Derivatives Signal Mispriced Risk

Published on
October 27th, 2016
76 minutes

Derivatives Signal Mispriced Risk

The Interview ·
Featuring Michael Green

Published on: October 27th, 2016 • Duration: 76 minutes

Founder of Ice Farm Advisors, Michael Green shares his fascinating big picture view of the markets developed from his history at Bain and Canyon Partners, exploring market volatility and productivity.


  • JR
    Joseph R.
    10 April 2020 @ 00:51
    Mike as always is very though provoking, worth listening to and considering. Around the 10 minute mark (left in video) did he say in 1900 the life expectancy was around 35 years, hence many workers never even made it to their most productive ages of 45-55. This doesn't sound right by a decent margin. I wonder if these numbers include all the children who died very early in life or at birth, which may technically make 35 years accurate, also misleads as those that make it to the workforce age live longer lives.
  • HC
    Himmat C.
    18 May 2019 @ 04:02
    TIL Compustat now redirects to SP Global Market Intelligence... #shitOnlyAPIUsersFindInteresting
  • RP
    Ryan P.
    21 November 2018 @ 03:59
    I’ve probably watched 250 videos here since 2017 both historical and current. Mike this is a top 3 all time video for me and coming from a professional in the space, I learned more about my own investing watching this than I have in the last year. Thanks
  • GB
    Gold B.
    6 May 2018 @ 21:09
    This guy is absolutely superb. Can we have just hours and hours of interviews with Michael Green on all sorts of topics? I would listen to them all several times, and read the transcripts. Also ask him for book recommendations!
  • pd
    peer d.
    25 April 2018 @ 17:17
    This is one of the best interviews I've seen (charter subscriber) on Real Vision (juxtapose it to the recent McNamara interview for content). I don't know how I missed it, being a huge fan of both Mark Green and Grant Williams. The depth, breath, and originality of thinking on both of these guys' part is truly a pleasure to watch and listen to and to learn from. The characteristics of how Mark Green defines option volatility, his views on gold, and cash alone a worth a year subscription.
  • JV
    Jason V.
    30 July 2017 @ 11:14
    Brilliant. Just brilliant. More please.
  • sw
    shaun w.
    4 June 2017 @ 10:46
    I loved the interview. However, I didn't understand one of Mike's points. If you have a volatility stock fund, you are by proxy making everyone else buy high volatility stocks. Can someone please explain why that constitutes selling volatility. I thought when you sell vol, you receive an income and you put yourself in a position to be more adversely impacted when volatility ramps up. If you are a low vol stock fund, and volatility picks up, don't you experience less downside than those you made to buy high vol stocks.
    • MG
      Michael G. | Contributor
      15 June 2017 @ 20:28
      If you buy a low volatility stock fund, you are effectively buying the "market" (proxied by SPX) and selling some of the SPX volatility. The more weighted your portfolio is towards low vol, the more vol you are forcing the rest of the market to buy. (1) This contributes to "cheap volatility" pricing and ultimately you receive less and less for your vol sales and (2) anytime you sell volatility you are establishing a future risk of that volatility rising. In the case of low vol strategies, you are effectively selling deep out of the money puts and IF the market falls far enough, your portfolio will begin to underperform. We saw this in 2008.
  • DX
    Dominus X.
    12 May 2017 @ 05:08
    This dude is brilliant.
  • CY
    C Y.
    25 April 2017 @ 17:34
    Grant William's comments about the timing of the entry into the business are incredibly accurate for myself. I was hired August of 2008 and that first year colors my entire view of what CAN happen both in a good way (rebound even in the face of a terrible economy) or bad way (large losses, panic etc.). It's a lesson that I'll always deeply value.
  • HJ
    Harry J.
    5 March 2017 @ 23:23
    Ok I've watched this interview three times now. It gets better every time. Maybe I'm learning a few things. That's the objective. This session really should be expanded. I'm seriously impressed by G
  • KS
    Kathleen S.
    26 February 2017 @ 01:26
    "People of privilege will always risk their complete destruction rather than surrender any material part of their advantage." This is going to end bad, and it is not if but when, placing bets on trades that payoff when everyone goes bankrupt won't be paid -
  • AL
    Anthony L.
    20 December 2016 @ 23:29
    Amazing! Thank you
  • ss
    shaun s.
    8 December 2016 @ 17:04
    Have watched this 3 times now. Since he doesn't think central banks should be trying to inflate...wondering if he thinks sovereign and individual debt is a big problem. Again just an awesome interview!
  • DS
    David S.
