WEBVTT - A Volatility Arbitrage Trader On What Markets Are Saying Right Now 0:00:11.039 --> 0:00:14.600 Hello, and welcome to another episode of the Odd Thoughts Podcast. 0:00:14.680 --> 0:00:19.279 I'm Tracy Hallaway and I'm Joe. Wasn't thal Joe? Yes? 0:00:19.640 --> 0:00:25.000 Did you know? Did you know that the VIX futures 0:00:25.000 --> 0:00:28.600 This is super dramatic, it's not that interesting. Did you 0:00:28.640 --> 0:00:33.360 know that the VIX futures curve has been inverted or 0:00:33.800 --> 0:00:37.360 kind of inverted for I think like six months now, 0:00:37.440 --> 0:00:41.239 basically since February. I didn't realize it was then, but 0:00:41.720 --> 0:00:44.120 I didn't realize it had been six months. So basically 0:00:44.360 --> 0:00:51.159 that means that investors are hedging again. It's higher volatility 0:00:51.320 --> 0:00:54.000 out in the future than they are right now, or 0:00:54.040 --> 0:00:56.600 the other way around, the other way around, so it 0:00:56.640 --> 0:01:00.160 means people are paying more for volatility protection in the 0:01:00.200 --> 0:01:03.560 near term than they are in the future. But that's unusual, 0:01:03.800 --> 0:01:07.119 or at least it's counter to how the VIX curve 0:01:07.200 --> 0:01:11.160 normally looks. Normally, the VIX curve is upwards sloping because 0:01:11.200 --> 0:01:14.320 there's more uncertainty further out into the future, and so 0:01:14.400 --> 0:01:18.319 you pay more for that volatility insurance. So kind of 0:01:18.400 --> 0:01:23.080 unusual to have the VIX curve downwards sloping for this long, 0:01:23.160 --> 0:01:25.280 And I guess it's one of those things that that 0:01:25.400 --> 0:01:28.280 tells you that we're in an interesting place when it 0:01:28.319 --> 0:01:30.920 comes to markets at the moment. Yeah, I mean it 0:01:31.000 --> 0:01:34.360 makes sense that people are paying up more for short 0:01:34.520 --> 0:01:37.880 term hedging right now because we obviously are just in 0:01:37.920 --> 0:01:41.720 extraordinary times. You know, you look out a little ways 0:01:42.319 --> 0:01:44.640 one year, two years, you could sort of envision a 0:01:44.720 --> 0:01:47.039 return to normal, but it feels like we're in a 0:01:47.080 --> 0:01:50.559 period where anything could happen tomorrow, whether it's policy, whether 0:01:50.600 --> 0:01:55.080 it's related to the virus, etcetera. And so yes, sort 0:01:55.080 --> 0:01:59.760 of intuitive that people want hedges in the here and now. Yeah, 0:02:00.040 --> 0:02:03.560 of course the big event risk on but can I say, 0:02:03.600 --> 0:02:06.000 can I say something though, go on, No, this is 0:02:06.000 --> 0:02:08.399 something that's always bothered me, and maybe we'll get into 0:02:08.520 --> 0:02:11.600 this with our guest today. But I don't understand why 0:02:11.600 --> 0:02:15.080 it's not always like that, because I understand that most 0:02:15.080 --> 0:02:18.000 of the time people want to pay out for some 0:02:18.080 --> 0:02:21.080 protection because the future seems like less certain than the presence. 0:02:21.080 --> 0:02:23.359 So I get that in theory. But on the other hand, 0:02:23.440 --> 0:02:26.280 one of the central like sort of like dogmas of 0:02:26.360 --> 0:02:29.560 finance is that you know, over the long term, things 0:02:29.600 --> 0:02:33.920 to things go up, the economy improves, stocks go up, etcetera. 0:02:34.280 --> 0:02:36.160 So it always seems to be like it should actually 0:02:36.160 --> 0:02:37.840 be the other way around, where it's like, in the 0:02:37.880 --> 0:02:40.639 short term anything can happen, but in the long term 0:02:40.720 --> 0:02:44.520 things are smooth. So I've never really understood the premise 0:02:44.560 --> 0:02:47.720 of why VIX futures curve slope upward in the first place. 