Short Volatility: The Keg Looking for a Spark

Featuring Chris Cole, Harley Bassman, Mike Green

Mike Green returns to tackle one of his favorite topics with two titans of the volatility world: equity specialist Chris Cole of Artemis Capital and “Mr. Convexity,” Harley Bassman, who invented the fixed income volatility index. The three dissect February’s “volmaggedon,” and debate whether this was merely the appetizer for a much larger event. Filmed at the Global EQD 2018 Conference in the Wynn Las Vegas on May 23, 2018.

Published on
6 July, 2018
Macro, Equities, Bonds, Volatility
68 minutes
Asset class
Equities, Bonds/Rates/Credit


  • JC

    Juan C.

    16 9 2018 03:57

    1       0

    It's about time for RealVision to interview Mike Green.

  • RP

    Ryan P.

    21 7 2018 21:14

    5       0

    Say what you want about Mike “dominating” the convo, but his ability to comprehend , synthesize and then re distribute the information presented to him that clearly and concisely illustrates why he’s so good at what he does.

  • TL

    Tianyun L.

    18 7 2018 16:42

    0       0

    I agree with some of the sentiments by others that the belief that boomers will sell equity is misguided because it discounts the skewness/inequaluty of ownership of equities. The majority of equities is held by the rich, who has less need to sell down stocks to fund their retirements, while equity ownership is probably low for the middle class boomers, and hold a large portion of their wealth in home equity. Even that doesn't necessarily point to a housing crash/correction. In the case of Japan, we saw net migration to the big cities despite a shrinking population and thus rising prices in Tokyo/Kyoto, etc.

  • BS

    Bill S.

    15 7 2018 04:24

    0       0

    on a less positive critique, why is it
    that every cio, advisor, planner assumes
    boomers will sell equity? on the contrary
    they remain invested or get overrun
    by inflation.

  • BS

    Bill S.

    14 7 2018 23:50

    1       0

    Excellent, keep it coming. So many
    Tidbits from all 3. I like the playoff
    between them, much much better
    than one vis one..canned QA. Well

  • CC

    Charles C.

    14 7 2018 22:13

    0       0

    brilliant. more like this please

  • PP

    Paul P.

    14 7 2018 03:44

    1       0

    As always with Mike Green, simply brilliant discussion. Walked away with numerous items to research. 67 minutes seems like 5. Great work gentlemen!

  • AG

    Abhimanyu G.

    13 7 2018 01:13

    0       0

    Harley's trade:

  • DC

    David C.

    12 7 2018 15:20

    0       10

    Mike Green is your only interviewer who actually talks more than the people he is interviewing. Last time he totally dominated Chris Cole when they were one on one and Green probably took 60% of the time. I feel like I should have gotten more from this interview if Green actually let them speak. grrrrr

  • RS

    Ronan S.

    11 7 2018 06:21

    0       0

    Hi Real Vision,

    is there anyway to cite these videos for academic essay's, assignments etc?

    a cite button would be ideal!

    thanks for all the great content

  • LT

    Lucas T.

    11 7 2018 01:15

    0       0

    Fantastic Fantastic Fantastic.

    I love videos where I have to go look something up. The Maven is always solid, and while I did not know about the cocaine guy, he was really great with some interesting stats.

  • TJ

    Tay J.

    10 7 2018 22:32

    6       0

    Don't ever apologize for making a discussion too long. Always allowing whatever time was needed was one of the original, exciting promises of Real Vision.
    (...although i can understand that those beers might have been beckoning from the wings...).

  • PJ

    Peter J.

    10 7 2018 16:32

    0       0

    I sometimes struggle to keep up with some of the concepts but overall a brilliant piece. Looking forward to next meet up next year

  • DS

    David S.

    9 7 2018 02:41

    0       0

    The derivatives market seems many quantum levels riskier than individual stocks or bonds. Each time a derivative blows up, the stock market melts down until the firestorm passes. There are only 32 letters in the Greek alphabet. Can one be used to assess the risk of derivative breakdown? Are derivatives the Achilles' heel of stocks and bonds? DLS

  • DS

    David S.

    8 7 2018 22:13

    2       0

    If a corporation can “give” its pension plan to an insurance company, they should still have a contingent liability for mandated payouts. How can they eliminate this from their balance sheet? If the insurance company cannot fully fund the pensions, is the company really off the hook? There seems to something I am missing. DLS

  • PG

    Philippe G.

