How a Simple $20 Bill Analogy Explains Our Approach
In this video, renowned author and professional volatility trader Euan Sinclair perfectly captures what CI Volatility has consistently called “mispricings” in the market. Here, Euan uses the term “inefficiencies,” which refers to the same concept as the mispricings we typically discuss.
One of the most powerful concepts within volatility trading is identifying instances where volatility is mispriced, isolating that exposure, and then wrapping a convex trade around it.
According to Sinclair, mispricings in the market occur for 2 reasons
Not enough people have noticed that it’s there
or not enough people can actually do the trade
$20 Bill Analogy
According to those who believe markets are perfectly efficient, there can’t be a $20 bill lying on the street. But traders who actively seek out mispricings know this isn’t true; we do occasionally find money on the street.
If you consistently spot a $20 bill on Sunday mornings outside a bar, that’s a true inefficiency (or mispricing). What likely happened is that someone stumbled out of the bar the night before, reached into their pocket for their phone, accidentally dropped the money, and didn’t notice. It’s there purely because of someone else’s oversight—you’re simply the first to capitalize on the mistake.
On the other hand, if the $20 bill is sitting in the middle of a busy freeway, that’s not a mispricing. Others have seen it too but decided the risk of darting into traffic isn’t worth it.
That money could remain there indefinitely. Everyone might agree it’s there, yet disagree on whether it’s a genuine mispricing—differing only in their willingness to accept the risk to retrieve it.
How We Apply These Principles
CI Volatility looks for the few moments when options are clearly mispriced, instead of constantly selling premium and hoping the math works out. We focus on high-confidence setups, use options where the payoff can be asymmetric, and manage risk tightly. The philosophy is similar to Sinclair’s, but CI Volatility applies it using our own in-house signals.