1 00:00:00,160 --> 00:00:02,320 Speaker 1: But knowledge to work and grow your business with c 2 00:00:02,520 --> 00:00:06,680 Speaker 1: i T from transportation to healthcare to manufacturing. C i 3 00:00:06,760 --> 00:00:10,520 Speaker 1: T offers commercial lending, leasing, and treasury management services for 4 00:00:10,600 --> 00:00:13,520 Speaker 1: small and middle market businesses. Learn more at c i 5 00:00:13,560 --> 00:00:27,080 Speaker 1: T dot com put Knowledge to Work. Hello and welcome 6 00:00:27,120 --> 00:00:30,120 Speaker 1: to another edition of the All Thoughts podcast. I'm Tracy 7 00:00:30,120 --> 00:00:34,880 Speaker 1: Alloway and I'm Joe Wisntal So Joe, we've been talking 8 00:00:35,400 --> 00:00:38,239 Speaker 1: and writing about this a lot, which is kind of 9 00:00:38,280 --> 00:00:42,120 Speaker 1: weird because essentially we're talking and writing about nothing, like 10 00:00:42,400 --> 00:00:45,240 Speaker 1: nothing is happening in markets, at least when it comes 11 00:00:45,560 --> 00:00:51,680 Speaker 1: to a very specific measure of volatility. Yeah, it's definitely. Uh, 12 00:00:51,720 --> 00:00:54,360 Speaker 1: it's kind of like the Seinfeld markets. I guess right 13 00:00:54,400 --> 00:00:57,040 Speaker 1: where the thing that's going on is that nothing is 14 00:00:57,080 --> 00:01:03,520 Speaker 1: going on. That's good. That's good. I just made that up. Um. 15 00:01:03,560 --> 00:01:06,040 Speaker 1: But no, you know we've talked about this on this 16 00:01:06,160 --> 00:01:09,120 Speaker 1: podcast before. How we have this uh you know, we 17 00:01:09,200 --> 00:01:11,959 Speaker 1: have a morning call that you and I participate on 18 00:01:12,080 --> 00:01:15,520 Speaker 1: that you lead very ably. I met my dad where 19 00:01:15,560 --> 00:01:18,240 Speaker 1: we talk amongst many of us in the newsroom about 20 00:01:18,240 --> 00:01:20,480 Speaker 1: what's going on in markets, and every day it's like 21 00:01:21,160 --> 00:01:24,440 Speaker 1: kind of not much. Yeah, every day the story is 22 00:01:24,520 --> 00:01:29,440 Speaker 1: usually about how nothing is actually moving that significantly in markets, 23 00:01:29,520 --> 00:01:31,679 Speaker 1: and the thing we look to when it comes to 24 00:01:31,840 --> 00:01:36,880 Speaker 1: gauging market movement or market volatility is of course something 25 00:01:36,959 --> 00:01:40,760 Speaker 1: called the VIX index, which occasionally gets called things like 26 00:01:40,880 --> 00:01:45,080 Speaker 1: wall streets fear gauge. A lot of people take issue 27 00:01:45,120 --> 00:01:49,600 Speaker 1: with that name. The VIX is one of these sort 28 00:01:49,600 --> 00:01:52,640 Speaker 1: of technical things in markets that seems to have some 29 00:01:52,880 --> 00:01:56,240 Speaker 1: popular currency. There are probably people who are sort of 30 00:01:56,280 --> 00:01:59,360 Speaker 1: tangentially aware that this thing called the VIX exists, and 31 00:02:00,000 --> 00:02:01,960 Speaker 1: but there's a lot of debate about what it really is. 32 00:02:02,440 --> 00:02:05,320 Speaker 1: Most people probably have no idea how it's measured, whether 33 00:02:05,440 --> 00:02:09,799 Speaker 1: it really signals anything useful about anything at all, and 34 00:02:09,840 --> 00:02:13,800 Speaker 1: so in addition to being widely quoted and widely discussed, 35 00:02:13,840 --> 00:02:17,359 Speaker 1: it's also extremely controversial. Right, So today we are going 36 00:02:17,400 --> 00:02:20,519 Speaker 1: to dig into all the details about the VIX how 37 00:02:20,560 --> 00:02:23,320 Speaker 1: it works, but we're also going to dig into why 38 00:02:23,600 --> 00:02:27,400 Speaker 1: market volatility is so low as judged by this one measure. 39 00:02:27,400 --> 00:02:29,800 Speaker 1: And I'm not talking about things like, oh, well, we 40 00:02:29,840 --> 00:02:32,520 Speaker 1: have good economic growth, so people are, you know, relatively 41 00:02:32,520 --> 00:02:36,280 Speaker 1: comfortable with their investment positions. I'm talking about the actual 42 00:02:36,480 --> 00:02:41,760 Speaker 1: market for trading volatility because in many ways. Volatility is 43 00:02:41,800 --> 00:02:45,680 Speaker 1: now an asset class in and of itself. Right, This 44 00:02:45,800 --> 00:02:48,919 Speaker 1: is an important concept that a lot of people talk about. 45 00:02:49,320 --> 00:02:51,760 Speaker 1: But you know, a lot of these things are not 46 00:02:51,880 --> 00:02:54,799 Speaker 1: particularly well understood. What does that mean that volatility is 47 00:02:54,840 --> 00:02:59,280 Speaker 1: an asset class, or more specifically, what is volatility itself? What? 48 00:02:59,600 --> 00:03:02,080 Speaker 1: You know, we throw the word around a lot, but 49 00:03:02,320 --> 00:03:04,280 Speaker 1: I doubt a lot of people really have a firm 50 00:03:04,320 --> 00:03:07,200 Speaker 1: grasp of what that is. So I'm confident that our 51 00:03:07,280 --> 00:03:10,320 Speaker 1: guest today is going to help us clear away the 52 00:03:10,320 --> 00:03:13,760 Speaker 1: smoke on all these topics and actually shed some light 53 00:03:13,880 --> 00:03:16,720 Speaker 1: on what can be a very confusing subject. All right, well, 54 00:03:16,800 --> 00:03:19,640 Speaker 1: let's get into it. Our guest today is Provate Shinto 55 00:03:19,680 --> 00:03:23,440 Speaker 1: Wong Vantage. He is head of derivative Strategy at Macro 56 00:03:23,639 --> 00:03:28,919 Speaker 1: Risk Advisors, and he writes about volatility on a basically 57 00:03:29,240 --> 00:03:42,560 Speaker 1: every day private. Thanks so much for joining us. Thank 58 00:03:42,600 --> 00:03:45,960 Speaker 1: you for having me so private. Let's start with Joe's question, 59 00:03:46,000 --> 00:03:47,960 Speaker 1: because I think that's the big one, and it's the 60 00:03:48,040 --> 00:03:51,800 Speaker 1: right one to be asking what exactly is volatility? So 61 00:03:51,840 --> 00:03:55,040 Speaker 1: when people talk about volatility, they're either referring to what 62 00:03:55,080 --> 00:03:59,200 Speaker 1: we call implied volatility, So that's essentially the market cost 63 00:03:59,280 --> 00:04:03,760 Speaker 1: of volatility or what's sometimes called realized vultility or in essence, 64 00:04:03,760 --> 00:04:07,280 Speaker 1: which is how much are markets actually moving. Um So 65 00:04:07,360 --> 00:04:09,600 Speaker 1: the VIX which you guys have been discussing as a 66 00:04:09,600 --> 00:04:12,400 Speaker 1: measure of implied vaulatility, it's a measure of what people 67 00:04:12,440 --> 00:04:15,560 Speaker 1: are willing to pay for vultility or essentially, you know, 68 00:04:15,640 --> 00:04:20,159 Speaker 1: it's the markets uh gauge or measure of the cost 69 00:04:20,440 --> 00:04:24,280 Speaker 1: of owning vulatility. Let's dive into that a little bit 70 00:04:24,279 --> 00:04:29,080 