1 00:00:02,480 --> 00:00:07,400 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,320 --> 00:00:09,639 Speaker 2: It's good. It's good. 3 00:00:09,760 --> 00:00:13,960 Speaker 3: You know, markets are fun and as we said, springs. 4 00:00:13,520 --> 00:00:15,560 Speaker 4: Here, Yeah, markets finally got interesting. 5 00:00:16,160 --> 00:00:18,440 Speaker 2: Oh man, I mean I have so many thoughts. 6 00:00:18,440 --> 00:00:20,720 Speaker 3: Oh good, all right, if you can't tell from my 7 00:00:20,920 --> 00:00:23,520 Speaker 3: normal stream of consciousness operations. 8 00:00:23,600 --> 00:00:27,200 Speaker 4: You know how I know it was bad, Joe go on. 9 00:00:27,600 --> 00:00:29,600 Speaker 4: It was one of those weeks where we talked about 10 00:00:29,720 --> 00:00:32,640 Speaker 4: negative gamma quite a lot's. 11 00:00:32,000 --> 00:00:33,560 Speaker 1: Pretty interesting gamma again. 12 00:00:34,000 --> 00:00:37,680 Speaker 4: Interestingly, we didn't talk that much about standard deviations, which 13 00:00:37,720 --> 00:00:39,920 Speaker 4: is kind of funny. Normally those two kind of go 14 00:00:40,040 --> 00:00:41,600 Speaker 4: hand in hand, but not last week. 15 00:00:41,680 --> 00:00:42,240 Speaker 3: It was weird. 16 00:00:42,400 --> 00:00:44,960 Speaker 1: What's gamma again? I feel so dumb because I know 17 00:00:45,000 --> 00:00:47,040 Speaker 1: we've talked about gamma and it's just one of those 18 00:00:47,080 --> 00:00:47,720 Speaker 1: things like what. 19 00:00:47,760 --> 00:00:49,640 Speaker 4: Is it again? Should we get you a refresher? 20 00:00:49,800 --> 00:00:50,040 Speaker 2: Yeah? 21 00:00:50,080 --> 00:00:52,800 Speaker 1: I need one of those Guide to the Greeks books 22 00:00:52,920 --> 00:00:55,640 Speaker 1: or something like a little like laminated card that I 23 00:00:55,640 --> 00:00:56,040 Speaker 1: can want. 24 00:00:56,120 --> 00:00:57,520 Speaker 4: Someone should do a coffee table. 25 00:00:57,560 --> 00:01:00,720 Speaker 1: But yeah, yeah, guide to the Greeks like Greek stuff 26 00:01:00,760 --> 00:01:02,960 Speaker 1: these days, you know, because I'm into like ancient history 27 00:01:03,040 --> 00:01:05,679 Speaker 1: and everything like that. I know what alpha is, I know. 28 00:01:05,640 --> 00:01:06,400 Speaker 2: What beta is. 29 00:01:06,440 --> 00:01:10,960 Speaker 1: After that, I started to get a little dicey. I 30 00:01:11,000 --> 00:01:11,720 Speaker 1: did a deadlist. 31 00:01:11,800 --> 00:01:15,319 Speaker 4: I'm both the most popular trader and most successful trader 32 00:01:15,520 --> 00:01:16,240 Speaker 4: at Citadel. 33 00:01:16,440 --> 00:01:17,440 Speaker 1: That is going viral. 34 00:01:17,720 --> 00:01:18,480 Speaker 4: Uh barges. 35 00:01:18,680 --> 00:01:20,760 Speaker 1: This is an after school special, except. 36 00:01:20,440 --> 00:01:22,960 Speaker 4: I've decided I'm going to base my entire personality going 37 00:01:23,000 --> 00:01:25,959 Speaker 4: forward on campaigning for a strategic pork reserve in the. 38 00:01:25,959 --> 00:01:28,760 Speaker 1: US Black Goal. These are the important question. 39 00:01:28,880 --> 00:01:30,520 Speaker 4: Is it robots taking over the world? No. 40 00:01:30,600 --> 00:01:33,480 Speaker 1: I think that, like in a couple of years, the 41 00:01:33,560 --> 00:01:35,760 Speaker 1: AI will do a really good job of making the 42 00:01:35,760 --> 00:01:38,840 Speaker 1: Odd Lots podcast. One day that person will have the 43 00:01:38,880 --> 00:01:39,760 Speaker 1: mandate of Heaven. 44 00:01:39,959 --> 00:01:42,160 Speaker 4: How do I get more popular and successful? 45 00:01:42,480 --> 00:01:43,440 Speaker 2: We do have. 46 00:01:45,680 --> 00:01:48,040 Speaker 4: You're listening to lots More, where we catch up with 47 00:01:48,040 --> 00:01:50,760 Speaker 4: friends about what's going on right now, because. 48 00:01:50,560 --> 00:01:53,559 Speaker 1: Even when the Odd Lots is over, there's always lots More. 49 00:01:53,840 --> 00:02:00,640 Speaker 4: And we really do have the perfect best Oh the definition, 50 00:02:01,240 --> 00:02:05,760 Speaker 4: I feel like I've done this before. But gamma. Gamma 51 00:02:05,880 --> 00:02:10,120 Speaker 4: is the option sensitivity to the change in delta, and 52 00:02:10,240 --> 00:02:14,960 Speaker 4: delta is the option sensitivity to the underlying price. So 53 00:02:15,080 --> 00:02:18,560 Speaker 4: gamma is like the change of the change. It's a 54 00:02:18,600 --> 00:02:23,280 Speaker 4: function of the underlying price. But it's second order, and 55 00:02:23,320 --> 00:02:28,120 Speaker 4: I guess negative gamma that's when delta is the opposite 56 00:02:28,160 --> 00:02:31,560 Speaker 4: direction to the stock price movement. So delta goes down 57 00:02:31,960 --> 00:02:35,440 Speaker 4: if the underlying asset price is going up, and then 58 00:02:35,760 --> 00:02:40,040 Speaker 4: it becomes less negative if the underlying asset price is falling. 59 00:02:40,800 --> 00:02:43,799 Speaker 4: And we usually see people talk about this during market 60 00:02:43,880 --> 00:02:47,960 Speaker 4: selloffs because all the options traders have to basically sell 61 00:02:48,080 --> 00:02:51,760 Speaker 4: or buy stuff to hedge all that changing exposure, and 62 00:02:51,800 --> 00:02:55,840 Speaker 4: the suspicion is always that that hedgeig activity are pushing 63 00:02:55,880 --> 00:02:59,280 Speaker 4: the market in one way or the other. I think 64 00:02:59,320 --> 00:03:02,839 Speaker 4: that's it. Okay, I did it, Charlie. You should write 65 00:03:02,840 --> 00:03:05,520 Speaker 4: a book, a coffee table book on the Greek letters. 66 00:03:06,240 --> 00:03:11,000 Speaker 3: I'm liking this, like Spartans versus Romans, history vibe or regard. 67 00:03:11,160 --> 00:03:13,440 Speaker 1: Yeah, that's very you I feel that's very Yeah. 68 00:03:13,520 --> 00:03:15,360 Speaker 3: Yeah, it resonates. 