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The Logbook Index

A trader takes notes in front of a laptop showing a rising chart, late at night

The Freeport Logbook is the research publication of Freeport Markets. It covers portfolio construction and bet sizing, market microstructure, options and volatility, prediction markets, macroeconomics and asset pricing, corporate finance, and decentralized finance, along with a set of mathematical problems and an interview series with practitioners. The index below groups every essay by topic and sequences each category by dependency rather than publication date.

Category 01 · 10 posts

Portfolio Construction

Position sizing and portfolio choice: regression and beta, inference on observed Sharpe ratios, correlation and the marginal diversification hurdle, leverage and Kelly criteria, volatility drag, skewness corrections, liquidity, and the implementation risk of short positions. Ordered from statistical foundations to applications.

  1. 01 Regression is Not Intuitive Jun 2024 Chipotle against the S&P 500: price direction, beta, correlation, and R-squared all measure different things, and mixing them up changes what you can hedge.
  2. 02 Is Your Sharpe Lying? Jan 2025 A track record is a sample, not a verdict. How sample length, skew, and fat tails determine how much a measured Sharpe ratio should convince you.
  3. 03 Correlation is not Intuitive Jun 2024 A mediocre asset can still improve your portfolio if its correlation is low enough. The exact hurdle it has to clear, and why optimizers overfit their way past it.
  4. 04 In Defense of Leveraged ETFs Jun 2024 Markowitz, CAPM, Kelly, and risk parity converge on the same conclusion: for a long horizon, modest leverage on a diversified portfolio is defensible.
  5. 05 The Risks of a Growth Efficient Portfolio Jun 2024 The missing risk chapter for Kelly-style leverage: its edge can take centuries to show up, the estimates behind it are fragile, and constant leverage is short gamma.
  6. 06 Volatility Drag & Volatility Pumping Mar 2026 Volatility drag is a quadratic cost every portfolio pays, not a defect unique to leveraged ETFs. Rebalancing can also run the effect in reverse and harvest it.
  7. 07 Bet Sizing With Skewed Returns Dec 2024 Kelly sizing with the third moment included: negative skew means the right leverage is lower than the mean-variance answer, worked through on SPXL.
  8. 08 Liquidity for Long-Term Investors Aug 2024 Buy-and-hold investors pay for illiquidity too. Rebalancing has value, spreads widen exactly when volatility spikes, and cash is worth the most when risk is highest.
  9. 09 The Best Predictor of Asset Returns Aug 2025 The best long-horizon return predictor is not a valuation ratio. It is the aggregate equity allocation: prices must clear what investors want to hold against what exists.
  10. 10 Don’t Short the Bubble Apr 2026 Being right that it is a bubble is not a trade. Borrow costs, carry, timing, and the path can bankrupt the short seller before the thesis pays.
Category 02 · 10 posts

Market Microstructure

How trading is organized and who captures the surplus: participant taxonomy, information aggregation in order books, fragmentation and consolidation, order routing, price impact, tick size, payment for order flow, basis trades, and derivative-led benchmark distortion.

  1. 01 The Structure and Purpose of Trading Jun 2024 Markets need three participant types at once: utilitarian traders, informed traders, and the market makers between them. Liquidity provision and price informativeness trade off directly.
  2. 02 The Unreasonable Effectiveness of Order Books Jun 2026 Ten episodes, from Challenger to election nights to Deepwater Horizon, where order books pieced together scattered knowledge faster than any official channel.
  3. 03 Market Fragmentation Jul 2024 Why your order rarely touches an exchange: payment for order flow, internalization, and dark pools buy retail cheaper fills, paid for with weaker public price discovery.
  4. 04 Market Consolidation Jul 2024 The counterpart piece: Reg NMS, arbitrageurs, auctions, and margin rules quietly stitch dozens of venues back into one market, no monopoly exchange required.
  5. 05 Order Routing Nov 2025 Where an order actually travels in crypto: exchanges, AMMs, RFQ systems, private relays, and intent auctions, and who controls execution and captures MEV at each hop.
  6. 06 Market Impact Mar 2025 The square-root law of market impact: trade 4x the size, move the price roughly 2x. Where the law comes from, and what bends it around events.
  7. 07 Optimal Tick Size Dec 2025 Tick size is a dial between tight spreads and deep queues. Liquid stocks trade best a few ticks wide, which is why a stock split can genuinely improve execution.
  8. 08 Stock vs Options PFOF Apr 2026 Payment for order flow is a different business in options than in stocks. Equities have the NBBO as a hard benchmark; options auctions let intermediaries keep more of the spread.
  9. 09 Basis Trades Aug 2025 The cash-and-futures basis is rent on scarce balance sheet. Why the trade exists, what it compensates, and how the crypto version differs from the index-futures original.
  10. 10 The Tail Wagging the Dog Aug 2025 When the derivative is more liquid than the thing it tracks, the tail can move the dog. India's options boom, the Optiver 'Hammer', and crypto perpetuals.
Category 03 · 21 posts

