Don’t Worry, Buy Vol

Published on
September 9th, 2019
49 minutes

Don’t Worry, Buy Vol

The Interview ·
Featuring Wayne Himelsein and Michael Green

Published on: September 9th, 2019 • Duration: 49 minutes

Wayne Himelsein, CIO of Logica, explains to Mike Green of Thiel Macro why he believes that markets are not prepared for a likely “phase shift” from a low volatility world to one where volatility is dramatically more pronounced for an extended period of time. Himelsein has found a way to be long volatility, and has constructed a portfolio with minimal costs of carry during the bull market, but which is designed protect his clients through the next financial crisis. Filmed on August 27, 2019 in Los Angeles.



  • MT
    Mike T.
    21 September 2019 @ 19:41
    I've made a number of comments on this particular video (refer thread below) the very first of which I expressed a negative bias, not because the idea of long vol isn't tempting, it's very tempting, however in practice difficult in the extreme to achieve. Whilst Mr Himelsein and Mike Green are talking an interesting talk, they offer no supporting 'mathematics' whatsoever, nothing of substance was disclosed which left me with the thought "this is a Sales Pitch". I will acknowledge this subject matter has engaged me like no other on RV to the point I've spent the best part of two weeks trying to work out how this could be implemented in practice. Now my ideas from two weeks working on my own with limited computing resources would not even scratch the surface in intellectual terms bearing in mind the assumed resources that Logica could bring to bear, so my ideas of how to actually 'mechanically' trade a long Vol portfolio in a consistent manner will not compare well with Mr Himelsein's, but that said with every one of my own thoughts and theories every time I hit the same brick wall that I believe makes the whole idea, certainly for retail traders, no matter how talented or knowledgeable, impossible to achieve in practice. That brick wall is TRADING COMMISSIONS. In the video, Mr Himelsein appears to suggest himself it's necessary to constantly trade/adjust his long volatility portfolio e.g. adjusting options up, down, rolling out etc. I believe it would be necessary to trade so frequently that commissions incurred would make the whole thing pointless for a retail trader. I use three brokers, and for derivatives do of course always use the one with the lowest commissions i.e. Options: $1 per contract to open, $ zero to close. I believe this is the lowest of any 'retail' broker out there but even at this level, with all of my approaches any theoretical long vol trading profits are wiped out by commissions over time. The only 'cost effective' solution to protect against 'tail risk' is to firstly limit one's size in individual positions within a portfolio and strictly limit how much capital is deployed at any one moment in time.
    • MG
      Michael G. | Contributor
      23 December 2019 @ 23:54
      Mike T, please send a tweet to @profplum99
    • DH
      Dale H.
      2 February 2020 @ 17:14
      I read that Mike Green just joined Wayne at Logica this week, so they must be mutual admirers.
    • EM
      Emma M.
      10 June 2020 @ 02:57
      Check out (use the Real Vision search box) the interviews from Nancy Davis. She started her own fund and discusses the benefits of being long gamma, given the payoff profile, and the strategy her firm employs at length in two RV interviews. As for computational resources, they’re available to the little guy (depending on how you define it) through Amazon Web Services S3 Compute (and other cloud services providers). But, certainly @profplum99 can give you more information (and the best way to go).
  • DD
    Dmitry D.
    2 June 2020 @ 14:44
    Wow, I somehow managed to miss this one at the time and only found it through the subsequent interview. This is great!
    • EM
      Emma M.
      10 June 2020 @ 02:50
      Check out the new one they just posted in the last week or two — it is excellent (as per usual for Mike Green).
  • RA
    Richard A.
    9 September 2019 @ 11:04
    Did anyone else take a pic of the books on the coffee table to try to see the titles lol? My 30 secs of effort didn’t yield good results. I even told my computer to “enhance” but it didn’t listen. Another informative Mike G. Interview!
    • PC
      Phillip C.
      9 September 2019 @ 18:38
      Lol. I've watched several RV videos where I'm trying to read book titles in the background. I couldn't read all the them but I see: "How China Sees the World" "Free Trade Doesn't Work"
    • CN
      Cory N.
      14 May 2020 @ 00:48
      The pink/white/blue one is "The Rise and Fall of the New Deal Order" -- I recognize the spine from my own shelf.
  • LA
    Laurence A.
    21 September 2019 @ 17:38
    useful insights !
  • MS
    Moritz S.
    20 September 2019 @ 20:50
    Wayne is fantastic. An endless resource of trading wisdom.
  • JK
    Jay K.