0:02:47.760 --> 0:02:51.240 But anyway we can, we can get into that later. Yeah, 0:02:51.280 --> 0:02:54.520 I mean, there are dozens and dozens of exchange traded 0:02:54.560 --> 0:02:57.959 products whose very existence is predicated on the VIX curve 0:02:58.840 --> 0:03:02.160 upwards in normal times. Um, but yes, we should, we 0:03:02.160 --> 0:03:05.240 should ask the question. I guess, all right, well, you've 0:03:05.280 --> 0:03:07.760 already sort of given it away. But in this episode, 0:03:07.760 --> 0:03:12.079 we're gonna be talking about the current volatility regime. And 0:03:12.120 --> 0:03:14.359 I was about to mention that there is a very 0:03:14.400 --> 0:03:17.200 big event risk coming up on the horizon, which is 0:03:17.280 --> 0:03:19.480 the US elections, and we've seen a lot of talk 0:03:19.560 --> 0:03:22.760 about volatility hedging ahead of that. We're going to get 0:03:22.800 --> 0:03:24.400 into that, and we're also going to talk about some 0:03:24.440 --> 0:03:30.280 of the longer term changes in volatility market structure, including 0:03:30.960 --> 0:03:35.640 maybe even why the VIX futures curve is normally upwards sloping. 0:03:36.520 --> 0:03:38.760 Now I'm super excited about this one. I mean, it's 0:03:38.840 --> 0:03:42.920 obviously been an extraordinary year, I think due to the 0:03:43.080 --> 0:03:47.400 rise of these sort of discrete events, whether it's the 0:03:47.400 --> 0:03:50.400 the virus itself, the big thing that's coming up on 0:03:50.520 --> 0:03:53.680 November three of this year, which could be uh producing 0:03:53.760 --> 0:03:57.960 extraordinary amount of uncertainty. There's been so much interest um 0:03:58.560 --> 0:04:02.920 in uh what volatiary futures or vict futures curves on 0:04:02.960 --> 0:04:05.600 all sorts of asset classes are sort of anticipating on 0:04:05.760 --> 0:04:08.160 how wild things could get. We also, as we spoke 0:04:08.200 --> 0:04:11.240 about with Ben Eifford a few weeks ago, there's the 0:04:11.320 --> 0:04:14.920 emergence of this whole class of sort of retail derivatives 0:04:14.920 --> 0:04:20.120 buyers call options buyers also sort of breaking historical patterns 0:04:20.120 --> 0:04:24.560 potentially in terms of how hedging markets look. So this 0:04:24.680 --> 0:04:27.880 is an extraordinary rich topic to dive into, and although 0:04:27.920 --> 0:04:29.960 we've hit it in some ways in the past, it 0:04:30.000 --> 0:04:34.360 doesn't feel like we can never really talk about it enough. Yeah, 0:04:34.400 --> 0:04:38.000 I totally agree. So our guest for this particular episode 0:04:38.480 --> 0:04:41.560 is Chris Sidile. He's the co c i O over 0:04:41.600 --> 0:04:47.360 at Ambrosk Group, basically a volatility arbitrage trader, and he's 0:04:47.440 --> 0:04:51.200 been in that particular space for well many years now. 0:04:51.279 --> 0:04:54.039 So the perfect person to talk to us about the 0:04:54.080 --> 0:04:58.480 current volatility trading regime. Chris, welcome to a THOTS. Hey, 0:04:58.560 --> 0:05:02.359 good morning, Thank you. Then meet so I guess to 0:05:02.440 --> 0:05:05.240 begin with, you know, Joe asked that question about why 0:05:05.279 --> 0:05:09.200 the vix curve is normally upward sloping. Can you maybe 0:05:09.279 --> 0:05:12.440 explain to us what you've seen over the past few 0:05:12.480 --> 0:05:16.080 months in terms of how the market is pricing volatility 0:05:16.120 --> 0:05:20.480 and what's changed. Why is the vixed curve downward sloping? 0:05:20.720 --> 0:05:23.440 What are you saying in terms of ptging demand and 0:05:23.480 --> 0:05:28.200 things like that? Right, So, uh, it's very easy to 0:05:28.240 --> 0:05:32.920 tell that everybody is fixated on the December ball, right, 0:05:32.960 --> 0:05:35.360 and it's for good reason to write. You have the 0:05:35.400 --> 0:05:40.800 potential resurgence of the comtavirus, you have the election time hotility, 0:05:40.960 --> 0:05:44.680 you have the potential for corporate earning blagging. Thanks for 0:05:44.839 --> 0:05:48.359 pointing this week. So that's pretty big, especially because of 0:05:48.480 --> 0:05:51.440 not everything that's been taking place in trading on the 0:05:51.480 --> 0:05:55.640 baby side. So everybody has been fixated on December ball, 0:05:56.200 --> 0:06:00.359 and there has been a constant bid um. Even back 0:06:00.400 --> 0:06:05.599 in late August, we've seen that correalition break between Vixen 0:06:05.720 --> 0:06:09.120 Spot and you know, people were watching that that was 0:06:09.560 --> 0:06:12.839 a little bit supply and demand driven. We we understand 0:06:12.839 --> 0:06:14.840 that there was a big player in the market that 0:06:15.080 --> 0:06:21.080 helped propel that due to some of the dealer gama hedging, etcetera, etcetera. 