1 00:00:09,640 --> 00:00:12,920 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:12,960 --> 00:00:16,480 Speaker 1: I'm Tracy Allaway and I'm Joe Wish. Joe, I'm so 3 00:00:16,560 --> 00:00:19,960 Speaker 1: excited this is this is totally my topic, and I'm 4 00:00:20,040 --> 00:00:22,880 Speaker 1: so so excited that we're going to be discussing it 5 00:00:22,960 --> 00:00:26,880 Speaker 1: for at least like twenty or thirty minutes. I like 6 00:00:26,920 --> 00:00:29,159 Speaker 1: how you pretend that we never talk about anything that 7 00:00:29,240 --> 00:00:31,600 Speaker 1: you like. You know, if you wanted to, you could 8 00:00:32,240 --> 00:00:35,199 Speaker 1: contribute more and suggest more guests if you said it 9 00:00:35,240 --> 00:00:38,880 Speaker 1: was if it was really that skewed towards things I liked. Okay, Okay, 10 00:00:38,920 --> 00:00:41,599 Speaker 1: I'm exaggerating a little bit. But the reason I'm so 11 00:00:41,640 --> 00:00:44,520 Speaker 1: excited is we're first of all, going to talk about 12 00:00:44,560 --> 00:00:47,400 Speaker 1: something that we have talked about on this show before 13 00:00:47,640 --> 00:00:51,280 Speaker 1: in what was an excellent episode. But secondly, we're going 14 00:00:51,320 --> 00:00:54,560 Speaker 1: to talk about something that I've been writing about for years, 15 00:00:54,680 --> 00:00:58,720 Speaker 1: and actually a lot of other financial journalists and financial 16 00:00:58,760 --> 00:01:02,320 Speaker 1: analysts have been writing about the same thing. And then 17 00:01:02,400 --> 00:01:06,360 Speaker 1: earlier this month, it all happened. Everything that people had 18 00:01:06,440 --> 00:01:11,480 Speaker 1: been talking about saying might happen for years actually happened, 19 00:01:11,560 --> 00:01:14,440 Speaker 1: and it was a huge, huge event in the market. 20 00:01:14,680 --> 00:01:18,200 Speaker 1: A It's kind of rare for us as a podcast 21 00:01:18,200 --> 00:01:20,760 Speaker 1: to actually be talking something about something that's very timely. 22 00:01:20,800 --> 00:01:22,720 Speaker 1: We're usually a little more off the news, So I'm 23 00:01:22,720 --> 00:01:26,240 Speaker 1: excited about that. But what's even rarer is for something 24 00:01:26,280 --> 00:01:30,160 Speaker 1: bad to happen that financial journalists actually predicted, because we're 25 00:01:30,200 --> 00:01:34,479 Speaker 1: usually pretty bad at that. Now, now, financial journalists are 26 00:01:34,520 --> 00:01:37,520 Speaker 1: your friends and colleagues, so you should be nice to them. 27 00:01:37,640 --> 00:01:40,720 Speaker 1: Financial journalists are good at a calling ten out of 28 00:01:40,720 --> 00:01:43,960 Speaker 1: the last two crashes. As they say, okay, all right, 29 00:01:44,000 --> 00:01:47,080 Speaker 1: well on that note, let me set the scene. So 30 00:01:47,360 --> 00:01:50,120 Speaker 1: what I'm talking about is something that has been since 31 00:01:50,360 --> 00:01:54,920 Speaker 1: dubbed the vulpocalypse, this big spike in volatility that we 32 00:01:55,000 --> 00:01:59,160 Speaker 1: saw in early February. We had to sell off in stocks, 33 00:01:59,320 --> 00:02:01,960 Speaker 1: and then we add a spike in something called the 34 00:02:02,040 --> 00:02:05,520 Speaker 1: volatility index known as the vix uh. Some people refer 35 00:02:05,600 --> 00:02:08,720 Speaker 1: to it as Wall Streets fear gauge. Some people feel 36 00:02:08,919 --> 00:02:11,720 Speaker 1: very strongly that it shouldn't be called that. And then 37 00:02:11,840 --> 00:02:15,160 Speaker 1: as the vix was spiking, we had two products that 38 00:02:15,200 --> 00:02:19,680 Speaker 1: were tied to the index that encountered a tremendous amount 39 00:02:19,680 --> 00:02:23,880 Speaker 1: of pain. One of them basically died that day and 40 00:02:23,960 --> 00:02:27,080 Speaker 1: the other one is sort of limping onwards, and just 41 00:02:27,160 --> 00:02:28,959 Speaker 1: before we start the show, I'm going to throw out 42 00:02:29,000 --> 00:02:31,040 Speaker 1: the full names of both products so that people know 43 00:02:31,120 --> 00:02:33,480 Speaker 1: exactly what we're talking about. The first one is the 44 00:02:33,520 --> 00:02:37,239 Speaker 1: pro Shares short VIX short term Futures e t F 45 00:02:37,560 --> 00:02:40,680 Speaker 1: called the s v x Y and the second one, 46 00:02:40,760 --> 00:02:44,440 Speaker 1: the one that actually died, is called the Velocity Shares 47 00:02:44,639 --> 00:02:48,680 Speaker 1: Daily Inverse vix short term e t N. Say that 48 00:02:48,760 --> 00:02:51,760 Speaker 1: two times fast. That one is known as the x 49 00:02:51,800 --> 00:02:55,320 Speaker 1: I V. I am very excited about this conversation because 50 00:02:55,720 --> 00:02:58,480 Speaker 1: as we've talked about a we talked about the short 51 00:02:58,560 --> 00:03:00,919 Speaker 1: volatility trade on the show with the guests that we're 52 00:03:00,919 --> 00:03:02,920 Speaker 1: about to talk to, So this is a follow up 53 00:03:02,960 --> 00:03:06,880 Speaker 1: its story and then conclusion and be the backdrop to 54 00:03:06,960 --> 00:03:09,440 Speaker 1: many of our episodes has been it's like Tracy, there's 55 00:03:09,440 --> 00:03:12,760 Speaker 1: not much going on in the market, is low volatility. 56 00:03:12,800 --> 00:03:15,560 Speaker 1: So this really has everything for us, and I'm excited 57 00:03:15,600 --> 00:03:18,160 Speaker 1: to get started. Yeah, finally we can say that something 58 00:03:18,320 --> 00:03:21,600 Speaker 1: happened in the markets. So without further ado, then let's 59 00:03:21,639 --> 00:03:25,480 Speaker 1: bring on our guest. He is, of course, private Chintawang Vanish. 60 00:03:25,720 --> 00:03:28,600 Speaker 1: He is head of Derivative Strategy over at Macro Risk 61 00:03:28,680 --> 00:03:33,560 Speaker 1: Advisors and he has been writing about this four years private. 