    19 September 2019 @ 13:38
    If I had to choose between my RV subscription and my Netflix subscription... I'd keep my RV subscription.
  • RG
    Roman G.
    15 September 2019 @ 19:18
    What is more important, trading intuition and experience or mathematical formality? I have a background in chemistry but trading is what I want to obsess about these days? Do I double down on discretionary or do I go back to school to learn the jargon? Thank you!
    • MT
      Mike T.
      17 September 2019 @ 09:32
      maths, maths and more maths, in other words learn the options market, not simply buying options but selling them. Firstly takes about 3 months of everday study to get to the point of understanding the opportunities and power of selling (short premium) options, then another year of all day everyday to learn the strategies and once confident at an academic level pick a nice round BIG number of trades (must be very small positions at first) to complete e.g. 2000 or more (8-10 trades per day inclusive of adjustments) so that you have sufficient number of occurences at the end of say 2 years or more to be confident that your approach is rigorous in mathmatical terms.
  • DS
    David S.
    9 September 2019 @ 12:29
    The world is a little crazy when a hedge fund looses 23% of its portfolio in Argentine bonds. Argentina is a great country, but it is not known for bond stability. Could they have hedged a single exposure like this? If so, what would the approximate cost of the hedge be? Just general information. I am not looking to trade. DLS
    • DS
      David S.
      16 September 2019 @ 19:56
      I guess there are four partners in the hedge fund voting. DLS
  • RT
    Remi T. | Founder
    16 September 2019 @ 13:54
    Quality stuff!
  • RM
    Ryan M.
    12 September 2019 @ 14:30
    Mike Green is the real vision MVP
  • SL
    Scott L.
    11 September 2019 @ 14:55
    I see Mike Green, I watch Mike Green.
    • SL
      Scott L.
      11 September 2019 @ 17:40
    • RM
      Ryan M.
      12 September 2019 @ 13:53
  • MT
    Mike T.
    9 September 2019 @ 15:33
    There is temptation here to think most interesting BUT conspicuous but it's absence is any supporting mathematical/statistical probabilities for me to express a final viewpoint good or bad. Right now I have a negative bias but I'll remain open minded if Mr Himelsein would like to share at least some factual statistics validating the approach. If long vol. were to be shown to have a strong statistical chance of being a viable strategy we could all stop right now with our different approaches, and everyone would jump on board. Without knowing the math behind it this content is not useful at the present moment. Bearing in mind 'volatility' is to all intents and purposes a math equation I think it reasonable to submit a request herewith 'show me the math' please? I would suggest to be useful, we need a takeaway more rigorous than 'very interesting, seems to make sense' so let's jump on board. History, over many years is littered with 1000's of people, newsletters, books saying 'hey when vol. is cheap, buy it' but making this work, consistently over time is really difficult in all but the shortest of time frames e.g. 3-5 days and even then it's no better than 50:50 shot. In the hope that Mr Himelsein will respond, the following are but a few of the questions I hope might be derived from any possible response. * What size of VIX move and how frequent would such moves be required in order to make a long vol. portfolio profitable over time? * What is the statistical/probability % chance of such moves happening? * Long vol. positions will be expensive to implement, have you done any studies of how a portfolio with long vol within, might have performed if the capital to implement long vol had instead been used for more 'traditional' strategies, i.e. I'd like to understand your success rate. * What is the % probability your long vol strategies will produce profits? * Before deciding to implementing long vol. strategies for real, over what time frame did you back test and how many occurrences ( # trades) did you use? What was the average VIX over back tested period? * How often in the last 10 years, did the optimal VIX level produce a good entry point? * What bullish option strategies worked best, e.g. long straddles, long call spreads, short puts? What's the back tested win rate for each one? * How frequent on a yearly basis since 2009 has holding a long vol positions within your portfolio added performance value? How frequent have you seen big wins and how often have you seen big losses, what was the net outcome? Incidentally, in my portfolio I have a predominance of undefined risk, short premium option positions, using the most highly liquid underlying's only. At a portfolio level I always try to maintain portfolio negative deltas (i.e. portfolio is nearly always directionally short) as a near term 'hedge' against a volatility spike. At a simple level I try to hold twice as much positive Portfolio Theta (daily $ decay) as my portfolio negative deltas' i.e. 2:1 ratio. I have rules for how much positive Theta, how much negative Delta and how much total Extrinsic value within my portfolio to hold for different ranges of VIX and different levels of capital available to deploy.
    • DZ
      Dongbin Z.
