Meet the Long Vol Kingmaker

Published on
July 9th, 2020
Duration
61 minutes

How Will China Emerge From the COVID-19 Crisis?


Meet the Long Vol Kingmaker

The Interview ·
Featuring Jason Buck and Hari Krishnan

Published on: July 9th, 2020 • Duration: 61 minutes

You don't hear "diversification" and "long volatility" often in the same sentence. Yet, their pairing is exactly what Jason Buck, CIO of Mutiny Fund, advocates as essential for all investors seeking to add long volatility exposure to their portfolios. Alongside Hari Krishnan, fund manager at Doherty Advisors, Buck advocates for an "ensemble" approach to anti-fragility. Buck and Krishnan rigorously examine the benefits of different long vol strategies, such as options, shorting indices, and relative value trades on the VIX. Krishnan explains his quantitative framework for evaluating options, and gives in-depth option trading insights based on their tenor and "moneyness." Buck and Krishnan discuss how a diversified approach to long volatility can heighten the benefits of long vol exposure, especially during "Minsky Moments" such as coronavirus pandemic markets have been experiencing since earlier this year. Filmed on July 7, 2020.

Comments

Transcript

  • KD
    Kurt D.
    9 August 2020 @ 23:07
    Read Hari's book "2nd Leg Down" and have implemented some of his long vol techniques. I've referred the book to some smart friends. I loved Jason's interview here and some of the more recent one's he's done on RV w/ Chris Cole, etc. Took lots of notes and am going to experiment with some of these structures. Bravo!
  • DG
    DOUGLAS G.
    23 July 2020 @ 18:27
    Excellent interview - I'd like to see more on the mechanics of implementing long vol strategies for the retail investor. Mechanics, how to determine best prices, how to best access the various instruments, etc. Thanks
    • JB
      Jason B. | Contributor
      26 July 2020 @ 21:42
      Thanks Douglas, we are currently shooting a series on volatility that takes a deeper dive.
  • RM
    Ryan M.
    16 July 2020 @ 21:32
    Fantastic interview. Thank you gentlemen
  • TE
    Thomas E.
    14 July 2020 @ 18:59
    @ Jason B - Risk Parity is short vol? Even with long duration treasuries and gold in the asset mix? I agree not "long vol" portfolio but surely better (more diversified) than a 60/40 portfolio. Also have you heard of the "Dragon Portfolio" that Chris Cole has talked about and wrote a report on? Any opinion on it? Basically Risk Parity with heavier weight to gold and a 20% allocation to long vol strategies. Curious for your insight(s).
    • JB
      Jason B. | Contributor
      14 July 2020 @ 21:11
      Later in the video I talk about Permanent Portfolio and Dragon Portfolio, I’m a big fan of both! Any rebalancing strategy by definition is short vol, that doesn’t mean it’s not a great diversified portfolio
    • TE
      Thomas E.
      15 July 2020 @ 21:10
      Any thoughts on Buffer ETFs? Main issue as you know is for retail investors to get exposure to long volatility other than buying VXX or VIXM. There's TAIL as well but very limited options.
    • JB
      Jason B. | Contributor
      15 July 2020 @ 21:21
      That’s why we built Mutiny Fund, specifically for retail investors to achieve access to the space
  • KR
    Kevin R.
    14 July 2020 @ 02:50
    if you cover your growth stocks with short stocks - don't they cancel each other out, and so your net is zero?
    • JB
      Jason B. | Contributor
      14 July 2020 @ 11:19
      We don’t short stocks, we prefer convex, asymmetrical instruments to hedge against linear long stock positions. Even in a traditional long/short you would still have dispersion and would likely never be 1:1
  • DD
    Dmitry D.
    13 July 2020 @ 14:43
    Excellent interview! Thanks to Hari and Jason for making this happen. This (network effect) is what makes Realvision so great!
    • JB
      Jason B. | Contributor
      13 July 2020 @ 16:10
      Thanks Dmitry, as an RV subscriber, I concur on the network effects
  • CH
    Charlie H.