62 00:03:33,680 --> 00:03:35,800 Speaker 1: Thank you so much for coming on. I know you've 63 00:03:35,800 --> 00:03:39,160 Speaker 1: had a busy week. Thanks for having me so um, 64 00:03:39,200 --> 00:03:42,120 Speaker 1: maybe just to begin with, shall we do a quick 65 00:03:42,200 --> 00:03:48,160 Speaker 1: recap of what exactly the short volatility trade was? So 66 00:03:48,480 --> 00:03:50,560 Speaker 1: I noticed he used the past tense. I don't think 67 00:03:50,600 --> 00:03:53,000 Speaker 1: it's over yet for what it's worth. But the short 68 00:03:53,080 --> 00:03:55,840 Speaker 1: volatility trade, you know, So these two products that you 69 00:03:55,960 --> 00:03:58,800 Speaker 1: just mentioned x i V and s VIXI they're just 70 00:03:58,920 --> 00:04:01,880 Speaker 1: really two express questions of the short volatility trade. But 71 00:04:02,320 --> 00:04:05,600 Speaker 1: more broadly, what does it mean to be short volatility? Honestly, 72 00:04:05,640 --> 00:04:07,119 Speaker 1: it depends on who you ask. So if you ask 73 00:04:07,200 --> 00:04:09,280 Speaker 1: someone like you know, Chris Cole over at Artemus, you'll 74 00:04:09,320 --> 00:04:11,480 Speaker 1: tell you that, well, almost all forms of risk taking 75 00:04:11,560 --> 00:04:14,480 Speaker 1: or short ball. And I I kind of agree with 76 00:04:14,960 --> 00:04:16,960 Speaker 1: that view of the world in the sense that, okay, 77 00:04:16,960 --> 00:04:19,279 Speaker 1: if your long equities or your long you know, high 78 00:04:19,320 --> 00:04:21,400 Speaker 1: yield credits, I mean you're kind of short vall right, 79 00:04:21,760 --> 00:04:24,560 Speaker 1: But let me dive into what most people are the 80 00:04:24,640 --> 00:04:27,679 Speaker 1: kind of the more narrower, more common definition of short volve. 81 00:04:28,240 --> 00:04:30,560 Speaker 1: Really what it means is to be short options, right, 82 00:04:30,600 --> 00:04:33,479 Speaker 1: in order words, to have sold options So think about 83 00:04:33,520 --> 00:04:36,360 Speaker 1: what options are. Okay, their financial products that essentially will 84 00:04:36,400 --> 00:04:41,000 Speaker 1: pay out if the reference asset, let's call it a stock, 85 00:04:41,040 --> 00:04:43,920 Speaker 1: if it if it moves above or below a certain 86 00:04:44,080 --> 00:04:45,960 Speaker 1: strike price. Right. So, in other words, if you if 87 00:04:45,960 --> 00:04:49,080 Speaker 1: you own options, your long volatility, you want things to move. Right. 88 00:04:49,320 --> 00:04:51,359 Speaker 1: The more things move, the more volatile things are, the 89 00:04:51,360 --> 00:04:54,160 Speaker 1: more valuable those options are gonna be. And likewise, if 90 00:04:54,160 --> 00:04:57,279 Speaker 1: you've sold options, then you're short vaul and you're earning 91 00:04:57,320 --> 00:05:00,680 Speaker 1: that risk premium. Right. So other words, if you sold options, 92 00:05:00,680 --> 00:05:02,839 Speaker 1: if you're short of all you want the markets to 93 00:05:03,080 --> 00:05:04,960 Speaker 1: basically not do anything. You want the markets to be 94 00:05:05,040 --> 00:05:07,680 Speaker 1: placid and kind of just go along and not do 95 00:05:07,760 --> 00:05:10,120 Speaker 1: too much, and you're gonna be paid for that risk premium, 96 00:05:10,200 --> 00:05:15,240 Speaker 1: right think about Okay, So essentially options have what's called 97 00:05:15,360 --> 00:05:18,640 Speaker 1: risk premium embedded into them. In other words, we don't 98 00:05:18,640 --> 00:05:20,440 Speaker 1: know what's going to happen in the future. The future 99 00:05:20,440 --> 00:05:23,440 Speaker 1: could be very volatile or it could be not so volatile, right, 100 00:05:23,520 --> 00:05:28,039 Speaker 1: so people price in what's called an implied volatility. In 101 00:05:28,080 --> 00:05:32,120 Speaker 1: other words, in every option contract, there's basically let's call 102 00:05:32,200 --> 00:05:35,320 Speaker 1: an expected volatility that's baked into it, and it usually 103 00:05:35,360 --> 00:05:37,599 Speaker 1: trades a little premium to how volatile the market has 104 00:05:37,600 --> 00:05:39,640 Speaker 1: actually been. There what you know people in the field 105 00:05:39,760 --> 00:05:44,080 Speaker 1: is called realized volatility. So basically, if you sell volatility, 106 00:05:44,640 --> 00:05:47,240 Speaker 1: you're basically betting that things are going to continue as 107 00:05:47,240 --> 00:05:50,080 Speaker 1: they have been. In other words, the future remains like 108 00:05:50,120 --> 00:05:54,080 Speaker 1: the past and over the past year in this was 109 00:05:54,360 --> 00:05:59,000 Speaker 1: incredibly profitable trade because not only were the markets not 110 00:05:59,120 --> 00:06:01,960 Speaker 1: very volatile, they are actually less volatile than they had been, 111 00:06:02,279 --> 00:06:04,880 Speaker 1: and very much less volatile than they had been for 112 00:06:04,920 --> 00:06:09,440 Speaker 1: a long time. So, as you stated, there's multiple expressions 113 00:06:09,600 --> 00:06:14,280 Speaker 1: of the trade short volatility. There's the broadest view, which 114 00:06:14,320 --> 00:06:18,400 Speaker 1: is that any sort of long investment is implicitly short volatility. 115 00:06:18,480 --> 00:06:21,000 Speaker 1: You could go out in the options market directly and 116 00:06:21,080 --> 00:06:25,000 Speaker 1: sell options. What really seems to have captured people's attention 117 00:06:25,880 --> 00:06:28,200 Speaker 1: and the sort of fascination of the media and lots 118 00:06:28,200 --> 00:06:31,359 Speaker 1: of people was the specific products that Tracy and you 119 00:06:31,400 --> 00:06:35,120 Speaker 1: already mentioned and all these retail investors coming in and 120 00:06:35,200 --> 00:06:38,680 Speaker 1: pressing a button that says short volatility. Because it's not 121 00:06:38,760 --> 00:06:40,840 Speaker 1: easy for the average person to sort of select a 122 00:06:40,880 --> 00:06:42,760 Speaker 1: bunch of options to sell, as you put it, but 123 00:06:42,800 --> 00:06:45,000 Speaker 1: it's very easy to just buy this e t F 124 00:06:45,080 --> 00:06:47,920 Speaker 1: that says short Volatility. It's as easy to buying a 125 00:06:47,960 --> 00:06:50,720 Speaker 1: share of Microsoft and just buying these e t f 126 00:06:50,760 --> 00:06:54,039 Speaker 1: s or e tns has been extraordinarily profitable up until 127 00:06:54,120 --> 00:06:56,640 Speaker 1: very recently. Extraordinarily I mean the x i V was 128 00:06:56,720 --> 00:07:00,599 Speaker 1: up almost in teen. Uh. There's a really a funny 129 00:07:00,600 --> 00:07:03,800 Speaker 1: story from Paul Britton, who's the CEO of Capstone, and 130 00:07:03,800 --> 00:07:05,720 Speaker 1: he's basically saying that he was taking an uber and 131 00:07:05,760 --> 00:07:08,520 Speaker 1: the driver was telling him about, Hey, there's this great 132 00:07:08,560 --> 00:07:11,160 Speaker 1: new company. You know, it might be a biotech or 133 