Widespread Self-Reflexive Negative Convexity

Published on
June 26th, 2017
67 minutes

Widespread Self-Reflexive Negative Convexity

The Interview ·
Featuring Christopher Cole

Published on: June 26th, 2017 • Duration: 67 minutes

Chris Cole from Artemis Capital and Michael Green from Thiel Macro, sit in a continuous enthralling back and forth on how the current market has become an ecosystem of self-reflexive short volatility strategies, where convexity is unappealing, risk is transferred onto future consumption generations and how it could mathematically spiral into a self-enhancing extremely volatile market.


  • MM
    Michael M.
    30 January 2019 @ 07:41
    Was this an interview seeking understanding and insight - or did the interviewer want a platform to tell the interviewee how much he 'knew'?
    • MK
      Martin K.
      15 September 2020 @ 03:17
      Its a conversation
  • HH
    HODL H.
    18 December 2018 @ 18:25
    Dont know what happened to sharebuybacks but ~19 min left, buybacks distortion commentary
  • AB
    Ali B.
    30 April 2018 @ 19:40
    Michael Green talk way too much.. its very frustrating to watch him talking more than the person being interviewed. have to keep skipping
    • NS
      Noel S.
      2 October 2018 @ 18:39
  • kk
    karan k.
    12 September 2018 @ 05:10
    can someone explain the concept of self-reflexivity that they mentioned several times throughout this video? despite my best efforts, i can't really grasp it.
    • NS
      Noel S.
      2 October 2018 @ 18:38
      It's just a feedback loop, snowballing.
  • SB
    Stewart B.
    22 July 2018 @ 18:21
    One of the best Real Vision interviews to date.
  • DG
    David G.
    18 February 2018 @ 01:21
    Michael Green is a great interview guest and enjoyed his thoughts, but man, he's a lousy interviewer. If you play back this video you'll find he did 75-80% of the talking, and nearly every time Chris Cole began to extrapolate on a point Michael would interrupt Chris's train of thought and hijack the conversation. Not sure how Chris felt about getting steamrolled but it was sure frustrating to watch.
  • NF
    Nicholas F.
    8 February 2018 @ 21:10
    just re-watched. great stuff! excellent and thoughtful.
  • BC
    Brian C.
    10 July 2017 @ 04:03
    I agree with many others in that green is incredibly smart but he should do a little more listening and less talking and less he's being interviewed
    • SW
      Scott W.
      13 July 2017 @ 14:53
      to that point, it's amusing that the guest said "I didn't mean to interrupt" at the 45' mark
    • CM
      Corey M.
      18 November 2017 @ 00:37
      I think Green is sensitive to the RV audience and feels he knows when additional context is needed. Interviewees might not be as attuned to that.
  • MS
    Matt S.
    25 October 2017 @ 12:11
    What does long convexity mean?
    • cr
      colm r.
      8 November 2017 @ 10:22
      When you are long convexity/gamma on your portfolio your net long/short position increases as the market rallies/falls. Basically the options you own pick up delta at an increasing rate (up to a point). Gamma is a measure of the rate of change in an option's delta. Convexity in this context is positive gamma although it is usually used to describe a non-linear relationship between a bond price and its yield. Gamma in an options portfolio is also non-linear. Large movements in an underlying can result in amplification of a delta exposure. Particularly relevant when you are short gamma/convexity as you then becoming increasingly long in a falling market ....not a nice feeling made even worse when you're short gamma in low vol conditions as implied vol picks up and you get a double whammy rogering :-). Hope this helps.
  • JD
    John D.
    26 June 2017 @ 21:25
    For me this was one of the very best and most useful discussions in the past two years. I have to admit that it's the way I've been feeling as a private investor for four years as I look at cash positions of 60% and wonder why, and yet can't do anything about them. John D.
    • PC
      Peter C.
      5 November 2017 @ 03:38
      So what's the other 40% in?
  • MC
    Miki C.
    3 July 2017 @ 21:15
    Perhaps this should have been billed as a discussion rather than an interview?! Michael Green is clearly a heavyweight thinker and everytime he spoke it was valuable, however I felt there were a few times where Chris didn't get to finish his point. Would be interested to know what sort of trade construction they employ, what sort of negative bleed they are willing to incur when wrong etc
    • MS
      Matt S.