69 00:03:15,720 --> 00:03:17,880 Speaker 2: It resonates. Could have something to do with the beard. 70 00:03:18,200 --> 00:03:20,720 Speaker 3: Well, if you just think about it with regards to 71 00:03:21,080 --> 00:03:23,200 Speaker 3: who is long and who is shortened option at a 72 00:03:23,200 --> 00:03:26,040 Speaker 3: certain level. And that's so much of what we're asked 73 00:03:26,080 --> 00:03:27,720 Speaker 3: to do, you know, in our job is to get 74 00:03:27,760 --> 00:03:31,760 Speaker 3: a sense for where these potential acceleration points or potential 75 00:03:31,880 --> 00:03:35,559 Speaker 3: gravity points are. And you're looking at the whole spectrum 76 00:03:35,600 --> 00:03:38,640 Speaker 3: of strikes across the S and P index options, and 77 00:03:39,040 --> 00:03:41,720 Speaker 3: you're then doing your kind of risk calculations and your 78 00:03:41,720 --> 00:03:44,800 Speaker 3: Greek's calculations, and you net out all of those strikes. 79 00:03:44,800 --> 00:03:48,480 Speaker 3: You have to identify calls sold, call spot puts sold, 80 00:03:48,480 --> 00:03:50,040 Speaker 3: put spot, multi leg tracks. 81 00:03:50,080 --> 00:03:51,120 Speaker 2: It's it's quite complex. 82 00:03:51,160 --> 00:03:54,000 Speaker 3: I think in the past there's a lot of false 83 00:03:54,080 --> 00:03:57,320 Speaker 3: narrative because people made kind of two core assumptions on 84 00:03:57,400 --> 00:04:02,840 Speaker 3: dealer positioning before you had the actual exchange tagged data 85 00:04:03,040 --> 00:04:05,760 Speaker 3: which now gives you the actuals. Those two prior assumptions 86 00:04:05,760 --> 00:04:08,760 Speaker 3: are the dealers are short puts to hedges and long 87 00:04:08,800 --> 00:04:11,960 Speaker 3: calls from overriders, these VRP of all sellers that you 88 00:04:12,000 --> 00:04:15,200 Speaker 3: hear so much about these days, that create dynamics where 89 00:04:15,240 --> 00:04:18,320 Speaker 3: the market is trapped in long gamma, right, because we're 90 00:04:18,320 --> 00:04:22,680 Speaker 3: constantly dealers are constantly getting stuffed from these premium collectors. 91 00:04:23,200 --> 00:04:25,680 Speaker 3: But short gamma matters because that's where you get these 92 00:04:25,720 --> 00:04:28,640 Speaker 3: potential jump off points where you blow through level or 93 00:04:28,640 --> 00:04:31,680 Speaker 3: a dealer is short a strike and then you get 94 00:04:31,680 --> 00:04:36,159 Speaker 3: that prevailing market move is fed into so that matters. 95 00:04:36,320 --> 00:04:39,640 Speaker 4: In case you can't tell, we are here with Charlie Mcalligant. 96 00:04:39,760 --> 00:04:42,320 Speaker 4: He is of course, a strategist over at Nomora the 97 00:04:42,480 --> 00:04:45,440 Speaker 4: person to talk to when it comes to this kind 98 00:04:45,480 --> 00:04:51,600 Speaker 4: of market technicality. And we are recording this on March nineteenth. 99 00:04:51,920 --> 00:04:55,039 Speaker 4: We're either stupid or brave for doing this, like right 100 00:04:55,080 --> 00:04:58,719 Speaker 4: before a FED decision. I'm going to choose brave because 101 00:04:58,760 --> 00:05:00,000 Speaker 4: the bar is fairly low now. 102 00:05:00,080 --> 00:05:02,120 Speaker 1: Well, and like so in my view is like there's 103 00:05:02,160 --> 00:05:05,600 Speaker 1: been so much volatility lately, Tracy, regardless of what happens 104 00:05:05,680 --> 00:05:08,440 Speaker 1: in the forty eight hours between now and then, there's 105 00:05:08,600 --> 00:05:10,440 Speaker 1: enough to talk about, Yeah for sure. 106 00:05:10,520 --> 00:05:13,960 Speaker 4: Okay, So, speaking of what happened last week, you mentioned 107 00:05:14,040 --> 00:05:17,839 Speaker 4: specific points at which the sell off can accelerate, and 108 00:05:17,920 --> 00:05:20,599 Speaker 4: I think in your notes you had like five thousand 109 00:05:20,640 --> 00:05:25,279 Speaker 4: and six fifty and five thousand and five sixty something 110 00:05:25,320 --> 00:05:27,080 Speaker 4: like that as your points on the S and P 111 00:05:27,240 --> 00:05:31,960 Speaker 4: five hundred at which point the sell off could accelerate. 112 00:05:32,480 --> 00:05:34,800 Speaker 4: We did get to a low of like five thousand, 113 00:05:34,880 --> 00:05:38,599 Speaker 4: five hundred on the Thursday, but we saw stocks recover. 114 00:05:39,279 --> 00:05:40,200 Speaker 4: Why did that happen? 115 00:05:41,120 --> 00:05:46,240 Speaker 3: So there was two large short gamma strikes in the 116 00:05:46,279 --> 00:05:50,120 Speaker 3: S ANDP index options diaspora for dealers, and I think 117 00:05:50,160 --> 00:05:51,800 Speaker 3: it was I think it was fifty six hundred and 118 00:05:51,800 --> 00:05:55,920 Speaker 3: then fifty five sixty five particular level, which is part 119 00:05:56,000 --> 00:05:58,640 Speaker 3: of this large listed trade in the market that is 120 00:05:58,680 --> 00:06:02,559 Speaker 3: well socialized out there that at the end of this month, 121 00:06:02,600 --> 00:06:05,080 Speaker 3: so not this week's options expiration, but the end of 122 00:06:05,120 --> 00:06:08,520 Speaker 3: this month, the March quarterly exists and is part of 123 00:06:08,720 --> 00:06:12,480 Speaker 3: something called a put spread collar where a call is 124 00:06:12,520 --> 00:06:15,240 Speaker 3: sold out of the money to then help finance this 125 00:06:15,320 --> 00:06:18,520 Speaker 3: put spread in the market. And that fifty five sixty 126 00:06:18,600 --> 00:06:23,640 Speaker 3: five is a short strike, which means that in this 127 00:06:23,800 --> 00:06:26,960 Speaker 3: case it looks like short gamma. I think the fact 128 00:06:27,160 --> 00:06:30,240 Speaker 3: is about that, however, and thus this idea of well, 129 00:06:30,960 --> 00:06:32,520 Speaker 3: at this point in the month, where it's still a 130 00:06:32,520 --> 