Taking the Long Road with Volatility

Published on
February 23rd, 2017
56 minutes

Taking the Long Road with Volatility

The Interview ·
Featuring Christopher Cole

Published on: February 23rd, 2017 • Duration: 56 minutes

Chris Cole, Founder and CIO of Artemis Capital Management is one of the pre-eminent managers of volatility and he brings great insight and clarity to volatility as an investment strategy and the benefit of a bias towards convexity in the portfolio. With tail risk compressed and pushed out into the future, Chris questions the wisdom of an industry that is collectively short volatility on a major scale. Filmed on February 10, 2017 in Austin.


  • CW
    C W.
    12 January 2019 @ 15:47
    I first knew of Chris Cole when he was the guest on Macro Voices just before the Feb 2018 volatility spike. I found his interview absolutely riveting and fascinating. Clearly he is a thoughtful thinker on the subject he specialises in, namely volatility, and has a take on it that I would never have thought of (e.g., value investing is implicitly long vol, maximising carry/minimising negative carry while positioning for a parabolic move in vol). It may not help me make $$$ immediately but it enriches my own feeble understanding of the financial market. I am glad to know RV had already tapped his wisdom before that and continued to have him back time and again
  • WP
    William P.
    19 October 2018 @ 00:13
    Bring Chris back!
  • TT
    Travis T.
    26 July 2018 @ 21:14
    Lets get this guy back on, round 2!
  • WM
    Will M.
    5 July 2018 @ 19:06
    Great to listen to this again. Feels like we just keep getting closer to a tail risk. More populism with Italian and Mexican election plus trade wars becoming fully blown as of July 2018. My worries just escalate.....
  • LH
    Lloyd H.
    11 May 2018 @ 11:58
    Totally addicted to RV...
  • IH
    Iain H.
    1 March 2018 @ 21:33
    So good to re-listen to interviews like this.
  • PB
    Pieter B.
    6 February 2018 @ 02:04
    I wonder about his P&L today!
  • V!
    Volatimothy !.
    20 September 2017 @ 03:02
    This is what I have trying to learn about for about a year (I'm new to RV). Couldn't find anything helpful on searches or youtube. Thanks RV.
  • MC
    Mathew C.
    13 September 2017 @ 18:52
    Good to hear political risk mentioned; rarely considered in a systematic way.
  • GG
    Glenn G.
    17 July 2017 @ 00:50
    This was probably the best interview I have watched on RV - and it will be re-watched over and over for sure. Cole is just an amazing concise communicator. A strategy that I have been somewhat successful with so far is an option straddle strategy on VXX about 4-6 months out - buying calls and puts with the same size and at the same strike which allows you to participate in the ongoing "crush" in volatility by gaining on the puts which helps finance the decay in the calls while having exposure to a large spike in volality (through the calls). The trick is knowing when to take off the other side of the trade. The dream is hitting that 10 day streak of 20% increase per day volatility - long the calls!
  • nf
    neil f.
    24 June 2017 @ 17:07
    This was a great interview. My lingering question as an amateur is how might a small investor structure a cost efficient insurance policy to profit off of a sudden rise of volatility? I've read about call option spread trades on the VIX both here in RV and elsewhere. Given the cost of the monthly premium, the reward/risk does not seem favorable enough (20:1) because I am the worst market timer you will ever meet.
  • CY
    C Y.
    29 May 2017 @ 02:26
    This interview was the trigger that got me looking at Chris's prior publications. His writing is unbelievable and he thinks in such different paradigms than the rest of investors.
  • MP
    Michael P.
    30 April 2017 @ 18:13
    Fantastic eye-opening interview and guest. Worth a rewatch and deeper follow-on research. One thing missing from the interview was a discussion of how a retail investor can invest in "long vol". I would love to see a follow-up set of videos discussing practical strategies and actions a retail investor can take and how to "position size" a tail-risk investment relative to one's full investment/savings portfolio. Bravo!
  • ww
    will w.
    20 March 2017 @ 00:53
    @Hughie J, From what I (THINK) I understand, isn't the ETF issuer (also) a counterparty to the investor looking to buy - or more concerning - to sell? When there's a high enough level of either buying or selling of the ETF "shares", that ETF issuer has to arrange either buy or sell enough of that ETF's constituents to balance out the buying or selling demand from end-investors. And being able to buy or sell (enough of) those underlying constituents could (WILL) be a BIG problem when markets get 'turbulent'
  • HJ
    Hughie J.
    9 March 2017 @ 15:24
    Andrew C. he only invests in exchange-traded instruments, so effectively the only counterparty is the clearing house
  • TA
    Thor A.
