1/ Here's a new 🧵, which I plan to revive every 10 days or so. I'll set up an options structure in a market that's "hot" right now, expressing a view while taking advantage of structural inefficiencies in the market.

A new commodities article, co-authored with @StephanSturm and several excellent students from an NSF sponsored REU program has been published in the September 2025 issue of Wilmott. Please see below.

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Not every day you see a turtle at the Starbucks, Hampstead UK

9/ Recall that none of the material in this thread should be considered an investment recommendation. Thanks.

9/ Nonetheless, I would hope to see a reduction in open interest along the farther reaches of the put skew before implementing the strategy as an "all weather" hedge.

8/ Does this spell the end of the short 1x2 put ratio as a viable tail hedge? Not necessarily, as a strategy that doesn't back test well can still be successful in practice, given selective entry points, efficient delta hedging and so on.

7/ This is true even in delta-adjusted terms.

6/ Open interest, has loaded on the far if not extreme downside. Clearly, some market participants haven't forgotten March 2020, along with the potential for more radical political uncertainty.

5/ The long term back test is extremely attractive, especially if we are quick to take profits during pre-2020 profit spikes. Historically, this was a fine tail hedge. However, post-Covid, we see far more decay in the strategy. The 5 delta skew seems relatively rich nowadays.

4/ The trade provides significant downside coverage as we cross the lower 5175 strike. It also provides some edge if we believe that the odds of a move down to 5175 is higher than the the market odds of 1 in 20.

3/ In particular, we sold some 10 delta puts on S&P E minis and bought 2X as many 5 delta puts with the same maturity. We're approximately delta neutral and a mild (though not insignificant) payer of premium.

2/ Short 1x2 put ratio spreads are, by now, widely known hedges against an equity market sell off. I've mapped out a hedge fairly far down the October put skew below.

1/ The Demise of a Tail Hedge? Today's thread was partially motivated by a panel I'll be joining in September: .As usual, we've relied heavily upon the Allasso backtesting and analytics engine:

10/ As always, the discussion above should not be construed as investment advice. Thank you.

9/ Here's the position we would have on now (21 July), with a short 20 delta and 2X long 10 delta put to cover the downside. We haven't eliminated the problem of cost, given the relatively high implied vol differential across the strikes, but reduced the damage greatly.

8/ How does a copper "Second Leg Down" strategy look? The following graph suggests a break even strategy over the market cycle, with significant pick up during recessionary crises. Strategy returns in blue, rolling futures in muddy gray.

7/ It's not worth getting gouged from an implied volatility standpoint. We need a workaround. In The Second Leg Down, I argued for short S&P put ratio spreads as an equity hedge. These were delta and premium neutral, yet could offer 1:1 coverage given a large drop in the index.

6/ Can we use copper puts as a hedge against a global growth slowdown? Certainly, and we can set our put strikes quite high, given the recent price surge. However, as the following Allasso chart indicates, the implied volatility skew is extremely rich by historical standards.

5/ The bear case goes back to the old "Dr. Copper" idea, which is borne out by historical data. Copper has gone into freefall during recessionary periods, such as 2008 and 2020, based on a drop in near term demand. The graph below, taken from the St. Louis Fed, tells the tale.

4/ We won't focus on the fairly obvious relative value trade, long LME and short COMEX copper here, as it has received plenty of airplay elsewhere. From a directional perspective, what can go wrong?.

3/ Given deglobalization threats, a strongly trending market, copper is a high consensus long. New mines require major $ to be worthwhile and take many years to develop, constraining futures supply. For a variety of reasons, copper recycling takes place offshore.