    8 7 2018 21:27

    5       0

    Gotta love it when interviewer and interviewee(s) click like that. Great back-and-forth.

  • SW

    Scott W.

    8 7 2018 15:44

    2       3

    So, I'm an idiot, relatively speaking. There was a ton of talk about nth order effects - derivatives of derivatives etc... And in theory I get that (in theory). Or rather, I sort of think that I sort of think that I understand. All the mathy properties of various curves aside, was not the most salient point at about the 47 minute mark (or rather 20 to go by the in-video countdown) - that it's all ultimately tied to monumental debt accumulation that still shows no sign of abating? That these stock and bond instruments, whether high vol or low vol, are so valued today because of debt levels that have no earthly way of being resolved short of jubilee or default (same thing) OR a massive and sustainable uptick in productivity?

  • FC

    Fran C.

    8 7 2018 12:45

    3       1

    Cole warned about a blow up of the VIX ETPs and short gamma for years, laying out detailed numerical cases in research, dating back to as far as 2015 ( and for the entire short vol trade last year ( Last year at this conference in the Q&A session of their keynote , Cole and Green famously debated the CIO of VelocityShares telling him his product (XIV) was going to zero in a heated exchange.

    @Luiz - I don't know if you are giving Cole credit here. He clearly talks about February 2018 being a "liquidity and not a vol event", and how fixed strike vols didn't move in comparison to the tails. Your analysis is essentially a copy of exactly what he said.

  • LC

    Luiz C.

    8 7 2018 11:33

    4       1

    Michael Green videos are really the best out there (though this one may not be my favourite compared to some fantastic previous ones).
    I agree with all his comments and views. Specifically, regarding the vol armageddon from February, he correctly concisely sums up what happened, and counterbalances the analysis of Chris Cole (vol armageddon potentially triggered by a 40bps move up in rates,... really??? maybe but that's a more than a few collateral impacts away): vol blew up was much more likely caused by a disappearance of liquidity in the equity vol market in front of the massive (short gamma) rebalancing needs of the ETP vol complex. And what likely caused the blew up in prices of far OTM options wasn't people trying to buy ATM vol and not finding liquidity there and being pushed to the OTM options space, but much more likely buy-side funds trying to push the VIX higher in the most effective way (VIX calculation having leverage exposure to far OTM options prices) to kill the short vol trade (most professional people were aware of the size imbalance the VIX market had grown too, a large Investment Bank had 10 days before the events) . And they managed to do it this time as the VIX ETP complex short vega was much too large for the usual liquidity of the options market.
    These markets are more and more difficult to invest, as with the rise of algos and HFT, market vol of vol is much higher than it used too: and it requires right positioning and correct risk management to avoid being taken out by one of these vol of vol events, while trying to take advantage of them requires to react in a very short time frame as market reverts very quickly (VIX was back to 12ish level 2 weeks ago).

  • CS

    Cameron S.

    8 7 2018 03:28

    2       1

    Could you do a piece with Tony Deden + Mike Green + Chris Cole with the brief that they have to collaborate on the construction of a portfolio that co-optimizes among their views to be inherited at an uncertain point in the future by a hypothetical child who is 1/3 genetically related to each of them?

  • MS

    Mark S.

    8 7 2018 02:19

    1       1

    In the future, I would appreciate examples of how Mr Cole structures his vol trades, not what he is doing now as he may not want to give that out but at least give us a sense as to what he's done in the past like last year. If you're long vol, how does he pay for it? Does he use the spy, spx, vxx to structure any of his trades. He's handling a big book but some of us are little guys, that struggle to buy vol and find a way to pay. Sure i have read Taleb and got a sense of what he did.
    Separately interesting to hear Mr Bassman suggest a possible sparks that could trigger a shock, tax policy, trade war plus NAFTA not go through (which he hinted he didn't think would happen), and immigration reduction. I think we're in what's called a trade war.

  • JH

    Jesse H.

    8 7 2018 00:23

    3       0

    Final comment - just to clarify, loved Chris Cole and Harley as well. Both fantastic in their own right.

  • JH

    Jesse H.

    8 7 2018 00:21

    2       0

    Can’t wait for next year’s 1st anniversary of this. Please do it again!

  • JH

    Jesse H.

    8 7 2018 00:18

    1       0

    ...on his own. Funny enough, that friend now works in finance too (in London).