    7 March 2017 @ 12:08
    Read some people missed the name of the book mentioned about the nuclear bomb near-disaster. It's "Command and Control" by Eric Schlosser. An absolutely stonking read and highly recommended.
  • CI
    Chase I.
    7 March 2017 @ 01:42
    this was awesome. honestly may have changed my mind on re-subscribing off of this alone. thanks.
  • JG
    James G.
    6 March 2017 @ 01:55
    Half way through this interview I went back and read a lot of what Artemis has posted and it just blew my mind. It was like a sunny day after days of rain or snow. Thanks RV for another excellent interview.
  • VK
    Viresh K.
    4 March 2017 @ 20:47
    Ramsey Stark is a genius
  • SC
    Shane C.
    3 March 2017 @ 03:46
    the Lucas example is fantastic....just great... as an RIA and wealth manager explaining complex financial strategies to even high knowledge retail invvestors or even some institutional investors is tough and things like this is worth the world to me...AWESOME
  • JO
    Joseph O.
    2 March 2017 @ 06:56
    As a young thinker and investor, being exposed to great minds conversing like this is invaluable. I tell every profound thinker I meet to get RealVision. This medium is very close to the best educational resource I have encountered (university graduate, for context). Grant, Raoul & team - if you get a chance to read this, know your work is incredibly appreciated!
  • CR
    Chris R.
    2 March 2017 @ 03:42
    Great stuff RV, Cole is great as usual. Look up the chart in the Allegory on page 10 that shows what you think your diversified portfolio is, and what it really represents. That was truly eye-opening for me. I knew some were correlated but not almost EVERYTHING. Anyone know of any retail funds that (successfully) run a long vol \ convexity strategy?
  • AG
    Alexander G.
    28 February 2017 @ 10:31
    I believe d-gamma and d-vol means "delta" gamma and"delta" vol, as in how much gamma and vola changes, so kind of the second derivative
  • TW
    Thomas W.
    28 February 2017 @ 00:24
    would love to read the book which i missed the name of...the one with the b-52 bomber crash in north carolina...sounds like an incredible read...anyone know which book that is???
  • JH
    Jesse H.
    27 February 2017 @ 14:45
    Another excellent interview - this guy is fantastic (as is Grant, of course). Fascinated by the correlation / anti-correlation discussion & data.
  • RA
    Robert A.
    27 February 2017 @ 00:22
    Sorry it took me a little extra time to post this comment after I viewed this one. I was contacting Artemis for information on their available investable products. Another great one Grant. The discussion on the potential for correlation downwards in the price of BOTH equities and long T bonds was chilling to say the least.
  • PS
    PD S.
    26 February 2017 @ 23:04
    great job; i love this guy and his commentary/letters for artemis capital.
  • FC
    Francine C.
    26 February 2017 @ 19:28
    Incredible interview. @Jin - I've been an investor in Artemis for 3 years and I don't think your numbers or understanding of what Cole does is correct. First off, the fund is up 12%+ since 2012 when comparable long volatility and tail risk funds are down -8% and -45%. Your criticism is also missing the entire point on linear vs. convex moves. Cole is very upfront about the fact (in this interview in fact) that he may or may not make money on the first move in volatility to from 12 to 25 (linear), that's what happened in Jan. The fund really starts to do well when vol begins rising above 30, 40, 50 (non-linear moves). The point being it is the big moves (-30% or more) that will kill your portfolio, not the -5% collapses. Cole was up huge after Trump (+7%) and in August-September 2015 (+15%) before giving it back for what it is worth. This is just really hard to understand, if you want something that does well every time the VIX moves up a point --- you an buy a put or VXX - but the bleed is uncontrollable.
  • JL
    Jinny L.
    26 February 2017 @ 17:39
    Smart guy. Artemis vega fund total returns from Jan 2012-July 2016 is about 2.6% and compounded annual returns since inception is ~0.56%. Considering it's a vol fund those are actually ok but what I don't understand is why they had negative returns in dec 2016 - feb 2016 when vol was elevated and markets moved quite a bit. Not a black swan by any stretch but shouldn't this type of fund do extremely well in those times?
  • HJ
    Harry J.
    26 February 2017 @ 16:30
    Thank you Grant. Didn't think you could do it but you've raised the bar again. I a fan.
  • JH
    Joe H.
    26 February 2017 @ 15:31
    To quote Bobby Jones "He plays a game with which I am not familiar"....but I am interested in learning and reading his work. This is why RV is so great and invaluable.
  • as
    andrew s.
    25 February 2017 @ 23:53
    Financial armageddon, collapse of democracy "how would you collect if you'r right"
  • as
    andrew s.
