um, if we did this, you know, X, Y, Z. And whereas most people are just, can only speculate, you know, we fortunately have the, the testing infrastructure to basically, if you can think of it, we can test it. Right? but there's, the answer is, I, we haven't really looked into that. But the other point about the Delta One, we have explored and some of our signals have been applicable to Delta One.

Now, one issue though is to make the P&L kind of meaningful, you have to trade in fairly large size. And when I say size, I don't even mean a lot of leverage. Like if, if you trade at one x, you know, notional exposure to your NAV Market goes up 10 bips, you're up 10 bips. I mean, it doesn't sound like a lot, but we try to keep our daily, you know, P&L pretty tight as it is. And so it just hasn't, we haven't found a way to do it in a way where we're comfortable with the set.

Delta one is Delta one, right? It it's very impactful. So if you're wrong, you have to fix it right away. And then the execution really matters because it's that, well, like I said, Delta one, so it's, it's gonna be that much faster when it moves against you.

Whereas, you know, trading Delta ones, even if you've got stops, you still, you know, you on average may have relatively fixed risk, but every now and then you're gonna get, you're just gonna get hit with, with something getting blown through your stops, or market's gonna get halted or something like that. Right? Like it's, very different. Maybe just a take a minute to explain that, right?

Because I think for people who don't trade options, the idea of being able to very precisely shape the risk you're taking, may be foreign and also interesting.

So if we take a simple example, if I'm willing to, you know, risk two to make one, and cause if you sell an option for a dollar, your max upside is a dollar. and we know you can lose many multiples of that, but let's say I choose to cap it off at a two-dollar loss. So this is a plan risk two to make one. So if you fix that, then your breakeven win rate, we're not counting for commission slippage, et cetera, et cetera. It's, it's two-thirds, right?

So if you win two out of three, you're gonna breakeven. And so. Again, simply stated, if you win more than two-thirds, you'll make money. If you lose less than two thirds, sorry, if you win less than two thirds, you're gonna lose money. And the rest is just depending on where that win rate is. And the idea is with like, if I were to use the same again, a lot of people focus on the hit rate or the win rate, but they kind of lose sight of that risk profile.

If I were to sell, I don't know, an at-the-money put option, We know at-the-money is 50, deltas about fifty-fifty. Whether or not you win or lose, and I can set my stop at, two x or whatever, your win rate's not gonna be super high, right? It's probably gonna be a little bit above 50%. And so that's gonna be below that break-even win rate.

But if I take that same idea, I could sell a 40 delta out of the money, sell a 30 delta or 20 delta or 10 delta at some point consistently at that Delta, your win rate effectively over enough samples will be above, whatever you need to be at a positive expectancy. Right? Again, assuming risk two, to make one, you can do different kind of profiles.

Now there's a trade off because if I start selling really wingy stuff or sell nickels and dimes, it's it's not very, number one, it's not very margin efficient. Because if I'm selling nickels and dimes, sure I have a ninety-nine percent win rate, but then the commissions and fixed costs is gonna eat up a lot of that. And not to mention if you get hit with a real black swan, right? Those things explode and you're gonna lose many dozens, hundreds of times. Right. So there's kind of that, like the

So you're gonna collect, you're gonna win Ninety-nine days out of a hundred. But at the same time, you've got a lot less liquidity when you're trading out in the wings, right? Like it's just, so you've gotta overcome a lot greater trade slippage. You may not be able to put the same position size on, or if you, if you do want to put the same position size on, you're gonna pay more from it or for it in terms of liquidity, right? Sourcing that liquidity.

And at the same time, when those, when you're in that one percentile or ninety-nine percentile tail, typically you're no longer in a normal distribution that you understand. And that's when that leverage can really work against you. Is, did, did I kind of cover all the, Dimensions that you were trying

But uh, going back to the earlier example, we found, you know, in some strategy it depends, but somewhere in the kind of the 10 fifteen-ish delta range, you get a nice balance between being able to, you sell the premium and you have, you know, your stop loss or your profit take or whatever it is. And over enough occurrences, and again, you've defined your risk and practice risk. Two, the make one, for example, that win rate, it's gonna fall, you know. Somewhere in the eighty-five percent range.

And one other kind of metric that we kind of look at is, I, I call it premium capture rate or PCR. And it's just a proxy for expectancy.

It just means, because I don't expect to collect and keep every dollar or premium myself, Sometimes I collect a hundred percent, if it expires, I collect 60% of my profit take, or I lose 200% if I had to stop after all of that, whatever you net on average, you know, 10%, 20%, you if your PCR is 25%, it's basically you're averaging 25 cents on a dollar that you sell. And for certain tenors, you can get a, fairly predictable long-term. That's the stress long-term. PCR, right?