    12 July 2020 @ 17:30
    Loved this interview. Over the years I've been enamored with the VIX space and have been alwasy for ways to utilize the long vol tools effectively. Discovering like minds in Jason, Hari, Chris Cole, etc. mainly on RV really excites me. The last real frontier of active management like Jason mentions in the video.
    • JB
      Jason B. | Contributor
      12 July 2020 @ 17:32
      Thanks Charlie
  • TS
    Theodoros S.
    12 July 2020 @ 16:11
    Very interesting however he doesn't say anything about the fees! of those trades that destroy value and the strategies!
    • CH
      Charlie H.
      12 July 2020 @ 17:27
      They do mention negative vs positive carry. Fees add into the neg. carry portion. They try to balance that out with positive carry positions to minimize the "fees" or carry costs.
    • JB
      Jason B. | Contributor
      12 July 2020 @ 17:31
      Not true, the strategies do just fine after fees. I understand the no fee zeitgeist, but I care about my net return per unit of drawdown AFTER fees of a holistic portfolio.
  • AD
    Andrew D.
    12 July 2020 @ 05:48
    Two very intelligent minds, loved the talk. Very interesting interview about managing tail risks, seems like making bets on VIX when predicted volatility is on the horizon (aka sept/oct this year perhaps). Seems quite similar to how Taleb would approach things, adding PUT options as an insurance policy. What I would've liked to learn more about, given, a lot of the talk in some advanced hedge-fund language that my retail-investor brain doesn't quite grasp yet, is which instruments are best to look at coming from a retail-investor perspective? I know for example with futures contracts that losses can be potentially infinite, and throw you into debt with the broker, so that is something that I would like to stay away from personally from a risk-perspective. Are there any favoured instruments for going long-vol or adding hedges to portfolios that simple retail investors can do either via ETFs or CFDs ? Preferably with limited downside risk like futures contracts. ++ Would you recommend sticking with simple options and buying PUTS on the VIX and/or calls on the S&P when sensing higher negative sentiment across the equity markets? Would it be as simple as longing the VIX when you feel the time is right with 1-2% of your portfolio?
    • JB
      Jason B. | Contributor
      12 July 2020 @ 13:24
      VIX term structure makes longing VIX ETPs difficult (negative roll yield). Options trades look easy to put on, but the managing, rolling, and monetizing are tricky. The problem with ETFs for long vol and tail risk is the structure and regulatory restrictions of the instrument makes it prohibitive for active, complex trades. Some ETFs that are “suitable” are TAIL and IVOL, but will you eat the bleed of TAIL in Risk On years? And IVOL is more of a curve steepener/bond vol trade. WE BUILT MUTINY FUND TO ADDRESS THE NEEDS OF RETAIL INVESTORS
  • MO
    Mason O.
    9 July 2020 @ 15:54
    A good historical view on both Austrian economics, and vol hedging would be the book The Dao of Capital by Mark Spitznagel.
    • JB
      Jason B. | Contributor
      9 July 2020 @ 17:15
      Agree Mason, all of Spitznagel’s work is excellent. I also highly recommend Hari’s book The Second Leg Down
    • AF
      Andre F.
      12 July 2020 @ 05:18
      Whenever I find small interview clips of Spitznagel on YT, I sit there pleased and hypnotized.
  • SG
    Steve G.
    11 July 2020 @ 22:37
    I followed about half of what they were talking about but would definitely recommend this video anyways. Key thing they said for me was that gold and cash is no longer enough to insure your portfolio because of all the derivatives these days...so now you need vol to properly hedge.
  • LG
    Lucas G.
    11 July 2020 @ 21:04
    Subtitles are wrong. Great interview
  • MK
    Magnus K.
    11 July 2020 @ 16:49
    The text does not match the webcast. It’s for Daniel LaCalle...
  • TW
    Tom W.
    11 July 2020 @ 15:58
    I may be on the fringe or in the majority that thinks these very intelligent folks are talking to themselves in a language of their own, Interviews by Ed, and now especially Max, bring it back to us lowlifes.