    25 February 2017 @ 23:41
    waiting for the next crisis..something's going to happen been wrong for two years... sure something will happen sometime. i'd rather follow the price untill it changes rather than play the guessing game on timing
  • as
    andrew s.
    25 February 2017 @ 23:41
    waiting for the next crisis..something's going to happen been wrong for two years... sure something will happen sometime. i'd rather follow the price untill it changes rather than play the guessing game on timing
  • DK
    Daniel K.
    25 February 2017 @ 23:08
    I appreciate that RVTV isn't afraid to discuss realistic outcomes that can make people uncomfortable.
  • PS
    Patrick S.
    25 February 2017 @ 21:27
    Given the diverse nature of the subscriber base, its rime for the basic lesson plan. You have one on technical trading. Let's have them in volatility. I think you have already got started on alt currencies. I am sure others will add topics. Keep up the good work
  • pd
    peer d.
    25 February 2017 @ 17:14
    Right on Chris, got two out of the three Gs (gold and guns), now working on my getaway plan.
  • BL
    Bruce L.
    25 February 2017 @ 14:48
    Brilliant. Perfect explanation of the unease I have felt for some time. More please.
  • NK
    Nikos K.
    25 February 2017 @ 10:42
    it was great
  • JP
    Jon P.
    25 February 2017 @ 04:04
    We need an educational video on the greek alphabet.
  • CC
    Colin C.
    25 February 2017 @ 01:00
    Time poor and swamped by the proverbial Phil Spector "wall of sound" of ideas/opinions etc. in a quiet moment its great to be rewarded by investing an hour watching an interview which cuts through, resonates and re-frames your risk world both personally and as an adviser. Got my annual subscription in value in 55 minutes!
  • SB
    Sam B.
    24 February 2017 @ 17:12
    @Jacob L... 30-yr treasury bonds. Long vol, long convexity.
  • JL
    Jacob L.
    24 February 2017 @ 15:58
    I want to avoid the counter party risk dilemma. Ideas on stock or other assets (apart from gold) that have Long Vol characteristics?
  • NY
    Nicolas Y.
    24 February 2017 @ 15:53
  • MA
    Mark A.
    24 February 2017 @ 15:46
    @Realvision. Itd be great to some functionality that allows users to @ each other.
  • MA
    Mark A.
    24 February 2017 @ 15:44
    Great. Clear thinking. Challenging. So glad I watched this.
  • MA
    Mark A.
    24 February 2017 @ 15:44
    Great. Clear thinking. Challenging. So glad I watched this.
  • CC
    Charnes C.
    24 February 2017 @ 15:36
    Would I be correct in the conclusion that Gold and, to some extent, Cash perform with First Order behavior during "normal" times AND perform with Higher Order behavior during "Crisis"? If this is so, then why is Gold & Cash hated so much?
  • MP
    Michael P.
    24 February 2017 @ 14:22
    Great interview and I love the work you guys do. But Grant, I'm consistently astounded by how deeply misunderstood Risk Parity is in your interviews. Risk Parity is not a levered bond portfolio and it is not taking a concentrated bond risk, it is taking equal risk across many economically sensitive bets. If equities and bonds correlate together like in the 70's, their loss gets bouyed if not completely offset by commodities and gold which while they may have lower dollars allocated to them have a higher impact to the portfolio (gold was up 800% during that period). I strongly suggest you guys take some time to do a deep dive on Risk Parity and dispel some of the myths that are unfortunately repeated in RealVision. We're up for it as we are prolific writers on the topic www.gestaltu.com and have live Risk Parity mandates for investors www.investresolve.com. Keep up the good work! Mike.
  • vt
    vadim t.
    24 February 2017 @ 14:12
    It's great as well as useless. It goes without saying in the interview , that if you long vol. in the right moment, then BANG, you win! I argue that it's not 2008 and because of many reasons it'd be very difficult close to impossible, to turn it to considerable profit, which could compensate years of waiting and bleeding. It's not for no reason everybody short vol. it's because long vol is almost no tradable and not because it's unprofitable for many years like many people think, it just a different game now, with completely different rules.
  • ns
    niall s.
    24 February 2017 @ 14:09
    Interesting interview but there were many acronyms used which may not be familiar to most viewers for eg. CTA , VAR rebalancing. Left Tail , Right tail etc... how about using subtitles to explain what these mean so we can all follow the conversation . Plus how to you trade skew or implied correlations ?
  • GT
    Graham T.
    24 February 2017 @ 12:31
    just outstanding. not sure I completely understood what he was going on about so I guess I will have to watch it 6 more times.
  • DS
    Dustin S.