There's gonna be sequence risk and in certain times where just everything gets stopped down and you lose it in clusters. But having that kind of probabilistic approach and idea, again, the focus being on architecturing, that risk profile. Not so much necessarily trying to maximize win rate, but really trying to maximize expectancy by keeping in mind where your kind of guardrails are for your, your, trade structure.

So those are the things that kind of blow people up and something that we've explored, which is kinda interesting. It's selling shorter data options that's so on each day, right? I can sell on Monday, sell the Tuesday option Tuesday. So one DTE, right? Overnight or Friday you sell the weekend, you sell for Monday. So you're selling a shorter data option. But we've had to explore hedging them with kind of longer dated, structures.

So if I'm selling like a one DTE, I might be hedging with like a seven DTE, a longer data straddle, uh, for instance. And that's just kind of one example. And we're trying to uh, I wanna try to answer that question correctly. 'cause when you're, when typically we talk about dispersion is that, that's kind of more like. Selling index. Uh, I dunno if I get it backwards selling index and buying like, individual symbol vol or the other way around.

That's, so we, we don't do that kind of dispersion, but I think what we're talking about is more like trying to sell in one tenor and taking advantage of the overpricing in another tenor. Um, so quick example of the hedging that I mentioned. You would think that, for instance, if I'm selling an out-of-the-money option, right? And I'm trying to harvest the VRP in that structure.

If I now tell you I'm gonna hedge it, but then at-the-money structure, you know, just to buy an at-the-money long straddle, it kind of sounds kind of impossible because I'm, I'm buying something that's at the face value gonna be a lot more expensive, right? But what we found is in certain cases, if you buy at-the-money straddles. And just seven DTE for instance, over a long, you know, long enough period.

You know, we looked over, you know, 10, 11 years that straddle is gonna have a really kind of wild return profile. It's gonna lose money most of the time 'cause we're not in these kind of high realized volatility environments. But then you hit pockets like Covid or 2022, where the market moves, right? And you get really paid. Now that's really lumpy of a return curve, because it's gonna be losing money. It's gonna be gaining money.

But interestingly enough, over the last 11 years, it's about a net scratch. Now that's kind of coincidental. I, I understand there's a lot of path dependency, but over the, from like 2013 to end of 2023, buying the straddles kind of happens just to be zero. 'cause you lost a bunch and then you made a bunch. Now it's a wild curve, but it ends up to be zero. But if you think about it again.

I've just said that buying the straddles ended up being about a zero expectancy, but if the straddles, those weren't my P&L generating structure, those were my hedge. So if they're zero expectancy, close to zero, that's not that bad. Right? Because now I've, I have a structure that can kind of fully protect these short outta the money options, whereas it actually doesn't cost me as much as you think. So there's kind of ideas like that that sort of were

So I think it's a good time for us to kind of, we're, we're always updating the back test, you know, as we, we have like a data subscription so we can keep updating the test to see if our live trading matches it. But I would say at some point I would tend to give more credence to post-2020 or post-2022, just because Covid really kind of reset expectations and just the way the volatility surface reacts and it'll probably take another decade before it goes back to kind of pre-COVID levels.

It. I think it was like from 2008 we had this big reset and then complacency kind of came in and compressed everything up until like twenty-twenty, and then again everything kind of blew up. so I don't know if that's like. The perfect answer, but for us, 2020, no, 2013 gives us about 10 plus years. But I do also separately look at kind of post 2020, 2022, just to see if there's kind of meaningful change. And sometimes there isn't.

I would honestly think the, the bigger change, which isn't surprising is that because we're showing short data options, there's just been more opportunities as in literally more trades in the recent years, which, you know, I think makes the data more reliable.

I. to say that there is a change in, in character over time, and they're gonna affect those changes are gonna affect different types of strategies, more or less than other different types of strategies. And, you know, sort of continues to lean in the direction of trying to diversify the strategies that you run and the sources of risk that you're harvesting returns from, to the greatest extent possible. So, I mean, is that something you guys have considered?

I mean you, I understand you sort of started with this kind of return stacking approach. have you continued to look for more sources of risk to harvest or, have you been sort of content to continue to play within your, vol selling sandbox?

Again, there's been days where it's moved multiple standard deviations beyond the expected move and you get, you know, I dunno if you remember top of your head, but in late December in 2023, we, there was that one day where the market sold off like 60 handles in the last, uh, couple hours. So, that was a nice payday there.

beyond that, the idea of, um, even that, the idea that I just mentioned about kinda hedging with the straddle versus the typical buying wings or a ratio, whatever, it's just more thinking about, ways to, but yes, thinking of not just short ball, but different ways to apply long volatility strategies, as a way to kind of provide another return stream.

But beyond that, one thing that we have added, and part of the reason I, you know, kind of follow you and Corey and kind of the work you guys did is the idea of adding. trend following as kind of another. It, it's uncorrelated. We, we know that, so like typically people talk about, you know, stocks, bonds, and correct me if I'm wrong, but trend following itself sometimes considered like a, like a third asset class.