    19 November 2016 @ 19:24
    As mentioned when you buy gold, there is no counterparty risk at the point of sale, but eventually you must find a buyer when you want to sell or trade. When markets are in turmoil that can also be a problem. DLS
  • JH
    Joseph H.
    16 November 2016 @ 20:31
    Superb. Buy vol when it's cheap. Hold some cash, as painful as it may be. Board the passive ocean liner only if you're convinced that you'll see the iceberg first.
  • TW
    Thomas W.
    11 November 2016 @ 05:38
    Excellent interview, among my top 5 surely. Good timing too. Bring him back soon!
  • BS
    Brandon S.
    8 November 2016 @ 17:01
    Just that one interview was worth my yearly subscription. Thanks for providing value and making it affordable for us small guys.
  • O_
    Oscar _.
    6 November 2016 @ 22:28
  • JD
    Jonathan D.
    6 November 2016 @ 16:06
    Why has Buffett got $85Bns cash again? Tough one.
  • KD
    Kevin D.
    2 November 2016 @ 14:49
    Would love to read the Ken Froot research paper re: Manager Choices vs Investor choices. Any chance you can link to it? Quick google/LinkedIn search did not turn anything up
  • js
    jacob s.
    2 November 2016 @ 04:57
    great job
  • DW
    Doug W.
    2 November 2016 @ 02:50
    Really good insights. However, what is up with the comment regarding 4.9% unemployment in the US? That is so far from the truth. I am surprised he quoted that government number to further a thesis.
  • JC
    John C.
    1 November 2016 @ 11:15
    ok...mind blown, feel the need to both comment and watch this again (and brush up on my Excel and quant skills). Who the hell is voting this down?
  • JC
    John C.
    1 November 2016 @ 11:05
    really, really good interview. One of the best but there have been so many. Don't understand the thumbs down this guy is very smart and very experienced no matter if you agree with him on his various points or not
  • db
    don b.
    31 October 2016 @ 21:09
    Smartest Keynesian in the room. Too bad that won't help him.
  • NH
    Neil H.
    31 October 2016 @ 19:57
    very eye opening. his comment about risk parity starting to work after 2000 makes perfect sense. now that everyone has crowded into long bonds I would have liked to hear his analysis of what could go wrong now.
  • VS
    Victor S. | Contributor
    31 October 2016 @ 18:01
    For a very brilliant thinker he 100% missed the point of the problem and the solution ... the solution cannot be paper currency ie cash . It never appreciates as does gold vs paper. Also the worlds problems are the movement to SOCIALISM - SEE VENEZUELA . LIBERTY SOLVES VIRUALLY ALL HIS ISSUES. SEE HONG KONG TILL 1998 ,SINGAPORE AND THE US FROM 1789-1913. I WOULD LOVE TO DEBATE THIS ?
  • CJ
    Cyrus J.
    31 October 2016 @ 17:26
    Awesome interview
  • SD
    Stephen D. | Contributor
    31 October 2016 @ 05:23
    Truly a very good interview. But one aspect that Grant and Mike needed to drill down further on was counterparty risk. One big problem with buying way out of the money puts is that if you get it right and prices collapse the seller may not be able to pay you. I had a ton of puts and CDS on banks in 2008 and was making a technical fortune when Lehman went under. But if the Fed hadn't TARPped the banks would they have paid me? Next time we have a collapse the banks might not get bailed out. Similarly being in 'cash' you have the counterparty risk of the govt. and the central bank (it's a 0% loan to the goct. after all). Gold may be less liquid than 'cash' but is largely free of counterparty risk.
  • RA
    Robert A.
    30 October 2016 @ 23:14
    Just a suberb interview. He gets at the slow growth paridigm from a different, but highly understandable angle. He also nails the active manager's dilemma of taking away one of his/her best tools in the tool box, that is the optioality of cash. His/her "gift" may be knowing WHEN to grab for a larger slice of optioality, but finds that when grabbing for the perfect tool at the perfect time---the investors fly out the door. No wonder the increase in Family Offices.
  • AD
    Anton D.
    30 October 2016 @ 19:36
    Gave this superb interview a fat thumbs up (full disclosure) The only blues is- if this guy had to shut down the ice farm rather sheepishly in 2016 (according to BBerg) and go "work for someone"- what hope is there for the rest of us retail folk?
  • DR
    Daniel R.
    30 October 2016 @ 17:22
    @Raoul - my theory on the thumbs downs - mostly fat fingers (and there will always be a few haters). But yes, this interview should be unthumbsdownable (tm)
  • HS
    Hubert S.