Speaker 1: more that specific question. So volatility, intuitively is it just 71 00:04:29,160 --> 00:04:32,479 Speaker 1: a measure of the degree to which markets are going 72 00:04:32,560 --> 00:04:36,159 Speaker 1: up and down. So it's not necessarily a directional idea. 73 00:04:36,760 --> 00:04:40,440 Speaker 1: But if you imagine a sort of oscillation, or you 74 00:04:40,440 --> 00:04:43,240 Speaker 1: imagine a sort of one of those e k g 75 00:04:43,520 --> 00:04:46,520 Speaker 1: s that measures your heartbeat, it's a kind of a 76 00:04:46,560 --> 00:04:51,480 Speaker 1: measure of how dramatically the line is just moving. Absolutely, 77 00:04:51,560 --> 00:04:55,680 Speaker 1: and another way that volatility can can be measured, or 78 00:04:55,720 --> 00:04:58,040 Speaker 1: another thing that it measures is the potential for large 79 00:04:58,040 --> 00:05:01,240 Speaker 1: moves for example, you know, head of the US elections 80 00:05:01,279 --> 00:05:03,720 Speaker 1: or head of the French elections, you also had volatility 81 00:05:03,920 --> 00:05:06,719 Speaker 1: rise a little bit, not necessarily because people are expecting 82 00:05:06,960 --> 00:05:09,960 Speaker 1: high volatility, but maybe because they're expecting one large move 83 00:05:10,000 --> 00:05:13,240 Speaker 1: from a future event. So break it down for our listeners, 84 00:05:13,279 --> 00:05:16,200 Speaker 1: what does it mean to be long volatility? And what 85 00:05:16,240 --> 00:05:18,840 Speaker 1: does it mean to be short volatility? So what does 86 00:05:18,880 --> 00:05:21,440 Speaker 1: it mean to be long volatility? It's a really interesting question. 87 00:05:21,480 --> 00:05:23,800 Speaker 1: You know. People often talk about buying volatility, like they 88 00:05:23,800 --> 00:05:26,640 Speaker 1: see the VIX at eleven or ten or nine or 89 00:05:26,839 --> 00:05:28,200 Speaker 1: you know, god knows how low it's going to get, 90 00:05:28,200 --> 00:05:30,040 Speaker 1: and they say like, oh, I want to own volatility. 91 00:05:30,040 --> 00:05:32,400 Speaker 1: That seems like a really good trade to me. Um, 92 00:05:32,440 --> 00:05:35,120 Speaker 1: But the thing is, you've never really own volatility, you know. 93 00:05:35,160 --> 00:05:37,200 Speaker 1: I like to say, you can't own volatil, you only 94 00:05:37,240 --> 00:05:39,720 Speaker 1: rent it. Um. So what that means is that how 95 00:05:39,760 --> 00:05:41,599 Speaker 1: do you go out and buy the VIX. Well, you 96 00:05:41,640 --> 00:05:43,600 Speaker 1: can't just go and go to the store and buy 97 00:05:43,640 --> 00:05:46,200 Speaker 1: one share of vix and and that's that right Um. 98 00:05:46,240 --> 00:05:50,320 Speaker 1: In reality, volatilities traded through option contracts, and that's really 99 00:05:51,240 --> 00:05:54,440 Speaker 1: I guess the key to understanding volatility trading is it's 100 00:05:54,480 --> 00:05:57,520 Speaker 1: it's linked to options. Options are time limited contracts. Every 101 00:05:57,600 --> 00:06:01,560 Speaker 1: bet on volatility is implicitly time limited. Our listeners are 102 00:06:01,720 --> 00:06:05,000 Speaker 1: very very smart, but nonetheless I sometimes think it's you know, 103 00:06:05,160 --> 00:06:08,000 Speaker 1: I would never want to insult the intelligence of our listeners, 104 00:06:08,040 --> 00:06:11,440 Speaker 1: who are the smartest of all podcast listeners, clearly. But 105 00:06:11,560 --> 00:06:15,000 Speaker 1: just to really simplify this, you talk about options, and 106 00:06:15,040 --> 00:06:19,560 Speaker 1: they're time limited, so they're essentially an option is essentially 107 00:06:19,600 --> 00:06:23,719 Speaker 1: a bet that an underlying asset we're talking about a 108 00:06:23,760 --> 00:06:26,719 Speaker 1: stock here, just to keep it simple, will hit some 109 00:06:26,880 --> 00:06:30,800 Speaker 1: level by some time. And if volatility is higher, then 110 00:06:30,839 --> 00:06:34,600 Speaker 1: that makes it more likely that that underlying asset can 111 00:06:34,680 --> 00:06:37,200 Speaker 1: travel to that point. So if we have a share 112 00:06:37,560 --> 00:06:41,599 Speaker 1: of IBM and we are betting that it's gonna go 113 00:06:41,720 --> 00:06:46,000 Speaker 1: from a hundred dollars to five dollars, in theory, the 114 00:06:46,080 --> 00:06:50,240 Speaker 1: higher volatility is, the more likely it is it will 115 00:06:50,279 --> 00:06:55,120 Speaker 1: travel that distance in that defined area of time and move. 116 00:06:56,000 --> 00:06:59,120 Speaker 1: And so to own volatility and to go long volatility, 117 00:06:59,160 --> 00:07:02,800 Speaker 1: what you essent you you do is you're betting that 118 00:07:02,880 --> 00:07:06,480 Speaker 1: you know these options will rise and value because the 119 00:07:06,560 --> 00:07:09,680 Speaker 1: underlying assets will travel to these points faster in times. 120 00:07:09,760 --> 00:07:12,160 Speaker 1: That sort of the idea that that is a really 121 00:07:12,240 --> 00:07:14,400 Speaker 1: good way of explaining it. Um you know, So to 122 00:07:14,400 --> 00:07:16,360 Speaker 1: get back to traces questions, how do you how do 123 00:07:16,440 --> 00:07:18,000 Speaker 1: you own? How do you what does it mean to 124 00:07:18,000 --> 00:07:21,280 Speaker 1: be long volts? In your short vuatility. UM. Yes, buying 125 00:07:21,320 --> 00:07:23,800 Speaker 1: options is one way to do it. When you trade 126 00:07:23,840 --> 00:07:28,160 Speaker 1: an options contract, there's something which is called the implied vaulatility. 127 00:07:28,160 --> 00:07:30,440 Speaker 1: You can think of this again as the markets expectation 128 00:07:30,520 --> 00:07:33,760 Speaker 1: for future vultility. That's that's priced into these contracts when 129 00:07:33,760 --> 00:07:36,360 Speaker 1: you when you pay I don't know, a couple of 130 00:07:36,400 --> 00:07:39,840 Speaker 1: dollars for an S and P put option, there's implicitly 131 00:07:39,880 --> 00:07:42,760 Speaker 1: of vulatility that you're paying, and that is how one 132 00:07:43,080 --> 00:07:46,240 Speaker 1: goes long vaulatility. But I think, you know, I don't 133 00:07:46,400 --> 00:07:48,880 Speaker 1: want to digress, but I think a very important concept 134 00:07:49,000 --> 00:07:53,520 Speaker 1: is that because options are time limited UM, the concept 135 00:07:53,520 --> 00:07:57,880 Speaker 1: of decay or rent or or burden will carry costs, 136 00:07:57,880 --> 00:08:00,240 Speaker 1: whatever you wanna call it is it's factors into being 137 00:08:00,280 --> 00:08:03,520 Speaker 1: long volatility. And that's super important. In other words, if 138 00:08:03,520 --> 00:08:06,200 Speaker 1: I buy a put option on the SMP so in 139 00:08:06,200 --> 00:08:08,120 Speaker 1: other words, of contract, that's that will pay out if 140 00:08:08,120 --> 00:08:11,160 Speaker 1: the