00:06:37,960 Speaker 3: few weeks out from happening, it could in fact potentially 131 00:06:37,960 --> 00:06:41,080 Speaker 3: behave as you would think, is this acceleration point through it? 132 00:06:41,160 --> 00:06:43,080 Speaker 3: Once you did, you kind of bounced around it held 133 00:06:43,120 --> 00:06:44,200 Speaker 3: three or four times, and. 134 00:06:44,160 --> 00:06:45,080 Speaker 2: It kind of crashed through it. 135 00:06:45,400 --> 00:06:47,920 Speaker 3: The thing is is that the market knows that this 136 00:06:47,960 --> 00:06:52,080 Speaker 3: trade gets rolled and rebalanced, i should say, into the 137 00:06:52,200 --> 00:06:54,800 Speaker 3: next quarter's trade at the end of this month, and 138 00:06:55,000 --> 00:06:57,320 Speaker 3: you know that there is going to be a ton 139 00:06:57,520 --> 00:07:01,680 Speaker 3: of vega for sale as part of the and so 140 00:07:01,760 --> 00:07:04,760 Speaker 3: then this strike in some ways actually ends up looking 141 00:07:05,120 --> 00:07:08,920 Speaker 3: quite dissimilar from your typical idea of short gam as. 142 00:07:08,920 --> 00:07:10,720 Speaker 2: This acceleration point. 143 00:07:10,480 --> 00:07:13,480 Speaker 3: Depending on where the market is at the time of expiration, 144 00:07:14,080 --> 00:07:16,880 Speaker 3: which will affect what the client does with those strikes 145 00:07:16,920 --> 00:07:19,920 Speaker 3: and sets the new putspread collar. But I think the 146 00:07:20,080 --> 00:07:22,760 Speaker 3: larger conversation that I want to have about VAW is 147 00:07:22,760 --> 00:07:26,120 Speaker 3: that much of the incoming has been about why is 148 00:07:26,200 --> 00:07:28,640 Speaker 3: VALL actually seemingly unresponsive? 149 00:07:28,800 --> 00:07:31,400 Speaker 4: Yeah, so the VIX, Like I know, the VIX went up, 150 00:07:31,440 --> 00:07:34,640 Speaker 4: but I think it went to like twenty nine, and 151 00:07:34,920 --> 00:07:37,080 Speaker 4: you compare that to like it was above eighty in 152 00:07:37,160 --> 00:07:39,880 Speaker 4: twenty twenty and even in twenty twenty two it was 153 00:07:40,000 --> 00:07:43,040 Speaker 4: like thirty six or in the thirties. VALL was really 154 00:07:43,160 --> 00:07:44,360 Speaker 4: quiet in twenty four. 155 00:07:44,640 --> 00:07:47,680 Speaker 1: Yeah, August twenty twenty four got nearly four anyway. 156 00:07:47,760 --> 00:07:50,280 Speaker 3: Yeah, So the last time I was in here was 157 00:07:50,320 --> 00:07:53,520 Speaker 3: after that August shock, and that was it proper as 158 00:07:53,720 --> 00:07:55,320 Speaker 3: as I kind of framed it at the time and 159 00:07:55,440 --> 00:07:59,880 Speaker 3: still will, the world was aggregated around this soft landing 160 00:08:00,080 --> 00:08:02,320 Speaker 3: viewpoint and all of a sudden in the span of 161 00:08:02,400 --> 00:08:04,840 Speaker 3: one day's worth of data, but it was really even 162 00:08:05,000 --> 00:08:08,040 Speaker 3: a week of data of labor data sixty five. Yeah, 163 00:08:08,080 --> 00:08:10,520 Speaker 3: and that was because we repriced the left tail. All 164 00:08:10,560 --> 00:08:12,480 Speaker 3: of a sudden there was a hard landing risk because 165 00:08:12,520 --> 00:08:14,840 Speaker 3: the labor data shocked us. You know that U rate 166 00:08:14,960 --> 00:08:18,520 Speaker 3: jump and then the NFP miss. The difference at this 167 00:08:18,680 --> 00:08:22,440 Speaker 3: time around is that since the election, right, Donald Trump 168 00:08:22,640 --> 00:08:25,800 Speaker 3: is the personification of a gamma agent. 169 00:08:26,440 --> 00:08:29,040 Speaker 4: We are the only person I know who describes Trump 170 00:08:29,040 --> 00:08:30,080 Speaker 4: as a gamma agent. 171 00:08:30,280 --> 00:08:34,359 Speaker 1: Everyone knows the terms, right, but I'm a living personification again. 172 00:08:34,240 --> 00:08:38,640 Speaker 3: And I think, look, his mandate is to break status quo. 173 00:08:39,360 --> 00:08:43,000 Speaker 3: And we talked that last August shock about the idea 174 00:08:43,120 --> 00:08:45,000 Speaker 3: that the concept of a carry trade because we were 175 00:08:45,000 --> 00:08:47,319 Speaker 3: being asked about the carry online, which is kind of 176 00:08:47,360 --> 00:08:50,160 Speaker 3: like this false narrative. But the idea of any sort 177 00:08:50,200 --> 00:08:53,720 Speaker 3: of carry trade or positioning high sharp ratio trade right 178 00:08:53,880 --> 00:08:57,160 Speaker 3: a high risk adjusted return is that you need a 179 00:08:57,200 --> 00:09:01,280 Speaker 3: period of low volatility to kind of aggregate that position, 180 00:09:01,360 --> 00:09:04,120 Speaker 3: to build that leverage into the trade because it keeps working, 181 00:09:04,400 --> 00:09:07,000 Speaker 3: the wall is low, the price keeps working higher. That 182 00:09:07,080 --> 00:09:10,240 Speaker 3: builds the leverage in the system that hence builds the risk. Right, 183 00:09:10,320 --> 00:09:14,960 Speaker 3: stability breeds instability. In this case, Donald Trump, even if 184 00:09:15,080 --> 00:09:18,880 Speaker 3: the market was misidentifying the macro of his policies at 185 00:09:18,920 --> 00:09:20,439 Speaker 3: the time, which we should talk about, Oh. 186 00:09:20,400 --> 00:09:22,240 Speaker 1: You're just never going to get that risk build up. 187 00:09:22,800 --> 00:09:26,679 Speaker 3: Well, in this case, starting November, you know when it 188 00:09:26,760 --> 00:09:28,000 Speaker 3: really took shape. 189 00:09:28,000 --> 00:09:29,000 Speaker 2: And I think the market had. 190 00:09:28,920 --> 00:09:33,120 Speaker 3: Been sensing certainly since kind of the summer skew was seepening. 