  • RA
    Robert A.
    11 July 2020 @ 03:27
    Napa proper or Oakville or Rutherford or St Helena....Lunch on me @ your pick, Don G, BJ, Mus, RG or Cook. I’ve been with RV almost since inception and through RV was introduced to Chris Cole’s Artemis Vega fund several years ago which has helped to “balance” my portfolio. Hari was very kind to introduce us to your work and I found the Harry Browne references supplemented by Chris and your refinement to be timeless and noteworthy. Thanks again to both you and Hari for “dumbing down” what shall be, IMO, one of the cornerstones of future portfolio construct. Great curation by RV, nice intro by Ash and fantastic back and forth between you and Hari.
    • JB
      Jason B. | Contributor
      11 July 2020 @ 12:17
      Hey Robert, I live in St. Helena. Will have to get together after everything settles down, it’s not often you meet a fellow long vol fan in the wild!
  • KM
    Karan M.
    11 July 2020 @ 11:33
    Great accompaniment to your mutiny podcast which I've had to listen to a few times to get my head around this concept. Thanks Jason and Hari, this was great
    • JB
      Jason B. | Contributor
      11 July 2020 @ 12:15
      Thanks Karan, and thanks for listening to our podcast
  • MT
    Mark T.
    9 July 2020 @ 20:42
    Seems like gambling to me. More like sports gambling than say, craps, but gambling none the less.
    • JB
      Jason B. | Contributor
      9 July 2020 @ 21:01
      I may need you to define things that are not probabilistic bets?
    • MH
      Michael H.
      9 July 2020 @ 22:58
      It's a hybrid of insurance, gambling, and investing. aka "finance".
    • RA
      Robert A.
      11 July 2020 @ 04:03
      It’s really just a hedge or insurance and although I know we aren't supposed to take the blackjack “21” insurance, in late Feb last it came in real handy.
  • WB
    William B.
    11 July 2020 @ 00:00
    Great discussion.. I loved the Camus ref at the end..I read Camus in the 7th grade, required reading in my French class. First intro to philosophy..
    • JB
      Jason B. | Contributor
      11 July 2020 @ 00:10
      It’s interesting how Camus is the epitome of “simplicity is the ultimate sophistication” if a 7th grader (granted French) can get something out of him and then PHDs can go thru the entire compendium of philosophical schools, then come back full circle and realize Camus was right all along and everyone else is just committing philosophical suicide for solipsistic mental masturbation!
    • RA
      Robert A.
      11 July 2020 @ 03:48
      Occam’s Razor
  • PP
    Paul P.
    10 July 2020 @ 23:16
    Must watch. 2 very sharp guys. Thank you for taking the time. Excellent insight.
    • JB
      Jason B. | Contributor
      11 July 2020 @ 00:10
      Thanks Paul for taking the time to watch
  • DS
    David S.
    10 July 2020 @ 18:43
    In a RVTV interview of Mr. Steve Diggle there was a lengthy discussion on counterparty risk in the 2008 market meltdown. Firms simply refused to pay for years until legally forced if they were still solvent. In the comment section of another interview, Mr. Diggle said that new covenants make it even more difficult to collect now in a major market meltdown. You understand your risks in cash settlements. I do not. Getting paid in a Minsky Moment, or any other moment, is a red flag for me. Thanks again for a great discussion especially the comments on statistical correlations. Best of luck. DLS
    • JB
      Jason B. | Contributor
      10 July 2020 @ 18:53
      Diggle is referring to OTC trades with banks, we avoid this via the daily cash settled futures markets. As Cohodes has referenced we also don’t short equities because banks can pull your borrow and government can ban short selling. I’m curious why you think making money in a crash is a “red flag”?
    • DS
      David S.
