The Risk Not Taken

We cannot eliminate risk. We can only choose the risks that we think are worth it.

I have worked in the “risk management” realm for quite a while in various realms. Options trading is, at its heart, all about risk management, or as some say, risk transfer. But if you are trading, no matter how you do it, you are taking on risks.

If you are a volatility seller, you are taking on the risk of the fat tails, those “once in a lifetime tidal waves” that come around in actuality every few years to wipe the slate clean. If you are a volatility buyer, you are taking on the risk of theta, the daily decay that eats away at all ordered things.

short vol 2

This was brought home to me over the last couple of days in another venue. I take quite good care of myself physically, eating reasonably clean (aside from the holidays) and working out regularly. I am actually in the best shape of my life, which is saying something for a lifelong athlete at the age of 46.

On Wednesday, I was kicking off the new year with a 100×100 workout. That is 100 kilos (about 220 pounds) for 100 reps for time, using the hex-bar deadlift (thanks to Stuart McMillan for this realm of hell). I have been workout out throughout the holidays, and this is a workout I have done in the past with no ill effect, other than trouble sitting down and standing up.

On Wednesday, however, I got my own version of a fat tail. I completed the workout in 4:55, which is quite good for someone my age. But right as I finished, something exploded in the back of my head. The pain was so much that I laid down then and there on the lifting platform and didn’t move for 5 minutes. This is apparently known as a “thunderclap headache” and can be the sign of bad things.

As it subsided to some degree, I shrugged it off as an exertion headache. But after it kept me up the entire night, I ended up, on the suggestion of my doctor, in the emergency room to make sure that I hadn’t literally blown a gasket. Six hours and a number of pinpricks later, I was cleared to go home and take it easy.

My point here is that I workout to stay healthy, to avoid risk. But, of course, exercise carries its own risks. Pushing myself as I did may not be the best choice (and I will likely not do that particular workout again). But I would rather be fit and healthy and feel good than sit on the couch and avoid the risks of excessive exercise. The risk is definitely worth the possible fat-tailed outcome that I drop dead in the gym.

After all, one day I will drop dead. I would rather it be in the gym, or on the ski slope, or bike trail, than sitting on my ass.

This holds true in all walks of life. Making a career change or taking on a new role has its risks. But so does staying in the crappy job you have.

Traders cannot hedge risk, just ask those risk parity guys. They can only choose their risks wisely.

This is a great thing to do going into the new year.

  • Acknowledge and look at the risks you are choosing.
  • Examine your worse case scenario.
  • Assume it is going to happen.
  • Can you live with that?
  • Choose those risks that you can live with… or even die with.


Figuring Out What Works

More and more I have come to realize that there are no answers.

There is no best way to do something.

There is no path to success.

There are, however, likely best ways for YOU to do things. And there are many paths to success, some of which will suit you.

I have always had trouble with general prescriptions for happiness, health, or wealth. What makes you happy may not make me happy. And what works for one trader is unlikely to work for another (hence the futility of most newsletters). I have tried programs that made other people stronger, and they just made me hurt and injured. Even emotional help falls into this trap. Self-help, a term I really don’t like, nevertheless needs to be about what works for YOU.

And the only real way to know what works for you is experimentation. Hence the N of 1. This refers to a trial or case study with a sample size of 1… just you. This sounds like a justification of “just do what you want”. But it is far from it.

While I believe that self-experimentation, or tinkering as Nassim Taleb called it in other forms, is the way to find what works (for you), I also believe there are some guidelines to help people out in this endeavor of self-discovery. I found them the hard way, but now pass them on to you.

  1. Pay attention

There is much to be said for simply paying attention to what works for you and what doesn’t. Be mindful of those things that speak to you. Here I don’t mean your base instincts, but the problems and the issues in the world that really strike a cord with you. You should also pay attention to those things in other people that really bother you. We often see our biggest issues reflected in others.

Pay attention to what makes you feel good. And I don’t mean the things that make you feel good right now, though those are good, but the things that make you feel good down the road. Eating a big bowl of ice cream may make you “feel good” right now, but feel awful later tonight, and tomorrow, and when you step on the scale, and …

  1. Know your brain (chemicals)

This sounds like a funny one, but it is the one that made the biggest difference to me. I have never been all that interested in personality tests and their results. But then I started the study of neuroscience to help me with my trading and my training ( I discovered that the various amounts of the basic neurotransmitters in my brain have a huge impact on a variety of factors. For instance, in training, they effect how you should lift, how often you should lift, how much volume you can handle and how you should order exercises. When I started following this – after years of training trying a wide variety of things – my results were extraordinary. A basic questionnaire that we can provide can help figure out these levels (blood tests not required).