Volatility & Derivatives

The core options sequence: replication and risk-neutral pricing, early exercise, hedging error and path dependency, volatility-surface dynamics, VIX and vol-of-vol, implied correlation and dispersion, term structure, multi-asset Greeks, structured products, and cross-asset relative value.

  1. 01 Derivatives Pricing Jul 2024 The full derivation, from Brownian motion and Ito's lemma to the Black-Scholes PDE, with the intuition kept intact: an option is a rebalanced hedge, and theta pays for gamma.
  2. 02 Stock Prices Can't be Smooth Oct 2024 If prices moved smoothly, a simple stopped-call strategy would be free money. They cannot, and that roughness is exactly what makes gamma, and options, worth paying for.
  3. 03 Why Robinhood Banned Box Spreads Aug 2024 The trade a Robinhood user thought was riskless. Why European boxes are locked by arbitrage, why American ones are not, and what early exercise does to the bounds.
  4. 04 Warren Buffett & Put Selling Jul 2024 Buffett's long-dated put sales priced real-world odds where risk-neutral ones belonged. The position still worked, as leveraged equity exposure, and his dealers hedged it profitably.
  5. 05 Options Implied Distributions are NOT Real-World Distributions Mar 2025 You can read an entire probability distribution out of option prices. It is a pricing measure shaped by hedging, not a forecast, and treating it as one is a category error.
  6. 06 Hedging Errors & Options PnL Sep 2024 Two reasons a delta hedge leaks money: you do not know volatility, and you cannot rebalance continuously. Which error dominates, and how fast hedging more often shrinks the second.
  7. 07 Options Path-Dependency Aug 2025 A delta-hedged option does not just care how much the market moves; it cares where and when. Dollar gamma weights the variance, so a cheap-looking option can still lose.
  8. 08 Pin Risk Sep 2024 Why illiquid stocks stick to strike prices into expiration: hedging flows pin the price, realized volatility goes quiet, and the calm ends the moment the option expires.
  9. 09 The Effects of Spot-Vol Correlation Dec 2024 Sticky strike, sticky delta, and what your real delta is when volatility moves with spot. Skew theta and vanna are the rent paid on that correlation.
  10. 10 Skew and Kurtosis from Two Perspectives Mar 2025 The volatility surface cannot tell a skewed terminal distribution apart from spot-vol correlation along the way. What the surface identifies, and what it never can.
  11. 11 Vol Convexity Dec 2024 Vega has its own convexity: volga. Where vol-of-vol exposure lives, in wing options, VIX options, and variance versus volatility swaps, and why convexity is not tail risk.
  12. 12 How Volmageddon Wiped out Billions Aug 2024 February 5, 2018: inverse-VIX products lost roughly everything in an afternoon. How the VIX is built from an option strip, and how forced rebalancing amplified the collapse.
  13. 13 Implied Correlation and Index Skew Dec 2024 Dispersion in one lesson: long single-name variance, short index variance, collecting the correlation premium. And why higher implied correlation can flatten index skew.
  14. 14 Volatility Term Structure May 2026 Five Heston parameters generate the whole volatility term structure: where variance is now, where it reverts to, how fast, how noisily, and how it moves with spot.
  15. 15 Decomposing Volatility Skew May 2026 Single-name skew is two skews stacked: the market's and the stock's own. Separating them argues for a multifactor view instead of one universal rule.
  16. 16 Beta Compression Aug 2026 Beta is correlation times a volatility ratio, and the ratio is unstable: in selloffs index volatility rises faster than single names', so betas compress when you most need them.
  17. 17 Multidimensional Greeks Apr 2025 Greeks in more than one dimension: vector delta, cross-gamma, correlation vega, rainbow options, and the delivery option buried inside Treasury futures.
  18. 18 Perpetual Options Oct 2025 An option that never expires still is not free. With calendar theta gone, carry, dividends, volatility, and the optimal-stopping decision do the pricing.
  19. 19 Exotic Derivatives Risk Recycling Jul 2025 Structured products leave banks holding residual volatility, dividend, and correlation risk. Recycling those exposures to institutions is a market of its own, often at generous levels.
  20. 20 Cross-Asset Relative Value Oct 2025 Equity volatility and credit spreads are claims on the same balance sheet, so they should move together. When they drift apart, there is a trade in the gap.
  21. 21 Derivative Income Sep 2024 Covered-call income is payment for capping your upside, not a dividend. From there: Section 1256 treatment, box spreads, BOXX, and borrowing against the portfolio instead of selling.
Category 04 · 4 posts