191 00:09:33,280 --> 00:09:35,719 Speaker 3: Skew matters, right, just as a relative measure of kind 192 00:09:35,720 --> 00:09:38,240 Speaker 3: of demand for downside versus demand for upside put skew 193 00:09:38,760 --> 00:09:41,040 Speaker 3: which is like deep out of the money downside relative 194 00:09:41,080 --> 00:09:45,200 Speaker 3: do not the money put was jacked ninety something percentile 195 00:09:45,400 --> 00:09:50,520 Speaker 3: because of all of the potential chaos agency expensive. The 196 00:09:50,600 --> 00:09:54,920 Speaker 3: fall was already quite expensive going into this scenario, even 197 00:09:54,920 --> 00:09:57,760 Speaker 3: if maybe the macro catalyst went wrong way and I 198 00:09:57,800 --> 00:10:00,680 Speaker 3: think there's two big things that happens, So let's talk 199 00:10:00,679 --> 00:10:01,520 Speaker 3: about this past. 200 00:10:01,400 --> 00:10:02,920 Speaker 2: Week or really was past three weeks. 201 00:10:03,080 --> 00:10:08,480 Speaker 3: Yeah, you had crowded narratives and crowded thematic positioning. 202 00:10:08,120 --> 00:10:10,040 Speaker 2: With a lot of leverage. 203 00:10:10,320 --> 00:10:13,280 Speaker 3: Right, that is what the prime broker's data shows and 204 00:10:13,320 --> 00:10:17,120 Speaker 3: frankly still shows like gross exposure your lungs and your 205 00:10:17,160 --> 00:10:21,000 Speaker 3: shorts in aggregate still kind of ninety something percentile was 206 00:10:21,000 --> 00:10:23,679 Speaker 3: one hundred percent of coming into the year. Though we 207 00:10:23,720 --> 00:10:26,400 Speaker 3: also had high nets, So you had a lot more 208 00:10:26,480 --> 00:10:29,680 Speaker 3: long than short either way, a lot of leverage in 209 00:10:29,679 --> 00:10:41,760 Speaker 3: the system. 210 00:10:43,880 --> 00:10:48,000 Speaker 1: Give us like a little zoom out. Basically from mid 211 00:10:48,080 --> 00:10:51,480 Speaker 1: November to as you said, about three weeks ago it 212 00:10:51,520 --> 00:10:54,680 Speaker 1: started turning. I think the peak on this February nineteenth 213 00:10:54,760 --> 00:10:56,480 Speaker 1: or something like that. Yes, but talk to us just 214 00:10:56,559 --> 00:10:59,480 Speaker 1: about that sort of kind of an upcrash in the 215 00:10:59,520 --> 00:11:03,640 Speaker 1: wake of the people loading into everything risky, from crypto 216 00:11:03,720 --> 00:11:07,160 Speaker 1: to Tesla and everything. Yeah, what was going on there? 217 00:11:07,640 --> 00:11:09,640 Speaker 1: And then how extreme did that get? 218 00:11:09,760 --> 00:11:12,160 Speaker 3: Yeah, I mean that's the perfect segue here, because like 219 00:11:12,240 --> 00:11:17,520 Speaker 3: in the sense that the post election narrative, and remember 220 00:11:17,640 --> 00:11:20,520 Speaker 3: the rates sell off beginning in September, when the market 221 00:11:20,559 --> 00:11:23,240 Speaker 3: really got their arms around seemingly some of this polling 222 00:11:23,240 --> 00:11:26,760 Speaker 3: that was showing much more credible kind of Trump lead. Yeah, 223 00:11:26,840 --> 00:11:29,120 Speaker 3: the rate sell off, meaning yields going higher, was about 224 00:11:29,120 --> 00:11:32,160 Speaker 3: this idea that regardless of who won, but particularly if 225 00:11:32,200 --> 00:11:36,720 Speaker 3: Trump won, that we had become both sides become economic populous, 226 00:11:36,760 --> 00:11:40,640 Speaker 3: and that fiscal dominance was this overriding theme where like, 227 00:11:41,080 --> 00:11:43,160 Speaker 3: we don't have a tolerance for pain as a society. 228 00:11:43,480 --> 00:11:48,200 Speaker 3: We saw the kind of the steroidal impact of fiscal 229 00:11:48,400 --> 00:11:51,360 Speaker 3: stimulus in the post COVID world, which kind of was 230 00:11:51,400 --> 00:11:53,920 Speaker 3: the tiebreaker for finally getting an inflation shock as we 231 00:11:53,960 --> 00:11:56,719 Speaker 3: all experience. So this idea that he was going to 232 00:11:56,760 --> 00:11:59,880 Speaker 3: take an already strong economy and overheat it with d 233 00:12:00,760 --> 00:12:05,839 Speaker 3: with tax cuts and these other stimulative measures completely had 234 00:12:05,840 --> 00:12:10,040 Speaker 3: the market thinking about further extension of US exceptionalism. Right. 235 00:12:10,120 --> 00:12:12,400 Speaker 3: This ability to outperform rest of the world for a 236 00:12:12,440 --> 00:12:14,959 Speaker 3: whole number of reasons, which is a separate podcast, but 237 00:12:15,000 --> 00:12:18,960 Speaker 3: like positioning was like long US assets, Europe was going 238 00:12:19,040 --> 00:12:22,560 Speaker 3: to be cutting sooner because they were feeling the brunt 239 00:12:22,559 --> 00:12:25,719 Speaker 3: of the slowdown force more so there China had all 240 00:12:25,760 --> 00:12:29,040 Speaker 3: sorts of issues, right, rest of world struggling US exceptionalism 241 00:12:29,080 --> 00:12:31,360 Speaker 3: and part of US exceptionalism not just kind of like 242 00:12:31,800 --> 00:12:36,679 Speaker 3: global hedgemon, strongest economy, deregulation, all these stimultive measures in 243 00:12:36,720 --> 00:12:39,600 Speaker 3: the pipes was also too. This idea of tech innovation 244 00:12:40,520 --> 00:12:43,199 Speaker 3: and tech innovation was the story of last year, in 245 00:12:43,240 --> 00:12:45,320 Speaker 3: the last two years, with the last ten years was 246 00:12:45,360 --> 00:12:47,160 Speaker 3: with regards to AI, right, Yeah, it used to be 247 00:12:47,200 --> 00:12:49,840 Speaker 3: fang back in the teens, right. So this idea of 248 00:12:49,880 --> 00:12:52,880 Speaker 3: megacap tech, all those things that made people, you know, 249 00:12:52,920 --> 00:12:56,040 Speaker 3: the completely dictated stock market last year like MAG seven, 250 00:12:56,120 --> 00:12:58,440 Speaker 3: MAG eight thirty five percent of the S and P 251 00:12:58,520 --> 00:13:02,320 Speaker 3: five hundred and fifty percent of the NASDAC. Concentration of 252 00:13:02,400 --> 00:13:04,959 Speaker 3: all of these kind of tech and disruption themes in 253 