  1. Keep a journal

Write it all down. I greatly prefer paper and pencil when it comes to a journal. I have tried electronic versions, but they aren’t the same. I love the feel of paper and pencil and it makes it easier to look back and really see what is, and what isn’t working for you. If you are really going to experiment, then you need to write down your hypothesis, how you are going to test it, and the results.

I am going to give you a very personal example. I was very sick for a number of years with a mysterious illness that hospitalized me five times in three years (kidney failure, muscle failure, digestive failure…). Every specialist I saw said that I was ok – at least from the standpoint of their specialty. I tried a number of different medications. So finally, on the advice of a naturopath, I went on a ketogenic diet. I spent more than a year on a ketogenic diet. I went from using a walker to being in the best shape of my life. Is that to say that the ketogenic diet is the best, the only one anyone should use? No. But it worked literal wonders for me, and it still does.

You want to be happy, healthy and wealthy? Then figure out what works for you. That is the path. Others can point the way to things to try, but you must “work out your own salvation with diligence” (the last words of the Buddha).






In Discipline is Our Freedom

We think we are free to choose our trading strategies and set-ups. But modern neuroscience suggest that may not be the case.

The study of neuroscience has shed fascinating light on many issues. It has even transformed the way that I look at designing individual training and coaching programs for people. The different levels of dopamine, serotonin, acetylcholine, and GABA in your brain can have a big impact when you should trade, how long you should trade, anon what trading strategies you should use.

But one problem with neuroscience is that it doesn’t leave much room for free will. Basically, are you who you are because of your brain. Even more simply you are your brain. This fatalistic view can be quite depressing.

Now I have never spent much time on the question of free will, despite majoring in Philosophy in college. It was now a problem that I felt had much in the way of practical implication. But my study of neuroscience left me wondering if there was any room left for free will and our ability to make “free” choices.

It was when I was doing a particularly grueling sled training workout that I came up with what I felt was an answer.

We think we have freedom in all of the things we say “yes” to. Yes, I would like another piece of dessert. Yes, I want that fancy new car (jacket, pair of shoes, etc.). Yes, I want to make that trade!

But it is actually the exact opposite that is true. Saying yes is saying yes to the impulses of our brain. It is actually in saying “NO” that we have our freedom.

We have free will when we say NO to:

  • Laying on the couch
  • Another drink
  • More sugar
  • Binge watching Netflix
  • That trade we think looks great
  • Buying Bitcoin on a whim

The funny thing is that it is our discipline, our ability to say no, that most of our success will come from. Discipline, which we associate with a distinct lack of freedom, is actually our only means to that freedom.

When I am doing a hard workout, my brain wants me to stop. It is by saying no to that impulse that I express my freedom – and get fit. As traders, it is our discipline, our ability to say no to the impulses of the brain, that will lead to long term success.

Now Partnered with NeuroCrux

iVol Trading has recently partnered with NeuroCrux. NeuroCrux does assessments and builds individualized programs. Finding the best fit given your mind and brain makeup is the crux of the matter. For traders this means finding the systems, time-frames, strategies, as well as support systems that help maximize success in the markets. All of our efforts and endeavors are based on our own individual brain action and chemistry, yet we spend our time trying to figure out the external. The answers aren’t “out there” they are literally in your head.


1 : a perplexing difficulty, something that torments by its puzzling nature
2 : a vital, decisive or pivotal point requiring resolution or resolving an outcome
3 : a main or central feature (as of an argument)
To receive information on your individual assessment, email

VXX puts playing out

VXX 8-22Yesterday our systems triggered on $VXX and we bought some $VXX 12.5 puts expiring at the end of the week for $0.28. They have doubled since then. We expect that the volatility crush will continue for the next couple of days, but that the VIX will remain above 10, and likely above 11.

The rebound will lead to another round of volatility selling by the big players. That in turn makes the probability of a bigger Vol spike even greater.

We are currently working on finding the best solution to get trade ideas out quickly and easily to those that are interested in following along, especially given that this service will be more oriented toward shorter term plays and not just weeks long credit trades.