0:06:21.120 --> 0:06:23.080 I could go on for for hours about that one. 0:06:23.600 --> 0:06:28.640 I think people have a concern about the upcoming catalysts, 0:06:28.839 --> 0:06:34.080 and we're being across the scope pre hedging that's taking place, 0:06:34.360 --> 0:06:36.599 you know, not only with some of the larger players, 0:06:36.640 --> 0:06:38.919 but you're seeing it with the smaller guys too, with 0:06:39.440 --> 0:06:42.599 some of the you know, registered advisors. You know, they're 0:06:42.640 --> 0:06:45.040 basically instructing their clients, you know, go out, make sure 0:06:45.080 --> 0:06:47.880 you protect yourself. So it's been a constant bid involved 0:06:48.080 --> 0:06:50.960 at that level. You know. I've been tweeting this is 0:06:51.000 --> 0:06:56.080 that when the term structure is so elevated, like what 0:06:56.279 --> 0:07:00.279 we see involves so bit up, it's very difficult to 0:07:00.480 --> 0:07:03.880 get that added convexity in the move. And what I 0:07:03.920 --> 0:07:07.400 mean is that when Vault is so pre bid, it's 0:07:07.480 --> 0:07:09.760 somewhat priced in al right, so people are kind of 0:07:09.760 --> 0:07:13.520 anticipating this. People are pre hedged the move that you 0:07:13.640 --> 0:07:17.000 need to get VIX to like a seventy or eighty. 0:07:17.040 --> 0:07:20.560 It has to be real panic and real fair in 0:07:20.600 --> 0:07:23.880 the market, and you won't get that if guys are 0:07:23.880 --> 0:07:26.000 pre heads, right, because let's think about it in the 0:07:26.040 --> 0:07:30.160 most basic conceptual way. If you have a book, all right, 0:07:30.240 --> 0:07:32.800 let's just say you're running a million dollar books, right, 0:07:33.200 --> 0:07:35.400 and you have your heades on them and the market 0:07:35.480 --> 0:07:40.480 is down seven right, your pre heads. So you're not 0:07:40.560 --> 0:07:43.840 gonna go and rush to the exit door right to 0:07:43.880 --> 0:07:46.600 sell off your positions because you really have your heads. 0:07:46.680 --> 0:07:50.160 And when you have that across the entire landscope, right, 0:07:50.240 --> 0:07:53.960 it becomes much more difficult to get volved to to 0:07:54.120 --> 0:07:57.520 really get going. It's like that example of like what 0:07:57.640 --> 0:07:59.760 causes the vex to really if you have a whole 0:07:59.760 --> 0:08:01.560 bunch of people in the room and they're all trying 0:08:01.560 --> 0:08:03.200 to get to the exit door at the same time. 0:08:03.280 --> 0:08:05.400 But in this case, no, So I mean just just 0:08:05.440 --> 0:08:07.200 sort of like to I mean, if you just sort 0:08:07.200 --> 0:08:11.600 of think about over the last several months, March was 0:08:11.680 --> 0:08:14.120 sort of like the mother of all panics, probably one 0:08:14.120 --> 0:08:16.720 of the biggest panics in the history of Wall streets. 0:08:17.280 --> 0:08:20.640 And since then it's just been nothing but fear of 0:08:20.680 --> 0:08:25.920 a second wave, fear of ongoing economics sort of fall out, 0:08:26.120 --> 0:08:30.760 fear of a policy mistake, fear of the election, everything 0:08:30.800 --> 0:08:33.959 going wrong, massive reason to hedge and stay out of 0:08:34.000 --> 0:08:37.000 the market. But as such, it's hard to get actual 0:08:37.200 --> 0:08:42.120 intense selling when essentially so many people were already have 0:08:42.200 --> 0:08:46.160 already been fearful, right, right, So it's uh, it's that 0:08:46.640 --> 0:08:53.600 pre hedged position that will disable all from going through 0:08:53.600 --> 0:08:56.120 the group, right, It needs to be uh, somewhat of 0:08:56.160 --> 0:08:59.160 a fear factor. And I was saying this that in 0:08:59.240 --> 0:09:02.320 order for VALL to really get going