      25 October 2017 @ 14:03
      Michael actually did premise the whole thing at the start by saying, "this is going to devolve into us just talking back and forth..." :)
  • MS
    Matt S.
    25 October 2017 @ 13:42
    Really interesting though.... Chris seems like a nice guy.
  • JV
    Jason V.
    25 October 2017 @ 03:46
    On re-watching this, I must say, this is one of the very best interviews on RV. To listen in on Mike and Chris discussing arguably the central issue in markets today is a rare privilege.
  • BB
    Bob B.
    26 June 2017 @ 12:26
    This was an amazing interview. Very eye opening. The implications and potential outcomes are extremely disturbing. I believe it is more like a crowded summer beach with 15 great white sharks swimming around and the authorities do not tell any one! What are the options for an average investor to trade long convexity?
    • ns
      niall s.
      26 June 2017 @ 14:55
      I also enjoyed that very interesting and informative chat and would love to learn a bit more about how to structure a long vol trade that wont make me go broke in a hurry.
    • IO
      Igor O.
      29 June 2017 @ 20:17
      Review trade ideas section there is long vol trade
    • FS
      Fred S.
      13 July 2017 @ 13:57
      Long 30-day put spreads in the SPX 10% OTM are really cheap at the moment. $1.50 each. Just roll them every 30 days until they pay off. I don't think it will be much longer, but who knows.
  • NF
    Nicholas F.
    7 July 2017 @ 06:22
    Thank you Mr Cole and Mr Green. That was a blast to listen to and really enjoyed watching such a fascinating interaction.
  • NM
    Neil M.
    4 July 2017 @ 21:07
    Brillliant interview
  • RR
    Raghu R.
    26 June 2017 @ 22:46
    If you are considering going long volatility, you might want to consider a futures calendar spread. VIX ETPs are great for harvesting contango, For everyone else, they are a toxic waste. Futures, ETPs and options all loose money unless I am right about timing, direction and magnitude. I need all three to work in my favor. There is no telling how long the low volatility will persist. But the trade wont suffer the daily contango decay and will benefit from any spikes in volatility. On the other hand spread trades are not for home runs.
    • TW
      Thomas W.
      4 July 2017 @ 02:58
      Long prompt futures calendar spreads and rolling is not that different from the 'toxic waste' effect of the ETPs though. The beauty with spreads, I agree, is that you can cherry-pick the timing, like Oct/Dec seems to be popular (seasonality and its sweet spot on the curve in terms of promptness at the moment).
  • VS
    Victor S. | Contributor
    3 July 2017 @ 11:54
    Gents :good recap of what most pros know... the question is (aside from Yellen saying "no crashes in our lifetime") who will the dictator be when depression becomes hyperinflation(see 1789-95 &1921-23) Bottom line is , and all that matters is when does the crash start ,which is impossible to predict ,...but we all know the end game.
  • MD
    Mehul D.
    3 July 2017 @ 11:06
    Great content. However link to barclays paper is from 2014. Is it the right paper as i thought it was a recent one. Pls let us know.
  • MS
    Mark S.
    3 July 2017 @ 03:01
    Great discussion BUT should either provide a trade idea or explain a specific past trade where you went long vol and how you paid for it!. Right now buying max vega on SPY OTM Dec 2019 puts has lowest neg theta with low vol providing you caught is on flattening skew. But how do I pay for it and what other long vega tools are there? thanks
  • TW
    Thomas W.
    3 July 2017 @ 02:55
    Fascinating interviewer and interviewee, just love the two and each appearance gives me new angles how to see the market. More, please! Regarding the topic, however, I find the 'low vol anomaly' discussion, not just in this interview but generally, slightly one-sided. Sure, naked put sellers are beyond reckless, but what about the people they sell to? According to my own observation/data, put OI seems to correlate well with vol suppression and large amounts of puts expiring is associated with downward price pressure of the underlying, raising the question which side of the trade is the keener one. So for the time being, it seems market makers, equity hedgers and prop traders are more than happy to bet the other side and, by actively trading their gamma, contribute to the race to the bottom in implied volatility.
    • TW
      Thomas W.
      3 July 2017 @ 03:00
      ...and race to the bottom in realized vol, too, of course. New European E(x)A and E(x)C Monday and Wednesday expiries in eMini S&P seem to have made matters even worse.