      10 July 2020 @ 20:39
      Great replay. You answered my question well. I agree a lot of money can be made in a crash. My red flag was just getting paid for betting correctly. I feel better after your answer. I am old and run the world's smallest family office, my savings. If I do not lose money, I hope to be fine until 95. I love interviews like yours on Real Vision so I can better understand changing perspectives in the world of finance. Financial asset values are always the result of monetary flows. In my day, the money flows were filtered through a net present value model. Now vast amounts of cash and leverage disregard my old North Star. It is the world as it is. Trying to hedge a portfolio is infinitely more difficult now. Understand parts of the current financial world from afar makes rolling my rock up the hill more pleasurable. DLS
  • PS
    Patrick S.
    9 July 2020 @ 18:59
    Hari, with the Fed back stopping corporate and junk debt, do you have a refined (or jaded) view of credit ETFs like you did last year when you thought there would be a liquidity problem?
    • HK
      Hari K. | Contributor
      10 July 2020 @ 20:00
      Hi Patrick, I need to think about this a bit more, but let me get back to you ... Good question indeed.
  • RG
    Ronald G.
    10 July 2020 @ 19:37
    How do we get in touch with Hari regarding his second book and more conversation about current applications of "2nd leg down option strategies. Ron
    • HK
      Hari K. | Contributor
      10 July 2020 @ 19:59
      Hey Ron, look up Hari P Krishnan via LinkedIn. I usually reply to messages there. If you don't use that self-promotion device :-), the editors should be able to help. Thanks!
  • PE
    Paul E.
    10 July 2020 @ 17:41
    This was a great conversation! I have to confess there were several times I couldn't keep up and had to pause and rewind. Good stuff, thanks!
    • JB
      Jason B. | Contributor
      10 July 2020 @ 18:19
      Thanks Paul
  • TR
    Thomas R.
    10 July 2020 @ 17:44
    Wonderful discussion defining the significance & application of VOL strategies. Enjoyed the entire interview 2X. Thanks RV, HK & JB!
    • JB
      Jason B. | Contributor
      10 July 2020 @ 18:19
      You slogged thru it twice, wow!
  • DT
    David T.
    10 July 2020 @ 11:06
    Couple of charts or diagrams would been much better than hand waivings up and down.
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:11
      Sorry, I flail my hands when I talk like an Italian. I’m hopeful that the momentum from my arms somehow engages my slow brain
    • DS
      David S.
      10 July 2020 @ 17:35
      David T. - Long ago on a tennis court far away the loser of the championship match explained he lost focus each time a train passed near the court. The champion responded, "What train?" DLS
  • RG
    Rob G.
    10 July 2020 @ 04:55
    Great interview Jason & Hari. I'm a reasonably experienced options trader and I got a lot out of this chat, particularly being long Vol being a structurally negative correlated asset class, not just a statistical neagtive correlation. Brilliant.
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:12
      Thanks Rob, glad you got something out of it
  • DR
    Danilo R.
    9 July 2020 @ 22:45
    Here is my simple analogy. We live in a world where most of our investments are correlated and mean reversion. ETFs and other products allow us to do short term volatility like buying stuff at HD for a DIY project. The new sexy in investment, long volatility, is so complicated, you can’t do it yourself, you need to hire a team of experts hopefully with different time horizons. That may not be changing any time soon because of the complexity of integrating complex systems is exponential in possibility of outcomes.
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:09
      DIY ETFs have hidden risks, I wish it weren’t so, but everything has trade offs
  • PC
    Peter C.
    10 July 2020 @ 02:43
    Thank you Jason & Hari. This was excellent education+ for me. Helps a retail investor better understand my selling of puts and covered calls and buying iVol (long fixed income vol ETF) & the occasional SPY put. I appreciate when Real Vision educates us.
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:08
      Thanks, we are fans of Nancy Davis as well
  • BE
    Benjamin E.
    10 July 2020 @ 02:53
    Very interesting. But very difficult to understand here in Retailville;
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:07
      If you check out our website my partner, Taylor Pearson, has written several good high level pieces, we also have a podcast
  • MD
    Matt D.