in December, you 0:09:02.360 --> 0:09:06.400 need a fresh catalyst, all right, So the the election 0:09:06.480 --> 0:09:09.079 time just isn't enough to really get the ball to 0:09:09.160 --> 0:09:12.960 go through how people are anticipating. And you were seeing 0:09:13.000 --> 0:09:17.760 that in the divergence between d v I X and X. Right, 0:09:17.840 --> 0:09:20.920 I X is VOLA And what we're seeing is the 0:09:21.000 --> 0:09:24.000 market is not really fearful. You're seeing a divergence between 0:09:24.040 --> 0:09:27.280 the two, and it's showing us that, yeah, guys are 0:09:27.400 --> 0:09:30.920 are pre hedged, but there isn't a massive rush to prehdge. 0:09:31.160 --> 0:09:33.560 Don't get me wrong, right, there is a potential for 0:09:33.559 --> 0:09:38.400 a fresh catalyst, right like, granted a Biden election, right now, 0:09:39.000 --> 0:09:42.319 you have to think you have to immediately shift your 0:09:42.360 --> 0:09:46.040 focus into the trade wards, right, if a Biden election 0:09:46.080 --> 0:09:49.000 takes place, Because what if we wake up the next day, 0:09:49.120 --> 0:09:51.760 right we find out Joe Biden is the president. One 0:09:51.760 --> 0:09:54.840 week later we hear China's like, okay, guys, well sorry, 0:09:54.880 --> 0:09:57.600 you know, we need to reassess these this trade deal 0:09:57.640 --> 0:09:59.960 that we were talking about, right, So, a fresh new 0:10:00.040 --> 0:10:02.719 catalysts like that, or you know, something just completely out 0:10:02.720 --> 0:10:05.560 the woodwork could be enough to get the market to 0:10:05.720 --> 0:10:09.520 get going. But it's very difficult to get volatility to 0:10:10.360 --> 0:10:13.480 really proof like a vix um a X move to 0:10:13.559 --> 0:10:17.160 seventy or eighty on things that are already pre priced. 0:10:17.600 --> 0:10:21.240 I just don't think that the velocity of the move 0:10:21.320 --> 0:10:26.319 will be there without a new catalyst that isn't already predetermined. 0:10:27.320 --> 0:10:30.240 M So one of the questions I have based on 0:10:30.320 --> 0:10:35.120 that is if everyone is pretty well hedged going into 0:10:35.280 --> 0:10:41.640 the presidential elections, who is actually selling vall exposure at 0:10:41.640 --> 0:10:45.400 the moment. So that's a really good question. Um, there 0:10:45.440 --> 0:10:49.520 are people that are out there that are taking advantage 0:10:49.520 --> 0:10:52.640 of this, and and you know they're looking to sell all. 0:10:53.080 --> 0:10:55.760 We actually know a couple of institutional guys who are 0:10:55.800 --> 0:10:59.080 trying to take advantage of this, but no they I 0:10:59.120 --> 0:11:03.160 think they are resting there in a more sophisticated way 0:11:03.400 --> 0:11:07.920 where they are um hedged off. But I would not 0:11:08.120 --> 0:11:12.880 suggest this to the average retail guy because there are 0:11:12.920 --> 0:11:15.760 a lot of complexities that go in to do this. 0:11:16.120 --> 0:11:20.960 With the recent correlation break in spotting VIX, it's very 0:11:21.000 --> 0:11:23.440 difficult to determine what the market is going to do. 0:11:23.559 --> 0:11:27.080 You can't have too much conviction that sid because you 0:11:27.120 --> 0:11:29.880 could have a situation where Spott is down and ball 0:11:29.960 --> 0:11:32.559 is down, all right, or you could have an inverse 0:11:32.559 --> 0:11:35.400 of that situation, right, So you can't be too sure 0:11:35.600 --> 0:11:40.520 of what exactly is going to take place historically and statistically. 