market um goes both ends below a certain level 141 00:08:11,200 --> 00:08:13,560 Speaker 1: at some point in time. If the market never goes 142 00:08:13,600 --> 00:08:15,960 Speaker 1: below that level, then I just lose my money on 143 00:08:16,000 --> 00:08:18,640 Speaker 1: the put option. And you know, if I want to 144 00:08:18,640 --> 00:08:20,920 Speaker 1: be long volatility, essentially one way of doing it would 145 00:08:20,960 --> 00:08:22,800 Speaker 1: be to constantly buy these put options by the market, 146 00:08:22,840 --> 00:08:24,800 Speaker 1: every sells offen, I'm just gonna keep losing money on 147 00:08:24,880 --> 00:08:27,960 Speaker 1: these things. So in order to be long volatility, there 148 00:08:28,040 --> 00:08:30,720 Speaker 1: is a carry cost. Right, we know that the VIX 149 00:08:30,760 --> 00:08:33,840 Speaker 1: can never go to zero, options can never be worthless. Therefore, 150 00:08:33,880 --> 00:08:36,160 Speaker 1: there's always gonna be some carry costs. For every day 151 00:08:36,200 --> 00:08:38,760 Speaker 1: that I'm long volatility or owning the VIX, I'm paying 152 00:08:38,800 --> 00:08:41,640 Speaker 1: away a rent or or a decay. And and that's 153 00:08:41,800 --> 00:08:45,720 Speaker 1: key to understanding volatility trading. Likewise, if I'm short volatility, 154 00:08:45,760 --> 00:08:49,120 Speaker 1: I'm actually being paid rent, I'm earning carry. That leads 155 00:08:49,280 --> 00:08:51,440 Speaker 1: quite nicely into what I was going to ask next, 156 00:08:51,480 --> 00:08:54,320 Speaker 1: which is, given that you have this carry cost when 157 00:08:54,360 --> 00:08:58,080 Speaker 1: it comes to buying volatility or renting volatility, as you 158 00:08:58,320 --> 00:09:01,760 Speaker 1: put it, walk us through of the ecosystem here, like 159 00:09:01,920 --> 00:09:05,400 Speaker 1: what kind of players are actually buying and what kind 160 00:09:05,440 --> 00:09:11,160 Speaker 1: of players are actually selling? Mm hmm. So traditionally, and 161 00:09:11,400 --> 00:09:15,080 Speaker 1: if we think about option contracts, traditionally, the buyer of 162 00:09:15,200 --> 00:09:20,120 Speaker 1: vulatility is going to be um like institutional asset managers 163 00:09:20,160 --> 00:09:23,440 Speaker 1: like hedge funds who want to protect their portfolio. So, okay, 164 00:09:23,520 --> 00:09:25,760 Speaker 1: let's say I own I don't know, a billion dollars 165 00:09:25,760 --> 00:09:27,760 Speaker 1: worth of stock. Well, how can I protect it or 166 00:09:27,800 --> 00:09:30,640 Speaker 1: how can I outperform the market and justify you investing 167 00:09:30,640 --> 00:09:32,800 Speaker 1: in me versus going investing in next ones. Well, one 168 00:09:32,840 --> 00:09:35,200 Speaker 1: way to do it is for me to own hedges, right, 169 00:09:35,280 --> 00:09:38,079 Speaker 1: for me to say, for example, own put options on 170 00:09:38,120 --> 00:09:40,520 Speaker 1: the SMP, so that the next time we get two 171 00:09:40,520 --> 00:09:42,960 Speaker 1: thousand eight or twenty eleven or some kind of you know, 172 00:09:43,040 --> 00:09:47,640 Speaker 1: market volatility event um, I will outperform in in the 173 00:09:47,679 --> 00:09:49,880 Speaker 1: event of a sell off. So that's been the traditional 174 00:09:50,000 --> 00:09:53,120 Speaker 1: buyer vulatility is essentially um. You know, I think big 175 00:09:53,160 --> 00:09:57,800 Speaker 1: asset managers. Um. There's also like insurance like variable nuity 176 00:09:57,800 --> 00:10:00,480 Speaker 1: programs that need to pay out a certain amount out um. 177 00:10:00,640 --> 00:10:04,160 Speaker 1: Those those people are are often implicit buyers of volatility, 178 00:10:04,240 --> 00:10:08,120 Speaker 1: but that's kind of traditionally been the institutional bid um 179 00:10:08,200 --> 00:10:11,640 Speaker 1: for for basically financial protection or financial insurance. And then 180 00:10:11,679 --> 00:10:15,199 Speaker 1: the sellers, so the sellers of alatility have typically been 181 00:10:15,240 --> 00:10:17,920 Speaker 1: the banks, like the dealers. Right, So if you know, 182 00:10:17,960 --> 00:10:20,280 Speaker 1: if you're hedge fund X and you want to go 183 00:10:20,400 --> 00:10:23,160 Speaker 1: buy options, then you you quote up your dealer and say, okay, 184 00:10:23,200 --> 00:10:25,080 Speaker 1: I want to buy these put options, and they'll more 185 00:10:25,160 --> 00:10:28,680 Speaker 1: than likely be happy to sell them to you. But uh, 186 00:10:28,720 --> 00:10:30,760 Speaker 1: I think like I think, what you guys are getting 187 00:10:30,760 --> 00:10:33,920 Speaker 1: at is the concept of volatility as an investable asset class, 188 00:10:34,520 --> 00:10:36,720 Speaker 1: and especially posts to as an aid UM. You know, 189 00:10:36,720 --> 00:10:39,520 Speaker 1: with new regulations, banks actually can't take as much risk 190 00:10:39,559 --> 00:10:42,200 Speaker 1: as they used to be able to um A lot 191 00:10:42,240 --> 00:10:45,400 Speaker 1: of that vulatility selling risk has now been um laid 192 00:10:45,480 --> 00:10:48,559 Speaker 1: off to uh, I guess other people on the buy side. 193 00:10:48,600 --> 00:10:51,440 Speaker 1: So before whereas it would mainly be I guess, like 194 00:10:51,440 --> 00:10:54,680 Speaker 1: the dealers taking the other side of all these financial 195 00:10:54,679 --> 00:10:57,280 Speaker 1: insurance bets a lot of times, now it is other 196 00:10:57,559 --> 00:11:00,760 Speaker 1: by side institutions coming into basically, you know, instead of 197 00:11:01,000 --> 00:11:04,679 Speaker 1: investing in stocks or investing in bonds or what have you. There, 198 00:11:05,840 --> 00:11:09,240 Speaker 1: they're basically becoming sellers of insurance and and that's how 199 00:11:09,280 --> 00:11:14,760 Speaker 1: they develop deliver their alpha. Now. Uh we started off 200 00:11:14,920 --> 00:11:18,760 Speaker 1: the introduction by talking about how volatility is very low, 201 00:11:18,920 --> 00:11:21,760 Speaker 1: how every day we have these chats about what's going 202 00:11:21,800 --> 00:11:24,040 Speaker 1: on in the market. Well, there's nothing going on the market. 203 00:11:24,520 --> 00:11:29,480 Speaker 1: You've been you've spent a career trading derivatives and analyzing 204 00:11:29,559 --> 00:11:32,200 Speaker 1: volatility and all this stuff. So what do you tell 205 00:11:32,320 --> 00:11:36,760 Speaker 1: us characterize the current market environment? Put it into perspective 206 00:11:37,280 --> 00:11:40,120 Speaker 1: relative to what you've seen. So that when we tell 207 00:11:40,120 --> 00:11:43,160 Speaker 1: our listeners of all is very low these days, what 208 00:11:43,240 --> 00:11:47,440 Speaker 1: does that actually mean? How does it compare to six 209 00:11:47,520 --> 00:11:52,000 Speaker 1: years ago, ten years ago, twenty years ago, whatever. Well, 210 00:11:52,200 --> 00:11:54,680 Speaker 1: you can look at the VIX and I think, you know, 211 00:11:54,960 --> 00:11:56,480 Speaker 1: I'm not going to get into how the VIX has 212 00:11:56,640 --> 00:11:58,960 Speaker 1: been poorly understood, But essentially the VIX is a measure 213 00:11:58,960 --> 00:12:02,439 Speaker 1: of short term options pricing. That's really all it measures. 