Volatility Madness and the Fed Put

Published on
September 9th, 2020
29 minutes

Volatility Madness and the Fed Put

The Expert View ·
Featuring Matt Rowe

Published on: September 9th, 2020 • Duration: 29 minutes

For weeks leading up to the recent dramatic sell-off, the VIX and other measures of equity volatility like the VXN were rising as the S&P 500 and NASDAQ Composite were humming along higher and higher. To long vol traders like Matt Rowe, CIO of Headwaters Solutions, this was a huge tell that something was looming on the horizon. Rowe explains how he prepares his portfolio for these types of events, why mini volatility events can be much more profitable for long vol traders than the market meltdown we saw in March, and also explains why chasing an expanding vol market can be a fatal error. As well, he gives insight into market positioning going into the event, the chances that this mini event could turn into something much larger, and attempts to answer the ultimate question of, "what is the strike of the Fed put?" should this sell-off continue. Filmed on September 4, 2020.



  • DT
    David T.
    15 September 2020 @ 06:15
    So, now we know what Matt does in his trades. However, very little practical info for the avarage RV subscriber.
  • sS
    sille S.
    14 September 2020 @ 17:07
    Synopsis: BTFD
  • MS
    Matthew S.
    14 September 2020 @ 00:21
    Great chat... would love to hear more regularly from Matt
  • NR
    Nathaniel R.
    13 September 2020 @ 22:07
    Great interview.
  • AG
    Andrew G.
    12 September 2020 @ 22:20
    I expect the Fed put strike is at an S&P500 of <2,000. There's a lot of jawboning before that but it certainly isn't at-the-money strike.
  • SL
    Shawn L.
    11 September 2020 @ 03:14
    Matt do you have a suggested reading list (even if just one book), that I could read to better understand your trading philosophy. As a retail investor I have basic understanding of trading volatility through credit and debit spreads for risk defined trades, but would like to expand my knowledge. Any suggestion would be appreciated.
    • MW
      Max W. | Real Vision
      11 September 2020 @ 22:23
      Hi Shawn. I’ll send Matt an email for you and will post here and email his response to the email associated with your account. No promises but we’ll see what we can do.
  • KD
    Kelley D.
    10 September 2020 @ 11:30
    The GM analogy was the best rational of Fed Put I have heard..thank you so much..
  • RW
    Richard W.
    10 September 2020 @ 11:00
  • AA
    Andrew A.
    9 September 2020 @ 08:55
    Trading vol is very difficult to understand. Does anybody know of any resources that do a good job explaining it?
    • NN
      Ninh N.
      9 September 2020 @ 10:38
      Tony Cooper's paper searchable online is relevant although slightly outdated. The paper is called "Easy Volatility Investing" and takes advantage of Volatility Risk Premium (VRP). VRP in conjunction with the VIX futures term structure AND the VIX futures term structure's directional force will be helpful in trading volatility. Best, N
    • PF
      Patrick F.
      9 September 2020 @ 19:41
      I started with Nassim Talebs books to lay the ground work and develop the right mindset (Fooled By Randomness, The Black Swan, Antifragile) My next step once I got some experience with simple option strategies was to read Hari Krishnan's "The Second Leg Down". I highly recommend this book... probably too basic for vol nerds, but for a simpleton like me it was the perfect mix of technical and practical.
  • RY
    Roy Y.
    9 September 2020 @ 16:06
    As always superb - thank you Matt.
  • AM
    Alonso M.
    9 September 2020 @ 14:42
    Timely comment. Maybe the market is concerned because apparently it's legal and acceptable to improve institutional P&L by implementing a strategy of ramping your longs higher (ideally for month ends) by using weekly OTM call options. Markets? I think we need to start using a different word. I'm definitely not a volatility expert, but this smells and feels like a very significant top for large cap technology. Another run to old highs? Sure why not. Pavlov's dogs will do what Pavlov's dogs tend to do. Personally I think the Fed will want to stay out of the business of jawboning or other extracurricular activities until after the US election. But then who knows what Uncle Sam will do to ramp things higher. Markets? Nope.
  • WM
    W M.
    9 September 2020 @ 13:53
    Always love hearing from Matt. Plain spoken, no BS, just smart, thoughtful perspective.
  • PT
    Philip T.
    9 September 2020 @ 13:17
    Insightful comments on Fed using GM example: Fed can't allow equities to drop too far since it would be destructive to pension funds (and their employees). But, the Fed put level may be lower than market has priced in. It seems as if Fed does not want to be the equity market controller, but will likely be forced into it until after the November election to avoid worse criticism.
  • NN
    Ninh N.
    9 September 2020 @ 10:55
    interesting observation this vix expiration cycle vs the next vix expiration cycle, whereby current level of contango (2nd to front month vix) was stubbornly "high" at roughly +12% AND contangoNext (3rd to 2nd month vix) started at -2% and became more negative at about -8%. Usually this is not the case. So VIX futures are heavily contango'd now, but by 9/16/2020 contangoNext will become contango and on a rate of change basis contango changes from about +12% to -8%. Signaling that we're moving away from a short-vol environment to possibly a long-vol environment. Of course VRP matters as well. A strong rally which Raoul suggests in prior interviews to test recent ATHs will increase actualized volatility and turn shorter-dated VRP metrics to flip negative. Overlay a 'negative VRP' or lack of volatility risk premium with a backdrop of a flat-to-backwardated vix futures term structure and that could indicate a shift to risk-off in equities.