  • RS
    Rajesh S.
    2 July 2017 @ 20:41
    Excellent. More explanations of terms like convexity would have been good. Definitely need to google some of the terms used.
  • PS
    PD S.
    2 July 2017 @ 00:40
    amazing interview as always of chris, he is da man and peter thiel is an excellent interviewer. great job RV team :)
  • js
    j s.
    1 July 2017 @ 23:38
    I absolutely love this interview. Where can I do further reading so that I can fully grok the content? IDEAS PLEASE.
  • EC
    Edward C.
    1 July 2017 @ 06:25
    Needed more of Chris's thoughts. Didn't get to speak enough.....seems an absolute gentlemen. Just read his Volatility and the Allegory of the Prisoner's Dilemma piece. Fascinating.
  • JD
    John D.
    1 July 2017 @ 00:38
    The interview reinforces to me the great advantage that I/ we have as individual investors vs. large institutional fund managers. I/ we can simply choose not to enter the water once we have educated ourselves that there are '15 Great White Sharks in the water'. Patience to wait for the 'all clear' will reduce the risk materially. Cheers John.
  • AH
    Andreas H.
    30 June 2017 @ 19:10
    Love it! Great interview!
  • DW
    Derek W.
    30 June 2017 @ 17:51
    who is interviewing who?
  • CG
    Chuck G.
    27 June 2017 @ 17:19
    last interview with him was much better ... this one was two like-minded guys shooting the shit about vol. no ideas or strategies... if the lesson is "vol is coming back, but we don't know when, and it will be bad", i think we knew that already.....
    • JC
      John C.
      27 June 2017 @ 17:53
      I kinda hear you and agree but I loved it and this just reinforces the fact that when this meltdown comes its going to be utterly catastrophic and you better be in gold or Treasurys because it will be utterly destructive to savings and portfolios. I'd add real estate in non-bubble countries too (EM).
    • IO
      Igor O.
      29 June 2017 @ 19:56
      Long vol, long gold.. if you pay attention may learn something
  • ZP
    Zach P.
    29 June 2017 @ 12:50
    Loved that Chris mentioned his Dennis Rodman paper. I read it awhile ago and enjoyed the comparison Chirs made. Great interview all around!
  • WK
    William K.
    29 June 2017 @ 02:54
    Great interview. It takes a Michael Green to carry an interview with a Christopher Cole. Well done.
  • JB
    Jean-Michel B.
    27 June 2017 @ 20:57
    DMITRI J ask earlier where we could find the Barclays note they were referring to. Nobody replied. Can we at least know the title of the piece so I can find out? tks
    • MG
      Michael G. | Contributor
      28 June 2017 @ 23:21
      Barclays article https://www.scribd.com/document/352484211/Barclays-Special-Report-Market-Neutral-Variance-Swap-VIX-Futures-Strategies
  • JO
    Joseph O.
    28 June 2017 @ 01:17
    there were several follow-up links to articles and videos mentioned in the interview, are these available anywhere??
    • MG
      Michael G. | Contributor
      28 June 2017 @ 23:20
      Barclays article https://www.scribd.com/document/352484211/Barclays-Special-Report-Market-Neutral-Variance-Swap-VIX-Futures-Strategies Inverted triple pendulum analog to short straddle management by algorithm https://www.youtube.com/watch?v=cyN-CRNrb3E
  • GS
    Gordon S.
    27 June 2017 @ 19:16
    Excellent interview! Although I would have liked to hear more from Chris Cole, after rereading the transcript, I did appreciate Michael Green’s input a lot too. I was wondering though, why in general not more is done to address the scaring actions of central banks and governments? Like thinking deeply about new ways to change the system? I did some deep dives on all the CDS fraud in the last financial crisis and when AIG can build a CDS exposure of $2.7 trillion, it’s quite clear that something is deeply wrong with the system. The payout of a CDS is so asymmetric that there just has to be massive counterparty risk, which means that if you are smart enough to invest in such a product as a bet and not as an insurance, you basically know that you either have the government or the central bank as ultimate counterparty on that trade. Same goes with volatility, especially at these levels. In the worst case scenario you have the whole house of cards collapsing the Exter pyramid to just gold. But, although a 100X return or owning gold might be nice, the described level of stress and depression amongst “smart investors” is not necessarily going to drop in that scenario. I vehemently disagree with Chris Cole’s quote: “I always say that you cannot destroy risk”. The easiest counterexample would be in the forest / tinder analogy where you just have to remove the tinder to eliminate the risk. Of course this is much more complicated in practice, but still… While I’m humbled to be able to watch how all of this unfolds more or less in real time on RV, I personally think that pursuing some kind of societal change could be a lot more rewarding than a 100X trade? (And who says you can’t put on both “trades”!) P.S.: Chris Cole mentioning of sovereign CDS widening makes me think of this excellent Zero Hedge article: http://www.zerohedge.com/news/ultimate-all-trade Who still trades these things and under what assumptions?
