Market Makers & Coronavirus: The Mechanics of a Market Sell-Off

Published on
March 10th, 2020
Duration
36 minutes


Market Makers & Coronavirus: The Mechanics of a Market Sell-Off

The Expert View ·
Featuring Hari Krishnan

Published on: March 10th, 2020 • Duration: 36 minutes

How do sell-offs actually happen? With the S&P 500 selling off hard and fast, Hari Krishnan, fund manager at Doherty Advisors, breaks down the mechanics of market meltdowns. Krishnan explains the role of different institutional players like market-makers and drills down on the individual components that make up market meltdowns. Filmed on March 3, 2020 in New York.

Comments

Transcript

  • MC
    Melvin C.
    15 March 2020 @ 20:35
    I was "fortunate" to read your book three weeks ago and have avoided 90% of the downside thanks to some good hedges. Only yesterday I discovered RealVision so what a pleasure to come across this video! I'll try to watch the others before markets open tomorrow. Whilst I found your book great, I am finding it quite difficult to decide when to monetise hedges and what to roll them to... I am not a pro, so have limitations! I've stuck to rolling to longer maturities/lower strikes, and have now moved to buying put butterflies at various maturities as I perceived vol to be high. I would love to have feedback on some better active hedge management ideas you might have for me. I think I'll try selling VIX call spreads / buying SPX put spreads, I can see the rationale in that. Great video, looking forward to more Hari! Mel
    • HK
      Hari K. | Contributor
      16 March 2020 @ 17:31
      Hey Mel, send me a message via LinkedIn and I will try to help as time permits. Be well sir!
  • FM
    Fraser M.
    15 March 2020 @ 08:02
    Who can resist the temptation to correct an MIT mathematician? The square root of 252 is closer to 16 not 14. Great interview !
    • HK
      Hari K. | Contributor
      15 March 2020 @ 18:05
      Wups, not the first and definitely not the last mistake I'll make! Take care
    • HK
      Hari K. | Contributor
      16 March 2020 @ 17:30
      One other point ... Not an MIT PhD I fear ... Brown Applied Math PhD (chaos theory) many moons ago
  • MC
    Mario C.
    16 March 2020 @ 06:38
    Hari is great to listen to. Here he is speaking about a subject I think I know some things about. But I always learn something valuable and often impactful/actionable from his point of view: here his take on vol spread implied vs realized and relating it to Market Makers positioning and market action is interesting. Watching his interview on March 16, after the week of March 9-13 crazy realized: his trade idea would not have worked at all, as VIX continued to climb up but spot kept on whipsawing... . Still it was a rational idea. Worth to look at it again
    • HK
      Hari K. | Contributor
      16 March 2020 @ 17:29
      Yep, short VIX call spread, long S&P put spread would not have worked in this cycle, in appropriate sizing. Thesis still seems a good one, though not able of course to recommend specific trades. V good observation!
  • MC
    Mario C.
    16 March 2020 @ 06:17
    Large market maker names. Hari held off providing names. Can RV community help? Chicago one: Citadel NY ones: Susquehana,... whatelse?
  • PP
    Paul P.
    13 March 2020 @ 18:50
    Hari is smartest and funniest kid in the class. I cant say enough about how he speaks. More importantly, takes very complicated and technical market structure and ideas and layers in simple but complex mathematics and physics concepts into everyday language. I am telling you, That is easy to do. That is a deep understanding of the ALL the subjects. It is a gift. Hari has it. Simple said, I could listen to Hari talk all the time. I hope he does more. He is really got a great sense of humor too. Seriously in his previously segment, "Scaremongering, its my brand, its what I do". That is brilliant and funny. Great work Hari. It is such a joy. I hope you do more. Real Vision and it subscribers are LUCKY, you take the time to share your thoughts.
    • PP
      Paul P.
      14 March 2020 @ 01:56
      That is NOT easy to do.
  • LF
    Luiz F.
    12 March 2020 @ 13:54
    Mr Hari, congrats on your work both as a fund manager as well as with your book. When can we expect your second work? The put ratios discussed on Second Leg Down provided us with a considerable relief to think after the recent (and ongoing) sell-off. Of course, I had to justify the structure on our books for about 6 months, but now the desk is thankful. Luiz
    • HK
      Hari K. | Contributor
      12 March 2020 @ 14:13
      That is the best endorsement you could have given, Thanks!
  • AG
    Audrey G.
    12 March 2020 @ 09:16
    Thanks Hari! This is really good. Is there any indicators you can suggest to watch for potential exhaustion of these technical selling by market makers?
  • NR
    Nic R.
    12 March 2020 @ 02:47
    Hari, I really enjoy your videos. The subjects you discuss are areas of interest for me. Those subjects are usually difficult to find meaningful information on too. I hope we continue to see you and have access to your perspective. Regards, Nic