    30 October 2016 @ 17:02
    Great. Only one thing: does this hyper-intelligent guy really buy into official employment numbers in the US at 4,9% as being the real unemployment ? Please, Grant, ask him next time, the sooner, the better
  • LB
    Leo B.
    30 October 2016 @ 16:31
    Superb interview. I hope one day I can reach this level of understanding on how to read the markets.
  • SM
    Sergio M.
    30 October 2016 @ 15:47
    Just to add to William M's point. As someone who is self-educating themselves on finance/markets/investing/economics perhaps it would be a nice option to get some preamble material or resources we can view before watching certain interviews to be able to absorb more of the "intensive" ideas presented by these great financial minds.
  • WM
    Will M.
    30 October 2016 @ 15:23
    Just a thought on the RV voting options. It may be that the 12 or so folks as I write this, who voted this down either fat fingered it and didn't notice or perhaps just didn't understand what Micheal was saying. A third button option might be worthwhile with clarification on how to how the buttons. RVT wants to know if it is bringing subscribers valuable insights together with some tradable ideas. Adding an extra button may be able to differentiate between where viewers appreciate the content but disagree with the views rather than give the impression they didn't care for the presenter or didn't understand the viewpoint. Bottom line for me is that the RVTV subscription is worth far more to me than the current price. You simply can't get all this varied opinion externally without a huge amount of effort. I subscribe to several well know services; this is by far the best for the money.
  • WM
    Will M.
    30 October 2016 @ 15:15
    Superb interview; clearly in my top ten at RVTV. Micheal Green comes across as a highly coherent speaker with strong logical arguments to back up his theories, and as many as commented, as highly intelligent and thoughtful. Now it just so happens I am mostly in gold and cash but I am very concerned about how and where to hold the cash. The bulk of my cash is in money market accounts rather than Treasury Direct say. It would be great if RV could get someone on board who can give guidance on cash holding versus likely counter-party issues going forward. Are bundles of notes the only way to go?!!!
  • EJ
    Edward J.
    30 October 2016 @ 15:08
    One of the best ever on RV - brilliant
  • PU
    Peter U.
    30 October 2016 @ 13:48
    really really good!
  • DS
    David S.
    30 October 2016 @ 01:29
    Grant you are one of my favorites and I agree that this will not end well. I believe however, Switzerland felt forced into negative interest rates because it was costing too much money to defend the Swiss Franc vis-a-vis the Euro. With hindsight what would you have done in Switzerland's situation? What would you have done in Japan where the large corporations seem to always be in power and full employment is part of the political landscape? We need to start each conversations by placing the cause of all these problems on Wall Streets doorstep not blaming central banks for their mistakes. All their mistakes may be helpful in the next crisis. If nothing were done by the central bankers, we might have returned to the days of actual pirates plundering the Caribbean instead of the pirates on Wall Street plundering the world. DLS
  • GG
    Gerald G.
    29 October 2016 @ 19:03
    Wow! The very best thing I've ever seen on RV.
  • RA
    Ricardo A.
    29 October 2016 @ 18:27
    Well spoken gentleman with a wide range pool of knowledge. Bring him back
  • PS
    Patrick S.
    29 October 2016 @ 17:47
    BTW Raoul, there are those who always will not enjoy something that does not fit their book. Vive la difference. Cheers
  • PS
    Patrick S.
    29 October 2016 @ 17:45
    This is the first interview in nearly 3 years of subscribing that I have watched 3 times. MG is brilliant, self deprecating and amusing. Grant, really shows his form by understanding very clearly all of MG's points. ( remember I had to watch thrice) Best one liner......"I know this guy in Phoenix". This interview was worth the price of the subscription. Can you out do MG? Bring it on.
  • WK
    William K.
    29 October 2016 @ 17:43
    One of the best, most comprehensive and thoughtful interviews yet. What a brain. Excellent job RV.
  • EL
    Edward L.
    29 October 2016 @ 17:01
    What does it mean to buy "cheap convexity". How do you do this?"
  • AH
    Andreas H.
    29 October 2016 @ 15:42
    hmmm, Feel, like I did not get it, though. O.k., Cash the best place to be, then gold. Stagnation because of demographic effects (what about gen y?). Policy makers try to push away a stagnation that can not be treated and make it worse. hmmmm...
  • DT
    DAN T.
    29 October 2016 @ 15:35
    Tour de Force
  • TW
    Todd W.
    29 October 2016 @ 15:24
    Excellent work on this interview. Please Sir can I have some more? Well done Grant and RVTV.
  • RS
    Rela S.