    • JL
      J L.
      27 June 2017 @ 21:51
      I agree with you it would be more rewarding to work towards a better system but there is only so much you can do as an individual and honestly many people just don't want to hear about your worries... It is insane how people can have the faith that governments will do "something" to solve their own insolvency...
    • IJ
      Ian J.
      28 June 2017 @ 22:36
      @Gordon - What if the forest is 20 million acres?
  • CB
    Christopher B.
    28 June 2017 @ 22:36
    Chris Cole is my hero.
  • FP
    Filip P.
    28 June 2017 @ 21:02
    I think a lot of people would be interested in getting into more technical details regarding portfolio construction and specifics. Ie. how value is uncovered across the term structure, how much margin is utilised, the extent to which systematic strategies are used, etc.
  • SL
    Seth L.
    28 June 2017 @ 20:54
    Awesome interview. Always a pleasure to get a glimpse into the minds of two heavyweights. One often overlooked aspect to the pension crisis is that the prosperity of the current retirees was merely pulled forward and subsequently consumed (ie spent), rather then invested and saved. It is no coincident that economic growth has decelerated as budget deficits (and taxation) has increased ... the seed-corn was eaten.
  • FC
    Fractal C.
    28 June 2017 @ 01:28
    Michael Green is awesome and so is Chris Cole! Awesome discussion, Gentlemen.
  • cd
    chris d.
    27 June 2017 @ 21:24
    very interesting interview but would have been better if shorter and crisper interviewing
  • RR
    Ronin R.
    27 June 2017 @ 20:55
    I wish this host would let his guest speakers actually talk.
  • DC
    Dan C.
    27 June 2017 @ 20:38
    The interviewer spoke more than Chris - and we was the reason I was watching. Cerebral masturbation almost. Sigh
  • FP
    Filip P.
    27 June 2017 @ 20:36
    Anyone know what Michael's & Chris' performance looks like lately?
  • TL
    Tianyun L.
    27 June 2017 @ 19:19
    I guess the question is what happens if we end up looking like Japan in the long run, except people are more likely to hold stocks and property than bonds. Will the low real rates of interests from low demand for capital (inverse of the 50s) create a long stagnation in which asset prices are justified being elevated? Regardless of the volatility picture?
  • RA
    Robert A.
    26 June 2017 @ 20:43
    After watching Jeff's first RV interview I invested in his Artemis Capital Fund. I struggle with how to appropriately size what I consider to be this insurance policy. Too small and the needle won't move enough even if the Vol storm hits and too large and the hand ringing over the drawdowns become an emotional burden. FWIW, personally I believe the sizing is a function of how one has sized their Gold and Cash positions as for me these are the only 3 ways I'm comfortable hedging my Real Estate and Market exposure.
    • DS
      Dustin S.
      27 June 2017 @ 16:47
      out of curiosity, why purchase volatility through a comingled investment vehicle? If you are preparing for the "vol storm" don't you want control over your investment? Also, why link the "hedge" in your portfolio to other investor's portfolio outcomes? As for the sizing question, you should ask the manager for stress test scenarios; the manager should be able to estimate portfolio performance in various market scenarios. Compare this with how you would expect the other parts of your portfolio to perform.
  • KS
    Kathleen S.
    27 June 2017 @ 13:29
    This converstaion reminds me of the part in the movie The Big Short -- where Christian Bale's character is getting reemed for buying the credit default swaps by his investors and they all want out -- losing losing - dragging his investors kicking and screaming with him and then finally the huge 400% payoff at the end. Volatility is coming back, problem is not to go broke while you r waiting for your OTM calls to hit (that is my problem)
    • GS
      Gordon S.