    10 July 2020 @ 04:39
    Excellent - both Hari and Jason. Thanks. Loved the technical nature and philosophical ending (Jason). Despite the jargon and technical aspect (which many would understand), the overall concepts are understandable and explained well. The FX detours and basis risk are interesting to think about. High quality video, thanks again.
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:06
      Thanks Matt!
  • DS
    David S.
    10 July 2020 @ 04:50
    I really enjoyed the discussion and anyone who likes Albert Camus. I will watch several more times. From my very limited understanding, I see one overarching problem for all portfolios – counterparty risk during and after the Minsky moment. Mitigating counterparty risk in "perfect" long/short hedges will separate two otherwise equal players. Like Camus, I will leave long volatility hedging, the universe and the meaning of life to others. Off to the pub. DLS
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:05
      Thanks David, we purposefully use the cash settled futures and options market to mitigate counter party risks
  • AM
    Alexander M.
    10 July 2020 @ 10:20
    Would love to see Jason have a chat with Mike Green! #underlyingdynamicsgang
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:04
      Mike and I unfortunately agree on many things
  • KN
    Kevin N.
    10 July 2020 @ 13:24
    Fantastic, Jason explains well in understandable terms for a layman such as myself to understand. Hari (the interviewer) also understands the domain well and prompts Jason to simply standard industry terms. One of the best interviews on Real Vision this month.
    • JB
      Jason B. | Contributor
      10 July 2020 @ 15:03
      Thanks Kevin, we tried are best to make it accessible
  • RK
    Robert K.
    10 July 2020 @ 07:42
    Bless you guys.
  • CC
    Christopher C.
    10 July 2020 @ 00:30
    For the life of me I can't understand why this video barely has 100 votes, which usually means fewer views. For my money, this is precisely the content that delivers Real Vision's value. I almost hesitate saying this because it should be the premium content, but I want it to stay at the "Essential" value. Now, I must watch again to achieve > 70% comprehension. Thank you, Hari and Jason!
    • JB
      Jason B. | Contributor
      10 July 2020 @ 01:13
      Thanks Christopher, I’m glad you enjoyed it and found value
  • JK
    Jason K.
    9 July 2020 @ 21:49
    Great video - wisdom from Anchorman and Camus
    • JF
      Jack F. | Real Vision
      9 July 2020 @ 23:54
      Haha indeed! Glad to hear you liked the convo, Jason. I know I certainly did :)
    • JB
      Jason B. | Contributor
      10 July 2020 @ 00:08
      Thanks Jason and Jack, yeah I can never forget Sex Panther Cologne
  • JG
    Jordan G.
    9 July 2020 @ 21:24
    Lovin' the new microphone
  • JG
    Jordan G.
    9 July 2020 @ 21:24
    Lovin' the new microphone
  • JD
    James D.
    9 July 2020 @ 20:24
    Great information! Both parties were perfect for this discussion which is one reason I love Real Vision. I will definitely be watching this a second time. Thank you!
    • JB
      Jason B. | Contributor
      9 July 2020 @ 20:49
      Thanks James!
  • JS
    Jon S.
    9 July 2020 @ 20:04
    Simply, My favorite video on RV.
    • JB
      Jason B. | Contributor
      9 July 2020 @ 20:48
      Thanks Jon, I’m flattered!
  • AC
    Allen C.
    9 July 2020 @ 17:31
    @Jason B Nice to see you on RV bud! Always enjoy your interviews.
    • JB
      Jason B. | Contributor
      9 July 2020 @ 19:58
      Thanks Allen, glad to have you on board the pirate ship!
  • RW
    Richard W.
    9 July 2020 @ 17:56
    Ash, I haven’t heard the interview yet, but your microphone is magnificent!!!
  • IJ
    Ian J.
    9 July 2020 @ 15:54
    These two form a fantastic RV duo...looking forward to more.
    • JB
      Jason B. | Contributor
      9 July 2020 @ 17:14
      Thanks Ian!
  • JK
    Johan K.