      9 September 2019 @ 19:39
      long vol doesn't work unless you know you are near a recession. the bleed to time decay is just too much. Mid scyle, Himelsein speaks of "scalping hard". Seems hard to have consistent income. But you can probably do that. We all price scalp to some extent, don't we?
    • DZ
      Dongbin Z.
      9 September 2019 @ 19:44
      Reading your last paragraph, do you mean twice theta to vega? 2:1 theta to delta is crazy high. (For me 2:1 theta to vega is still high. the best i can manage is 1:2) Appreciate it if you could share some of your practice.
    • EN
      Eric N.
      9 September 2019 @ 19:47
      Subscribe to ThinkTank if you want actionable indepth explainations on the inner workings of the algos they program. Your ask is unrealisric for this format, since the RVTV audience has gotten quite big, he would crowd every one of his most promising ideas if it were all laid out.
    • DZ
      Dongbin Z.
      9 September 2019 @ 20:02
      oh nevermind, I tend to think of delta for put as positive instead of negative. now that I looked at my portfolio again, it is fairly delta neutral. I should probably look more into hedging delta and gamma. haha
    • NP
      Nick P.
      10 September 2019 @ 06:19
      Are you his ex-student? "Why worry about the whys when it all collapses to the same result, vol goes up? If you could be long vol, then you don't have to care about why or when? You just stay long vol, and when it happens, you win. It's as simple at that."
    • RH
      Robert H.
      10 September 2019 @ 09:31
      Could care less about long VOL but it'll work until it doesn't. which will probably be when the Subway sandwich makers are talking stock markets. The only math I ever needed for the S&P VIX is the incredibly narrow range in which it moves. Removing 2008 - 2010 (which was a bonus) take a ten year chart, there are nearly guaranteed lows and spikes in a band from 13.00 to 17.00 avg. Who wouldn't have at least a little tucked away for beer money? The turn into 2018 reveals the return of wider price swings since global capital is mixed on where to go. Nothing lasts forever but ten years has been a nice easy standby.
    • MT
      Mike T.
      10 September 2019 @ 16:09
      FAO Tokyo T. when you say 'simple as that' well yes the idea in theory is simple, and appears very tempting, but the actuality to make money or achieve a desired level of porfolio protection is anything but simple and most importantly very expensive to implement. Let me give you a couple of things to consider. One of the most popular volatility products one can turn to is VXX ETN. This ETN, accordingly to the marketing follows /VX (VIX futures). However the reality can be different. For the sake of trying to keep the math simple, but to highlight the principles involved, imagine that VXX holds thirty /VX futures , now those futures will need to be constantly rolled out in time as the contracts expire. Now the principle to get your thinking juices flowing, not the precise reality, is that the management folks running VXX will perhaps each day of the month roll out one contract of the total 30, and the result being they have to sell/close out one cheap future and replace it with something more expensive, this happens most months as typically /VX futures trade in 'contango' 82% of the time, i.e. back month /VX trades more expensive the front month. This effect leads to a drag on the performance VXX most of the time making it a very difficult to make money consistently, consistently being the most important word to consider. Now lets consider another approach. The VIX Cash Index cannot in itself be traded, so If we wanted to express a long bias on the VIX Index itself we would have to turn to VIX options, but there is no 'free lunch' whenever buying options. The folks on the other side of your trade require people to pay a lot of money for something that happens much less frequently than most realise. The furthest out we can go out in time with VIX options is the Feb 19, 2020 cycle, at the time of writing the 22 Call Strike is trading for 2.05. To get to the 22 Strike in this time frame in not enough to be profitable as you've already paid the debit of 2.05 which when added to 22 takes us to 24.05 to achieve break even. The option market, again at the time of writing, calculates passing 24.05 by Feb 19 next year as 10% probability trade. IMHO long vol as a portofolio protection strategy is too expensive for the doomsday scenario, I believe the only real cost effective protection we can use, is to limit size in individual positions and strictly limit the amount of capital deployed at any one moment in time. Over and out, I've taken up much to much forum space on this particular subject.
    • SA
      Stephen A.
      10 September 2019 @ 23:40
      I have tried to make long vol work in 2014-2015 and 2018-2019 during the last 2 economic cyclical slowdowns and I haven't been able to. I had to quit this year after June and July rally got me into a deeper drawdown from which the comeback math no longer works. I think the US government is really keyed on suppressing the VIX because many 401(k) plans and pension funds are now invested in risk parity funds and other volatility driven strategies and they all have one rule - if the VIX or VIX futures go up, go to the sidelines. Then the system gets overloaded with selling leads to market crashes which then leads to loss of wealth effect and so forth. So to prevent that selling, one of the things they do is actively crashing the VIX. Volatility Risk Premium is almost non-existent when we see higher levels of realized volatility. Which pretty much makes a long vol strategy impossible to implement. I am with Mike T on this one.