      27 June 2017 @ 16:45
      Or see your counterparty also fail when everything blows up?
  • HS
    Hubert S.
    27 June 2017 @ 14:27
    Vol writing: across the board or in pockets? To anticipate of how vol might increase across different asset classes it might be important to know if vol writing happens across assets classes by the same or different players. F.e. I understand that pension funds write equity vol. But do they also write Fixed Income, Gold and Forex vol - probably not so much? But I now understand that such short vol across asset classes strategies do exist - and that these estimates are probably proprietary but are there any ballpark estimates out ? Or is it like synthetic mortgage CDOs in 2007 where nob outsider could have guessed the right amount?
  • SS
    Sam S.
    27 June 2017 @ 13:30
    Talking about non-recourse loans and mortgage fraud as though this caused the GFC is so bogus and out of line I can't believe it. This is such BS and my decades long involvement in the real estate industry backed up by guys like Trader Vic, stop saying this garbage. The largest percentage of real property owners paid and many still paying their mortgages even though the politicians, banksters, insurance companies screwed up the system that made home ownership worl. Now Mr. Green you blame it on non-recourse loans. Really. Non-recourse laws in place to protect borrowers in a Bi-Lateral agreement called a promissory note and in some states Deed of Trust. Loans are not unilateral to the borrower. Junk comments. Let Mr. Cole speak.
  • RC
    Ronan C.
    27 June 2017 @ 11:15
    Confused. Mike there to interview or blow his own trumpet?
  • JL
    J L.
    27 June 2017 @ 10:35
    The Star Wars paper can be downloaded from Artemis website and is a short masterpiece, I suspect it will wake the interest of a few science buddies who have tended to see finance as dull.
  • HS
    Hubert S.
    27 June 2017 @ 10:15
    ohhh, one typo intentional, the other not so much
  • HS
    Hubert S.
    27 June 2017 @ 10:14
    very interesting. Just one question: where on the Internets can I follow volatilizes on not only stocks but gold, silver, currencies and gov bonds ?
  • JL
    Jun L.
    27 June 2017 @ 09:55
    Mike should interview Chris, not himself
  • VV
    Vanessa V.
    27 June 2017 @ 09:22
    I could have listened to these two brilliant minds for another hour easily. Their experience, insights and wisdom is priceless. I would love to see Chris give a full presentation on his thinking! And Mike is always a highlight for me, whether he is interviewing or being interviewed. Fabulous discussion, thank you!
  • JH
    Jesse H.
    27 June 2017 @ 07:33
    Brilliant discussion between two brilliant minds, but agree with other respondents here that Mike could have asked more questions of Chris during the interview. In any case, very strong discussion all around.
  • PP
    Paul P.
    27 June 2017 @ 05:45
    Simply. One of the best.
  • BS
    Baldev S.
    26 June 2017 @ 13:31
    Should the interviewer be talking this much?
    • JC
      John C.
      26 June 2017 @ 16:18
      I like it bc he's a very smart guy who knows the material as much as the interviewee and is not some press guy who doesn't know what he's talking about
    • VK
      Viresh K.
      26 June 2017 @ 19:27
      The best bit about Mike's interviews are the fact he makes them more into a conversation of great thinkers. Additionally, whenever a complex topic is touched upon he always takes some extra time just to break it down for the average person. Adds a lot of value.
    • RD
      Ryan D.
      27 June 2017 @ 05:10
      Think this was more conversation than interview, plus if its Mike Green it's ok if he talks too much.
  • VK
    Viresh K.
    26 June 2017 @ 12:24
    Such a good conversation. Thanks once again to Mike Green for taking the time to explain some of the concepts! I haven't thought about straddle's for example since my third year of university. Also, Chris Cole reminds me of one Ramsay Bolton. :)
    • TM
      The-First-James M.
      26 June 2017 @ 15:55
      I think at some point, he will certainly be castrating those in the short volatility trade...
    • VK
      Viresh K.
      26 June 2017 @ 19:25
      Haha, most definitely
    • MG
      Morgan G.
      27 June 2017 @ 04:57
      Title of presentation: Widespread Self-Reflexive Negative Convexity... Ooooo talk dirty to me RV!! ;-) Yeah that's my value add to the comment section. Seriously though, the HD of this video is so clean. Great job production team!