214 00:12:02,840 --> 00:12:04,920 Speaker 1: I don't think it should be used to measure you know, 215 00:12:05,080 --> 00:12:10,760 Speaker 1: fear or you know, like an economic you know whatever. Uh. 216 00:12:10,800 --> 00:12:13,439 Speaker 1: It's just really a measure of short dated option prices. 217 00:12:13,760 --> 00:12:15,680 Speaker 1: And if we look at the VIX um, it's really 218 00:12:15,720 --> 00:12:20,840 Speaker 1: back to two thousand seven levels um, kind of like 219 00:12:20,960 --> 00:12:24,079 Speaker 1: mid uh sorry, two thousand seven mid two thousands seven um, 220 00:12:24,400 --> 00:12:28,520 Speaker 1: early nineteen nineties levels um. If you look at realized vault, 221 00:12:28,559 --> 00:12:30,480 Speaker 1: so how much stocks are moving? I think that's really 222 00:12:30,520 --> 00:12:35,960 Speaker 1: interesting because I think this is the probably the longest 223 00:12:36,040 --> 00:12:39,480 Speaker 1: stretch of realized vault we've low realized vall we've had 224 00:12:39,679 --> 00:12:43,280 Speaker 1: UM since I want to say, like the early May nine. 225 00:12:43,440 --> 00:12:45,199 Speaker 1: I mean, it's one thing for for volatility to be 226 00:12:45,400 --> 00:12:46,880 Speaker 1: to be low, for like a week or two. But 227 00:12:46,920 --> 00:12:48,840 Speaker 1: it's another thing for for vaultil to be low for 228 00:12:48,880 --> 00:12:51,200 Speaker 1: like six months at a time or one year at 229 00:12:51,240 --> 00:12:53,599 Speaker 1: a time. UM. And we really haven't seen this, I 230 00:12:53,880 --> 00:12:56,400 Speaker 1: guess since uh. I guess for the since the pre 231 00:12:56,480 --> 00:13:00,440 Speaker 1: crisis period and also since the early nineteen nineties UM. 232 00:13:00,520 --> 00:13:02,360 Speaker 1: And I think the common thread there is really that 233 00:13:02,800 --> 00:13:05,480 Speaker 1: UH if you look back at those those two other 234 00:13:05,559 --> 00:13:07,920 Speaker 1: low ball periods, is that the feders hiking rates. And 235 00:13:07,960 --> 00:13:10,800 Speaker 1: do I think that the FED hiking rates causes low fultility? No, 236 00:13:10,920 --> 00:13:13,080 Speaker 1: I don't. I think it's coincident. I think the FED 237 00:13:13,200 --> 00:13:16,679 Speaker 1: hikes rates when the economy is good. When the economy 238 00:13:16,760 --> 00:13:19,439 Speaker 1: is good, realize all tends to be inequity sends to 239 00:13:19,559 --> 00:13:21,280 Speaker 1: be a little bit lower. And I think that ultimately 240 00:13:21,320 --> 00:13:23,760 Speaker 1: then leads into implied ball on the VIX being lower. 241 00:13:24,160 --> 00:13:26,400 Speaker 1: I want to take a quick break for a word 242 00:13:26,480 --> 00:13:32,439 Speaker 1: from our sponsor, but knowledge to work and grow your 243 00:13:32,480 --> 00:13:37,000 Speaker 1: business with c i T. From transportation to healthcare to manufacturing. 244 00:13:37,200 --> 00:13:40,600 Speaker 1: C i T offers commercial lending, leasing, and treasury management 245 00:13:40,640 --> 00:13:44,000 Speaker 1: services for small and middle market businesses. Learn more at 246 00:13:44,000 --> 00:13:51,200 Speaker 1: c i T dot com. Put Knowledge to work and 247 00:13:51,280 --> 00:13:54,880 Speaker 1: we're back with private ching twang advantage of macro risk advisors. 248 00:13:54,920 --> 00:13:56,559 Speaker 1: You know, there was something that you said that was 249 00:13:56,679 --> 00:13:59,920 Speaker 1: very interesting, uh, in the first half where you talk 250 00:14:00,080 --> 00:14:03,280 Speaker 1: about how a lot of the VALL sellers these days 251 00:14:03,320 --> 00:14:06,359 Speaker 1: are people who, you know, it's kind of an alternative 252 00:14:06,440 --> 00:14:09,280 Speaker 1: to uh, straight up investing, and so that you have 253 00:14:09,360 --> 00:14:12,200 Speaker 1: some of these people who might have been portfolio managers 254 00:14:12,240 --> 00:14:16,960 Speaker 1: now making money selling VALL. And in a sense, a 255 00:14:17,080 --> 00:14:23,440 Speaker 1: diversified portfolio is a short VALL strategy without buying derivatives. 256 00:14:23,480 --> 00:14:26,720 Speaker 1: So that if a typical person they have uh, you know, 257 00:14:26,760 --> 00:14:31,160 Speaker 1: a portfolio of stocks and bonds and commodities, and it's 258 00:14:31,200 --> 00:14:34,760 Speaker 1: an attempt to smooth out the cycles and the fluctuations 259 00:14:34,800 --> 00:14:39,520 Speaker 1: of markets. That that is a de facto short VALL strategy. 260 00:14:39,720 --> 00:14:44,440 Speaker 1: And so the idea of actually selling VALL explicitly shorting 261 00:14:44,560 --> 00:14:49,160 Speaker 1: volatility is kind of not that different from traditional investing. 262 00:14:49,720 --> 00:14:52,120 Speaker 1: Oh percent agree. I mean, if you look at the 263 00:14:52,640 --> 00:14:54,800 Speaker 1: if you look at the payoff profile, the kind of 264 00:14:54,840 --> 00:14:59,200 Speaker 1: the the distribution of returns for being long stocks, you know, 265 00:14:59,520 --> 00:15:03,000 Speaker 1: or long ons or like long uh let's say, like 266 00:15:03,040 --> 00:15:05,760 Speaker 1: long carry the carry trade in f X, it's all 267 00:15:05,880 --> 00:15:08,880 Speaker 1: very similar to being short volatility. I think being short 268 00:15:08,920 --> 00:15:11,480 Speaker 1: volage is a more explicit way of assuming that risk. 269 00:15:11,560 --> 00:15:13,120 Speaker 1: But yeah, it's it's all the same risk. I mean, 270 00:15:13,160 --> 00:15:17,280 Speaker 1: if you're if you're like a credit manager, you know, 271 00:15:17,480 --> 00:15:21,080 Speaker 1: who buys how yeld bonds, you're implicitly short invall just 272 00:15:21,080 --> 00:15:23,320 Speaker 1: just through the fixed income space. Or even if you're 273 00:15:23,320 --> 00:15:26,320 Speaker 1: just long stocks, I mean you're implicitly short vall. I 274 00:15:26,320 --> 00:15:28,880 Speaker 1: mean you get two thousand and get draw down. I mean, 275 00:15:29,120 --> 00:15:31,600 Speaker 1: that's not really that much different from from shorting ball. 276 00:15:32,480 --> 00:15:34,600 Speaker 1: But wait, let me take the other side of that argument, 277 00:15:34,640 --> 00:15:39,080 Speaker 1: because I have seen critics who have said, we have 278 00:15:39,200 --> 00:15:43,440 Speaker 1: all these new sellers of volatility in the market. Some 279 00:15:43,520 --> 00:15:47,720 Speaker 1: of them have called them, uh, tourists in the volatility market. 