  • WR
    William R.
    11 March 2020 @ 02:27
    I was hoping for follow-up on HYG after your interview last summer. Especially since it's made a large move in the previous 2 weeks.
    • HK
      Hari K. | Contributor
      11 March 2020 @ 21:23
      Let me give this some thought, thanks!
  • SS
    Shanthi S.
    11 March 2020 @ 03:02
    That was an education. Thank you! Fantastic.
    • HK
      Hari K. | Contributor
      11 March 2020 @ 21:22
      Thank you!
  • JP
    Jettana P.
    11 March 2020 @ 03:49
    This was incredible; no holding back in terms of technicality, no dumbing down, highly informative. From what I gather, there are 2 components in play: whether vol will contract or stay bid, and where the market is heading. Both may or may not be connected. Hari’s strategy of short call, short vol is banking on a slow grind down instead of sharp selloffs. Let’s see how it plays out.
    • JP
      Jettana P.
      11 March 2020 @ 03:50
      *correction: short vol, long s&p puts
    • HK
      Hari K. | Contributor
      11 March 2020 @ 21:21
      Thanks for the message and sharp observations Jettana! Not discounting the probability of sharp sell offs, simply saying that implied would require many more days in the +/- 3.5% range to be fairly priced. More likely that the market trades down at a shallower rate than this. However, always buy the upside call to protect and recall that I am not giving any specific trade advice!
    • HK
      Hari K. | Contributor
      11 March 2020 @ 21:22
      The extreme upside VIX call, that is, if you want to punt vol on the short side!!!
  • JB
    Jon B.
    10 March 2020 @ 13:09
    Fantastic insight again understanding the mechanics of the institutions. seems counter intuitive - hedging actually increases the volatility and the downside risk. Is hedging broken? or pain just for the counter-party who is "less hedged"?
    • HK
      Hari K. | Contributor
      10 March 2020 @ 13:28
      https://squeezemetrics.com/download/white_paper.pdf is an excellent start
    • Av
      Arthur v.
      11 March 2020 @ 20:52
      https://squeezemetrics.com/monitor/download/pdf/short_is_long.pdf? is the updated link.
  • js
    john s.
    10 March 2020 @ 11:55
    after the fact its easy to find causes, I want good predictions
    • HK
      Hari K. | Contributor
      10 March 2020 @ 13:31
      agreed, but not easy! my basic idea is that, in modern "zombified" markets, calm regimes tend to be longer than usual. we can never say when an external shock is coming, but we can look at positioning and credit and say something about when the market is VULNERABLE to a shock. that's the best i can offer, at least. be well
    • js
      john s.
      10 March 2020 @ 14:58
      thanks hari
    • JN
      Jason N.
      11 March 2020 @ 05:07
      John - I've been with RVTV from day one and over the years, many people have said in the era of compressed volatility, one should always expect a surge magnitude of several standard deviations, akin to a violent uncompressed spring. This alone armed me with the knowledge to protect and hedge my accounts.
  • SS
    Simeon S.
    10 March 2020 @ 21:54
    If your timing is good you don’t need over engineering
    • HK
      Hari K. | Contributor
      11 March 2020 @ 01:09
      Correct Simeon. Still, important to know the drivers of a sell off & who may have to hit the SELL button at certain levels. Thanks
  • AA
    Alberto A.
    10 March 2020 @ 23:14
    Great stuff. It's so important to understand market mechanics so as to not having to ask "what are investors thinking?" all the time that other factors are at the wheel more predominantly. That way, you know what to look at for inflection points.
    • HK
      Hari K. | Contributor
      10 March 2020 @ 23:47
      Well said :-)
  • HS
    Hubert S.
    10 March 2020 @ 16:41
    Again Hari, thanks for your level of thought and clarity of language
  • JC
    Jack C.
    10 March 2020 @ 09:59
    Fantastic look into volatility market. Would love to see Mike Green interview Hari. Two specialists in this esoteric space!
    • AA
      Al A.
      10 March 2020 @ 10:56
      Had to lookup...hope it helps others: Exogenous comes from the Greek Exo, meaning “outside” and gignomai, meaning “to produce.” In contrast, an endogenous variable is one that is influenced by other factors in the system.  :)
    • HK
      Hari K. | Contributor
      10 March 2020 @ 13:36
      yep, endogeneity and exogeneity are a bit pretentious. however, i just borrowed from a nice paper written by Haldane at the Bank of England. the idea is that external shocks can lead to major selling if the financial network is fragile: breakdown in short-term financing (e.g. repo) markets, overstretched positioning, everyone owning the same thing (e.g. caused by passive products)
  • SP
    Stephane P.
    10 March 2020 @ 12:03
    Could it be possible to release the videos earlier ???