00:07:11,200 --> 00:07:12,480 Speaker 1: you know, it's some kind of tech company. I don't 134 00:07:12,520 --> 00:07:14,520 Speaker 1: know what it is, but it's up. And he said 135 00:07:14,560 --> 00:07:16,520 Speaker 1: this company is called x i V, you know, And 136 00:07:16,520 --> 00:07:18,040 Speaker 1: and Paul is like, mate, I'm sorry to tell you 137 00:07:18,080 --> 00:07:21,840 Speaker 1: that's not a company. Um, but yeah, Like that just 138 00:07:21,880 --> 00:07:24,440 Speaker 1: goes to show you. I guess how how widespread and 139 00:07:24,480 --> 00:07:28,240 Speaker 1: popular the short vultrade had gotten. Yeah, the retail aspect 140 00:07:28,240 --> 00:07:31,680 Speaker 1: of these products is amazing. You mentioned that cab anecdote, 141 00:07:31,720 --> 00:07:36,320 Speaker 1: but there was also a dedicated Reddit forum all about 142 00:07:36,440 --> 00:07:38,880 Speaker 1: trading x i V, and if you go look at 143 00:07:38,960 --> 00:07:41,400 Speaker 1: it right now, it's it's just full of horror stories 144 00:07:41,400 --> 00:07:43,960 Speaker 1: of people that lost money. But before we get to 145 00:07:44,040 --> 00:07:47,520 Speaker 1: that product. Can you walk us through exactly how these 146 00:07:47,600 --> 00:07:52,240 Speaker 1: two products expressed their short volatility? But right, so both 147 00:07:52,240 --> 00:07:55,760 Speaker 1: of these products were essentially short. What are known as 148 00:07:55,960 --> 00:07:59,200 Speaker 1: Vick's futures. So what is the VIX Well, you mentioned 149 00:07:59,200 --> 00:08:01,440 Speaker 1: that sometimes called the fear wall, strads, s fear gage 150 00:08:01,520 --> 00:08:04,520 Speaker 1: or whatever. Basically, the VIX is an index that's calculated 151 00:08:04,640 --> 00:08:08,960 Speaker 1: using um one month options on the SMP index. So 152 00:08:09,120 --> 00:08:12,440 Speaker 1: they basically they take pretty much every one month option 153 00:08:12,480 --> 00:08:15,240 Speaker 1: on the SMP and they take them applied to all 154 00:08:15,240 --> 00:08:17,440 Speaker 1: those options and compress it into one, you know, handy 155 00:08:17,520 --> 00:08:19,720 Speaker 1: number that you can look at on the screens. And 156 00:08:20,080 --> 00:08:23,240 Speaker 1: VIX futures are traded contracts that are tied to the 157 00:08:23,320 --> 00:08:26,160 Speaker 1: VIX index. So the VIX xcel itself you can't trade, right, 158 00:08:26,200 --> 00:08:28,960 Speaker 1: It's just a number that's calculated, but VIX futures you 159 00:08:29,000 --> 00:08:32,840 Speaker 1: can trade. And the idea behind VIXED futures is like, okay, 160 00:08:32,840 --> 00:08:36,600 Speaker 1: any features contract, there's some kind of reference asset or index, 161 00:08:37,120 --> 00:08:40,080 Speaker 1: and when the VIX future settles at maturity, it's going 162 00:08:40,120 --> 00:08:43,079 Speaker 1: to settle to whatever that index is on the day 163 00:08:43,080 --> 00:08:47,040 Speaker 1: of settlement. So Vic's futures basically allows you, in essence 164 00:08:47,160 --> 00:08:49,320 Speaker 1: a way of trading the VIX although it's it's definitely 165 00:08:49,400 --> 00:08:52,720 Speaker 1: not the exact same thing. And so similar to how 166 00:08:52,760 --> 00:08:55,200 Speaker 1: I mentioned that options have risk premium baked into them, 167 00:08:55,640 --> 00:08:58,800 Speaker 1: h Vix's futures also have a risk premium that's baked 168 00:08:58,800 --> 00:09:01,560 Speaker 1: into them too. There's you know, uncertainty premium about what's 169 00:09:01,559 --> 00:09:04,559 Speaker 1: going to happen in the future that causes Vick's futures 170 00:09:04,559 --> 00:09:08,160 Speaker 1: to generally trade at a premium to the spot. So 171 00:09:08,200 --> 00:09:11,240 Speaker 1: to to illustrate for you, imagine that the VIC spot 172 00:09:11,320 --> 00:09:13,360 Speaker 1: is twelve, Well, then the front month future might trade 173 00:09:13,360 --> 00:09:16,000 Speaker 1: at I don't know, fourteen, and the future after of 174 00:09:16,040 --> 00:09:18,160 Speaker 1: that might trade at sixteen. And if I go and 175 00:09:18,200 --> 00:09:20,520 Speaker 1: sell those features and nothing happens in the VIC spot 176 00:09:20,559 --> 00:09:22,880 Speaker 1: remains twelve, well, then the futureill slowly converse twelve and 177 00:09:22,920 --> 00:09:25,800 Speaker 1: I make money. That's in essence what these products were doing. 178 00:09:26,920 --> 00:09:30,000 Speaker 1: And so, uh, you know, without getting too technical, although 179 00:09:30,040 --> 00:09:32,640 Speaker 1: actually we're pretty into getting technical, so I don't know 180 00:09:32,640 --> 00:09:34,839 Speaker 1: why I even said that. So let's get technical now, 181 00:09:34,880 --> 00:09:37,280 Speaker 1: is our chance? Come on? Yeah, yeah, we're here to 182 00:09:37,320 --> 00:09:40,079 Speaker 1: get technical on a log before we get into how 183 00:09:40,120 --> 00:09:41,880 Speaker 1: it all blew up, which we're gonna get to in 184 00:09:41,920 --> 00:09:44,520 Speaker 1: a moment, tell us a little bit about this idea. 185 00:09:44,800 --> 00:09:48,640 Speaker 1: Futures have a forward curve term structure, and so out 186 00:09:48,760 --> 00:09:51,720 Speaker 1: months tend to be uh have more embedded risk premium 187 00:09:51,760 --> 00:09:54,640 Speaker 1: into them than the in months, and this also provided 188 00:09:54,760 --> 00:09:58,520 Speaker 1: juice to the trade. Correct exactly how did that help 189 00:09:58,600 --> 00:10:02,560 Speaker 1: the trade? So, Joe, as you mentioned, Vick's futures have 190 00:10:02,960 --> 00:10:05,800 Speaker 1: you know, what's called a term premium to them, right, So, 191 00:10:06,480 --> 00:10:09,960 Speaker 1: if the VIX spot is at twelve, then the front 192 00:10:10,040 --> 00:10:12,199 Speaker 1: month future might trade at fourteen. In the future after 193 00:10:12,240 --> 00:10:15,319 Speaker 1: that might trade at sixteen, and if the world remains 194 00:10:15,400 --> 00:10:17,880 Speaker 1: the same, Okay, So if if the Vick spot just 195 00:10:18,040 --> 00:10:19,960 Speaker 1: remains at twelve, that means that if I go and 196 00:10:20,000 --> 00:10:22,480 Speaker 1: sell that future at fourteen, eventually it's going to go 197 00:10:22,520 --> 00:10:24,120 Speaker 1: to twelve. If I go and sell that you know, 198 00:10:24,160 --> 00:10:26,679 Speaker 1: back month future sixteen, if nothing happens for the next 199 00:10:26,679 --> 00:10:29,520 Speaker 1: two months and Vick spot remains unchanged, should eventually go 200 00:10:29,559 --> 00:10:32,200 Speaker 1: to twelve. So there's this kind of term premium or 201 00:10:32,320 --> 00:10:36,240 Speaker 1: kind of uncertainty premium that's baked into Vix's futures. So 202 00:10:36,320 --> 00:10:40,520 Speaker 1: let's jump to Monday February five, so probate between four 203 00:10:40,640 --> 00:10:44,599 Speaker 1: and four fifteen. We have this big move in Vick's futures, 204 00:10:44,679 --> 00:10:47,839 Speaker 1: and really the key to understanding why that move happened 205 00:10:48,400 --> 00:10:51,360 Speaker 1: is to delve into the mechanics of exactly how these 206 00:10:51,400 --> 00:10:56,319 Speaker 1: two products operate and how they deliver returns for investors. 