280 00:15:48,040 --> 00:15:50,680 Speaker 1: And the argument that they sometimes put forth is that 281 00:15:50,880 --> 00:15:53,720 Speaker 1: these this might be, you know, kind of patronizing. But 282 00:15:54,000 --> 00:15:56,560 Speaker 1: they say, these guys aren't experts. They might not know 283 00:15:56,600 --> 00:15:59,920 Speaker 1: what they're doing when it comes to selling ball, using 284 00:16:00,160 --> 00:16:03,640 Speaker 1: specific you know, options instruments, that sort of thing. Do 285 00:16:03,680 --> 00:16:06,880 Speaker 1: you think there's any basis for that. I think there's 286 00:16:06,920 --> 00:16:10,320 Speaker 1: some basis to it. I think it's matten maybe a 287 00:16:10,360 --> 00:16:13,920 Speaker 1: little bit overblown. In general, the people who sell all 288 00:16:13,960 --> 00:16:17,080 Speaker 1: are are quite careful about doing it. It's one other 289 00:16:17,120 --> 00:16:20,440 Speaker 1: words that I think people who sell all generally, they 290 00:16:20,520 --> 00:16:23,440 Speaker 1: generally like to size things based on a worst case scenario. 291 00:16:23,640 --> 00:16:25,920 Speaker 1: So if you're, if you're, if you make a living 292 00:16:25,960 --> 00:16:28,480 Speaker 1: sell involved in generally you're always thinking about, well, okay, 293 00:16:28,520 --> 00:16:30,440 Speaker 1: like what if the next two thousand and eleven happens 294 00:16:30,520 --> 00:16:33,800 Speaker 1: or August when you remember when on the Monday when 295 00:16:33,880 --> 00:16:36,480 Speaker 1: markets were down I don't know, like five percent, basically 296 00:16:36,480 --> 00:16:38,880 Speaker 1: no reason the doubt crashed. I think a thousand pointed 297 00:16:39,040 --> 00:16:42,360 Speaker 1: exactly supposed were a limit down overnight. Um, You're you're 298 00:16:42,360 --> 00:16:44,360 Speaker 1: always thinking about those type of events, and I think 299 00:16:44,400 --> 00:16:46,960 Speaker 1: that's how you size your risks. So if it falls 300 00:16:47,080 --> 00:16:50,720 Speaker 1: very low, then you're gonna keep in mind that vall 301 00:16:50,800 --> 00:16:54,320 Speaker 1: has a much larger, much more room to rise, and 302 00:16:54,360 --> 00:16:56,640 Speaker 1: you're you're gonna implicitly size down your beds. But I 303 00:16:56,640 --> 00:16:58,520 Speaker 1: do think there could be something to be said for 304 00:16:58,880 --> 00:17:02,240 Speaker 1: just more people or or more different people who normally 305 00:17:02,280 --> 00:17:05,520 Speaker 1: wouldn't be looking at ball so closely. Um, kind of 306 00:17:05,560 --> 00:17:09,040 Speaker 1: getting into the short vall game. Um yeah, I think 307 00:17:09,040 --> 00:17:10,840 Speaker 1: there is some risk for that, and I think you've 308 00:17:10,840 --> 00:17:12,879 Speaker 1: seen it in the dynamics of all. Like if you 309 00:17:12,920 --> 00:17:16,440 Speaker 1: look at is how quickly the VIX can spike from 310 00:17:16,440 --> 00:17:20,280 Speaker 1: low levels and how quickly it reverts back down. Um, 311 00:17:20,320 --> 00:17:22,400 Speaker 1: I think that's there's something to be said for kind 312 00:17:22,440 --> 00:17:25,080 Speaker 1: of I guess money that's that's quickly coming in and 313 00:17:25,119 --> 00:17:28,240 Speaker 1: out of the space. Um. So yeah, I think volatility 314 00:17:28,280 --> 00:17:30,760 Speaker 1: of all itself has has kind of risen um and 315 00:17:30,800 --> 00:17:33,719 Speaker 1: I think it it could be partially due to just 316 00:17:33,880 --> 00:17:36,959 Speaker 1: short of all becoming a more popular strategy. Now, all right, 317 00:17:37,040 --> 00:17:40,960 Speaker 1: we talked about how how cheap vall is or how 318 00:17:41,119 --> 00:17:44,439 Speaker 1: low VALL is, and so I think that naturally raises 319 00:17:44,480 --> 00:17:48,639 Speaker 1: the question, well, is this a good time to buy protection. 320 00:17:48,720 --> 00:17:50,840 Speaker 1: I'm not going to ask you to make a call 321 00:17:51,040 --> 00:17:54,920 Speaker 1: right now, but but thinking about that, Okay, so volatility 322 00:17:55,160 --> 00:17:59,560 Speaker 1: is cheap, it's people know there seems to be a 323 00:17:59,600 --> 00:18:04,240 Speaker 1: mood of sort of um complacency, perhaps suggested by the 324 00:18:04,240 --> 00:18:08,000 Speaker 1: low volatility. But as you pointed out, you can never 325 00:18:08,040 --> 00:18:10,320 Speaker 1: really buy vall. You can only rent it, so it's 326 00:18:10,359 --> 00:18:12,720 Speaker 1: not like you can just lock in these prices and 327 00:18:12,840 --> 00:18:16,160 Speaker 1: forget it. Uh So what does that mean for someone 328 00:18:16,200 --> 00:18:19,480 Speaker 1: who's like, yeah, I'm pretty optimistic, but vall is cheap here, 329 00:18:19,520 --> 00:18:22,080 Speaker 1: so I'll just buy some to protect myself. Does that 330 00:18:22,280 --> 00:18:26,080 Speaker 1: kind of thinking work. I think it tends not to work. 331 00:18:26,320 --> 00:18:29,440 Speaker 1: I think I think the smart way to think about 332 00:18:29,440 --> 00:18:32,280 Speaker 1: buying protection is to budget for in advance. In other words, 333 00:18:32,320 --> 00:18:35,720 Speaker 1: you're thinking, Okay, I'm I'm willing to pay you know, 334 00:18:35,760 --> 00:18:37,920 Speaker 1: I'm willing to pay X percentage of my a U 335 00:18:38,119 --> 00:18:41,760 Speaker 1: M on on protection, and to think about this in advance, right, 336 00:18:41,800 --> 00:18:44,160 Speaker 1: So think like, Okay, I'm gonna buy some protection and 337 00:18:44,200 --> 00:18:46,640 Speaker 1: I'm willing to lose I don't know, fifty BIPs on 338 00:18:46,720 --> 00:18:49,399 Speaker 1: this this year. I don't really think it makes a 339 00:18:49,400 --> 00:18:53,359 Speaker 1: ton of sense to buy all just because it's low. Because, um, 340 00:18:53,400 --> 00:18:55,440 Speaker 1: I mean, we've done a lot of kind of studies 341 00:18:55,480 --> 00:18:58,720 Speaker 1: on this, and we found that actually, uh volved being 342 00:18:58,800 --> 00:19:02,159 Speaker 1: low is a good predictor of evolving low going forward. 