Prediction Markets

Event markets treated as pricing problems: the wedge between contract prices and probabilities, optimal bookmaker margin structure, position management under public price moves, and the bounded-martingale property that separates market prices from polls.

  1. 01 Market Probabilities are NOT Real Probabilities Feb 2025 A 60-cent contract does not mean 60%. Wealth effects, favorite-longshot bias, systematic risk, and discounting all wedge a market price away from a true probability.
  2. 02 Asymmetric Vig Distribution Mar 2025 Why the optimal bookmaker charges longshots more margin than favorites: once information and growth-optimal pricing enter, spreading the vig evenly is provably inefficient.
  3. 03 When to HODL💎🙌 Jul 2025 If you fully trust your signal, a price move against you changes nothing about your position. Admit signal uncertainty, and momentum, averaging in, and cascades all become rational.
  4. 04 Why Betting Markets Move Differently Compared to Polls & Models Feb 2025 Election markets and polls measure different things. A contract price is a bounded martingale on the terminal outcome, so its volatility has to shrink near 0 and 1.
Category 05 · 12 posts

Macro & Theory

Monetary economics and formal asset pricing: inflation theory, negative rates, MMT and fiscal dominance, yield-curve factor structure, the equity risk premium, equity duration, post-earnings drift, factor investing, and real rates under fast AI takeoff. The monetary arc precedes the asset-pricing core.

  1. 01 Inflation & Interest Jan 2026 A century of inflation theory in one arc, Keynes through the New Keynesians. The uncomfortable part: NAIRU and the natural rate are unobservable, and policy leans on both.
  2. 02 Negative Interest Rates Apr 2026 A negative policy rate is a tax on bank reserves. Depending on how banks pass it through, the result can be stimulus, pure asset inflation, or outright deflation.
  3. 03 Modern Monetary Theory Sep 2025 A serious reading of MMT: money is a claim on social contribution, printing works while those claims sit idle, and the bill arrives eventually through taxes, rates, or inflation.
  4. 04 Fiscal Dominance Feb 2026 The Kalecki-Levy identity ties government deficits directly to corporate profits. Deficit spending props up asset prices, and the same arithmetic shows how the prop can snap.
  5. 05 In Defense of the 50 Year Mortgage Jan 2026 The 50-year mortgage is subsidized long-duration leverage, and that is mostly a feature: earlier housing and freer cash flow, in exchange for slower equity and a wider downside.
  6. 06 PCA of Fixed-Income Returns Aug 2024 Three factors, level, slope, and curvature, explain nearly all yield-curve movement. A long-bond position often trades the second and third, not the rates call you thought you made.
  7. 07 The Equity Risk Premium Puzzle Apr 2026 By the standard model's math, stocks have paid far too much for their risk for a century. The leading explanations, and why the premium may be structural rather than a free lunch.
  8. 08 The Bonds in the Stocks Jul 2026 On paper equities are very long-duration assets, yet they do not trade like it. Buybacks, inflation pass-through, growth co-movement, and convexity close the gap.
  9. 09 Post-Earnings-Announcement Drift May 2026 Prices keep drifting for weeks after earnings, long after the numbers are public. The surviving edge is in the text rather than the figures, and AI may compress what is left.
  10. 10 Factor Investing Aug 2024 The factor literature from beta through value, momentum, carry, defensive, and crowding, with the standard objections treated seriously: redundancy, p-hacking, implementation cost, and regime risk.
  11. 11 Rates & Stocks Under Fast Takeoff Jun 2026 Run fast AI takeoff through a Ramsey model and real rates rise whether the ending is abundance or extinction. What happens to equities is the genuinely hard question.
  12. 12 How to Extract Max Value from Your Edge? Apr 2026 Information theory puts a hard ceiling on how fast an edge can compound: the KL divergence. The optimal payoff is the likelihood ratio, and options can approximate it.
Category 06 · 8 posts

Corporate Finance

The firm and its claims: cost of capital, valuation multiples, the long-run price of financial intermediation, index investing and stewardship, IPO mechanics, private-market access, and the economics of talent and specialization.

