Volatility Supply and Demand: When the Reach for Yield Meets Frothy Markets – Live with Kris Sidial

Published on
January 5th, 2021
Duration
54 minutes


Volatility Supply and Demand: When the Reach for Yield Meets Frothy Markets – Live with Kris Sidial

Live ·
Featuring Kris Sidial and Max Wiethe

Published on: January 5th, 2021 • Duration: 54 minutes

Kris Sidial, Co-CIO of The Ambrus Group, joins Real Vision's Max Wiethe to dig deeper into the intricacies of market volatility and the signals most relevant to professional and retail traders alike. Sidial argues that many vol traders gloss over the significance of supply and demand in vol markets and points out that the combination of investors reaching for yield on the short vol side and increased appetite for tail hedging and deep OTM call buying have a huge influence on vol pricing. He also hones in on the signals that traders should look out for, addresses common misconceptions around volatility, and explains how Dodd-Frank and other regulation has shifted the way market makers operate and affected market structure in the process.

Comments

Transcript

  • HM
    Hazvinei M.
    12 January 2021 @ 02:29
    Mad at myself that I missed this interview live. Always enjoy your input Kris and you explanations and openness are top notch. At once you have given a more educated view to what I observe in the market and also clearly tell me that it's mostly above my pay grade. Given you focus on event driven opportunities, and you refer to yourself as a "Quant", I guess it means you couldn't care less about the underlying company fundamentals beyond the contextual event topics, e.g. for earnings you would care about how the more recent revenues may have come through in the environment and what is the market sentiment vs looking at whether their cash flows mean they will be able to grow their dividend in 2 yrs time or be able to meet a note payment in 18mths? Do you then have to develop an information screener as you setup a trade in order to determine if there is a good candidate to trade?
  • AR
    Anik R.
    10 January 2021 @ 18:06
    Kris is a more successful version of me
  • DG
    David G.
    8 January 2021 @ 04:11
    What is the cost for pre-programmed brain transplants?
  • AB
    Andy B.
    8 January 2021 @ 00:28
    Brilliant interview! Is there are any good white paper publicly available explaining the vanna/gamma flows, dealer positioning, volatility market structure in greater detail ??? Hope somebody in the RV community can point me in the right direction.
  • MD
    Matt D.
    6 January 2021 @ 23:29
    Great interview - thanks Kris (and Max). I am curious why chaos theory - in that no hints were given about that in the discussion. Purely interested, understand the proprietary restrictions.
    • KS
      Kris S. | Contributor
      7 January 2021 @ 16:07
      Hey Matt, Thank you for the kind words. Chaos theory is more in line with the way we think about our models and the heuristic inputs that drive them & the market as a whole. It is very similar to standard Bayesian stats but as a practitioner there is no definitive solution to this practice when it comes to markets. We are not modeling out Lorenz attractors for each condition. As the "fractals" or factors in the model change it impacts our probability assumption towards the trade. In areas we believe the fractals are large, this creates a shorter path dependency to the outcome, which in turn is a focus for us because although the probability assumption may not technically change, it means there is an easier path for us to get the outlier event we are focused on. Ex: Imagine a chain with 100 small links, then imagine a chain with only 4 large links. We are firm believers that as this market shifts to passive, the reach for passive and structured products actually takes away from market breadth. Think about how many people's 401ks/ pension funds/ ETF basket/ Mutual fund/ Exotic note, is all tied to the performance of AAPL. The reach for diversification has actually led to a lack of diversification as the strength of market moves is now being driven by about 10 large core names. U.S equities as a whole would tumble if any of the large powerhouse names were to ever have any real single stock issue. Couple the lack of true diversification in with the fact that the main market participants + liquidity providers are all driven by a few large names and you can slowly start to see how these things can lead to excess chaos as investors constantly underestimate the distribution of potential outcomes at extreme events. Hopefully this helps KS
    • MD
      Matt D.
      7 January 2021 @ 18:12
      Hey Kris - thanks, that makes sense. I was thinking it would be tricky to model Lorentz attractors. Conceptually it sounds brilliant. Cheers.
  • PG
    Philippe G.
    7 January 2021 @ 15:52
    Kris S. is a great addition to the RV rotation - need eloquent and clear answers to technical topics like this! Perhaps a follow-up chat between Kris S. and Jason Buck would be useful later this year!
  • ZY
    ZHENG Y.
    7 January 2021 @ 03:46
    Make me want to give up the vix option trade....haha
  • PB
    Peter B.
    7 January 2021 @ 02:32
    Great level of detail.
  • AN
    Anthony N.
    7 January 2021 @ 00:01
    This is brilliant.
  • KW
    Krzysztof W.
    6 January 2021 @ 21:30
    Clearly Kris knows his trade. I wish i could understand it all.