0:11:41.200 --> 0:11:44.080 Right now, I'm very confident enough to say that the 0:11:44.160 --> 0:11:49.400 trade is short volatility. Right Statistically and historically, there are 0:11:49.440 --> 0:11:53.000 no numbers that I think an individual could pull up 0:11:53.120 --> 0:11:55.640 that can lead me to say that the trade is 0:11:55.720 --> 0:11:59.920 not shootball. However, as a trader, and you know, as 0:11:59.920 --> 0:12:03.559 a risk manager, you look at this from a different standpoint, 0:12:03.800 --> 0:12:06.040 right because you look at this and you say, Okay, 0:12:06.160 --> 0:12:09.079 the data makes sense, the numbers line up, but there's 0:12:09.080 --> 0:12:12.720 been so much variability in do we really want to 0:12:12.760 --> 0:12:15.920 take this shot? Right? So there are a million other 0:12:16.000 --> 0:12:19.439 trades out there that we could take, we're not expressing 0:12:19.720 --> 0:12:24.959 the the view which with so much conviction, right, So 0:12:25.760 --> 0:12:27.920 you know, we could be short a little bit of 0:12:27.920 --> 0:12:30.080 all in the book to try to capture that, but 0:12:30.840 --> 0:12:36.160 the risk to reward from what we've seen in I mean, 0:12:37.240 --> 0:12:40.040 has just been one of those years where I feel 0:12:40.080 --> 0:12:44.880 like I call it the critosis here because everything that 0:12:45.040 --> 0:12:47.920 is like a two delta, a five delta and under 0:12:48.040 --> 0:12:50.760 is just has been hitting like we've been seeing it 0:12:50.880 --> 0:12:52.800 left and right. And you want to talk about just 0:12:52.960 --> 0:12:55.920 life in general, right, like God rest his soul, Kobe 0:12:55.920 --> 0:12:58.440 Bryant died from a helicopter crash. Right, you're just thinking 0:12:58.480 --> 0:13:01.240 about every little thing you you want to talk about 0:13:01.640 --> 0:13:04.800 the election. I'm a fairly young guy, but I have 0:13:04.880 --> 0:13:07.880 not seen a year where there's been so much variability. 0:13:07.920 --> 0:13:12.520 So with everything taking place, it's very difficult for me 0:13:12.600 --> 0:13:15.360 to say, Okay, I'm just going to fixate on the 0:13:15.440 --> 0:13:17.880 numbers and most specifically, I'm just gonna say, like you know, 0:13:17.960 --> 0:13:21.360 I'm just gonna capture that the VRP and and short 0:13:21.360 --> 0:13:23.800 ball here because the wrist of awards just doesn't really 0:13:23.920 --> 0:13:41.080 pan out. I'm actually I'm really curious about these sort 0:13:41.080 --> 0:13:44.320 of other opportunities you identify. So of course, okay, they 0:13:44.400 --> 0:13:47.600 say the statistics line up and say you should probably 0:13:47.640 --> 0:13:52.760 be short vall because the sort of realized volatility UM 0:13:52.760 --> 0:13:55.600 going into the election is probably not going to be 0:13:55.720 --> 0:14:00.800 as high as the headgers are positioned for, and statistics 0:14:01.280 --> 0:14:03.760 suggest there's probably some money to be made there and 0:14:03.800 --> 0:14:07.000 taking advantage of all the fear. What are the other 0:14:07.200 --> 0:14:11.319 things that you look for in terms of opportunities that 0:14:11.520 --> 0:14:15.680 aren't the sort of simple directional bets on one way 0:14:15.760 --> 0:14:20.160 or another up or down in volatility. Yeah, so we 0:14:20.240 --> 0:14:24.320 look for, um, a little bit of regression in some 0:14:24.440 --> 0:14:29.000 relative value things. I think earning this season is really 0:14:29.080 --> 0:14:33.080 really promit. I think it's going to for guidance, is 0:14:33.120 --> 0:14:35.600 going to really paint the picture for us, and I 0:14:35.640 --> 0:14:38.760 think reality will set in a little bit because um, 0:14:38.800 --> 0:14:41.800 I'm anticipating a little bit of a slowdown in corporate 0:14:41.800 --> 0:14:46.640 earning uh this cycle. So there are ways to capture 0:14:47.440 --> 0:14:52.520 that spread between some of the single names in certain sectors, right, 0:14:52.560 --> 0:14:58.160 so we don't necessarily need to be Mega's focused on 0:14:58.240 --> 0:15:00.880 you know, vix up. You know, we look to express 0:15:00.920 --> 0:15:04.000 some of our views and in some of the sectors 0:15:04.000 --> 0:15:06.480 with single names and then also the ets right. So 0:15:07.000 --> 0:15:11.200 for example, if we're looking at a you know, the 0:15:11.680 --> 0:15:14.160 cues to i w M. You know, maybe we think 0:15:14.560 --> 0:15:19.400 the cues are trading relatively rich and i WM this 0:15:19.480 --> 0:15:22.600 trading relatively cheap from from a ball standpoint, right, maybe 0:15:23.080 --> 0:15:25.840 thirty day implied ball or you know, we we