00:13:05,000 --> 00:13:07,400 Speaker 3: the market that was a big part of the US 254 00:13:07,440 --> 00:13:10,520 Speaker 3: exceptionals and trade. Well, guess what those trades are really crowded, 255 00:13:10,880 --> 00:13:15,319 Speaker 3: they're really loaded into And two shocks happened. The first 256 00:13:15,360 --> 00:13:17,880 Speaker 3: shock was the market and this is why I started, 257 00:13:18,000 --> 00:13:21,120 Speaker 3: you know, going out and talking about hedging for downside 258 00:13:21,200 --> 00:13:24,560 Speaker 3: in February. Was this idea that the market I think 259 00:13:24,679 --> 00:13:28,040 Speaker 3: was misunderstanding the phasing or the sequencing of a Trump 260 00:13:28,120 --> 00:13:32,360 Speaker 3: economic plan, which was you've got to do the painful 261 00:13:32,400 --> 00:13:35,840 Speaker 3: stuff first in order to get to the stimulative stuff later. 262 00:13:36,160 --> 00:13:39,160 Speaker 3: And that's spread that time spread, you know, you had 263 00:13:39,160 --> 00:13:42,000 Speaker 3: to kind of try to engineer a slowdown to then 264 00:13:42,080 --> 00:13:45,080 Speaker 3: be able to get the rate cuts via the disinflation 265 00:13:45,200 --> 00:13:48,360 Speaker 3: that he is trying to create, which ultimately you know, 266 00:13:48,400 --> 00:13:51,880 Speaker 3: this idea of like fiscal contraction to potentially then fiscally 267 00:13:51,920 --> 00:13:56,160 Speaker 3: expand and say the other shock, it's. 268 00:13:56,000 --> 00:13:57,000 Speaker 2: Lost in the wash here. 269 00:13:57,040 --> 00:13:59,760 Speaker 3: And this wasn't just a Trump growth scare, right, we 270 00:13:59,800 --> 00:14:01,880 Speaker 3: are growth scare every Q one into Q two. 271 00:14:02,320 --> 00:14:04,959 Speaker 2: That's an artifact of the post COVID at KO. Right. 272 00:14:04,960 --> 00:14:07,600 Speaker 1: We had a good piece from Neil about Duo about 273 00:14:07,600 --> 00:14:08,239 Speaker 1: that any. 274 00:14:08,240 --> 00:14:10,240 Speaker 3: Yeah, so that matters, right, you know, that was part 275 00:14:10,280 --> 00:14:12,920 Speaker 3: of my thesis, like, look and see the trajectory. We 276 00:14:12,960 --> 00:14:15,640 Speaker 3: have these overheated animal spirits Q one numbers and then 277 00:14:15,679 --> 00:14:18,160 Speaker 3: this seasonal adjustments kick in and we have a growth. 278 00:14:17,920 --> 00:14:19,720 Speaker 2: Scare in Q two or into Q three. 279 00:14:19,920 --> 00:14:22,080 Speaker 3: But the other element here was the deep seek story 280 00:14:22,400 --> 00:14:25,400 Speaker 3: and tech innovation in that market concentration. And guess what, 281 00:14:25,560 --> 00:14:27,640 Speaker 3: there's all sorts of those names aren't just massive parts 282 00:14:27,640 --> 00:14:30,760 Speaker 3: of index and massive thematic parts Retail investors and hedge 283 00:14:30,760 --> 00:14:33,400 Speaker 3: fund longs and things like that, think about their impact 284 00:14:33,440 --> 00:14:36,720 Speaker 3: in the leverage GTF space, which has just absolutely grown massively. 285 00:14:36,760 --> 00:14:39,520 Speaker 3: That's a source of synthetic negative gamut in the market, 286 00:14:39,680 --> 00:14:41,840 Speaker 3: which you know, on the end of day rebalancing into 287 00:14:41,880 --> 00:14:43,880 Speaker 3: an update, they've got a ton to buy at the 288 00:14:43,960 --> 00:14:46,000 Speaker 3: end of the day. And eighty percent of those assets 289 00:14:46,240 --> 00:14:49,560 Speaker 3: happened to be concentrated in kind of like concentric tech 290 00:14:49,640 --> 00:14:54,040 Speaker 3: disruption circles. So you add in this massive rethink on 291 00:14:54,080 --> 00:14:57,480 Speaker 3: what had been the perpetual motion machine of Ai Capex 292 00:14:58,440 --> 00:15:01,720 Speaker 3: and that deep seak shock, IDIA trades down seventeen percent. 293 00:15:01,800 --> 00:15:04,640 Speaker 3: Kind of after that realization that weekend of what we're 294 00:15:04,680 --> 00:15:08,280 Speaker 3: looking at, all of a sudden, a massive valuation shock 295 00:15:08,320 --> 00:15:11,640 Speaker 3: in an earnings repricing effectively. 296 00:15:11,480 --> 00:15:16,120 Speaker 1: Tracy, did you see this from Eric Belcunis yesterday? Vista 297 00:15:16,160 --> 00:15:19,760 Speaker 1: shares filing for an animal spirits ETF A and I 298 00:15:19,960 --> 00:15:23,840 Speaker 1: am in a two x animal spirits ETF wild, which 299 00:15:23,840 --> 00:15:26,680 Speaker 1: will hold the five fastest growing two X single stock 300 00:15:26,840 --> 00:15:28,280 Speaker 1: ETFs at any given time. 301 00:15:28,520 --> 00:15:29,840 Speaker 4: Isn't that just called momentum? 302 00:15:30,040 --> 00:15:33,200 Speaker 1: Yeah, but that's not that momentum isn't enough. 303 00:15:33,240 --> 00:15:35,760 Speaker 3: It's momentum with leverage, and guess what, there will be 304 00:15:35,800 --> 00:15:39,400 Speaker 3: options on it too. So there's synthetic negative gamma and 305 00:15:39,680 --> 00:15:42,680 Speaker 3: actual real negative gamma. So the final point here is 306 00:15:42,720 --> 00:15:45,240 Speaker 3: you had these two shocks to what consensus was, consensus 307 00:15:45,240 --> 00:15:48,000 Speaker 3: positioning and consensus narrative. Now, all of a sudden, this 308 00:15:48,080 --> 00:15:51,040 Speaker 3: realization that Phase one is going to have to engineer 309 00:15:51,080 --> 00:15:54,040 Speaker 3: a slowdown to get the stimulative stuff that Trump wants. 310 00:15:54,080 --> 00:15:56,840 Speaker 4: Yeah, isn't that weird? Like why are we crashing economic 311 00:15:56,880 --> 00:15:58,600 Speaker 4: growth to boost economic growth? 312 00:15:58,920 --> 00:15:59,240 Speaker 2: Well? 313 00:15:59,400 --> 00:16:03,600 Speaker 3: Because I think in this case, like there is something credible. 314 00:16:03,120 --> 00:16:06,400 Speaker 2: To the idea that the deficit. 