207 00:10:56,320 --> 00:10:59,360 Speaker 1: And it's worthwhile, I'm sure you'll remind everyone, but these 208 00:10:59,360 --> 00:11:03,440 Speaker 1: products for inverse leverage to the vix and they offer 209 00:11:03,640 --> 00:11:07,200 Speaker 1: a certain amount of inverse leverage. So walk us through 210 00:11:07,240 --> 00:11:10,880 Speaker 1: exactly how those products do that exactly. So I think 211 00:11:10,880 --> 00:11:13,360 Speaker 1: the key to understand these products is that they're leveraged. 212 00:11:14,080 --> 00:11:18,320 Speaker 1: Both of these products offered the daily inverse return of 213 00:11:19,280 --> 00:11:22,199 Speaker 1: essentially what one month vixed features were doing. Right, So 214 00:11:22,320 --> 00:11:25,200 Speaker 1: if vixed features are up ten percent, these products are 215 00:11:25,240 --> 00:11:28,520 Speaker 1: down ten percent, and vice versa. Um so you can imagine, well, 216 00:11:28,559 --> 00:11:31,080 Speaker 1: what if vixed features are up more than there's going 217 00:11:31,120 --> 00:11:34,480 Speaker 1: to be a problem, right, And we'll get into that later. 218 00:11:34,600 --> 00:11:38,199 Speaker 1: But another super important aspect to this whole blow up 219 00:11:38,400 --> 00:11:41,480 Speaker 1: is what we call the rebalance. Essentially, how these products 220 00:11:41,480 --> 00:11:44,679 Speaker 1: were forced to trade into the clothes every day, right, 221 00:11:44,720 --> 00:11:48,600 Speaker 1: So any leverage product is going to have to buy 222 00:11:48,800 --> 00:11:51,199 Speaker 1: the underlying on the days when the underlying is up 223 00:11:51,480 --> 00:11:53,679 Speaker 1: and sell the underlying on days when the underlying is 224 00:11:53,720 --> 00:11:55,600 Speaker 1: down if they want to provide daily leverage. A very 225 00:11:55,640 --> 00:11:58,160 Speaker 1: simple way to illustrate that is, let's say I have 226 00:11:58,160 --> 00:12:00,840 Speaker 1: a hundred dollars and I want to provide one time's 227 00:12:00,840 --> 00:12:03,520 Speaker 1: inverse exposure. So I got to sell a hundred dollars 228 00:12:03,520 --> 00:12:06,679 Speaker 1: of risk. Now let's say that the underlying goes up 229 00:12:06,720 --> 00:12:08,839 Speaker 1: and I now have a hundred and fifty dollars of 230 00:12:08,920 --> 00:12:11,080 Speaker 1: risk and only fifty dollars of cash. Love, Well, that's 231 00:12:11,080 --> 00:12:12,760 Speaker 1: a problem because now I'm three times levering, right, So 232 00:12:12,800 --> 00:12:14,160 Speaker 1: what I have to do. I got to buy back 233 00:12:14,200 --> 00:12:15,920 Speaker 1: a hundred dollars of risk, and so now I have 234 00:12:16,040 --> 00:12:18,319 Speaker 1: fifty dollars cash and fifty dollars a risk. Right. So, 235 00:12:18,559 --> 00:12:21,280 Speaker 1: long story short, these products had to buy vixed features 236 00:12:21,320 --> 00:12:23,560 Speaker 1: on days when vixed features are up and sell vixed 237 00:12:23,559 --> 00:12:25,600 Speaker 1: features on days when vixed features were down. Right, So, 238 00:12:25,679 --> 00:12:28,480 Speaker 1: in other words, they're trading in the same direction of 239 00:12:28,480 --> 00:12:32,320 Speaker 1: the market. And I think what's really key to understanding 240 00:12:32,320 --> 00:12:35,480 Speaker 1: this whole episode is that these products eventually got two 241 00:12:35,640 --> 00:12:39,200 Speaker 1: large relative to the underlying market. In other words, shorting 242 00:12:39,240 --> 00:12:43,800 Speaker 1: volatility was such a successful trade that these products had 243 00:12:43,840 --> 00:12:48,000 Speaker 1: grown tremendously going into the beginning of you know, I 244 00:12:48,040 --> 00:12:51,240 Speaker 1: do these calculations of how big the rebounds would have 245 00:12:51,280 --> 00:12:56,040 Speaker 1: to be, and by the beginning of the rebounds was 246 00:12:56,080 --> 00:12:59,160 Speaker 1: about two or three times as large as it had 247 00:12:59,200 --> 00:13:03,920 Speaker 1: been in and we estimated that, you know, should a 248 00:13:04,000 --> 00:13:06,400 Speaker 1: shock similar to you know, what we saw back in 249 00:13:06,440 --> 00:13:10,640 Speaker 1: August happened, there would be a lot more of Vick's 250 00:13:10,679 --> 00:13:13,000 Speaker 1: futures to vie and close. So this is a key 251 00:13:13,000 --> 00:13:16,000 Speaker 1: thing to understand because, as you said, we've had volatility 252 00:13:16,000 --> 00:13:18,280 Speaker 1: blow ups from time to time in recent years, and 253 00:13:18,320 --> 00:13:21,160 Speaker 1: the x I V has been around several years, but 254 00:13:21,320 --> 00:13:25,000 Speaker 1: it survived those other periods in part because it wasn't 255 00:13:25,200 --> 00:13:30,360 Speaker 1: big enough to really impact the underlying market exactly. Um So, say, 256 00:13:30,400 --> 00:13:35,600 Speaker 1: like August was a pretty big shock from markets, right, 257 00:13:35,920 --> 00:13:38,440 Speaker 1: I think SMP was down some, like the Vicks got 258 00:13:38,480 --> 00:13:41,200 Speaker 1: to forty plus. I mean, the Brexit was a pretty big, 259 00:13:41,240 --> 00:13:43,559 Speaker 1: you know, one day shock. But the x I V 260 00:13:43,800 --> 00:13:46,040 Speaker 1: and you know it's causing s VIX, he survived these 261 00:13:46,040 --> 00:13:49,640 Speaker 1: shocks because they weren't quite large enough to destabilize markets. 262 00:13:49,679 --> 00:13:51,679 Speaker 1: And I think that's the key thing. If these products 263 00:13:51,679 --> 00:13:55,400 Speaker 1: were small, then this might not have happened. But essentially, 264 00:13:55,640 --> 00:13:57,959 Speaker 1: I think the products were just victims have thrown success. 