  • CY
    C Y.
    27 June 2017 @ 02:24
    Both gentleman are brilliant and I love hearing from them. I would have liked several more pointed question.s
  • JC
    James C.
    27 June 2017 @ 01:08
    One of RV's finest ever videos.
  • JS
    John S.
    26 June 2017 @ 23:44
  • BY
    Brian Y.
    26 June 2017 @ 23:21
    It was an interesting conversation, but I would have liked to hear more from Chris. While I believe the interviewer has a vast amount of knowledge, I feel like he spoke too much and didn't ask very many questions.
  • RR
    Raghu R.
    26 June 2017 @ 21:18
    This conversation feels a lot like something I expect to see at a domestic violence support group. Survivor 1: I did everything he wanted me to. Still he was kicking my ass everyday. Survivor 2: Oh, if you think that is bad, let me tell you my story. They were going in circles talking about their pain without developing an investment thesis. Come on now. Low volatility is not that bad. It is really handy for directional trades without paying too much premium. Linearity makes me nervous.
  • JS
    Joseph S.
    26 June 2017 @ 19:33
    WOW !!!
  • lD
    lance D.
    26 June 2017 @ 19:01
    Pretty cool conversation . Id give anything to eat my own tail heheheheheheh
  • JB
    Jack B.
    26 June 2017 @ 18:54
    The optionality of cash has an underappreciated risk.......a devaluation of the currency.
  • LS
    Leo S.
    26 June 2017 @ 18:29
    Does anyone know what data set Mike is talking about RE retirement plan flows? I found something from ICI but he suggested that he gets the data daily. I was wondering if there was something good that anyone was aware of?
  • HJ
    Harry J.
    26 June 2017 @ 18:18
    Mike green is the best. Love to hear the thoughts of two bright minds at work.
  • RM
    Ron M.
    26 June 2017 @ 18:08
    One of the best video RT has ever produced. Keep this because when it all hits the fan, this will become a classic for generations...
  • RS
    Richard S.
    26 June 2017 @ 17:53
    Great conversation - I as well as many others Im sure wonder how Artemis structures long vol strategies without the "embedded theta" of being long vol being a constant decay factor??
  • TJ
    Terry J.
    26 June 2017 @ 16:36
    I loved Chris' reference to looking at the S&P 500 when proiced in gold, and how the real volaltility shoots up. When the Fed and other CB's finally lose the manipulation battle for gold (that has been going on for at least three decades as anyone who has read Dimtri Speck's The Gold Cartel will realise), we will see the volatility of the S&P 500 and other equity indices go ballisitc! As Chris says gold is a central bank hedge! Gold is the ultimate hedge A good reference website to see how the $, S&P 500 etc is priced in real terms i.e gold is http://pricedingold.com. Fantastic dsicussion on volatility.
  • JC
    John C.
    26 June 2017 @ 16:27
    Man I loved these guys and could watch this stuff all day long but I'm wondering how us laypeople could do some relatively simple things to not only protect our investments but also to counter the short vol crowd. I'm buying VXX while the ViX is under 10 but would love to get further ideas or even just a top of the waves overview of how they put their ideas into a trading format. Thanks.
  • rc
    ryan c.
    26 June 2017 @ 16:09
    Haven't listened to a single second of this interview b/t these two heavy weights, but can safely speculate that this will be one of the top 5 RVTV videos ever produced.
  • LA
    Linda A.
    26 June 2017 @ 16:00
    Very smart & honest conversation. I give much respect to the prudent managers walking away in doing the right thing rather than taking risk with other people's money. Central bankers must be removed to have sound money policies. Their trading rooms and digital printing presses must be destroyed.
  • JL
    J L.
    26 June 2017 @ 15:26
    can't get enough of chris cole, there's something frightening about his calm demeanor that makes me want to put my money on him
  • DJ
    D J.
    26 June 2017 @ 13:44
    By the way, love the interview and really enjoy Mike Green's style
  • DJ
    D J.
    26 June 2017 @ 13:43
    what is a good place to get a copy of the barclay's note that Mike an Chris are referring to?
  • TB
    Tim B.
    26 June 2017 @ 13:11
    Fascinating dialog. A bit over my head in some areas, but I look forward to watching again.