    24 February 2017 @ 11:50
    Dave Dredge/Mike Green/Chris Cole round table discussion please
  • DS
    Dustin S.
    24 February 2017 @ 11:47
    @craig a : change in gamma for a given change of volatility; change in vega for a given change in volatility
  • CA
    Craig A.
    24 February 2017 @ 10:28
    Anybody know what d-gamma d-vol is? or d-vega d-vol?
  • JS
    John S.
    24 February 2017 @ 09:57
    So Chris Cole talking to Michael Green......Make it happen RVTV!
  • MS
    Martin S.
    24 February 2017 @ 09:35
    Finally. Have been waiting for this interview ever since I subscribed. Thank you!
  • RB
    Ragnar B.
    24 February 2017 @ 03:10
    This may have been the best interview yet! Thanks Grant!
  • MV
    Michael V.
    24 February 2017 @ 02:53
    I think the vol conversation is a very important one, and the guests RV has had on around this subject are fantastic. I'm happy to see another one here.
  • MS
    Mark S.
    24 February 2017 @ 02:26
    Vol talk long over due. Should have 1/month. Great insight.
  • JS
    John S.
    24 February 2017 @ 01:56
  • FC
    Fractal C.
    24 February 2017 @ 01:25
    Whoa - this was a masterpiece.
  • AC
    Andrew C.
    24 February 2017 @ 01:20
    I would be very interested to learn how Artemis thinks about couterparty risk. Being long vol in a black swan event only makes sense if you actually collect your receivable.
  • OL
    Otto L.
    23 February 2017 @ 23:24
    This was one of RV's best, thx! A great follow up would be to invite Jim Rickards to explain why Black/Scholes is elegant but doesn't describe markets and why complexity theory and power curves do. H
  • tw
    thomas w.
    23 February 2017 @ 22:59
    great conversation ;-) the moderate correlation to me is missleading since it is not split in positiv and negativ correllation as the highly. => what does it look like if adjusted for that in % terms. ? Thomas
  • CS
    Chris S.
    23 February 2017 @ 22:58
    Thank you so much RV for doing this interview. I have been a huge fan of Chris’s work since reading his Prisoner’s Dilemma piece (just look at their website www.artemiscm.com under „Research“). I’m especially relieved to eventually hear someone talk about volatility who really knows what he is saying. As Chris says, there is a lot of misconception about that concept. I’m getting so tired of people bluntly saying that VIX is too low, which is just a very superficial statement. Because as Chris says, the term structure, the skew, implied correlations, and the premium over realized vol are actually very high. The vol market is very efficient, even if it doesn’t look like it was at the surface. It was a great pleasure listening to Chris, even though most ideas can be found in his papers. But I really enjoyed it and will probably watch it again.
  • TJ
    Todd J.
    23 February 2017 @ 21:32
    Not many people think in these (short vol) terms. Really great to hear unique concepts on financial markets and be introduced to new, unique thinkers. Nicely done RV.
  • GS
    Gordon S.
    23 February 2017 @ 21:28
    Fascinating interview! Have been looking forward to this interview all week as I am a big fan of Artemis Capital's papers. One thing that I have been wondering for the while, is the effects that specific circuit breakers might have on VIX? Is that something seen? As I have come to understand is that these circuit breakers will make it mechanically impossible to have a -20% day, at least for specific markets. Might just be a technical thing, but I'd like to know more about that. In any case, please have him back!
  • MN
    Mark N.
    23 February 2017 @ 20:46
    The link in the transcript doesn't appear to work for me, this one does: https://static1.squarespace.com/static/5581f17ee4b01f59c2b1513a/t/561dc6bfe4b0ee35464228f2/1444791999826/Artemis_Q32015_Volatility-and-Prisoners-Dilemma.pdf
  • MN
    Mark N.
    23 February 2017 @ 20:41
    Fascinating interview. I hope the next time they could delve deeper on what they ended on; how to collect when you are right and extreme tail events occur that bankrupt the institutions behind the vehicles we use to hedge vol in the first place.
  • CB
    CHRIS B.
    23 February 2017 @ 20:33
    fantastic , whats the paper he's written called & where do i get it?
  • AP
    Andrew P.
    23 February 2017 @ 19:33
    Mind blown
  • SB
    Sam B.
    23 February 2017 @ 18:07
    Brilliant guy. His analogies are spot on. Like Grant, I'd also pay to listen to him speak with Michael Green... make it happen RV!
  • AS
    Artur S.
    23 February 2017 @ 17:36
    Great interview, Chris is incredibly smart! It will be great if you could have him for a 2nd time and focus more on the technical side of how he implements his positions.