A few weeks ago, his thoughts about the world were of no consequence to anyone outside of Greece. Now, the leader of one of Greece’s political parties can move markets with a strong word or two. Democracy is a random gamma-generating machine.

Alexis Tsipras is the leader of Syriza, the anti-austerity party that finished in second place in Greece’s election on May 6. Syriza is expected to finish in first place in the upcoming June 17 election. On Wednesday, Tsipras described fiscal austerity as a “disease” that will destroy Greece and the rest of Europe if left unchecked, and was widely quoted as accusing Merkel and the European leadership of “playing poker with the lives of the people.”

He could say much more. Tsipras could, for instance, make it clear that Syriza would only join a government contingent on sweeping debt forgiveness and bank recapitalization, or he could begin pushing explicitly for an exit from the euro and strict capital controls. Alternatively, he could co-opt popular anger and try to champion a modest revision to the austerity agreement already in place with the EU and IMF.

Any such statements could move markets. In the jargon of options, Tsipras is a one-man long straddle: he could go either way, and could generate large market swings in either direction. But it’s not just about the direction (the delta). The politics are so precarious right now that a hint of a move will be self-reinforcing, meaning that there is a lot of gamma inherent in the situation.

This time last month, Tsipras and Syriza did not have this kind of economic power, this market-moving optionality. It was granted by the people. Democracy is not always the anodyne, neutered political arrangement that it seems to be. Some political philosophers have argued that there is even a natural tension between capitalism and democracy – that the needs of the people as expressed in the ballot box will often conflict with the inhuman preferences of capital. Politics in Greece are an example of that tension: where the Troika is seeking to reduce volatility in whatever way they can, the Greek people are buying gamma while they can.

“It seems like a lot of trouble to work out all of that analysis, only to decide that you’re not going to make any trade at all. … How often does this happen?”

He’s asking how often the conclusion of a bit of analysis is that there’s no edge to be had. For me, this sort of thing happens constantly. It is a bit of a bummer, since life goes quickly and analysis does not. Granted, it takes longer to write up your process as a publishable article, but a scan of a stock, its fundamentals, the options market and relevant factors (IV, HV, skew, order flow, etc.) still takes some time. I’m a big fan of technology because it makes that process faster and easier: If I’m only interested in momentum stocks, or in beaten-down value names, or in assets with rich implied volatility, those can all be scanned for. Even so, you can never know where an attractive trade will be until you look.

There’s a problem right now in scientific research, which is that no academic journal wants to publish a bunch of studies that have “no result” as their conclusion. Here’s a good article from Jonah Lehrer on this problem. It’s not just a problem in publishing, either: If a lab spends a lot of time and money on some project, of course they’d prefer some breakthrough or at least an interesting result rather than any old null hypothesis (no correlation, the drug has no effect, etc.).

The same challenge exists in finance. We’d all rather discover a worthwhile investment or attractive trade at the end of an analytic process. But if you’re honest with the data and with yourself, more often than not, you’ll conclude that it’s all just noise. That’s not a bad thing: Finding yourself confronted with a lot of “no trade” conclusions can be confirmation that your methodology is right, that your process is working properly. An investor who finds great investments wherever she looks is like a scientist who constantly uncovers new “cures” for cancer. Despite the cost in time and effort, negative results can be a wonderful thing.

The first half of our interview is below, and we cover some of my favorite aspects of the book, including the risks to someone who opts out of investing altogether, the existence (or not) of the equity risk premium, the three waves of ETF launches, and the opportunity costs of different approaches to investing. Toward the end of this video, Tadas makes a great point about how taking a position using an options spread can allow you to stay in a position longer – to fruition of the key thesis – than you might otherwise be able to if you were trading the underlying asset.

One question I forgot to ask was how Tadas manages to stay on top of the firehose of information that comes his way each day. In one chapter, he talks about the idea of going on a “media diet,” which is something we could all stand to do from time to time. One of my favorite things about this book and about Tadas’s blog is that they are like nutrient-dense meal bars, giving you everything you need and only things you need, with no filler.

Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere

The Condor Options newsletter strategy returned  7.2% for the April expiration cycle, bringing our YTD return above 20%, which easily beats both the S&P 500 -up 10.7% – and the closer benchmark, the CBOE Vol Arb Index (VTY), which is up 11.7%.

The strategy hasn’t had a losing month since last August. As I’ve mentioned in previous quarterly reviews, it looks like the improved performance is due to 1) an expansion of our coverage universe beyond the S&P 500 to include crude oil, the euro, gold and other equity indexes, plus 2) a change to our trade entry criteria.

I’m excited to announce today that ETF Trend Options is now available by subscription. Here are key things to know about the strategy:

• It selects from a basket of 35 ETFs ranging from U.S. and international stocks to bonds, commodities and currencies;
• A breakout price formula identifies likely new short-term trends as they emerge, giving us long and short price signals;
• We sell vertical option spreads in the direction of the price signal to capture price movement and to profit from time decay;
• The strategy typically takes 8-10 positions in each expiration cycle, opening no more than 15 trades in a given monthly series;
• Entry and exit alerts are published via email as well as on our secure website, with a model portfolio tracking each position.

We’re offering discounts for 6- and 12-month subscriptions, plus a 30-day money-back guarantee. Subscribers also receive an introductory guide explaining the thinking behind the strategy and everything you need to know to follow along. Give it a try!

https://thestreetevents.webex.com/thestreetevents/lsr.php?AT=pb&SP=EC&rID=5088857&rKey=52967bc2198a8c00

Volatility Skew and its Impact to Options Trading-20120411 2101-1 
April 11, 2012, 5:01 pm New York Time 
52 mins 

Regular readers of this blog and of Expiring Monthly will recognize the two skew formulas I present at the end. We started incorporating this data into our trade entry criteria in the iron condor newsletter last fall.