    • AL
      Andrew L.
      12 September 2019 @ 02:47
      "Show me the math" should be every trader's response to any trade ideas offered. Does not matter what experience or reputation an opinion is being put forward with. It's interesting, but there are a million interesting back stories to all kinds of opinions. Any appeal to reputation, black box technology, insider experience, etc. should be treated as infotainment. For the trade, all that matters is the math.
    • NP
      Nick P.
      12 September 2019 @ 10:54
      Outstanding response Mike T. Sorry for my initial cheeky response. Your explanation below was very much appreciated. Thank you.
  • NR
    Nelson R.
    12 September 2019 @ 01:24
    Congrats to all those involved in the production of this interview. This quality interviewer, this quality guest and this quality discussion is why I subscribe to Real Vision. Don’t stray from this quality goddammit, stay in this path.
  • SD
    Stephen D. | Contributor
    11 September 2019 @ 00:53
    I found this discussion really intriguing. Not only do both guys know an awful lot about trading vol' but I ran a Hedge Fund that was always long vol' between 2002 and 2010 so I have faced the challenges Wayne speaks of. The problem with being long vol is twofold- the biggest problem is the burn, every day nothing bad happens you lose money and that's most of the time. How much loss is acceptable? The second one is, when vol starts to soar, when do you get out? Buying Vix at 10 and selling at 20 is great, but if it goes to 90 you get fired by your investors. Buying at 10, not selling at 20 and seeing it go to 9 also gets you fired. These are extremely hard problems to solve. As others observe Wayne Himelsein solves the burn problem by 'trading', which if he can do it consistently he really is a genius but it's not a route for the average trader, or anyone mortal I suspect. For most of us Long Vol means a budget for loss if the bad things don't happen.
    • DS
      David S.
      11 September 2019 @ 03:14
      Thanks. DLS
  • SA
    Stephen A.
    11 September 2019 @ 00:08
    What was that?!? I have no idea what was said in this video.... This guy claims to be this genius making money out of long vol which nobody else has made work with any consistency in a repeatable fashion. 35% of options expire worthless and 10% are exercised. In other word, long vol is a trade with 65-90% odds of not working out. The timing has to be incredible. Maybe he is that guy that can time these 10-20% of the time when vol is spiking but so what? I am not any smarter for it today. I just know there is a guy that has discovered the Long Vol Golden Goose because "the waves speak to him". Good for him! Too bad the waves don't speak to me :-(
  • VS
    Vasil S.
    10 September 2019 @ 12:23
    I've had capital in two absolute return vol funds for about 12 months now and the return has been -10% or so, despite a few bursts of VIX in the 20's and one brief stint in the 30's. Would be keen to hear how well others' have been able to monetise last 12 months vol but from experience.
    • VS
      Vasil S.
      10 September 2019 @ 12:24
      Full stop after final 'vol'.
    • SA
      Stephen A.
      10 September 2019 @ 23:31
      Both long and short vol funds are getting hurt in this environment because of volatility drag (vol going up and down very quickly in an unpredictable manner). Both benchmarks for long vol (VXX) and short vol (SVXY) have negative returns over the past year and over the past 2 years (since Volmageddon). Volmageddon signaled a regime shift but not to a long vol environment but to a trendless vol environment (mostly because of the Trump X-factor).
  • DS
    David S.
    10 September 2019 @ 07:29
    There is a wealth of information in RVTV library of videos. I just listened to Jerry Haworth's video "Protecting Against Portfolio Disaster." Excellent volatility discussion. DLS
    • MT
      Mike T.
      10 September 2019 @ 14:19
      and what conclusions did you come to?
    • DS
      David S.
      10 September 2019 @ 22:01
      Mike T. - The same conclusion that I came for myself on first listening to Mr. Haworth. Other people will come to much different conclusions based on their own circumstances. I am 73 and have enough money saved to live and travel. I would like to make money on my savings, but it is not necessary. I do not want to learn the option market at this stage of my life. Major hedges are merely short-term treasures and gold. I "play" in the market with funds in my Roth IRA. I am debt free and own my home. A market crash itself will not hurt me. There are, of course, many other disaster that could. Meantime I am enjoying friends in the Swiss Alps. DLS
  • RE
    Richard E. | Contributor
    10 September 2019 @ 15:39
    Well done as always, Mike. You find the most interesting people with whom to have a conversation.