    29 October 2016 @ 06:12
    Brilliant. A must interview again.
  • PT
    29 October 2016 @ 05:42
    Agree with Raoul. We are getting regular thumbs down on content that is just impossible not to appreciate. Time to name, shame and yellow card these grinches!! I imagine there is consistent regularity in the population of the thumbs down crowd! Offer refunds to put them out of their misery...
  • JD
    John D.
    29 October 2016 @ 05:03
    Brilliant... Loved his take on Populism...
  • RP
    Raoul P. | Founder
    29 October 2016 @ 00:11
    Id truly love to understamd why the thumbs down on this? Not agreeing with the content is not a reason to not like...
  • VK
    Viresh K.
    29 October 2016 @ 00:09
    One of the best.
  • RP
    Raoul P. | Founder
    29 October 2016 @ 00:03
    Stunning higher order thinking. A benchmark interview.
  • BL
    Bruce L.
    28 October 2016 @ 23:41
    Wonderful interview and stunning intellect.
  • TB
    Tad B.
    28 October 2016 @ 23:17
    Wow… Even with a cold, he's the sharpest tool in the box!
  • EK
    Emil K.
    28 October 2016 @ 22:06
    I have noticed something. The three most esoteric (and philosophical!) interviews I have watched in the last year were with Daniel Want, Jeffrey Snyder and Michael Green. In each case they drew attention to "collateral". As was the case with those other two interviews I'm going to have to watch this interview over and over and over to understand and learn. Thank you Real Vision.
  • CD
    Connor D.
    28 October 2016 @ 18:22
    Great interview! Definitely add him to the repeat list!
  • AG
    Austin G.
    28 October 2016 @ 17:05
    Some complicated things I don't understand, but some simple ones I do. These are not new, but what I think matters is where the money flows and what matters there is what the herd is doing. Moral of the story is to leave the herd early, for when the stampede comes it's too late, you get forced selling, counterparty risk (physical gold shines). So right now cash is the ugly duck, the safe place. While not being in the herd is no guarantee of success...coal anyone?, you don't get trampled. I think all these complicated hedges, derivatives might not work in a real meltdown. Like being on stilts in the herd. I am mostly in cash and it is annoying.
  • ss
    shaun s.
    28 October 2016 @ 16:58
    Since cash is his favorite asset and counterparty risk is a concern; would love to know his preference to hold it. ie Treasury Direct or ? for the retail investor. Awesome interview.
  • HJ
    Harry J.
    28 October 2016 @ 16:29
    A second thought........a conversation Between Grant, Richard Koo, and Mike. That would be facilitating.!!!!!
  • KO
    Kasparas O.
    28 October 2016 @ 16:11
    Again! More! Longer!
  • HW
    Harold W.
    28 October 2016 @ 15:14
    A Wow for sure
  • WE
    William E.
    28 October 2016 @ 15:06
    Honestly, all I can say is WOW!
  • PP
    Phillip P.
    28 October 2016 @ 14:05
    Creating the grreat questions for our investment age. Contrast this with breakfast with Dave 's 2 trillon in unfrastrcture spending. Phillip M.
  • NK
    Nikos K.
    28 October 2016 @ 10:18
    fascinating guy extremely smart
  • A1
    Animal 1.
    28 October 2016 @ 06:04
    Fascinating speaker. Many thanks!
  • PB
    Pieter B.
    28 October 2016 @ 05:05
    Wonderful interview. Thank you for sharing.
  • pm
    preston m.
    28 October 2016 @ 04:46
    I think this guy might be a bonafide genius. I don't say that about very many people.
  • TH
    Timo H.
    28 October 2016 @ 04:23
    The dumbest man alive??? I'm happy to claim that title from him!
  • MM
    MZ M.
    28 October 2016 @ 03:54
    When an expert can discuss and explain financial engineering as easily and matter-of-factly as Mr. Green and Grant just did for us, then we just experienced RVTVs purpose and mission statement in action. I admit i always have to look up "convexity" and then laugh, oh yeah that. Mr. Green if you speak and articulate this clearly when you're not feeling well then we will all be in for a real treat when your having a good day, Thank you very much! - Go Milton!
  • WB
    Wes B.
    28 October 2016 @ 03:45
    Grant, you could have given him another hour! He has to be one of the top interviews on RV. Just fantastic. It's rather humbling to listen to someone who can think about things so clearly.
  • YZ
    Y Z.
    28 October 2016 @ 03:35
    Bring him back in the future
  • HJ
    Harry J.