265 00:13:58,120 --> 00:14:00,840 Speaker 1: They got so large that the amount they had to 266 00:14:00,880 --> 00:14:03,680 Speaker 1: trade was the amount of liquidity they demanded going to 267 00:14:03,720 --> 00:14:06,160 Speaker 1: the close was too big relative to what the market 268 00:14:06,200 --> 00:14:08,800 Speaker 1: could provide. It's kind of like a miniature version of 269 00:14:08,840 --> 00:14:13,280 Speaker 1: what happened in Black Monday with Portfolio Insurance, where they 270 00:14:13,320 --> 00:14:16,360 Speaker 1: had to sell SMP features as the market sold off, 271 00:14:16,400 --> 00:14:18,719 Speaker 1: and sell more as the market and d sell off. 272 00:14:18,720 --> 00:14:20,200 Speaker 1: So they got kind of stuck in this you know, 273 00:14:20,360 --> 00:14:24,080 Speaker 1: feedback loop essentially of Okay, I had to buy vicked features. 274 00:14:24,280 --> 00:14:25,920 Speaker 1: Now I've pushed Vicked features up. That means that I 275 00:14:25,960 --> 00:14:27,720 Speaker 1: have to buy more, which means in turn that I 276 00:14:27,760 --> 00:14:29,680 Speaker 1: gotta buy more vixed features. Right. It's this kind of 277 00:14:29,680 --> 00:14:33,040 Speaker 1: feedback loop that these products got sucked into. So Credit 278 00:14:33,080 --> 00:14:38,600 Speaker 1: Swiss decides to exercise basically a liquidation right that it 279 00:14:38,680 --> 00:14:43,440 Speaker 1: has over this e t F. That annoyed quite a 280 00:14:43,440 --> 00:14:48,720 Speaker 1: few investors um but it also didn't necessarily surprise a 281 00:14:48,800 --> 00:14:52,440 Speaker 1: lot of people who had been watching this event unfold. 282 00:14:52,840 --> 00:14:56,000 Speaker 1: Why was that so Earlier we touched on the risk 283 00:14:56,040 --> 00:14:58,800 Speaker 1: of inverse products and how if the underlying more than 284 00:14:58,800 --> 00:15:01,920 Speaker 1: doubled in a single day, these products would effectively get 285 00:15:01,960 --> 00:15:04,240 Speaker 1: wiped out, right, So what happens if the underline more 286 00:15:04,240 --> 00:15:06,640 Speaker 1: than doubles on a single day. Well, obviously the t 287 00:15:06,800 --> 00:15:09,960 Speaker 1: F holder doesn't end up in debt, right, they only 288 00:15:09,960 --> 00:15:12,840 Speaker 1: lose all their money, But the person who runs the 289 00:15:12,840 --> 00:15:14,440 Speaker 1: e t F could be at risk. The person who 290 00:15:14,520 --> 00:15:17,240 Speaker 1: runs et F could essentially lose money on this um. 291 00:15:17,400 --> 00:15:19,360 Speaker 1: So if you read the perspectives of X A V, 292 00:15:19,720 --> 00:15:22,640 Speaker 1: they had what was known as an early acceleration clause, 293 00:15:22,640 --> 00:15:26,880 Speaker 1: which stated that if the underlying fixed features were up 294 00:15:26,920 --> 00:15:30,480 Speaker 1: more than in a single day, they could effectually do 295 00:15:30,640 --> 00:15:34,000 Speaker 1: what's called an acceleration, or they could liquidate the product 296 00:15:34,280 --> 00:15:38,240 Speaker 1: and in essence protecting themselves, and return whatever was left 297 00:15:38,280 --> 00:15:43,200 Speaker 1: over after the liquidation to the holders. I'm curious about 298 00:15:43,480 --> 00:15:48,040 Speaker 1: the future of this trade because it's interesting. So the 299 00:15:48,200 --> 00:15:50,960 Speaker 1: s v x Y, the s FIXY, it still exists 300 00:15:51,640 --> 00:15:56,120 Speaker 1: UH in theory, if the volatility regime UH gets more 301 00:15:56,160 --> 00:15:58,840 Speaker 1: placid again and continues to go down, it could be 302 00:15:58,840 --> 00:16:02,000 Speaker 1: a very profitable trade still to buy into it. But 303 00:16:02,160 --> 00:16:05,120 Speaker 1: now that we've seen this event, and we've seen the 304 00:16:05,240 --> 00:16:08,960 Speaker 1: ramifications of when these ones get very large and the 305 00:16:09,000 --> 00:16:12,560 Speaker 1: rebalance of them starts to influence the underlying market itself. 306 00:16:13,080 --> 00:16:16,160 Speaker 1: Is this just permanently a ticking time bomb where once 307 00:16:16,200 --> 00:16:19,440 Speaker 1: it gets to X threshold, the risk of a blow 308 00:16:19,520 --> 00:16:23,640 Speaker 1: up like this becomes significantly heightened. I think it's something 309 00:16:23,680 --> 00:16:25,800 Speaker 1: to look out for it and you know, as Vixy 310 00:16:26,000 --> 00:16:29,840 Speaker 1: did manage to survive this episode, and you know, if 311 00:16:29,840 --> 00:16:31,760 Speaker 1: you look at fun flows, I think something like half 312 00:16:31,760 --> 00:16:34,240 Speaker 1: a billion has actually entered a s Vixy since the 313 00:16:34,280 --> 00:16:37,200 Speaker 1: blow up, so people are still clearly still very keen 314 00:16:37,280 --> 00:16:41,520 Speaker 1: on short involved. Um, yeah, it's a risk. I mean 315 00:16:41,560 --> 00:16:45,040 Speaker 1: I will say that the you know, the potential rebalance 316 00:16:45,120 --> 00:16:48,120 Speaker 1: and the amount that could destabilize markets is now much 317 00:16:48,200 --> 00:16:50,800 Speaker 1: much smaller. Right, so the x I v is gone. Uh, 318 00:16:50,840 --> 00:16:52,680 Speaker 1: the s fixy is kind of a shadow of its 319 00:16:52,720 --> 00:16:54,720 Speaker 1: former self, and there there are other leverage products out 320 00:16:54,760 --> 00:16:58,040 Speaker 1: there tied to the vix that you know, it's something 321 00:16:58,040 --> 00:16:59,840 Speaker 1: to watch out for, but it's definitely much less of 322 00:16:59,880 --> 00:17:03,960 Speaker 1: a is than it was before. Let's dig into exactly 323 00:17:03,960 --> 00:17:07,760 Speaker 1: how the s v x y survived that afternoon, because 324 00:17:07,880 --> 00:17:10,199 Speaker 1: I think it tells us something important about the market 325 00:17:10,280 --> 00:17:13,959 Speaker 1: and private You've said in your research that it seemed 326 00:17:14,000 --> 00:17:18,160 Speaker 1: like the sp x y couldn't buy enough futures, and 327 00:17:18,240 --> 00:17:20,439 Speaker 1: in the end that kind of meant I guess that 328 00:17:20,480 --> 00:17:23,000 Speaker 1: it was less leverage than it should have been, and 329 00:17:23,040 --> 00:17:25,399 Speaker 1: that's sort of the thing that seemed to save it. 330 00:17:25,840 --> 00:17:28,600 Speaker 1: So I'm gonna kind of sidetrack for a moment