Letters to a Young VC: Letter Five
January 20th, 2022

A collection of letters encompassing simple insights and recognition of foundational shifts that any bright minds trapped within the old norms of a VC mindset can use to break free, whether they are just starting their journey or reflecting back on what they wish someone had told them in their early days.

From seed, to crop, to harvest, to market, to plate.

High yield arbitrage is so much cooler and tastier than just swapping seeds for other seeds forever.

If you think seed 2 seed asset flipping bubble economics is all you need, take another hit of that sinsemilla before this self-medication antidote dose of real primary wealth creation from decentralization sin cap shakes the cargo cult faithful.

Waiting faithfully at the doorway to the sky.

That self-encircling fake money theatre flight's been cancelled.

They’re essentially making robots do the work, do the life, do the live trades, spam the nostalgic artifacts of the PFP brigades.

Ultimately on Wall Street and in applied economics (Beyond academic theory and pretend government policy) fundamentally since at least 1970, there have been 3 main strategies employed:

  1. Long, short, neutral— The base layer go to trade of the typical hedge and ibanker, plain vanilla snow snorting problem bro. It always loses out when any uncertainty strikes the market, but it’s the easiest way for them to funnel capital into SPACs and other convolutional financial trappings constructed for maximum misdirection, while the bros pass around and leverage the fuck out of them. It’s why the same bankers where getting bonuses in the billions after the GFC.
  2. Main portfolio with a hedge— These Ray Dalio simps caricature the illusion of a hedge that never works because they aren’t really shorting the other side. It’s another Ponzi.
  3. The variance swap— Only, give or take, 3 people in the world have ever actually done this one all the way through. Number go up or down, no more bets in the casino economy. Instead, set up the dynamic mechanism to benefit from market asymmetries and convexities, producing new wealth as the source. A variance swap is a primary market generator.

You’ve gotta have it. You’ve gotta play it. You’ve got a reputation.

What’s better than secondary myths, opinions and strategic interests chasing broken mirror secondary myths, opinions and strategic interests?

Options, in life and in finance.

A quick and simple 8 fold path to the how of options in uncertain times:

  1. Go to a website, trading interface, or trusted person who handles this kind of thing for you, and is all ready set to walk you through each step, button click by button click.
  2. Read and review all available information about the things you want to do.
  3. Look at a list of choices and their main components, including key inputs like the time involved, capital commitment, and other parameters or terms involved.
  4. Click “buy” or “sell”. Repeat until all “puts” and “calls” are placed as you like them.
  5. Wait for the time when the market moves in the way that you want, or get out early
  6. Strategies vary about when you should wait or get out or go in more, and by how much. Study, and test them in real world conditions. The multiverse is an uncanny carnivore with no special preference for the numbers that go up and down inside of it, or the variance between them. Markets are kinder, but only a little, and just as unpredictable. See the side note about the multiverse’s favorite creature within it below.
  7. When the moments you wait for strike –– the options you set up in steps 1-4 are active –– choose whether and when to act on them.
  8. Profit‽ This is where the dynamism happens. First a review: In steps 1-6 you give yourself options to buy or sell assets, which you select as representative of the best fits to your strategy. When their market price rises or falls outside the range you’ve chosen and you can’t rebalance them within your time to act, that’s your time to profit. You choose to claim the difference between the stated strike price and the market price.

There’s a lot more to this than the simplified version. But we’ll leave the intoxicating intricacies of liquidity and collusion for the next letter.

Hint. It’s all about the Exit Liquidity. That’s all that matters.

Side note about swans, the black and invisible varietals:

Watch out for those who have never actually properly conducted a variance swap in live markets, but rather focused too much on the philosophy around it. Talking about black swans, and catching a glimpse of the invisible ones, is very different from living through their consequences or realizing their terrific gains. In this starless sea, at every point in time, across every scenario, the likelihood of a tail risk event occurring somewhere meaningful is 100%.

Any value brought in from sales of NFTs minted through this article will be used for building out the F₃M Realm treasury, which will eventually be governed and coordinated by the DAO, furthering to decentralise the web3 fashion capital stack.

F₃Manifesto (F₃M) is a rally flag for the entire web3 fashion movement. It’s a label and realm that is built for so much than just the digital and physical threads and collections that it will spin up and release.

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