    28 October 2016 @ 03:25
    Being an old dog, 1970 start date I find this interesting to say the least. Bright minds are fun to watch. Wish I could find a way as a retail investor to make a return on his wisdom!
  • SP
    Steve P.
    28 October 2016 @ 02:26
    An absolutely mesmerizing interview with one of the best all round intellects I have heard. His deep grasp of fundamental macro bought out some very pertinent points that no one has previously mentioned ie age bracket productivity contributions. Along with an immense knowledge of the derivatives world, and displaying a great grasp of market psychology, Michael's interview is a stunning learning curve for us lesser investing mortals - one of RV's best.
  • MV
    Michael V.
    28 October 2016 @ 01:49
    Fantastic interview that I will definitely watch more than once. I can't believe there are ANY thumbs down on this one. For me, this is exactly the kind of content I subscribed to real vision for. I hope they have Michael back on again.
  • JM
    Jason M.
    28 October 2016 @ 01:39
    My head hurts. That was a thick conversation, I love it when I leave with 1000 questions. Will certainly watch again
  • pf
    patric f.
    27 October 2016 @ 23:12
    Top 5 interview ever (regardless of definition) IMO, will watch this many many times, particularly the market structure/positioning parts
  • DS
    David S.
    27 October 2016 @ 21:55
    Great interview. Although I believe that Mr. Green is very bright, I appreciate much more his wisdom based on his market experience and careful reflection. Much of his discussion is above my pay grade, but I am lucky to know his conclusions. I was already in the cash camp, and the lack of counter-party risk in gold is a new idea for me. Thank you Mr. Green and Grant. DLS
  • BG
    Brian G.
    27 October 2016 @ 20:07
    Please bring back MG soon! Where have you all been hiding him?!?
  • WS
    William S.
    27 October 2016 @ 20:02
    Fabulous interview. What an impressive intellect! And simultaneously so articulate. One comment regarding the criticism above in relation to Michael's professed preference for cash at this point in time: my interpretation of his final comment (regarding the Fed putatively increasing its balance sheet by $25 trillion in order to combat the next crisis) is that he was implicitly acknowledging that, in so doing, they would be destroying the USD. Therefore, although cash is his preferred position at present, I perceive that his posture would be fundamentally altered in the context of the Fed effectively blowing up the dollar. In that event, I can only assume his allocation to cash would be transformed into an overwhelming allocation to gold.
  • JD
    Jeffrey D.
    27 October 2016 @ 19:56
    best one yet ... I want to vote for him for President
  • AG
    Alex G.
    27 October 2016 @ 19:31
    Grant looked particuarly interested in this interview to me , and it was a good one
  • SS
    Sam S.
    27 October 2016 @ 19:20
    Grant, he was just about ready to give us a factoid on gold and you changed the direction of the conversation to address gold later in the interview. I have to write you up on this one and report to your superiors-Ha. After listening to this interview I really feel a lot less intelligent. More homework now required on my part. This was incredible.
  • ss
    shaun s.
    27 October 2016 @ 17:46
    That is one brilliant guy. Excellent interview Grant. Fun to be wowed by people I've never heard of.
  • DB
    David B.
    27 October 2016 @ 17:24
    Holy cow. So good!
  • CD
    Chris D.
    27 October 2016 @ 17:20
    "I prefer cash to gold" - obviously depending on timeline. Honestly, who wants to be an unsecured (paper) lender to an insolvent banking cartel like the FED for an extended period of time?
  • JM
    Justin M.
    27 October 2016 @ 17:19
    I agree with the previous commenters. Mike is truly brilliant. You can tell he spends every waking moment consuming data. A follow up interview would be great.
  • SD
    Sebastien D.
    27 October 2016 @ 16:22
    The kind of interview that forces to you stay humble about your own capacities. That's not pleasant, but it's useful... Would like to see him again as Grant mentioned.
  • SS
    Stephen S.
    27 October 2016 @ 15:54
    Wow! That was a great interview.
  • AV
    Alex V.
    27 October 2016 @ 15:12
    Great Interview, loved hearing his framework, please bring him back soon.
  • EL
    Elizabeth L.
    27 October 2016 @ 15:05
    So , so, so much value here. Will listen to again and again. Yes, please bring Michael back again.
  • IH
    Iain H.
    27 October 2016 @ 13:12
    Excellent interview, need to watch again as there is so much to gleam. Well done real vision
  • DT
    Daniel T.
    27 October 2016 @ 12:28
    Amazing interview, thanks guys!
  • jS
    jurgen S.
    27 October 2016 @ 11:41
    Smart guy really interesting, bring him back soon! Loved it!