And so, we've looked at not, we looked at, we have like, we allocate to kind of a basket of these trend following ETFs, you know, including you guys, the one you guys have. And, uh, it's been interesting to follow that space and being able to get that exposure. and one thing I had mentioned, I want to email you some topics to talk about today, is the idea of how something like that can even apply at the retail level and specifically why I think that's interesting.

And for nowadays, which is the kind of the proliferation of like. Products and exposures accessible at the retail level because before, you know, you could only get access to trend following via like a mutual fund or some kind of private hedge fund. But having that liquid wrapper, and one thing that's interesting is the ability to get capital efficiency and kind of build return stacking portfolios in your own account, because you can hold these ETFs.

And whereas before I mentioned our old model was buying that pure, pure beta and stacking alpha, we, we changed up the model for that one front now is focusing more on non-correlated as low beta as possible. So actually the model transition to where we, we got rid of the the market, the traditional S&P index funds. Now we have a basket of trend following ETFs and we kind of stack these other options, strategies, and really what the drive to have as little beta as possible.

and what I found interesting is, the whole premise of your return stack products, right, is the capital efficiency. And when you talk to, you know, I guess as an advisor who was talking to a client and why they should, you know, typically the friction was they don't wanna sell off their stocks or bonds or whatever it is to make room for the trend following. And that, and that's why you got these capital vision building blocks.

Now as someone who's a self-directed investor, haha the fact that you can buy, for example, RSBT, which is return stacked and is inherently leveraged, but your brokerage can allow that in and of itself is marginable. And you can layer an option strategy on top of that. You, you're basically triple dipping the capital. So I kind of find that. Pretty interesting and, and we should caveat, you know, you gotta do your own homework.

This is not kind of a recommendation to leverage on top of leverage, but the idea to, you know, now even as a retail person, if you have portfolio margin, you can buy T-bills, you can allocate to trend following ETFs, then you can layer these options strategies on top of that and it can really create something unique that institutional grade leverage capital efficiency that wasn't possible, a few years ago.

In other words, you don't expect them to react negatively to the same financial or economic events. It's, you know, how can I stack as many of these different premia into my portfolio as as possible? Right? And the whole idea of leverage is, it doesn't even make any sense, right? I mean, even once you go to where you're mixing stocks and bonds in a portfolio and you want to. Have them effectively diversify one another.

And you realize that stocks are so vastly more volatile than, than bonds for the most part, that, if I want to have equal risk or if I want to have them well diversified, I either have to accept a really low volatility portfolio that's mostly bonds, or I can use all of the array of different derivatives or products that underlying them contained derivatives to expand my canvas and, gain all of this, you know, diversified access to all of these premia.

And the leverages kind of washes its own face, right? It, it becomes a trivial aspect of that, of the whole approach. The leverage is, is this, you know, four letter word for for many retail investors. Once you realize that you get, you really want leverage to expand your opportunity for diversification, not so that you can take on more concentrated risk. The leverage kind of fades away, right? And then this return stocking becomes so obvious.

You're not looking to buy a bunch of, you know, different stocks on margin and having a concentrated beta exposure, for instance. Is that the point is you're trying to have as many uncorrelated sources as possible.

Just allocating to S&P is a permanent portfolio, right? 60 40 or Harry Brown, or Golden Butterfly, whatever it is, you're, you're allocating different assets, and you're gonna rebalance them, but that's gonna provide you some better risk adjusted return than just having that one asset class. Fully allocated. And then above that is the idea. So these are, you know, what is an asset, right? It could be stocks, bond, gold, real estate, whatever.

But the idea is for us, when we talk about a systematic option strategy, like a put selling, you know, like I mentioned earlier with the profit tag and the stop loss, I see that as something that's gonna be the same repeated occurrence, the same mechanics over and over. And when you repeat that the set of mechanics over and over that strategy is gonna have a sort of a expected return profile.

We, we can kind of know what the return over long term, what the volatility, what the, you know, what the risk profile is. Well, if you're gonna say that, I mean the, the whole point of building portfolios is, you know, gold is gonna have a certain risk profile, certain behavior, you know, stocks are gonna have certain behavior. And so this concept of strategies as assets, right?

The fact that we're doing all of these different strategies, it's not like we're, you know, what, what does active really even mean? Right? It's, I, I have this term I call like actively passive investing, right? What's to say? I have a permanent portfolio of these five assets, and one asset isn't just this one systematic strategy that I run. And so it, it doesn't necessarily have to be like some super exotic concept.