    9 July 2020 @ 13:23
    Great observation: "You need the creativity of an active manager to imagine what could go wrong in the markets" - something AI and algorithms cannot do.
  • GC
    George C.
    9 July 2020 @ 11:46
    I find Jason more accessible than most managers who speak on these issues. Yet I'm always left to wonder, what is a retail investor to do? Is Taleb right that we shouldn't be in the market without risk protection? But is it reasonable to think a retail investor can prudently implement an "insurance" regime? And who can be trust to sell us that insurance? Perhaps there are no good answers to these questions.
    • HK
      Hari K. | Contributor
      9 July 2020 @ 12:56
      Jason might be able to help you with that one, as his fund has lower minimums than individual hedge fund strategies. The editors will be able to give contact details on request. Thanks!
    • JE
      J E.
      9 July 2020 @ 13:11
      I’m left with the same thoughts George. While these two do an excellent job explaining what the strategies, I think as they pointed out, it’s difficult bc it takes constant technical maintenance. Obviously, the appeal here is immense especially if neg carry is small, especially in comparison to something like neg yielding bonds! Thanks for the great conversation-
    • JB
      Jason B. | Contributor
      9 July 2020 @ 13:19
      Thanks George, I appreciate that! We built Mutiny Fund exactly because we felt no one was addressing the needs of retail to hedge their savings
  • MC
    Mario C.
    9 July 2020 @ 11:58
    Good content (HK content always ensures interesting videos) More suited for Buy Side / Asset Managers than Retail. Two points were quite puzzling or unclear (or I completely misunderstood them). 1/ VIX near-far month term structure spread example Jason gave the example of how one can sometimes a long vix front month position by selling the far month (I guess he meant the 2nd future) and be in a carry positive position (if I understood his example). Assuming he meant a 1x1 spread, far from sure the position will be positive carry. And in a normal contango market regime, likely the front month negative carry is larger than the back month positive carry: the rational for the trade is far from obvious 2/ Diversity in long vol: Logica case Jason briefly described Logica as long option straddle, and trying to pay back the premium by scalping gamma. Scalping gamma, really? That sounds more like to what market makers do and vol machine trading systems do. Quiet a tough competitive field, and hard to believe it's easy to get back the option premium that way.
    • HK
      Hari K. | Contributor
      9 July 2020 @ 12:55
      Hi Mario, fine questions, as before. I can only address 1. For an idealized, concave VIX term structure, you are right. Long front month, short month n has negative carry at 1:1 ratio. However, there are times when this is not the case. As of this writing, short Oct., long July or Aug. has positive carry. There may be good reasons for the kink in the curve (e.g. election uncertainty), but I would classify it as a net long vol, positive carry trade in principle. Grazie
    • JB
      Jason B. | Contributor
      9 July 2020 @ 13:18
      Mario, good questions: 1. I did not mean 1:1 in that toy example, as you stated one would need to over ratio the back month to mitigate bleed. 2. A good gamma scalper should at least be able to mitigate theta hurdle. Logica is more dynamic in their positioning ratios and use of proxies.
  • PG
    Philippe G.
    9 July 2020 @ 13:12
    Great conversation!
  • SS
    Shanthi S.
    9 July 2020 @ 11:42
    Did a little dance when I saw Hari’s name, and will do the same next time I see Jason’s. :) Thank you both so much. And thank you RV for bringing us such incredible content. Where else can a retail trader hear discussions of this depth and utility?
    • HK
      Hari K. | Contributor
      9 July 2020 @ 12:57
      Shanthi, thank you! Hari
    • JB
      Jason B. | Contributor
      9 July 2020 @ 13:09
      Thanks Shanthi, I’m always excited to hear Hari’s voice as well
  • ph
    patrick h.
    9 July 2020 @ 09:59
    One of the best content I have seen in a while. Please Come back soon
    • HK
      Hari K. | Contributor
      9 July 2020 @ 12:58
      Thanks Patrick!
    • JB
      Jason B. | Contributor
      9 July 2020 @ 13:08
      Thanks Patrick