like 0:15:25.960 --> 0:15:29.560 to focus on the wings, so we'll be looking at 0:15:29.840 --> 0:15:33.360 how is Kurtosis trading, right, is the five delta and 0:15:33.440 --> 0:15:36.400 underputs or five delta and under calls trading relatively cheap 0:15:36.480 --> 0:15:40.880 or expensive? So I think this earning cycle brings up 0:15:40.960 --> 0:15:44.760 an opportunity for a lot of dispersion. And I think 0:15:44.800 --> 0:15:48.480 you'll see disparity in a few different sectors. So I 0:15:48.520 --> 0:15:52.160 think people could look to focus on that. And I mean, 0:15:52.840 --> 0:15:57.760 you know, from just eliminating okay, like ball itself this 0:15:57.920 --> 0:16:03.240 election time, it's very important in relationship sectors, right, think 0:16:03.240 --> 0:16:06.160 about how important the oil sector is, Think about how 0:16:06.200 --> 0:16:09.680 important healthcare sectors, think about how important the energy Like 0:16:10.720 --> 0:16:15.120 those sectors are heavily reliant on who will be the 0:16:15.120 --> 0:16:18.080 winner of this election, right, because it's night and day 0:16:18.600 --> 0:16:21.200 for the turnout for that. So you know, I think 0:16:21.320 --> 0:16:26.520 investors could and should focus on um some other areas besides, 0:16:26.840 --> 0:16:29.000 oh yeah, I think you know, volatility is going to spike. 0:16:29.360 --> 0:16:31.760 I think if you look at the volatility on individual 0:16:31.840 --> 0:16:34.680 names and and certain sectors that could present um a 0:16:34.720 --> 0:16:38.520 little bit bit more opportunity there, then oh yeah, I'm 0:16:38.560 --> 0:16:40.440 just gonna play like a calendar spread and you know, 0:16:41.040 --> 0:16:44.640 sell January balls and by December balls or vice versa. 0:16:46.640 --> 0:16:49.960 I wanted to zoom out a little bit and and 0:16:50.080 --> 0:16:54.800 sort of move away from the near term concerns about 0:16:55.160 --> 0:16:58.960 potential fat tails and the upcoming election and talk about 0:16:59.640 --> 0:17:04.840 vol utility trading over the past few years. So one 0:17:04.880 --> 0:17:07.840 thing that we hear a lot is that central banks 0:17:08.040 --> 0:17:14.439 have artificially suppressed volatility through their various unconventional monetary policies. 0:17:14.840 --> 0:17:18.560 But we also hear from various guests. You know, Ben 0:17:18.560 --> 0:17:22.320 Effort's a good example of that, or Chris Cole from Artemis. 0:17:22.320 --> 0:17:27.879 We also hear that Wall Street or traders and the 0:17:27.920 --> 0:17:32.280 sort of ecosystem around volatility trading has actually, in effect 0:17:32.920 --> 0:17:36.880 also had a hand in suppressing volatility as well. I'm 0:17:36.920 --> 0:17:39.240 just curious to get your take on that. If you 0:17:39.280 --> 0:17:43.760 look at ball now, how suppressed would you say it 0:17:43.800 --> 0:17:49.720 actually is and what would you attribute that too? Is 0:17:49.760 --> 0:17:52.840 it central banks or is it the way big ball 0:17:52.920 --> 0:17:56.159 players are actually dealing in the space at the moment. 0:17:57.200 --> 0:18:00.359 First of all, shout out to be Ben, such a 0:18:00.359 --> 0:18:05.000 good dude, I love that. But yeah, so vulatility is 0:18:05.080 --> 0:18:09.560 absolutely suppressed, but we're not seeing the same level of 0:18:09.720 --> 0:18:14.640 suppression as we were seeing pre the covid um because 0:18:14.720 --> 0:18:17.480 a lot of these short ball funds and a lot 0:18:17.560 --> 0:18:20.320 of the funds that just focused on selling you know, 0:18:20.400 --> 0:18:23.960 like the ten delta put or you know, it's put 0:18:24.080 --> 0:18:26.359 or whatnot, those guys are kind of those guys have 0:18:26.440 --> 0:18:29.680 been kind of blown out, all right, So you're not 0:18:29.800 --> 0:18:33.159 really seeing the level of suppression that we were seeing 0:18:33.720 --> 0:18:36.639 pre covid However, there I should say that this is 0:18:36.760 --> 0:18:40.480 on a relative level because it's still a very heavy 0:18:40.520 --> 0:18:43.720 amount of mulatility suppression that's going out