343 00:19:02,560 --> 00:19:05,080 Speaker 1: Um So, it's a good predictor of itself. Um And 344 00:19:05,080 --> 00:19:06,919 Speaker 1: you can end up kind of getting burned on this 345 00:19:07,000 --> 00:19:10,040 Speaker 1: carry cost for a very long time. Uh So. I 346 00:19:10,040 --> 00:19:12,199 Speaker 1: think that's that's the danger, is that you end up 347 00:19:12,240 --> 00:19:14,840 Speaker 1: getting stuck into a trade that you never kind of 348 00:19:14,880 --> 00:19:17,239 Speaker 1: budgeted forward to begin with. But there's something to be 349 00:19:17,280 --> 00:19:19,359 Speaker 1: said for just that, you know, the beginning of the 350 00:19:19,400 --> 00:19:21,200 Speaker 1: year or the beginning of the cord deciding Okay, I'm 351 00:19:21,200 --> 00:19:23,200 Speaker 1: going to spend next on protection this year. I think 352 00:19:23,240 --> 00:19:25,639 Speaker 1: that makes a lot more sense than than buying involved 353 00:19:25,680 --> 00:19:31,240 Speaker 1: just because it's low. Okay, well, speaking of buying protection, Uh, 354 00:19:31,280 --> 00:19:35,440 Speaker 1: there has been I guess something of a celebrity created 355 00:19:35,640 --> 00:19:39,399 Speaker 1: in the volatility market, and that has to be a 356 00:19:39,520 --> 00:19:46,080 Speaker 1: person known as fifty cent um. And the reason forever yes, 357 00:19:46,160 --> 00:19:48,719 Speaker 1: we are now going to talk about early two thousands 358 00:19:48,800 --> 00:19:52,400 Speaker 1: hip hop Joe um No. Uh. The reason he's called 359 00:19:52,440 --> 00:19:56,480 Speaker 1: fifty cent he or she is because they've supposedly been 360 00:19:56,520 --> 00:20:01,080 Speaker 1: buying you know, these roughly half a dollar clips of 361 00:20:01,720 --> 00:20:05,400 Speaker 1: VIX call options on a regular basis, and people started 362 00:20:05,480 --> 00:20:09,359 Speaker 1: noticing it private. Actually, I think was one of the first, 363 00:20:09,359 --> 00:20:12,840 Speaker 1: if not the first, to really write about it private. 364 00:20:12,960 --> 00:20:18,120 Speaker 1: Why why did become such a talking point in the market. 365 00:20:18,720 --> 00:20:23,400 Speaker 1: There's a really interesting question, I think. Firstly, then the name. Honestly, 366 00:20:24,440 --> 00:20:28,959 Speaker 1: it is a catchy nickname, um, but just like among traders, 367 00:20:28,960 --> 00:20:32,200 Speaker 1: so among people who watched this space closely, it was 368 00:20:32,320 --> 00:20:36,000 Speaker 1: quite fascinating to see such, honestly, such huge flow and 369 00:20:36,119 --> 00:20:39,760 Speaker 1: outright VIX call by and we've never seen for for years, 370 00:20:39,840 --> 00:20:42,120 Speaker 1: I mean, we had seen people main buying called spreads 371 00:20:42,200 --> 00:20:45,240 Speaker 1: or or trying to limit their you know, limit the 372 00:20:45,240 --> 00:20:47,560 Speaker 1: premiums they pay. But for someone to just come in 373 00:20:47,600 --> 00:20:52,000 Speaker 1: and just repeatedly, uh, just buy these vixed calls. And 374 00:20:52,160 --> 00:20:54,160 Speaker 1: you know when you when you trade like that, everyone 375 00:20:54,240 --> 00:20:56,680 Speaker 1: knows it's you, right, Like people come up with nicknames 376 00:20:56,680 --> 00:20:59,440 Speaker 1: about you. Um So, for someone to just come out 377 00:20:59,480 --> 00:21:02,000 Speaker 1: and out right just always, every single time, by fifty 378 00:21:02,840 --> 00:21:05,000 Speaker 1: vixed calls for fifty cents, I don't care what strikes, 379 00:21:05,000 --> 00:21:08,439 Speaker 1: just pay fifty cents and that's very unusual behavior. Um 380 00:21:08,520 --> 00:21:10,800 Speaker 1: So that that type of that type of trading, the 381 00:21:10,840 --> 00:21:13,879 Speaker 1: type of flow, it just definitely gets noticed by market participants. 382 00:21:14,359 --> 00:21:16,720 Speaker 1: Is that a good idea? Is that a good strategy? 383 00:21:16,840 --> 00:21:19,280 Speaker 1: Is there a type of investor for whom it makes 384 00:21:19,280 --> 00:21:22,919 Speaker 1: sense to just have this permanent bid in? Yeah, I 385 00:21:22,920 --> 00:21:28,280 Speaker 1: mean it makes sense for someone who wants to own protection. 386 00:21:28,440 --> 00:21:31,600 Speaker 1: Do I think that's the best way of owning protection? Well? 387 00:21:31,640 --> 00:21:34,800 Speaker 1: Probably not. I think there's maybe more other things you 388 00:21:34,800 --> 00:21:37,720 Speaker 1: could there's other ways you go about trading and maybe 389 00:21:38,040 --> 00:21:41,560 Speaker 1: be less obvious about it as well. But um this 390 00:21:41,640 --> 00:21:44,280 Speaker 1: is definitely not like some kind of doomsday trader like that. 391 00:21:44,320 --> 00:21:45,840 Speaker 1: I guess that's kind of what I've seen in a 392 00:21:45,880 --> 00:21:48,240 Speaker 1: lot of the articles going around as people people trying 393 00:21:48,240 --> 00:21:50,240 Speaker 1: to paint it is, you know, that makes it sound 394 00:21:50,240 --> 00:21:53,000 Speaker 1: more exciting, but in reality it is probably just I 395 00:21:53,040 --> 00:21:55,560 Speaker 1: think like a large sovereign wealth fund or institutional asset 396 00:21:55,600 --> 00:21:59,000 Speaker 1: manager that's that's executing a hedge for their books. So 397 00:21:59,040 --> 00:22:01,160 Speaker 1: they definitely have something else against it, like maybe they're 398 00:22:01,200 --> 00:22:03,200 Speaker 1: just long stocks, or who knows, maybe they're actually short 399 00:22:03,280 --> 00:22:05,959 Speaker 1: VAUL and massive size and and that's their tailhage. And 400 00:22:06,040 --> 00:22:08,840 Speaker 1: just to be clear, would you say it's a vixed call, 401 00:22:09,440 --> 00:22:14,120 Speaker 1: That means it's a option tied to the VIX correct 402 00:22:14,480 --> 00:22:17,479 Speaker 1: In other words, if the VIX should go above twenty 403 00:22:17,480 --> 00:22:19,800 Speaker 1: I think that's been his average strike, then then they'll 404 00:22:19,840 --> 00:22:22,159 Speaker 1: they'll pay out. We have time for just a one 405 00:22:22,240 --> 00:22:24,280 Speaker 1: or two more questions, Tracy. Don't you want to ask 406 00:22:24,320 --> 00:22:30,760 Speaker 1: your question about whether the VIX is broken? You've just 407 00:22:30,800 --> 00:22:34,560 Speaker 1: handed me a loaded grenade. Okay, Yes, I have a 408 00:22:34,640 --> 00:22:39,960 Speaker 1: question if the VIX is pervasively low, despite what are 409 00:22:40,119 --> 00:22:43,440 Speaker 1: ostensibly a lot of concerns in the market, and despite 410 00:22:43,880 --> 00:22:47,560 Speaker 1: you know, we do see some abrupt moves in various 411 00:22:47,560 --> 00:22:50,240 Speaker 1: asset classes every once in a while, UM does that 412 00:22:50,320 --> 00:22:53,119 Speaker 1: mean the VIX is broken. And also, sorry, let me 413 00:22:53,160 --> 00:22:55,800 Speaker 1: just add one more thing onto that question, because that's 414 00:22:55,840 --> 00:23:01,440 Speaker 1: not enough for you. The the proliferation of products, exchange 415 00:23:01,480 --> 00:23:05,360 Speaker 1: traded products tied to the VIX. There's some criticism that 416 00:23:05,440 --> 00:23:10,800 Speaker 1: those specifically are basically creating a feedback flute to the VIX, 417 00:23:10,880 --> 00:23:15,160 Speaker 1: which is artificially suppressing it in some way and increasing 418 00:23:15,240 --> 00:23:19,080 Speaker 1: volatility of volatility as you pointed out, is there any 419 00:23:19,080 --> 00:23:22,720 Speaker 1: any logic in those claims? Both very good questions. Um, 420 00:23:22,800 --> 