315 00:16:06,000 --> 00:16:08,640 Speaker 3: Spending was a market concern, right, I mean, think about 316 00:16:08,680 --> 00:16:10,640 Speaker 3: what rates were doing last year when we were talking 317 00:16:10,640 --> 00:16:14,480 Speaker 3: about fiscal dominance. What's ironic here is that you then 318 00:16:14,520 --> 00:16:17,440 Speaker 3: get punished for trying to address it. So look at 319 00:16:17,480 --> 00:16:19,320 Speaker 3: Europe for instance, and this is like a big trade 320 00:16:19,360 --> 00:16:21,760 Speaker 3: in the market right now. It's like very simplistic, but 321 00:16:21,800 --> 00:16:24,080 Speaker 3: this is the way that acid allocators. 322 00:16:23,520 --> 00:16:24,000 Speaker 2: Think and move. 323 00:16:24,120 --> 00:16:28,720 Speaker 3: Right, who's fiscally contracting and tightening and who's fiscally expanding 324 00:16:28,720 --> 00:16:30,360 Speaker 3: and stimulating Europe? 325 00:16:30,760 --> 00:16:30,960 Speaker 2: Right? 326 00:16:31,360 --> 00:16:33,640 Speaker 3: Trump said, Look, we might be talking about the end 327 00:16:33,680 --> 00:16:36,720 Speaker 3: of Breton Woods post World War II packs Americana here, right, 328 00:16:37,040 --> 00:16:38,960 Speaker 3: We're no longer going to protect you for you to 329 00:16:39,080 --> 00:16:44,080 Speaker 3: buy US dollar assets and use our currency. So guess 330 00:16:44,080 --> 00:16:48,080 Speaker 3: what Europe has to go out create this financing and 331 00:16:48,160 --> 00:16:50,760 Speaker 3: with that, all of a sudden, now they are a 332 00:16:50,800 --> 00:16:53,080 Speaker 3: fiscal expander after years of being the. 333 00:16:54,640 --> 00:16:55,040 Speaker 2: Shift. 334 00:16:55,120 --> 00:16:58,440 Speaker 3: It's a real potential regime shift. Even though I think 335 00:16:58,480 --> 00:17:02,640 Speaker 3: this ultimately creates the conditions where if you do kind 336 00:17:02,680 --> 00:17:04,919 Speaker 3: of crash the economy and you can't stick the landing 337 00:17:04,960 --> 00:17:09,560 Speaker 3: on this engineered recession, then you inevitably have to fiscally expand, 338 00:17:09,840 --> 00:17:11,439 Speaker 3: and that's why I think a lot of these like 339 00:17:11,520 --> 00:17:14,400 Speaker 3: long Europe long China trades. 340 00:17:14,359 --> 00:17:17,440 Speaker 2: Will be quick to move their feet. 341 00:17:17,480 --> 00:17:21,040 Speaker 3: I can't say this is a tectonic, permanent structural shift yet, 342 00:17:21,280 --> 00:17:24,240 Speaker 3: because the worst it gets for us and we get punished, 343 00:17:24,280 --> 00:17:26,280 Speaker 3: and you have fiscal tightening and markets sell off and 344 00:17:26,320 --> 00:17:28,399 Speaker 3: all those bad things to create a negative health effect, 345 00:17:28,600 --> 00:17:30,600 Speaker 3: which in the short term help get the disinflation, to 346 00:17:30,600 --> 00:17:34,000 Speaker 3: get the FED cuts right, to get the stimulus through right. 347 00:17:34,040 --> 00:17:36,200 Speaker 3: This is all part of this kind of second order 348 00:17:36,320 --> 00:17:42,400 Speaker 3: thinking that you need to be looking into. 349 00:17:51,119 --> 00:17:55,720 Speaker 4: Okay, so we had a wild but not disorderly sell off. 350 00:17:56,320 --> 00:18:00,920 Speaker 4: Sounds like my high school report card, but I imagine 351 00:18:00,920 --> 00:18:03,919 Speaker 4: it was still painful for certain investors. So we just 352 00:18:04,000 --> 00:18:09,040 Speaker 4: mentioned momentum like that must have been painful. Multistrats must 353 00:18:09,040 --> 00:18:10,880 Speaker 4: have had a hard time because we saw a lot 354 00:18:10,920 --> 00:18:16,480 Speaker 4: of the over performers underperforming and the underperformers suddenly overperforming. 355 00:18:16,720 --> 00:18:19,199 Speaker 4: How was it give us some like market color? 356 00:18:19,680 --> 00:18:20,960 Speaker 2: Well in some of those. 357 00:18:21,080 --> 00:18:23,439 Speaker 3: I mean, you look at the biggest multistrats that have 358 00:18:23,600 --> 00:18:27,119 Speaker 3: been one hundred percent of the net alternative investment or 359 00:18:27,160 --> 00:18:29,640 Speaker 3: hedge fund inflow over the past X number of years. Right, 360 00:18:29,680 --> 00:18:32,880 Speaker 3: So like long short isn't where it's at anymore. It's 361 00:18:32,880 --> 00:18:36,240 Speaker 3: about the market neutrals, and that's just speaking to their 362 00:18:36,240 --> 00:18:38,800 Speaker 3: equities components. But of course they have these other risk 363 00:18:38,880 --> 00:18:44,200 Speaker 3: diversifying strategies with incredibly tight risk management tight stops, and 364 00:18:44,240 --> 00:18:46,399 Speaker 3: that's how when you apply a lot of leverage to 365 00:18:46,480 --> 00:18:50,000 Speaker 3: these small controlled market neutral gains, you then get these 366 00:18:50,040 --> 00:18:53,120 Speaker 3: incredible annual returns that those biggest shops have been posting. 367 00:18:53,359 --> 00:18:57,080 Speaker 3: But the fact of the matter is crowding happens, and 368 00:18:57,400 --> 00:18:59,960 Speaker 3: leverage on top of crowding happens, and then shadow level 369 00:19:00,040 --> 00:19:04,320 Speaker 3: it happens with leverageddtfs, leverage on and all control target 370 00:19:04,359 --> 00:19:08,199 Speaker 3: volatility and CTAs and all that stuff is synthetic negative 371 00:19:08,240 --> 00:19:09,119 Speaker 3: gamma in the market. 