there. Central banks 0:18:43.760 --> 0:18:47.960 are absolutely suppressing volatility, and I think the way how 0:18:48.920 --> 0:18:52.880 global rates are actually set up right now, it is 0:18:53.200 --> 0:18:55.679 it's a big problem. I mean, you know, you have 0:18:55.720 --> 0:18:58.080 to look at it like this, with global rates being 0:18:58.119 --> 0:19:02.200 so low. If you are an allocator, you are just 0:19:02.800 --> 0:19:06.560 who's just fixated on on generating a return. What can 0:19:06.680 --> 0:19:09.480 you do in this market? Right? Are you gonna go 0:19:09.520 --> 0:19:11.919 buy corporate bonds where you have to take on the 0:19:11.960 --> 0:19:14.120 same sort of default risks as you would with an equity, 0:19:14.440 --> 0:19:16.960 Or are you gonna go buy a treasury where you're 0:19:17.160 --> 0:19:21.080 yielding like zero percent? Right? There comes to point time 0:19:21.080 --> 0:19:24.879 when you're looking at at the the menu and you're 0:19:24.920 --> 0:19:26.920 saying yourself, all right, you know, I might as well 0:19:26.920 --> 0:19:29.280 just be invested in equity. Right. So what global arrates 0:19:29.280 --> 0:19:34.000 beings so low? Its forces new players who aren't really 0:19:34.040 --> 0:19:37.960 in the market to now move into this new spectrum. Right. 0:19:38.760 --> 0:19:43.320 And with that you also have this this interesting dynamic 0:19:43.359 --> 0:19:46.600 taking place with structure products just blowing up. Right, you 0:19:46.640 --> 0:19:49.320 have I mean I was doing the exotics could be 0:19:49.359 --> 0:19:51.240 a mode and I can tell you for a fact. 0:19:51.680 --> 0:19:56.000 You know, January before UM the COVID situation was an 0:19:56.040 --> 0:20:00.600 amazing month. People were eating structure products. The appetite for 0:20:00.640 --> 0:20:05.640 it is huge. Right. So you think about everybody who 0:20:05.800 --> 0:20:07.760 is in the investing role now, right, they want a 0:20:07.800 --> 0:20:10.320 piece of They want a little bit of everything compiled 0:20:10.359 --> 0:20:12.320 into one. Right, So they want a little bit of 0:20:12.400 --> 0:20:14.600 health care, they want a little bit of check, they 0:20:14.600 --> 0:20:17.080 want a little bit of UM energy, and they wanted 0:20:17.119 --> 0:20:20.720 all on one little one basket right, hence the growth 0:20:20.760 --> 0:20:25.840 of EPP products. But what we are seeing is this 0:20:26.000 --> 0:20:30.840 dynamic is actually taking away from market crept. So if 0:20:30.840 --> 0:20:33.199 you were to look at the main components in the 0:20:33.240 --> 0:20:37.879 spy and the queue, right, the components that are in 0:20:37.920 --> 0:20:40.600 the two are the same thing, right, It's basically the 0:20:40.640 --> 0:20:43.359 exact same thing, right. So what what this is telling 0:20:43.359 --> 0:20:47.480 you is that the market is being driven or no breath. Right. 0:20:47.520 --> 0:20:50.120 So as much as people want to diversify and they're 0:20:50.119 --> 0:20:55.199 just trying to diversify, their portfolio is creditated on the 0:20:55.400 --> 0:20:59.480 large name, right. So with the growth of structure products, 0:20:59.480 --> 0:21:02.280 with the low global rates and the force rush to 0:21:02.640 --> 0:21:07.000 too equities and then to us in passive investing with 0:21:07.200 --> 0:21:10.560 the millennial group, they're just like, oh yeah, I want 0:21:10.640 --> 0:21:13.040 I want to be invested in a novel that's going 0:21:13.080 --> 0:21:15.960 to return, you know, a guarantee twelve percent a year. 0:21:16.280 --> 0:21:20.800 Whereas the reality behind that is it's not as easy 0:21:20.840 --> 0:21:24.040 as that, and you know, people are just very open 0:21:24.119 --> 0:21:27.240 to putting their money into these types of passive products. 0:21:27.920 --> 0:21:32.200 So you mix that in now with a big transfer 0:21:32.240 --> 0:21:36.199 of wealth that comes with the actual market buying power. Right. 