00:23:25,040 Speaker 1: let me just address the first part. Do we think 421 00:23:25,080 --> 00:23:28,159 Speaker 1: the VIX is broken? Um? So this is really something 422 00:23:28,200 --> 00:23:31,520 Speaker 1: we've seen a lot more more attention paid to people 423 00:23:31,600 --> 00:23:34,399 Speaker 1: kind of contrasting the low level of VIX with the 424 00:23:34,480 --> 00:23:38,720 Speaker 1: high political uncertainty. Uh, it's mainly political uncertain that people 425 00:23:38,760 --> 00:23:40,679 Speaker 1: point to, but there is a little bit of you know, 426 00:23:40,680 --> 00:23:44,000 Speaker 1: economic uncerty out there as well. I think the important 427 00:23:44,040 --> 00:23:46,320 Speaker 1: point to remembers that the VIX only measures short term 428 00:23:46,359 --> 00:23:48,880 Speaker 1: option price, short term option price specifically over the next 429 00:23:48,920 --> 00:23:51,480 Speaker 1: thirty days. So do we think something's going to happen 430 00:23:51,520 --> 00:23:53,920 Speaker 1: over the next thirty days, Well, maybe not. We don't 431 00:23:53,960 --> 00:23:56,000 Speaker 1: know the exact timing. We don't you know, there's now 432 00:23:56,040 --> 00:23:59,440 Speaker 1: been a special counsel appointing to investigate Trump. I mean, 433 00:23:59,520 --> 00:24:01,640 Speaker 1: who knows when the next memo or leak is gonna hit, 434 00:24:01,680 --> 00:24:03,639 Speaker 1: but we don't know the exact timing of that, and 435 00:24:03,880 --> 00:24:06,080 Speaker 1: so that that makes these these short term bets and 436 00:24:06,160 --> 00:24:08,720 Speaker 1: volatility very expensive. And people don't want to own short 437 00:24:08,800 --> 00:24:11,359 Speaker 1: day protection for that reason because most likely it's gonna 438 00:24:11,359 --> 00:24:14,080 Speaker 1: expire worthless. You know that the rent is super super 439 00:24:14,160 --> 00:24:18,080 Speaker 1: high if you try to trade short term volve. Um. 440 00:24:18,200 --> 00:24:20,560 Speaker 1: So I think that's that's the reason why the VIX 441 00:24:20,640 --> 00:24:22,639 Speaker 1: is maybe a little bit lower than people think it 442 00:24:22,640 --> 00:24:24,639 Speaker 1: should be, is because it's a measure short term volve 443 00:24:24,640 --> 00:24:27,200 Speaker 1: and these these uh, this uncertainty that people are worried 444 00:24:27,200 --> 00:24:29,320 Speaker 1: about is more general, it's a more long it's a 445 00:24:29,320 --> 00:24:32,840 Speaker 1: more long term uncertainty. Um. Do I think long term 446 00:24:33,119 --> 00:24:35,919 Speaker 1: volve You know, that's that's another that's another tangent in itself. 447 00:24:35,960 --> 00:24:37,520 Speaker 1: But do I think long term vall is too low? 448 00:24:37,880 --> 00:24:40,240 Speaker 1: I think it's approaching low levels. And look, I think 449 00:24:40,240 --> 00:24:42,159 Speaker 1: it's worth buying at something I've been writing about that 450 00:24:42,200 --> 00:24:44,800 Speaker 1: people should maybe look at owning long term volve because 451 00:24:44,840 --> 00:24:48,720 Speaker 1: that's really where you get the uncertainty premium that's where 452 00:24:48,760 --> 00:24:51,160 Speaker 1: uncertainy premium should be priceing is maybe like one year 453 00:24:51,320 --> 00:24:53,720 Speaker 1: vulatility or even longer than that. So I think that's 454 00:24:54,160 --> 00:24:56,280 Speaker 1: that's where people should be looking. UM that the short 455 00:24:56,359 --> 00:24:58,600 Speaker 1: dated stuff is just really going to be affected most 456 00:24:58,680 --> 00:25:01,240 Speaker 1: by that that high carrier or rent costs that we've 457 00:25:01,240 --> 00:25:03,240 Speaker 1: talked about, and it's so hard to time this stuff 458 00:25:03,240 --> 00:25:06,280 Speaker 1: in the very short term. So your next question about 459 00:25:06,720 --> 00:25:11,080 Speaker 1: exchange traded products, UM, I think that those have kind 460 00:25:11,080 --> 00:25:13,760 Speaker 1: of been the primary vehicle for for the so called 461 00:25:13,840 --> 00:25:17,840 Speaker 1: vault tourists to enter this space. UM. So in other words, UM, 462 00:25:18,280 --> 00:25:21,920 Speaker 1: exchange traded products like the x I V or the 463 00:25:21,920 --> 00:25:23,600 Speaker 1: the S V x Y, these are e t f 464 00:25:23,640 --> 00:25:27,399 Speaker 1: s which which essentially will go up will increase in 465 00:25:27,520 --> 00:25:31,120 Speaker 1: value UM when when the VIX or vixed futures decrease, 466 00:25:31,200 --> 00:25:34,480 Speaker 1: and they're they're basically going to be implicit UM recipients 467 00:25:34,480 --> 00:25:36,919 Speaker 1: of that carry costs. So yes, we have seen a 468 00:25:36,920 --> 00:25:39,360 Speaker 1: lot more interest in those products, and probably from people 469 00:25:39,400 --> 00:25:43,960 Speaker 1: who don't know that much about vall trading UM. And uh, 470 00:25:44,000 --> 00:25:45,920 Speaker 1: you know this is getting a little bit too technical, 471 00:25:46,000 --> 00:25:48,679 Speaker 1: but yeah, like due to the way these kind of 472 00:25:48,760 --> 00:25:50,720 Speaker 1: lever products have to rebalance themselves at the end of 473 00:25:50,720 --> 00:25:54,159 Speaker 1: the day, um, they can contribute to high volatility in 474 00:25:54,200 --> 00:25:56,960 Speaker 1: the VIX itself. And I think that's the main change 475 00:25:56,960 --> 00:25:59,159 Speaker 1: you've seen as these products of gain traction is is 476 00:25:59,200 --> 00:26:01,640 Speaker 1: really that the VIX it self tends to spike much 477 00:26:01,720 --> 00:26:04,439 Speaker 1: much more rapidly and also come back um from from 478 00:26:04,560 --> 00:26:07,320 Speaker 1: high levels much more quickly. I just want to make 479 00:26:07,400 --> 00:26:10,520 Speaker 1: one really quick observation and ask a very tiny question 480 00:26:10,600 --> 00:26:13,040 Speaker 1: before we go. So the x I V which is 481 00:26:13,080 --> 00:26:18,720 Speaker 1: that short vix et f betting shorting volatility? Since late 482 00:26:19,640 --> 00:26:23,119 Speaker 1: it's up nearly sevenfold, whereas the S and P itself 483 00:26:23,480 --> 00:26:29,320 Speaker 1: hasn't quite doubled. So short involve has been extraordinarily profitable trade, 484 00:26:29,359 --> 00:26:31,040 Speaker 1: even if you're just a tourist and do it through 485 00:26:31,080 --> 00:26:36,639 Speaker 1: an exchange traded product. Profit Intang Niche of Macro Risk Advisors. 