and 331 00:17:28,640 --> 00:17:31,879 Speaker 1: just talk about how crazy things got between four and 332 00:17:31,880 --> 00:17:34,960 Speaker 1: four fifteen and how much uncertainty there was about what 333 00:17:35,040 --> 00:17:37,840 Speaker 1: these products are worth, if anything. Right, So you know, 334 00:17:37,920 --> 00:17:40,720 Speaker 1: as I mentioned, going to the four PM clothes Doctor 335 00:17:40,800 --> 00:17:44,040 Speaker 1: down something like four, Vick's features are up a decent amount, 336 00:17:44,359 --> 00:17:46,440 Speaker 1: and then from four and fourifteen the blow up happened, right, 337 00:17:46,480 --> 00:17:48,399 Speaker 1: So you know, I'm sitting there at four fifteen, I'm 338 00:17:48,440 --> 00:17:53,080 Speaker 1: looking at Vick's features and they're up nearly and again 339 00:17:53,119 --> 00:17:54,840 Speaker 1: it happened so fast that I thought, well, maybe there's 340 00:17:54,840 --> 00:17:56,919 Speaker 1: just something grow up my Bloomberg. And then hit me 341 00:17:57,000 --> 00:17:59,800 Speaker 1: like it would never be something if the first thing 342 00:17:59,840 --> 00:18:01,760 Speaker 1: you've canna always rule out, by the way, is that 343 00:18:01,800 --> 00:18:03,800 Speaker 1: there would be something wrong with your Bloomberg, of course, 344 00:18:04,400 --> 00:18:07,480 Speaker 1: but then it but then it hit me that thank you. 345 00:18:07,920 --> 00:18:10,800 Speaker 1: But then it hit me that the x V must 346 00:18:10,800 --> 00:18:13,840 Speaker 1: have blown up, and I was like, I can't believe it, 347 00:18:13,880 --> 00:18:15,920 Speaker 1: Like this is something that we've been calling for for 348 00:18:16,119 --> 00:18:19,359 Speaker 1: you know, probably years, and and I'm looking at the 349 00:18:19,520 --> 00:18:22,320 Speaker 1: x V trading post market and I'm like, wait, the 350 00:18:22,440 --> 00:18:24,639 Speaker 1: x V should be basically zero right now, but the 351 00:18:24,760 --> 00:18:27,080 Speaker 1: x V still trading it like ninety dollars that you 352 00:18:27,080 --> 00:18:28,639 Speaker 1: know that's Vixy is still trading up there as well. 353 00:18:28,640 --> 00:18:30,439 Speaker 1: I was like, wait, what is going on? Like so 354 00:18:30,560 --> 00:18:32,960 Speaker 1: either of the vixed features are wrong or the x 355 00:18:33,119 --> 00:18:36,439 Speaker 1: V is trading way over fair value. So, you know, 356 00:18:36,480 --> 00:18:38,640 Speaker 1: we did the math. It's it's very simple math, right. 357 00:18:38,640 --> 00:18:40,119 Speaker 1: You look at what the naval was last night, you 358 00:18:40,160 --> 00:18:41,960 Speaker 1: look at how much of Vixed features moved, and we 359 00:18:42,000 --> 00:18:44,359 Speaker 1: came to the conclusion there's no way these products are 360 00:18:44,359 --> 00:18:47,400 Speaker 1: worth more than call it, four dollars, and these things 361 00:18:47,400 --> 00:18:51,240 Speaker 1: are still trading at ninety bucks. And the other interesting 362 00:18:51,240 --> 00:18:54,640 Speaker 1: thing is that these products were plenty liquid post market. Right. 363 00:18:54,680 --> 00:18:58,080 Speaker 1: So we had you know, I basically instant Bloomberg messaged 364 00:18:58,080 --> 00:19:01,000 Speaker 1: all my clients and said, these I start trading way 365 00:19:01,000 --> 00:19:03,439 Speaker 1: over fair value. There's no way that these things are 366 00:19:03,440 --> 00:19:06,879 Speaker 1: worth anything more than four or five bucks. And we 367 00:19:06,920 --> 00:19:08,879 Speaker 1: had a lot of clients who basically went in and 368 00:19:08,920 --> 00:19:12,400 Speaker 1: started shorting these products. And I was amazed that they 369 00:19:12,400 --> 00:19:14,440 Speaker 1: were able to short so much. I was amazed that 370 00:19:14,480 --> 00:19:16,600 Speaker 1: there was anyone on the other side willing to buy 371 00:19:16,640 --> 00:19:20,320 Speaker 1: these things for you know, paying you know, hundreds of 372 00:19:20,320 --> 00:19:23,440 Speaker 1: percent premium to fair value. Uh So at the time, 373 00:19:23,480 --> 00:19:25,560 Speaker 1: I thought, oh, it just must be like robot, you know, 374 00:19:25,600 --> 00:19:27,720 Speaker 1: it's kind of robot market maker who doesn't know any better. 375 00:19:28,119 --> 00:19:29,919 Speaker 1: You know. It wasn't until a few days later that 376 00:19:30,040 --> 00:19:32,159 Speaker 1: I actually read a Bloomer article saying that there were 377 00:19:32,160 --> 00:19:35,119 Speaker 1: people who tried to buy x V postmarket because they 378 00:19:35,119 --> 00:19:37,520 Speaker 1: were so conditioned to just buy x I V and 379 00:19:37,560 --> 00:19:39,720 Speaker 1: try to short VAUL every time vall blew up. And 380 00:19:40,600 --> 00:19:42,320 Speaker 1: I guess the you know, the kind of funny thing 381 00:19:42,400 --> 00:19:44,600 Speaker 1: is is they were right. Vicked features did go down. 382 00:19:44,680 --> 00:19:46,880 Speaker 1: That was that appeared to be the peak for VICKED futures, 383 00:19:47,240 --> 00:19:49,400 Speaker 1: but obviously didn't make any money because they were buying 384 00:19:49,400 --> 00:19:52,679 Speaker 1: this thing for way over nap. But it just amazed me. 385 00:19:52,760 --> 00:19:55,639 Speaker 1: From from four PM to eight pm, so for four hours, 386 00:19:55,680 --> 00:19:58,600 Speaker 1: these things just continued to trade a gigantic premium. And 387 00:19:59,080 --> 00:20:01,439 Speaker 1: you know, even going to PM, nobody knew what s 388 00:20:01,560 --> 00:20:04,960 Speaker 1: vixty was worth. So, you know, I called the Pete 389 00:20:04,960 --> 00:20:07,120 Speaker 1: pro Shares, the people who run six. He didn't ask them, 390 00:20:07,160 --> 00:20:08,800 Speaker 1: so what is the net ass of all of your thing? 391 00:20:08,880 --> 00:20:11,760 Speaker 1: Like what is it worth? Uh? And they actually couldn't 392 00:20:11,800 --> 00:20:14,520 Speaker 1: tell me what or maybe nothing couldn't, but they didn't 393 00:20:14,560 --> 00:20:16,000 Speaker 1: want to tell me what their their final is worth. 