372 00:19:09,200 --> 00:19:10,960 Speaker 2: So and even where you know. 373 00:19:10,880 --> 00:19:15,159 Speaker 3: There's a very well publicized loss with regards to index are, uh, 374 00:19:15,240 --> 00:19:16,960 Speaker 3: you know at one of these funds whatever, I think 375 00:19:16,960 --> 00:19:19,479 Speaker 3: that was probably negatively impacted. They have to model out 376 00:19:19,520 --> 00:19:22,480 Speaker 3: the flows across the diaspora of things out there at 377 00:19:22,480 --> 00:19:24,480 Speaker 3: the end of the day to do their index ads 378 00:19:24,520 --> 00:19:27,080 Speaker 3: and deletes. Well, they're probably getting screwed with by a 379 00:19:27,119 --> 00:19:28,800 Speaker 3: lot of the leverage GTF flows the end of the 380 00:19:28,840 --> 00:19:31,919 Speaker 3: day that are completely nuking and creating these big overshoots 381 00:19:31,960 --> 00:19:34,400 Speaker 3: and these big negative gamma type moves. So the long 382 00:19:34,440 --> 00:19:37,480 Speaker 3: story short is that for the month of February, let's say, 383 00:19:37,600 --> 00:19:40,200 Speaker 3: talking with people deep in the inside, senior traders and whatnot, 384 00:19:40,520 --> 00:19:43,920 Speaker 3: these were losses one month losses that people had not experienced, 385 00:19:43,920 --> 00:19:45,760 Speaker 3: that have been there, you know, four or five type 386 00:19:45,840 --> 00:19:48,320 Speaker 3: years in places that just don't lose money. 387 00:19:48,440 --> 00:19:50,520 Speaker 2: They just stop you so effectively. 388 00:19:50,720 --> 00:19:53,320 Speaker 3: Now it is a tribute to the model, however, that 389 00:19:53,400 --> 00:19:56,520 Speaker 3: there's no blow ups, there's no ltcms here. I mean, yeah, 390 00:19:56,520 --> 00:19:58,520 Speaker 3: they didn't make money. They might have had worst month 391 00:19:58,680 --> 00:20:01,080 Speaker 3: or in the start of March with also you know, 392 00:20:01,480 --> 00:20:05,680 Speaker 3: going the wrong way too, but you're not going existential here. Yeah, 393 00:20:05,720 --> 00:20:09,040 Speaker 3: So that actually speaks to the model working. The bigger issue, 394 00:20:09,040 --> 00:20:11,760 Speaker 3: and I think the bigger thought process takeaway here is 395 00:20:11,760 --> 00:20:15,440 Speaker 3: that when you have trades over a period of time 396 00:20:15,560 --> 00:20:20,440 Speaker 3: or built on the status quo of us exceptionalism, right, 397 00:20:20,640 --> 00:20:24,040 Speaker 3: that is effectively a carry trade. And we had leverage 398 00:20:24,040 --> 00:20:26,960 Speaker 3: built into the system for fifteen years of QE. We 399 00:20:27,000 --> 00:20:29,600 Speaker 3: had leverage built in the system from modern monetary theory 400 00:20:29,640 --> 00:20:32,000 Speaker 3: and the outright money drops that we've done over the show. 401 00:20:32,000 --> 00:20:35,600 Speaker 3: Oh that's your fault, so maybe yeah. So, I mean, 402 00:20:35,640 --> 00:20:39,080 Speaker 3: all of these things created this ugly de leveraging effect 403 00:20:39,520 --> 00:20:41,480 Speaker 3: even at market neutral shops. 404 00:20:41,680 --> 00:20:44,080 Speaker 2: The good news is it wasn't a VALL feature. 405 00:20:44,119 --> 00:20:47,280 Speaker 3: It wasn't a VALL event because we were already hedged. 406 00:20:47,320 --> 00:20:50,000 Speaker 3: That's why SKU was high. Implied VALL was high. All 407 00:20:50,040 --> 00:20:52,399 Speaker 3: the put SKU was high, so it didn't become a 408 00:20:52,480 --> 00:20:54,600 Speaker 3: VALL event, which is where you get some of those 409 00:20:54,680 --> 00:20:56,119 Speaker 3: accelerant flows to kick in. 410 00:20:56,720 --> 00:20:59,359 Speaker 4: On this note, I have a slightly weird question, but 411 00:20:59,600 --> 00:21:02,160 Speaker 4: could we ever get to the point where the volatility 412 00:21:02,200 --> 00:21:06,600 Speaker 4: complex is so large and so in demand that you're 413 00:21:06,680 --> 00:21:09,159 Speaker 4: just never going to have a volatility event like we 414 00:21:09,240 --> 00:21:13,160 Speaker 4: saw in twenty eighteen something along those lines, because everyone 415 00:21:13,600 --> 00:21:15,760 Speaker 4: is paying through the nose for downside protection. 416 00:21:16,200 --> 00:21:18,879 Speaker 3: Well, I mean, ironically, it's when you're well hedged that 417 00:21:19,000 --> 00:21:23,760 Speaker 3: you then have a condition where you can create the crash, right, 418 00:21:23,800 --> 00:21:26,040 Speaker 3: which means that dealers are short all these puts. 419 00:21:26,320 --> 00:21:27,960 Speaker 4: I think, I guess you have to have sellers on 420 00:21:27,960 --> 00:21:28,760 Speaker 4: the other side too. 421 00:21:28,840 --> 00:21:31,520 Speaker 3: Well, that's the big thing that we've conditioned the behavior, 422 00:21:31,560 --> 00:21:35,320 Speaker 3: whether it's you know, fed stepping in that moral hazard dynamic, 423 00:21:35,560 --> 00:21:40,200 Speaker 3: or nowadays politicians fiscal stepping up, whether it's Silicon Valley 424 00:21:40,200 --> 00:21:44,840 Speaker 3: Bank and seventy different new five letter acronym liquidity special 425 00:21:44,840 --> 00:21:47,760 Speaker 3: features in the market that put out fires. And that's 426 00:21:47,800 --> 00:21:50,520 Speaker 3: why the back test on VALL selling strategies and the 427 00:21:50,520 --> 00:21:54,160 Speaker 3: AUM in VALL selling strategies just keeps working like you 428 00:21:54,280 --> 00:21:57,840 Speaker 3: sell the Panics. And that's what ultimately what ends up 429 00:21:57,840 --> 00:22:01,720 Speaker 3: happening when you have this short optionality dynamic in the market, 430 00:22:01,720 --> 00:22:06,320 Speaker 3: whether it's dealers short reel downside hedges, or it's CTA 431 00:22:06,440 --> 00:22:09,080 Speaker 3: trend flipping from along to a short and having to 432 00:22:09,160 --> 00:22:12,200 Speaker 3: sell more of the lower it goes, or target volatility 433 00:22:12,200 --> 00:22:14,960 Speaker 3: funds is like a hedge overlay doing the same thing, 434 00:22:15,160 --> 00:22:18,520 Speaker 3: or leveragedtfs. You know, you get the point. Now, what 435 00:22:18,680 --> 00:22:21,280 Speaker 3: ends up happening is that it's the option sellers that 436 00:22:21,480 --> 00:22:23,960 Speaker 3: stop the problem because they come back in. 437 00:22:24,160 --> 00:22:25,360 Speaker 2: They give dealers back. 438 00:22:25,200 --> 00:22:28,320 Speaker 3: Their gamma, They sell optionality, they sell rich vall. The 439 00:22:28,400 --> 00:22:33,320 Speaker 3: market stabilizes, ranges compress. You need to keep feeding volatility. 