0:21:36.240 --> 0:21:39.480 So as a millennial myself, I have friends in the 0:21:39.520 --> 0:21:43.760 business and in different industries who are now becoming seasoned 0:21:43.760 --> 0:21:49.440 professional where you know, they're making a fairly good salary 0:21:49.560 --> 0:21:53.200 and these people are now able to put their money 0:21:53.200 --> 0:21:55.359 invest in the stock market. Right, So the decision making 0:21:55.400 --> 0:21:58.800 has now shifted from the boomers to the millennials, right, 0:21:58.840 --> 0:22:01.720 So the buying out and we're seeing that right because 0:22:01.760 --> 0:22:04.640 people complain so much about you know, the Robin Hooders 0:22:04.720 --> 0:22:07.399 and you know or some of the market flow that 0:22:07.440 --> 0:22:10.840 comes from there, right. But it's not only the Robin Hooders, right, 0:22:10.880 --> 0:22:14.159 it's the millennials that are a little more open to 0:22:14.240 --> 0:22:17.640 taking the risks. Myself and my team, we've we went 0:22:17.680 --> 0:22:20.720 through data on this little phenomenon and you know, some 0:22:20.800 --> 0:22:24.719 of the market psychology and sentiment of the younger group. Right. 0:22:24.760 --> 0:22:28.600 So with that taking place, right, all those things mixing 0:22:28.640 --> 0:22:32.640 into one, right, you have this added volatility right where 0:22:32.680 --> 0:22:38.040 you should and you could definitely have these left tail 0:22:38.080 --> 0:22:42.840 events take place more frequently than you were seeing, you know, 0:22:43.000 --> 0:22:46.919 in the nineties or the eighties. So you know, you 0:22:47.000 --> 0:22:50.800 mentioned having been on the on the cell side on 0:22:50.960 --> 0:22:54.800 the desk at BMO, and of course, um, you know 0:22:54.840 --> 0:22:58.840 again talking about our conversation with Ben a few weeks ago. 0:22:59.600 --> 0:23:03.920 Would you learn from that experience that you've taken over 0:23:04.000 --> 0:23:07.520 to the buy side, and how does that in sort 0:23:07.560 --> 0:23:10.320 of like, what did that experience teach you in terms 0:23:10.400 --> 0:23:14.040 of the opportunities that arise due to the positioning of 0:23:14.160 --> 0:23:17.280 the cell side of the dealers and so forth, how 0:23:17.320 --> 0:23:20.600 does that help you think about in spot opportunities. I 0:23:20.680 --> 0:23:22.840 was actually speaking to UH. I was actually at my 0:23:22.880 --> 0:23:25.600 old university and I was speaking UH two weeks ago, 0:23:25.680 --> 0:23:28.800 and I was speaking to a younger kid, and he 0:23:28.880 --> 0:23:31.560 was telling me that he trades options. So I'm just 0:23:31.640 --> 0:23:34.359 asking him, you know some basic questions. You know, okay, 0:23:34.400 --> 0:23:36.440 how do you expression you? And you know what is 0:23:36.480 --> 0:23:39.080 it that you look for? Right? So this gentleman had 0:23:39.320 --> 0:23:42.919 no idea what delta vega gamma was, which was okay, Right, 0:23:42.960 --> 0:23:45.200 he's a college student who go through what we all learned. 0:23:45.600 --> 0:23:51.920 But the appetite and the willingness to go and trade 0:23:51.920 --> 0:23:56.920 derivatives is at the highest it's ever been. Right. Everybody 0:23:57.000 --> 0:24:00.679 wants a point of leverage. Everybody wants to be invested 0:24:00.800 --> 0:24:05.199 in something that could generate something with a convex the component. Right, 0:24:05.240 --> 0:24:08.080 So people are very fixated on obserus trating even though 0:24:08.119 --> 0:24:10.680 they have no idea what they're doing. So the growth 0:24:10.760 --> 0:24:14.920 is tremendous, right. And now you add in the fact 0:24:15.000 --> 0:24:18.439 that dealers need to carry a matchbook, which means that 0:24:18.520 --> 0:24:21.199 they really just need to heade off their risks, and 0:24:21.280 --> 0:24:25.399 you add that in and that leads to excessive dealer 0:24:25.440 --> 0:24:31.159 gamma heaging, right, and that leads to more emphatic swings 0:24:31.160 --> 0:24:34.320 in the market. And you know, you asked me what 0:24:34.359 --> 0:24:36.679 did I learn at BMO, You know, I learned a 0:24:36.760 --> 0:24:40.720 tremendous amount under those guys. UM truly grateful to have 0:24:40.840 --> 0:24:44.879