394 00:20:16,040 --> 00:20:18,880 Speaker 1: And you know, until the very next day, that must 395 00:20:18,880 --> 00:20:22,199 Speaker 1: have felt pretty good, a identifying that be getting the 396 00:20:22,240 --> 00:20:24,239 Speaker 1: message to all the people you work with, and then 397 00:20:24,240 --> 00:20:26,560 Speaker 1: made a bunch of money. And see, I don't know 398 00:20:26,680 --> 00:20:29,360 Speaker 1: this part feels good, but you know it goes back to, uh, 399 00:20:29,400 --> 00:20:32,840 Speaker 1: the Reddit traders and all the people online and stuff 400 00:20:32,880 --> 00:20:35,920 Speaker 1: like that. And I guess that's sort of from time 401 00:20:35,960 --> 00:20:38,200 Speaker 1: to time, these people who just conditions like oh yeah, 402 00:20:38,200 --> 00:20:39,840 Speaker 1: I'm going to be the hero and by the dip 403 00:20:39,840 --> 00:20:42,560 Speaker 1: of this thing, because it always goes back up eventually, 404 00:20:42,600 --> 00:20:46,119 Speaker 1: that just doesn't work well absolutely. I mean the funny 405 00:20:46,160 --> 00:20:47,879 Speaker 1: thing is it it just really depends to know how 406 00:20:47,920 --> 00:20:49,760 Speaker 1: you did it right. So if you had sold vix features, 407 00:20:49,760 --> 00:20:53,080 Speaker 1: actually you would have made money, right. The problem was that, 408 00:20:53,400 --> 00:20:56,560 Speaker 1: for whatever reason, the link between the E t F 409 00:20:56,960 --> 00:21:00,360 Speaker 1: and it's underlying value just completely broke down between four 410 00:21:00,400 --> 00:21:02,880 Speaker 1: and four or fifteen when everything blew up. I mean, honestly, 411 00:21:02,920 --> 00:21:05,959 Speaker 1: I think the underlying moved so fast that people just 412 00:21:06,480 --> 00:21:09,479 Speaker 1: couldn't do the arbitrage. The people who did step in 413 00:21:09,520 --> 00:21:11,919 Speaker 1: were you know, our clients and other people who realized 414 00:21:11,960 --> 00:21:13,240 Speaker 1: that this thing was trading we ever to have and 415 00:21:13,240 --> 00:21:16,199 Speaker 1: decided to shut the hell out of it. But to 416 00:21:16,240 --> 00:21:21,480 Speaker 1: get back to your question about why the s VIXI survived, Um, Well, 417 00:21:21,520 --> 00:21:24,159 Speaker 1: first of all, the features didn't actually go up more 418 00:21:24,160 --> 00:21:28,919 Speaker 1: than they were. Technically they were up, so they survived, 419 00:21:29,040 --> 00:21:32,320 Speaker 1: you know, by hair. But I think the really interesting 420 00:21:32,359 --> 00:21:35,480 Speaker 1: thing was that so when the pro Chairs guys that 421 00:21:35,480 --> 00:21:37,560 Speaker 1: people who rund s fix He finally did publish a NAV. 422 00:21:37,960 --> 00:21:40,000 Speaker 1: They published a NAV saying their fund it were four dollars, 423 00:21:40,000 --> 00:21:42,080 Speaker 1: which is what everyone thought it should be worth if 424 00:21:42,119 --> 00:21:44,920 Speaker 1: you did the math. So the next day has Fixy 425 00:21:45,000 --> 00:21:47,600 Speaker 1: opened trading at eleven dollars, and we're all wondering, why 426 00:21:47,640 --> 00:21:50,359 Speaker 1: is this thing trading away from Navigain. It turns out, 427 00:21:50,480 --> 00:21:52,720 Speaker 1: at least from talking to pro Chairs, that they may 428 00:21:52,760 --> 00:21:55,320 Speaker 1: not have covered as many vixed features they should have 429 00:21:55,359 --> 00:21:57,080 Speaker 1: remembered I was I was talking about the rebalance and 430 00:21:57,080 --> 00:21:59,280 Speaker 1: saying that okay, these products have to buy vixed features 431 00:21:59,320 --> 00:22:00,960 Speaker 1: when they're up and all when they're down. So the 432 00:22:01,000 --> 00:22:03,040 Speaker 1: most victures feastures they would have to buy back is 433 00:22:03,080 --> 00:22:04,760 Speaker 1: all of them. Right. If the underlying is a a 434 00:22:04,960 --> 00:22:06,800 Speaker 1: dred percent, well then you cover all your vick feizures 435 00:22:06,800 --> 00:22:09,400 Speaker 1: and you're done. Now you have zero risk and zero dollars. Right. 436 00:22:09,880 --> 00:22:12,760 Speaker 1: But it seems like the s Fixy guys just didn't 437 00:22:12,800 --> 00:22:16,600 Speaker 1: cover all of their vixed features risk. So from four 438 00:22:16,760 --> 00:22:21,440 Speaker 1: fifteen they were essentially super super levered. And because right 439 00:22:21,480 --> 00:22:24,720 Speaker 1: after fourteen vixed Features collapsed, they managed to I guess 440 00:22:24,760 --> 00:22:26,840 Speaker 1: make some money back, so they were they were only 441 00:22:26,880 --> 00:22:32,160 Speaker 1: down and the so a lot of irony there that 442 00:22:32,520 --> 00:22:36,480 Speaker 1: the products that basically operated as advertised, the x I 443 00:22:36,600 --> 00:22:42,040 Speaker 1: V collapsed and the product that didn't necessarily operate as advertised, 444 00:22:42,080 --> 00:22:46,159 Speaker 1: the s Fixy, survived private. You know, as we sift 445 00:22:46,240 --> 00:22:50,200 Speaker 1: through the rubble of the Vaal apocalypse, there's a big 446 00:22:50,280 --> 00:22:53,080 Speaker 1: question that a lot of people were asking, which is, 447 00:22:53,119 --> 00:22:58,120 Speaker 1: of course, did the tail wag the dog? So did 448 00:22:58,160 --> 00:23:03,040 Speaker 1: all these VIX related products end up impacting the VIX 449 00:23:03,119 --> 00:23:06,760 Speaker 1: index via VIX futures, and then did that end up 450 00:23:06,880 --> 00:23:10,000 Speaker 1: impacting the wider market. I'd love to get your thoughts 451 00:23:10,080 --> 00:23:14,439 Speaker 1: on that. So I think the vix products did affect 452 00:23:14,560 --> 00:23:18,199 Speaker 1: VIX futures. In other words, I think the action of 453 00:23:18,920 --> 00:23:20,280 Speaker 1: x I V and s vix, you and all these 454 00:23:20,320 --> 00:23:24,159 Speaker 1: other products covering short vixed features going into the clothes 455 00:23:24,280 --> 00:23:27,080 Speaker 1: that definitely affected vixed futures. They pushed the market against 456 00:23:27,119 --> 00:23:31,160 Speaker 1: themselves and effectively self destructed, right, I mean it's it's 457 00:23:31,160 --> 00:23:33,399 Speaker 1: sort of like a miniature version of what happened to 458 00:23:33,560 --> 00:23:36,240 Speaker 1: long term capital management. Okay, they were two leverage, they 459 00:23:36,240 --> 00:23:37,800 Speaker 1: tried to cover their risk, and they end up pushing 460 00:23:37,800 --> 00:23:40,159 Speaker 1: the market against themselves. Do I think that moved the 461 00:23:40,240 --> 00:23:42,800 Speaker 1: vixed spot? Yeah, I do, because if you're if you're 462 00:23:42,800 --> 00:23:45,600 Speaker 1: buying vixed features, ultimately that ties back to into you 463 00:23:45,720 --> 00:23:47,520 Speaker 1: buy involved and essentially, yeah, you push the price of 464 00:23:47,560 --> 00:23:49,200 Speaker 1: al up. So I think it moved the vixed spot. 465 00:23:49,720 --> 00:23:53,040 Speaker 1: Do I think it moved the SMP. That's a more 466 00:23:53,040 --> 00:23:56,760 Speaker 1: difficult question, right, because I think you know, there is 467 00:23:56,840 --> 00:23:59,359 Speaker 1: kind of a a link between all the risks in 468 00:23:59,359 --> 00:24:02,920 Speaker 1: the world, right we know that. Okay, if SMP is down, 469 00:24:03,040 --> 00:24:05,720 Speaker 1: then probably you know, the yen is going to be bid, 470 00:24:05,800 --> 00:24:07,960 Speaker 1: and Treasury is going to be bid, and Vick's features 471 00:24:07,960 --> 00:24:09,280 Speaker 1: is going to be bad, and so there's kind of 472 00:24:09,280 --> 00:24:11,840 Speaker 1: a kind of knees arek link between all these things. 