486 00:26:37,400 --> 00:26:40,720 Speaker 1: Fascinating topic, great perspective. Really appreciate having you on. Thank 487 00:26:40,760 --> 00:26:53,000 Speaker 1: you so, Joe. I don't know about you, but I 488 00:26:53,040 --> 00:26:56,359 Speaker 1: will never call the VIX the fear gauge. Ever again, 489 00:26:56,880 --> 00:27:00,000 Speaker 1: I probably will just because I'm not like that sophisticated 490 00:27:00,040 --> 00:27:03,560 Speaker 1: it and when you're in I say stupid stuff. But no, 491 00:27:03,720 --> 00:27:07,200 Speaker 1: I think I'm pretty disciplined about a not calling it 492 00:27:07,240 --> 00:27:12,160 Speaker 1: a measure of fear. I try not to say cliches like, oh, 493 00:27:12,200 --> 00:27:15,560 Speaker 1: it's really scary how complacent everyone is. That's a sign 494 00:27:15,600 --> 00:27:17,680 Speaker 1: that everything is going to fall apart. I think, I 495 00:27:18,200 --> 00:27:22,360 Speaker 1: think I don't fall into some of the obvious VIX traps, 496 00:27:22,560 --> 00:27:25,080 Speaker 1: but I'm sure I fall into many. Yeah, but it is. 497 00:27:25,359 --> 00:27:27,680 Speaker 1: It's a really good discussion to have because so many 498 00:27:27,720 --> 00:27:30,800 Speaker 1: people point to the VIX and say, oh, you know, 499 00:27:30,960 --> 00:27:33,840 Speaker 1: like markets are complacent because the VIX is at a 500 00:27:33,960 --> 00:27:36,960 Speaker 1: thirty year low, and they never really have the conversation 501 00:27:37,119 --> 00:27:41,439 Speaker 1: about what's happening both within and around the VIX. And 502 00:27:41,640 --> 00:27:45,240 Speaker 1: as Profit was pointing out, a lot has changed over 503 00:27:45,280 --> 00:27:48,199 Speaker 1: the past six or seven years, right, Yeah. I think 504 00:27:48,240 --> 00:27:51,280 Speaker 1: there are two really sort of important things that I 505 00:27:51,320 --> 00:27:54,600 Speaker 1: took away. One is just this idea that well, you know, 506 00:27:55,640 --> 00:28:00,119 Speaker 1: the VIX is low because volatility is low. Volatility is 507 00:28:00,200 --> 00:28:02,679 Speaker 1: low because you know, sort of the general environment. So 508 00:28:02,720 --> 00:28:05,600 Speaker 1: it's not necessarily the VIX per se saying something, but 509 00:28:05,920 --> 00:28:10,560 Speaker 1: it's the overall market. But I love that discussion about 510 00:28:10,280 --> 00:28:13,800 Speaker 1: this that you sort of, you know, asked about the 511 00:28:13,880 --> 00:28:18,040 Speaker 1: structure of volatility markets. Who are the natural buyers who 512 00:28:18,119 --> 00:28:21,119 Speaker 1: are the natural sellers. How have the natural buyers and 513 00:28:21,200 --> 00:28:25,639 Speaker 1: sellers changed with some of these opportunities for vault tourists. 514 00:28:25,840 --> 00:28:29,320 Speaker 1: I think that is sort of a credibly important topic 515 00:28:29,440 --> 00:28:32,960 Speaker 1: that I imagine will we'll be talking about a lot 516 00:28:33,000 --> 00:28:37,400 Speaker 1: in the future. Yeah, but Joe, I do worry about UM. 517 00:28:37,440 --> 00:28:40,480 Speaker 1: I guess the tail wagging the dog here, right, and 518 00:28:40,520 --> 00:28:44,400 Speaker 1: the idea that you do have products, lots of products 519 00:28:44,440 --> 00:28:46,920 Speaker 1: that are now tied to this one index that seemed 520 00:28:46,920 --> 00:28:50,320 Speaker 1: to be affecting it um, either you know, by suppressing 521 00:28:50,360 --> 00:28:53,000 Speaker 1: it or on days when the vix starts moving up 522 00:28:53,040 --> 00:28:56,200 Speaker 1: by UM making it move up faster than it otherwise. 523 00:28:56,240 --> 00:29:00,600 Speaker 1: Would that that worries me a little bit? Maybe I'm 524 00:29:00,640 --> 00:29:03,440 Speaker 1: like fifty fifty on this question. So I think there's 525 00:29:03,480 --> 00:29:06,840 Speaker 1: probably stuff lurking out there in the market that one day, 526 00:29:06,960 --> 00:29:11,680 Speaker 1: you know, we could have more events like August or 527 00:29:12,360 --> 00:29:16,479 Speaker 1: God forbid October, or we have these automatic things in 528 00:29:16,640 --> 00:29:20,840 Speaker 1: place that exacerbate moves rather than curb them. On the 529 00:29:20,880 --> 00:29:24,600 Speaker 1: other hand, I think stuff is quiet because stuff is quiet, 530 00:29:24,640 --> 00:29:27,200 Speaker 1: and we every day we look at the what's going 531 00:29:27,240 --> 00:29:30,840 Speaker 1: on in the SNP, the dow and it's up two 532 00:29:30,840 --> 00:29:33,480 Speaker 1: points are down two points, and so in light of that, 533 00:29:33,640 --> 00:29:36,840 Speaker 1: it feels very intuitive that, uh, we're not seeing any 534 00:29:36,960 --> 00:29:39,960 Speaker 1: sort of signs of life and volatility of markets. But 535 00:29:40,080 --> 00:29:42,920 Speaker 1: there's but your general idea that there could be things 536 00:29:43,040 --> 00:29:46,480 Speaker 1: under the service that if the coil springs, that will 537 00:29:47,320 --> 00:29:50,120 Speaker 1: accelerate the moves rather than curb them, I think is 538 00:29:50,120 --> 00:29:53,320 Speaker 1: a pre legitimate worry. And I think it's worth pointing 539 00:29:53,400 --> 00:29:56,960 Speaker 1: out that, you know, we're recording this podcast several days 540 00:29:57,040 --> 00:30:01,120 Speaker 1: before it, uh it's actually gonna air, So who knows, 541 00:30:01,280 --> 00:30:03,240 Speaker 1: we could be in a complete by the time people 542 00:30:03,240 --> 00:30:05,600 Speaker 1: are listening to this, We could a be in a 543 00:30:05,720 --> 00:30:10,320 Speaker 1: completely different volatility regime. We may have even JINXD this 544 00:30:10,440 --> 00:30:14,440 Speaker 1: low volatility period. So that's your insurance policy, Joe. You 545 00:30:14,440 --> 00:30:18,040 Speaker 1: are literally buying volatility protection on the podcast right now. 546 00:30:18,200 --> 00:30:22,760 Speaker 1: That's exactly right. I have just essentially bought a de facto, 547 00:30:23,640 --> 00:30:27,120 Speaker 1: de facto fixed contract on the option on the podcast 548 00:30:27,440 --> 00:30:33,640 Speaker 1: to guarantee to hedge against this podcast being worthless. Exactly right. Alright, 549 00:30:33,720 --> 00:30:36,880 Speaker 1: that is it for this episode of the Odd Lots Podcast. 550 00:30:36,920 --> 00:30:40,000 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 551 00:30:40,040 --> 00:30:43,640 Speaker 1: Tracy Halloway, and I'm Joe wisntal You could follow me 552 00:30:43,800 --> 00:30:46,640 Speaker 1: on Twitter at the Stalwart, and you should follow our 553 00:30:46,680 --> 00:30:50,720 Speaker 1: fabulous producer, Sarah Patterson at Sarah pat With Two Teas. 554 00:30:51,200 --> 00:31:02,120 Speaker 1: Thanks for listening. Put knowledge to work and grow your 555 00:31:02,160 --> 00:31:05,640 Speaker 1: business with c i T. From transportation to health care 556 00:31:05,720 --> 00:31:09,240 Speaker 1: to manufacturing. C i T offers commercial lending, leasing, and 557 00:31:09,280 --> 00:31:13,240 Speaker 1: treasury management services for small and middle market businesses. Learn 558 00:31:13,280 --> 00:31:15,800 Speaker 1: more at c i T dot com. Put Knowledge to 559 00:31:15,880 --> 00:31:16,160 Speaker 1: Work