TLDR: Stay humble and stack sats.
SALUTATIONS
Hello mates.
A long time ago, when Poor Old Ben Gunn was still a Gentleman of Fortune, roving the fiat seas for loot and adventure, one of his duties was to have a crewman's understanding of volatility (VOL).
I didn't professionally trade options, I just handled the execution for those who did. Over time I came to appreciate their broader applications of their key concepts in life. Especially VOL.
I see some of you out there, navigating the same oceans, and I want to share my own raggamuffin way of understanding the wild, open sea, using VOL as my compass.
We were tricked, mates! Volatility is the simplest concept there is.
Made complicated by fools and squids.
It's the wind in our sails. It can snap our main mast like a bloody toothpick, or it can carry us around the whole bloody world 5 times.
Let me explain, mates... Pull up a stool, pour a noggin for yourself. This is VOL for plebs.
PLEB DEFINITION OF VOL
In the spirit of this monograph, let's do the hard bit first, because we'll all benefit greatly later from the small effort made now. All we need to guide us through the nature of VOL, is a basic insurance contract. If you've ever taken out insurance, you know enough to understand VOL.
Let's say that Volatility (VOL) transforms Situation A into Situation B. A force that transforms some kind of 'Before' into some kind of 'After'. For us plebs, that's all VOL need be. It's stored energy that changes situations when it is 'released'.
But if you bump up against an Officer on Deck, you'd better understand they use a different terminology, for their specialised circus! They complicate it with numbers and detailed written contracts, narrowly defined within their own zero sum games. Disregard it mates.
They defined it past the point of their own understanding!! Don't be blinded by their rank and hubris. Most of them are completely illiterate to risk. Often because they bear no direct risk to themselves, and shift it to others.
That’s why they put deckhands between them and the work! We understand VOL better than them, because VOL is firstly a practical phenomenon.
Once you see VOL in life, you can never unsee it. It is everywhere, on every scale and timeline.
Insured against change: LONG VOL = GMI
Uninsured against change: SHORT VOL = NGMI
WHERE TO FIND PLEB VOL
So, life is a game of risk. We can choose which risks to hedge, and which to stay exposed to. In life, just as in options trading, we make decisions that cost resources, or gain resources. We can spend resources now (PAY PREMIUM), to protect us from harm later (MAKE A CLAIM). By doing this, we are positively exposed to future change. In life this is called insurance. In finance, and in this article, it is called LONG VOL.
Commodore Dalio's following observations show where Plebs are able to find and stack VOL:
“[…] By recognizing the higher-level consequences nature optimises for, I’ve come to see that people who overweigh the first-order consequences of their decisions and ignore the effects of second- and subsequent-order consequences rarely reach their goals. This is because first-order consequences often have opposite desirability from second-order consequences, resulting in big mistakes in decision making. For example, the first-order consequences of exercise (pain and time spent) are commonly considered undesirable, while the second-order consequences (better health and more attractive appearance) are desirable. Similarly, food that tastes good is often bad for you and vice versa.”
Can you see mates? How often in life can we choose to bear tolerable pain now, to avoid intolerable outcomes later? How often is the same preparation you make for disaster just as useful when opportunity comes knocking? Ray is describing life here as a short options contract, that we can choose to hedge aspects of with hard work and tough decisions ahead of time. And so it is.
Identifying your own VOL opportunities is only limited by your imagination and you ability to confront your fears. First Aid training is LONG VOL. Learning a language, overcoming a phobia, stacking bitcoin: LONG VOL. Smoking, supermarkets, bad diet, lending money, fiat money, doing activities without training, denial of a problem: SHORT VOL/NGMI.
Nonlinearity is what tricks most people. Smoking and doing squats are both unsustainable situations in their own way, because over time both situations cannot stay the same. With smoking the costs explode later, in a health event. With squats, the long term results are a suite of compounding benefits spanning health, mental outlook and ability to stack skills and experiences on top of a healthy body.