  • CB
    C B.
    9 September 2019 @ 19:02
    If it has Mike Green in it, you know I'm giving that thumbs up!
    • AF
      Alexander F.
      10 September 2019 @ 12:06
      Could't agree more.
  • AJ
    Adam J.
    10 September 2019 @ 11:20
    A fantastic discussion, as ever, however there is no discernible action to be drawn from the video in terms of how one might seek to protect from shifts in the volatility regime. The ‘bleed’ is mentioned at a high level although I suspect this could have been expanded upon without necessarily giving away any intellectual property.
  • PP
    Peter P.
    9 September 2019 @ 18:05
    I couldn't take anything practical from this. All seemed very academic to me, despite him saying he trades this system.
    • DS
      David S.
      10 September 2019 @ 07:31
      Check Jerry Haworth video in RVTV library. DLS
  • ME
    Michael E.
    9 September 2019 @ 09:51
    Mike Green is very smart & knows the market real well. He should let the guest talk more.
    • CO
      Craig O.
      10 September 2019 @ 02:25
      In this one I think I may have learned more listening to M Greene formulate questions than I did from the guests answers to them.
  • VS
    Victor S. | Contributor
    9 September 2019 @ 18:35
    Gents after trading for 53 years -the question is why can you do worse the longer you trade? The answer which was not mentioned is things can materially change. When i started in 1966 the dow went up 4 years and down 5 years from 1966-1974 ... i became a great short trader but from 1982-2000 their was one minor down year. In other words the risk is in govt and technology (the advent of S&P 500 futures in 1982) changing the way markets work.
    • DS
      David S.
      9 September 2019 @ 22:14
      Well said. We are in a different world especially for those of us who weren't even traders. DLS
  • JF
    Joseph F.
    9 September 2019 @ 16:41
    This is another fantastic piece from Mike and my current all-time RV favorite. Thank you!
  • AM
    Alonso M.
    9 September 2019 @ 16:40
    Another great discussion. But the positioning of Mike's coffee cup takes away from the elegance and stability of the white three legged table.
  • JH
    Jesse H.
    9 September 2019 @ 15:29
    This was superb. Thanks, Mike and Wayne.
  • TT
    Trenton T.
    9 September 2019 @ 15:19
    Great interview. I would like a little more color on how the portfolio is constructed to reduce cost of carry. Of course, that is the recipe for the "secret sauce" . . .
  • WB
    Wes B.
    9 September 2019 @ 15:03
    Interesting conversation. I would like to make the point that options lose a lot of their convexity once you start hedging gamma. Especially when vol is really low. At low vols options have more gamma and their delta changes much more rapidly. Once a 20d option goes to 100d and you've hedged all the gamma, if the move continues you get zero add from it. That's typically a situation where you've made good money but you won't realize the full benefit of having protection for a prolonged selloff. I was a market maker trading index options for a long time. This is how we managed long volatility positions. Constantly hedging deltas and trying to not leave too much premium on the table. What got interesting was how and when you chose to hedge the gamma. Some would hedge at levels, some at End of Day, some not at all. In my experience there was no systematic way that worked great overtime. Personally, I always hedged a gap down on the open and hedged the close. In my mind you wanted to hedge gamma when the real flows were hitting the mkt because that was when you could get a reversal. Fun conversation. Thanks
  • RM
    Russell M.
    9 September 2019 @ 14:10
    Mike, always interesting. I wish you would do a video on some examples. What puts do you like; what strikes do you like; what time frame; when do you roll, ... . Put some grit on the theory for us. Bring it home. Maybe that’s a small part of what more you can do. Thanks.
  • DS
    David S.
    9 September 2019 @ 11:17
    Excellent interview. Thanks. DLS
  • PB
    Pieter B.
    9 September 2019 @ 10:08
    I loved this interview! It gives me hope that computers alone (blind systematic) cannot beat the human trader with computer/math models.
  • BA
    Bruce A.
    9 September 2019 @ 10:03
    Does Logica offer any tail risk products for retail investors?
  • KD
    Kaj D.
    9 September 2019 @ 07:28
    Excellent interview thank you. I wondered how that student's career is going?!
  • SS
    Shanthi S.
    9 September 2019 @ 06:32
    This was fantastic. Would love to hear more from Wayne soon, and Michael is always great.