473 00:24:12,280 --> 00:24:15,160 Speaker 1: So vicked features are up, you know, a lot after 474 00:24:15,200 --> 00:24:17,320 Speaker 1: the clothes. I have to think that, yeah, in some 475 00:24:17,359 --> 00:24:19,159 Speaker 1: way SMP features are going to be down, and they 476 00:24:19,200 --> 00:24:21,280 Speaker 1: were down after the clothes in that day, so I think, yeah, 477 00:24:21,520 --> 00:24:24,080 Speaker 1: you know, it may have contributed the extra percenter too. 478 00:24:24,080 --> 00:24:29,720 Speaker 1: We saw SMP features off postmarket profit. We could probably 479 00:24:29,720 --> 00:24:32,520 Speaker 1: talk about this for hours, and I think we should 480 00:24:32,600 --> 00:24:35,480 Speaker 1: reschedule the next one because, as you say, people are 481 00:24:35,480 --> 00:24:37,960 Speaker 1: already piling back into this trade. So I doubt we've 482 00:24:37,960 --> 00:24:40,160 Speaker 1: seen the last turn at the screw on this story. 483 00:24:40,160 --> 00:24:42,639 Speaker 1: But thank you so much for this is one of 484 00:24:42,680 --> 00:24:45,760 Speaker 1: the most fascinating, interesting conversations we can a long thanks 485 00:24:45,760 --> 00:24:59,000 Speaker 1: for having me appreciate it. So Joe, can I just 486 00:24:59,040 --> 00:25:04,000 Speaker 1: say one thing? Yeah, that felt so good. It felt 487 00:25:04,040 --> 00:25:08,280 Speaker 1: so good to do a deeply wonky markets podcast about 488 00:25:08,359 --> 00:25:11,280 Speaker 1: something that's actually happening in the market. It made me 489 00:25:11,320 --> 00:25:15,040 Speaker 1: so happy. That might be an all honesty, like the 490 00:25:15,160 --> 00:25:18,040 Speaker 1: sort of that's what we should go for every time, 491 00:25:18,080 --> 00:25:21,920 Speaker 1: Like that level of conversation where it's timely and it's 492 00:25:22,000 --> 00:25:24,880 Speaker 1: on the market, And I think we really helped demystify 493 00:25:25,000 --> 00:25:27,600 Speaker 1: something I certainly learned a lot. I mean, we covered 494 00:25:27,600 --> 00:25:31,000 Speaker 1: this intensely during that week, but this still really helped 495 00:25:31,000 --> 00:25:34,160 Speaker 1: me understand what exactly was that we were covering. Yeah, 496 00:25:34,200 --> 00:25:36,240 Speaker 1: and I suspect there's going to be a lot of 497 00:25:36,240 --> 00:25:38,479 Speaker 1: this that we can cover going forward, because there are 498 00:25:38,520 --> 00:25:42,640 Speaker 1: still some major questions surrounding these products. A big one 499 00:25:42,840 --> 00:25:46,440 Speaker 1: is is there going to be a regulatory backlash against 500 00:25:46,640 --> 00:25:50,840 Speaker 1: the VIX index itself and the company that provides it, uh, 501 00:25:51,040 --> 00:25:54,280 Speaker 1: the cbo E. And secondly, is there going to be 502 00:25:54,320 --> 00:26:00,320 Speaker 1: a regulatory backlash against people who were providing these specific products? Uh? 503 00:26:00,440 --> 00:26:02,880 Speaker 1: You know, the x I v was pretty clear saying 504 00:26:02,920 --> 00:26:06,360 Speaker 1: that it was only supposed to be used by sophisticated investors, 505 00:26:06,880 --> 00:26:08,720 Speaker 1: but you and I both know that there was a 506 00:26:08,760 --> 00:26:11,560 Speaker 1: ton of retail money in it. So was that the 507 00:26:11,560 --> 00:26:14,399 Speaker 1: fault of the issuer was that the fault of the 508 00:26:14,440 --> 00:26:18,240 Speaker 1: regulators was that the faults of brokerage is that we're 509 00:26:18,280 --> 00:26:21,560 Speaker 1: allowing retail investors access to these products. There are so 510 00:26:21,600 --> 00:26:24,560 Speaker 1: many questions people are going to be talking about. Absolutely, 511 00:26:24,640 --> 00:26:27,080 Speaker 1: and Tracy, I just want to say, of all the 512 00:26:27,480 --> 00:26:30,159 Speaker 1: you know, I knocked at the beginning of financial journalists, 513 00:26:30,160 --> 00:26:33,600 Speaker 1: and I said nothing that financial journalists predict actually happens, 514 00:26:33,680 --> 00:26:36,520 Speaker 1: and that's mostly true, but you're an exception. You've been 515 00:26:36,560 --> 00:26:39,320 Speaker 1: writing about these issues for a long time and I 516 00:26:39,320 --> 00:26:42,320 Speaker 1: think you deserve a lot of credit for talking about 517 00:26:42,320 --> 00:26:45,320 Speaker 1: the relationship between these products and how they as you 518 00:26:45,520 --> 00:26:47,440 Speaker 1: put it, the tail could wag the dog at the end. 519 00:26:47,680 --> 00:26:51,560 Speaker 1: So props to you. Well you can't see me because 520 00:26:51,600 --> 00:26:54,240 Speaker 1: I'm an Abu Dhabi, but unblushing, that's very sweet. Thank 521 00:26:54,280 --> 00:26:57,960 Speaker 1: you too. On that happy note, this has been another 522 00:26:58,119 --> 00:27:00,480 Speaker 1: edition of Odd Lots. I'm Tracy I'll Wait. You can 523 00:27:00,520 --> 00:27:04,000 Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe Wisenthal. 524 00:27:04,080 --> 00:27:06,719 Speaker 1: You can follow me on Twitter at the Stalwart, and 525 00:27:06,760 --> 00:27:10,680 Speaker 1: you can follow Private on Twitter at Private underscore C. 526 00:27:11,440 --> 00:27:15,000 Speaker 1: And you should follow our producer tober Forehees on Twitter 527 00:27:15,119 --> 00:27:18,400 Speaker 1: at Forheas Underscore T, as well as the Bloomberg head 528 00:27:18,400 --> 00:27:23,280 Speaker 1: of podcast, Francesco Levie at Princesca Today. Thanks for listening.