NET POSITION IS WHAT MATTERS
For the sake of this simplified model, VOL can be added and subtracted - its only your total score that matters. EG, If your future illness is not covered by a paper contract you set up, it is still a LONG VOL trade, but not long enough to cover all aspects of the SHORT VOL position of bad health. Staying fit might've been the better hedge.
Ultimately, as mortals we are all SHORT VOL. Time is the resource we spend without a choice. Time is what we use to hedge our risks as best we can. It can be well spent, or poorly spent, but one day you'll run out. You can't hedge your own mortality. Memento Mori.
But you can crush your short vol position, by deferring time and resources into things that protect you against future loss.
Only you know what you need to hedge against, and viewing life in this way, realise that you are only as strong as your weakest hedge.
THIS IS A BITCOIN PUBLICATION - WHERE DOES THE CORN FIT IN?
Okay you Moonjuicers - here it is both barrels: Bitcoin is the ultimate LONG VOL asset. Insurance contracts expire, bones buried in the ground decay, but Bitcoin has no expiry date, no counterparty risk, and has the greatest number of future uses, because as the internet's native currency, it's the product of greatest common demand. Hurrah.
The hard truth is, there are risks in life that cannot be hedged by Bitcoin. Remember it’s your life, not just your financial risk, that you need to hedge with your time and resources. A note of caution on over -investing in Bitcoin. There is a sensible line that can be drawn for responsible long term Bitcoin ownership.
VOL MAXIMALISM > BITCOIN MAXIMALISM
The more Bitcoin you own, the larger your LONG VOL position. However, do not trick yourself into selling VOL from another part of your life. Eg, living unhealthily, or going into debt to buy more bitcoin. More bitcoin in these ways does not equal a NET LONG VOL position if you borrow from elsewhere. You'd only be betting that BTC moons before your chronic illness moves into the money.
Buy your LONG VOL with work, effort, and endurable pain. Buy bitcoin only with the surplus of a value producing activity.
Recognise the aspects of your life that might compromise your LONG VOL Bitcoin position. Accept that for some of you, fewer bitcoin, and broader contingencies to fortify your lifestyle/life plans gives you the broadest overall exposure to the winds of change we sail into.
Secure your food supply, your grid, your communications, your security, your relationships, your way of life. If these things are not secured - how secure is your 100%+ BTC allocation? It's only as good as the person willing to sell you food, give you shelter etc. Just a thought from a toxic VOL maximalist.
IT AINT MUCH BUT IT’S HONEST WORK
Leveraged Bitcoin is SHORT VOL. When you borrow to buy Bitcoin, you are making assumptions about the future that are connected to control of your 'supposed' nest egg. Custody risk, liquidity risk, market risk - all back on the table in the form of SHORT VOL.
Now you have to work for sats you already own OR be exposed to a bet on the market direction to close off that position. Cold sats from delivered value as final settlement for work is the only LONG VOL Bitcoin. No strings. Perfect clown insurance.
So have a surplus producing activity that funds your stacking. Be cash flow positive with your time. This is the way.
Not to open a can of worms, but KYC corn is not as LONG VOL as non KYC, because it has fewer claims of ownership from bad actors such as Government or hackers.
If you have the courage to take these things into consideration, are you not more likely to HODL through many more future scenarios than someone who thinks that nothing in life will change except their net worth when Bitcoin is broadly adopted?
GUNN'S LAW: As Bitcoin moves into the money - so fiat life must move out of the money.
Listen to your fears. Your subconscious is your best risk manager. What do you worry about? Think through what must have to happen in the world for Bitcoin to be the next global reserve currency. It's going to be the biggest volatility event in human history.
Hedge accordingly!
I view LONG VOL as staying humble. You're saying "I don't know what is coming, so I'll prepare for the broadest range of outcomes that I can't discount. I don't know the future, I only know how to prepare for ANY future".
“Opportunities multiply as they are seized”
Thank you for your kind attention.
#PLEBVOL
Ben Gunn is a retired pirate, who after being abandoned by his fiat shipmates, found health, wealth and happiness on Treasure Island where he works, writes and loves life.