  1. 01 The Cost of Capital Oct 2024 WACC from first principles: a company's cost of capital is its investors' opportunity cost, the tax shield fights the distress cost, and the estimation details decide the answer.
  2. 02 Valuation Multiples Dec 2024 A multiple is a DCF with the assumptions hidden. What P/E and EV/EBITDA quietly disagree about, and why intangible-heavy companies always screen expensive.
  3. 03 The Cost of Financial Intermediation Jun 2026 Finance has charged roughly the same toll on intermediated assets for 130 years, through telegraphs and the internet alike. Why technology never cut the fee, and what sets it.
  4. 04 Index Investing Jul 2024 Sharpe's arithmetic makes indexing hard to beat by construction. The real costs sit elsewhere: weaker stewardship and thinner incentives to price new capital.
  5. 05 Initial Public Offerings Jul 2024 Why IPOs pop by design: scarce float, block liquidity, adverse selection, and allocation incentives. Where direct listings and SPACs help, and what better book-building would look like.
  6. 06 The Crowd vs. the Cap Table Nov 2025 Crowdfunding's structural problem: the best deals rarely need the crowd. Cap-table insiders get information and pro-rata rights; broad access gets adverse selection.
  7. 07 Above Market ≠ Overpaying Nov 2025 Paying above the market rate for talent is cheap when output scales nonlinearly. And cash versus dilution is a financing choice, not separate moral categories.
  8. 08 Comparative Advantage Dec 2025 Ricardo, applied to AI labs: even a lab that could build every application should not. Opportunity cost leaves durable room for focused B2B startups.
Category 07 · 11 posts

Decentralized Finance

An institutional treatment of DeFi: whether protocols create value, speculative bootstrapping, onchain capital formation, AMM design, structured credit, auto-deleveraging and exchange solvency, stablecoins and monetary transmission, transaction privacy, and cryptographic verification.

  1. 01 Is DeFi Just One Giant Ponzi? Feb 2026 Participant-funded returns do not automatically make a Ponzi. The real test is whether the protocol moves time, risk, liquidity, or access to someone who values it more.
  2. 02 Degens Are Pioneers Dec 2025 Speculators show up before the use case, and that is the point: degen flow funds the experiments and the liquidity that make new markets useful to everyone else later.
  3. 03 Onchain Capital Formation Oct 2025 Programmable tokens cut the search, bargaining, and enforcement costs of forming capital, and unbundle claims the corporation has always sold as a package.
  4. 04 Blockchain Factors Aug 2025 The equity factor playbook rebuilt for crypto: size, value, momentum, and liquidity all translate, and fragmented capital may keep the premia paying longer than in stocks.
  5. 05 Democratized Liquidity Provision Aug 2025 AMMs are the right market structure for young, noisy, thinly-analyzed assets and the wrong one for mature ones. As information arrives, liquidity migrates to order books.
  6. 06 Onchain Structured Credit Oct 2025 An overcollateralized DeFi loan is a structured-credit tranche. The binding risks (jumps, correlation, oracle failure, liquidation mechanics) are precisely the ones Gaussian models miss.
  7. 07 Auto-Deleveraging Dec 2025 Auto-deleveraging is the clause perp traders forget: when the insurance fund runs dry, the exchange closes winners' positions to stay solvent, and outside hedges break with them.
  8. 08 Stablecoins & Monetary Power Oct 2025 Stablecoins do not have to replace central banks to matter. Moving settlement onto private rails is enough to loosen the state's grip on payments and monetary transmission.
  9. 09 Can the Economy be Fully Decentralized? Sep 2025 A fully decentralized economy fails at a predictable spot: fixed money plus maturity transformation with no elastic backstop. DeFi works better beside banks than instead of them.
  10. 10 Tornado Cash Sep 2025 The Tornado Cash prosecutions turn on one distinction: publishing a tool is not operating it. The case for treating noncustodial privacy software the way we treat encryption.
  11. 11 From Dead Internet to Verified Web Nov 2025 When most content is machine-made, knowing who said what becomes a Byzantine trust problem. The case for a parallel web built on cryptographic provenance, identity, and payment.
Category 08 · 6 posts

Mathematical Curiosities

Standalone problems with market implications: conditional probability paradoxes, arcsine laws for random walks, preference inconsistency, tree ensembles on tabular data, warrant-versus-option pricing, and an equivalence between market efficiency and P versus NP.