440 00:22:33,400 --> 00:22:36,800 Speaker 3: Volatility is mean reverting and if you can't keep having 441 00:22:36,920 --> 00:22:39,560 Speaker 3: daily one and a half percent moves, which is a 442 00:22:39,600 --> 00:22:44,960 Speaker 3: big ask. You need persistent new bad news otherwise realize. 443 00:22:45,040 --> 00:22:50,119 Speaker 3: Volatility compresses ranges, compress vall. Sellers feel more confident, they 444 00:22:50,200 --> 00:22:53,399 Speaker 3: fill in. Dealers get long gamma. We stabilize. People start 445 00:22:53,480 --> 00:22:55,959 Speaker 3: covering their monetizing their hedges. They take those off. That 446 00:22:55,960 --> 00:22:58,640 Speaker 3: creates delta to buy. The market starts rallying people by 447 00:22:58,640 --> 00:23:01,359 Speaker 3: short data upside it, squeeze it. That's the cycle that 448 00:23:01,400 --> 00:23:05,800 Speaker 3: we're on, like this really short term ecosystem. But valse 449 00:23:05,880 --> 00:23:10,400 Speaker 3: sellers are I would say, the bigger players now than 450 00:23:10,480 --> 00:23:13,600 Speaker 3: hedge buyers. And that's a real footprint of the past 451 00:23:13,960 --> 00:23:17,879 Speaker 3: twenty years ever since QE, where the previous buyers of 452 00:23:17,960 --> 00:23:21,840 Speaker 3: volatility were real asset managers like long onlyes and things 453 00:23:21,880 --> 00:23:25,600 Speaker 3: like that. After QE, a lot of those folks, big 454 00:23:25,680 --> 00:23:27,560 Speaker 3: pension funds became sellers of volatility. 455 00:23:27,600 --> 00:23:30,040 Speaker 4: Yeah, this was Bill Gross's thing when he stood up 456 00:23:30,080 --> 00:23:33,359 Speaker 4: on stage and said, everyone sell volatility. That's like the 457 00:23:33,359 --> 00:23:35,840 Speaker 4: only trade right now because nothing is happening, right you 458 00:23:35,920 --> 00:23:38,640 Speaker 4: have to you have to bet on nothing. Yeah. 459 00:23:39,240 --> 00:23:43,480 Speaker 3: Maybe one other point I would make on volatility. The 460 00:23:43,520 --> 00:23:46,080 Speaker 3: reason that it got so wacky in August, for instance, 461 00:23:46,359 --> 00:23:48,840 Speaker 3: was the fact that conditioning that says sell the rich 462 00:23:48,920 --> 00:23:51,000 Speaker 3: vall and remember like the non farm payroll and U 463 00:23:51,040 --> 00:23:53,879 Speaker 3: rate data was that Friday, and we crashed hard, but 464 00:23:53,920 --> 00:23:56,399 Speaker 3: everybody was so conditioned that we closed the market that 465 00:23:56,520 --> 00:23:59,760 Speaker 3: day with anybody in the VALL space saying I want 466 00:23:59,760 --> 00:24:02,360 Speaker 3: to be short ball, short delta, I want to sell 467 00:24:02,400 --> 00:24:05,359 Speaker 3: this rich vall, but still think the market normalizes here 468 00:24:05,520 --> 00:24:09,160 Speaker 3: because we can't maintain this richness in volatility. Well then 469 00:24:09,200 --> 00:24:11,800 Speaker 3: the NICK opened down twelve percent because it was like 470 00:24:11,800 --> 00:24:13,560 Speaker 3: a kind of a hot leverage trade at that time, 471 00:24:13,960 --> 00:24:16,520 Speaker 3: and it was the second day that got people stopped out. 472 00:24:16,800 --> 00:24:21,200 Speaker 3: The other point here too was that that day of Friday, 473 00:24:22,240 --> 00:24:24,800 Speaker 3: one of the largest ball players in the market, thinking 474 00:24:24,800 --> 00:24:28,600 Speaker 3: that they were doing themselves a solid and hedging by 475 00:24:28,600 --> 00:24:32,159 Speaker 3: buying vix calls, ended up creating their own demise in 476 00:24:32,160 --> 00:24:35,560 Speaker 3: a sense because that created some of that short vixed 477 00:24:35,560 --> 00:24:38,879 Speaker 3: convexity that then really went wild over the span of 478 00:24:38,920 --> 00:24:41,800 Speaker 3: the next day and a half and created a bigger 479 00:24:41,800 --> 00:24:44,600 Speaker 3: issue within the ball complex. So this is the idea 480 00:24:44,680 --> 00:24:47,720 Speaker 3: that when you have buyers of hedges, they actually create 481 00:24:47,760 --> 00:24:49,320 Speaker 3: the conditions for the crashes. 482 00:24:50,320 --> 00:24:53,280 Speaker 4: Well, I guess we'll see what happened with meeting and 483 00:24:53,280 --> 00:24:53,880 Speaker 4: we'll see. 484 00:24:53,680 --> 00:24:56,720 Speaker 1: If there's like a big regime ship because it's eventually right, 485 00:24:57,359 --> 00:25:00,640 Speaker 1: maybe something will change, maybe I mean maybe one day, 486 00:25:00,680 --> 00:25:02,879 Speaker 1: mean reversion, welcome to an end. 487 00:25:02,920 --> 00:25:07,080 Speaker 4: The volatility is mean reverting normally maybe, but what if 488 00:25:07,119 --> 00:25:12,600 Speaker 4: we just get it or not normal times? So we'll see. 489 00:25:14,160 --> 00:25:17,240 Speaker 1: Lots More is produced by Carmen Rodriguez and dash El Bennett, 490 00:25:17,280 --> 00:25:19,440 Speaker 1: with help from Moses Onam and kil Brooks. 491 00:25:19,840 --> 00:25:23,000 Speaker 4: Our sound engineer is Blake Maples. Sage Bauman is the 492 00:25:23,040 --> 00:25:24,440 Speaker 4: head of Bloomberg Podcasts. 493 00:25:24,880 --> 00:25:28,240 Speaker 1: Please rate, review, and subscribe to Odd, Lots and Lots 494 00:25:28,240 --> 00:25:31,160 Speaker 1: More on your favorite podcast platforms. 495 00:25:30,880 --> 00:25:33,680 Speaker 4: And remember that Bloomberg subscribers can listen to all our 496 00:25:33,720 --> 00:25:38,360 Speaker 4: podcasts at free by connecting through Apple Podcasts. Thanks for listening.