The fact that we're trading options trading derivatives, It's just another way to build a portfolio basically.

there's no clear risk that investors who are investing in trend following are accepting in return for their, um, the long-term profile of, their returns. but it has been so reliable over time and there's such a reasonable explanation for why the phenomenon exists and persists that many still sort of choose to, to have it. But I think at the highest level of abstraction, really, your, you've got a bunch of strategies that are gonna try to triangulate on harvesting vol..

You've got a bunch of, you know, in a way. Straight up long only equities is a way to harvest of all premium. Right? Does sort of prompt the question, why not try to harvest of all premium in a variety of other markets too, right? Like, why aren't we, selling vol on, on gold or on treasuries or on oil or what have you? And there are funds that do that, right? And you've got this sort of diversified vol selling, approach. And then you've got other strategies like global carry trend following.

Then you've got the stock specific strategies. So you wanna be sort of market neutral but biased towards, you know, cheap companies, over expensive, biased towards lower volatility companies, over higher volatility, higher quality, over lower quality. You can sort of, you see how this canvas expands. And you just want to have exposure to as many of these different premia or styles or factors as possible.

And then there's a layer above that as you sort of say, which is kinda the strategy that you're gonna use to gain that exposure, right? And for those who are a little more sophisticated, you want to, you want to do some due diligence there.

But the general concept is just expand your canvas, gain as much, gain access to as many different, style premia or risk premia as possible, and be maximally diversified at a risk tolerance that you can accept over the long term, you know, that allows you to hit your, uh, return targets and your financial objectives. And it really kind of is as simple as that.

But, we have this term we call a a zero EV or zero expectancy strategy. And back in the day, like when we were testing different things, we might reject an idea just for having a low return. But nowadays huh we'll be like, Hey, let's, let's put that into, and we have some spreadsheets. We can kind of blend in strategies and look at the overall book. Like, let's see how that strategy plays off the other ones we have. Does it do well when the ones we do don't do well?

Like we don't care if it makes money long term, as long as it kind of makes the bad days a little less bad, right? Because every single time you can reduce a drawdown, you're, you're incrementally reducing that volatility drag. Volatility drag is always working against you.

So if you can inject something that isn't necessarily P&L generating and, and that's the idea of that the shaman's demon, that there's sort of this convergent property where you can actually squeeze out more return if you're rebalancing over time by the fact that you're able to minimize that volatility. I.

Because, every diversifier for the most part have underperformed, cap-weighted equities as we've had this massive. Concentrated, tech equity rally, right? So, you know, it's just, you've got these different kinds of risks that people are willing to take. And one of them is your willingness to be meaningfully different than your peer group.

If you see your peer group getting very wealthy, very wealthy over a short time horizon, that can be very painful because nobody wants to be sort of left behind or left out. And so, you know, one thing I know I've learned in my 20 odd years in this business is that most people just cannot stand to be anywhere near mean variance optimal. Like the whole idea of trying to maximize diversification scale your portfolio to generate, enough returns while preserving that diversification and just.

Not really caring whether you're gonna deviate from that one narrow risk factor, which is U.S equities, that is very very small percentage of people can, can tolerate that. So, you know, a, a dimension of this equation is always, you wanna have the most diversified portfolio that the investor is gonna be able to stick with long term. Because the worst thing that can happen is them bailing on a strategy because it deviates too far from their emotional benchmark.

and that almost always happens at precisely at the wrong time, which means that you capture all of that, all of the risk from being different without then harvesting those extra returns from being different. So there's always a balance there.

although, uh, I, we changed that up at the end of 2022, obviously not at the, the best time, but because fundamentally my, my kind of views of market risk in general, not just us, but just like the world and it's stocks gonna go up forever and now end up going up another year and then we'll see how this year, you know, it's, it's only February now and we're up like another four or 5%. So it's, it's hard to say. Obviously no one can predict, uh, what, what's gonna change.

But, that that was the thesis behind kind of breaking from that old model. Just the trying to not, you know, basically be concentrated in, in just stock beta.

not to say there isn't a reason for a third one, I, I guess it's just some reason to kind of compel us or, or some fundamentally new mandate that we wanna pursue. But, but at the moment, I, I think that the two that we're doing, have a sufficient, kind of uniqueness between the two. That, that, you know, people can kind of choose which, which one they like.

So, and then my Twitter handle, I think the one I reached out to you is at the trade Buster, although I guess that should be. X now not, not Twitter. but there, there's plenty on there. And, and people like, again, uh, IE even as sort of a, having gone to the other, quote unquote other side, I, I still sort of associate myself with the, the, the retail crowd. 'cause that's kind of where, where I got my start.

so I do the podcast and stuff kind of as a way to reach out and try to make my difference in, in the retail education landscape.

Then you're constantly learning, you're climbing the learning curve and exploring new dimensions of this almost infinitely, curious domain that we, that we occupy, right? Um, no one's really solved the market yet, so there's always new things to learn.