  1. 01 Two Envelopes Dec 2024 The two-envelope paradox falls apart at one hidden conditioning step. Better: a randomized threshold rule that genuinely beats 50/50 after opening a single envelope.
  2. 02 The Arcsine Laws Nov 2024 In a fair coin-flip game, one player usually leads most of the way, and the lead changes hands far less often than intuition says. Levy's arcsine laws explain why.
  3. 03 Inconsistent Utility & Arbitrage Nov 2024 The Allais paradox as trading material: preferences that no expected-utility function can rationalize create tradable seams, from VC exits to distressed debt and merger arbitrage.
  4. 04 Why we Love Trees Jan 2025 Why tree ensembles keep beating neural networks on tabular market data: localized splits shrug off the noisy, irrelevant features that smooth global fits choke on.
  5. 05 A Warrant vs Option Puzzle Jan 2026 A warrant dilutes and an option does not, so the warrant should be cheaper. Across two otherwise identical firms, yes. On the same firm, arbitrage forces the prices to match.
  6. 06 Markets are Efficient if and only if P = NP Mar 2026 A proof sketch that perfectly efficient markets would settle P versus NP: searching for profitable strategies encodes knapsack, and a stylized order market encodes 3-SAT.
Category 09 · 6 posts

Freeport Markets

Research on and around the product: the trading-investing distinction, the role of AI in the research process, the decomposition of stablecoin yields, weekend and pre-IPO perpetual markets, and an empirical audit of user returns.

  1. 01 Trading vs Investing Sep 2025 Trading and investing are different jobs with different scorecards: repeatable edges and fast feedback on one side, power-law ownership on the other. Default to beta.
  2. 02 AI-Driven Investing May 2026 Give everyone the same investment agent and you get the same consensus portfolio. The near-term edge is machines reading and checking at scale, with the thesis still human.
  3. 03 10% "Risk-Free" Yields in Crypto Oct 2025 Where a double-digit stablecoin yield actually comes from: Treasury carry, relending, token subsidies, leverage, and regulatory segmentation. Each layer adds a risk the label hides.
  4. 04 Trading Weekend Perp Markets Apr 2026 How do you price an equity perp when the stock market is closed? A working weekend framework built from live macro proxies, factor envelopes, and respect for a thin book.
  5. 05 Trading Pre-IPO Stocks Apr 2026 The pre-IPO perp playbook: oracle and mark-price dislocations, funding carry, cross-venue basis, listing headlines, and the special ways SpaceX synthetics misbehave.
  6. 06 Do Freeport Users Make Money? Apr 2026 We decomposed our users' returns into leveraged beta, momentum, oil, and a residual. The honest answer to the title, plus the pattern: the best accounts traded less and held longer.
Category 10 · 6 posts

Professional Punters

Interviews with practitioners of repeated decision-making under uncertainty: election and sports markets, quantitative trading, discretionary research, and bank risk transfer. Published order; the episodes are self-contained.

  1. 01 Introducing Professional Punters Jun 2026 The series premise: find people who make repeatable decisions under uncertainty for a living, from traders to bookmakers to founders, and ask how they do it.
  2. 02 Professional Punters S1E1 Jun 2026 Evan Semet on election-market arbitrage across venues, losses that came from model revisions, Bitcoin binaries, and why contract fine print is where political markets bite.
  3. 03 Professional Punters S1E2 Jun 2026 A professional sports bettor on hunting stale lines, getting limited by the books, courtside latency, and why sportsbook flow looks a lot like options flow.
  4. 04 Professional Punters S1E3 Jul 2026 Tim Wu compares hedge funds and prop shops from the inside: where AI helps quantitative work, how compensation and human capital really scale, and when to leave and build.
  5. 05 Professional Punters S1E4 Jul 2026 Noah Kann on discretionary research in the AI buildout: memory and infrastructure, miners turning into data centers, and why boring foundational businesses keep winning.
  6. 06 Professional Punters S1E5 Jul 2026 Daniel Zheng maps how risk moves between banks and hedge funds, AI data-center securitization, favorite-longshot bias in prediction markets, and where manipulation creeps in.

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