  • JH

    Jesse H.

    8 7 2018 00:17

    1       0

    ...Mike is just scary smart. Reminds me of a genius friend of mine from high school who rarely studied in math class because he could derive most of the concepts himself by thinking deeply enough...

  • JH

    Jesse H.

    8 7 2018 00:15

    1       0

    ...a finance professional and so some of the conversation did go over my head. I am constantly in awe of how intelligent Mike Green is. To Grant and Raoul’s point...

  • JH

    Jesse H.

    8 7 2018 00:14

    4       0

    For starters, I have to say: wow. Brilliant conversation and felt length was certainly appropriate. This has to be my top multi-party exchange on RV, and one of my favourite pieces yet, even if Im not

  • ZD

    Zachary D.

    7 7 2018 23:04

    6       1

    Mike Green is a stud.

  • SB

    Stewart B.

    7 7 2018 21:00

    13       0

    Possibly the best Real Vision interview yet. Intellectually it is so far ahead of anything you'd see on other financial media.

  • RI

    R I.

    7 7 2018 20:13

    12       0

    Bravo, this video encompasses why I subscribed to RV. Then again, Mike Green is in it; so superb material is expected.

  • RM

    Robert M.

    7 7 2018 17:44

    4       0

    CC's assertion that buybacks caused 40% of earnings growth doesn't match the 3Q18 JPM Guide to the markets on slide 8 which has the share count contributing an average of .2% of EPS growth from 2001-17. But perhaps the difference is that JPM counts issuance in its calculation. But shouldn't CC do that also?

  • TH

    Tamas H.

    7 7 2018 17:33

    11       0

    Don't apologize for the length, I wouldn't mind another hour or two listening to the three gentlemen. One of my favorite RV piece so far

  • CZ

    Catherine Z.

    7 7 2018 16:14

    3       3

    Deeply informative; very much appreciated this discussion. Was discouraged though by the jibe about how to explain these concepts to ‘Mom’... for the record, there are actually lots of brillant and financially sophisticated older women with children.

  • nF

    nicholas F.

    7 7 2018 08:01

    5       1

    RV, this is exactly why I subscribe thank you. Fascinating interview! Mike Green, would love to buy you beer/coffee in SF and learn from you. Thanks again for your time Chris, Harley, & Mike. Couple of the great thinkers in finance and life.

  • TH

    Timo H.

    7 7 2018 05:54

    2       0

    Apology accepted!

  • HA

    Hammad A.

    7 7 2018 04:54

    8       0

    Mike Green is an excellent professor

  • RB

    Ros B.

    7 7 2018 01:12

    2       2

    Fantastic content, thank you very much. I will take the liberty of reverse educating - referring to “let me explain to mom” hits a nerve as a mother and older person despite it being undoubtedly unintentional. You’d be amazed but some of us explain sophisticated financial concepts to our sons and younger people.
    Perhaps because we are clever enough to value Real Vision so you are indeed explaining to mom. :)

  • LN

    Lucy N.

    7 7 2018 00:22

    2       0

    Many retirees have no money save

  • LN

    Lucy N.

    6 7 2018 23:46

    10       0

    Chris Cole, is a bright dude

  • SL

    Steven L.

    6 7 2018 23:38

    0       0

    Wow, what a great discussion! I've listened twice and have much to think about as I try to figure out what duration treasuries to buy right now. I am curious about Mike Green's comment that Quantitative Tightening is a supply contraction. because that is counter intuitive to me. Can anyone shed some light on that concept?

  • NE

    Neil E.

    6 7 2018 23:05

    0       0

    So much covered. Great content!

  • LS

    Lee S.

    6 7 2018 22:14

    1       0

    Great interview. One i'll have to watch a second time and probably a third...

  • RM

    Ryan M.

    6 7 2018 21:46

    4       0

    Holy smokes this was amazing!! wow!

  • AI

    Anatoly I.

    6 7 2018 21:31

    0       1
  • RA

    Robert A.

    6 7 2018 19:14

    11       0

    What a Gem. Mike Green is one of my favorite interviewers and I’m talking my book when I say how much I always enjoy listening to anything Chris Cole has to say as an Artemis Capital Vega fund investor. This was my first introduction to Harley and his work and a big thank you to RV and Mike Green for bringing his work to our attention. Great to see differing views on both causation and outcomes from three Pros who come at this from different directions. This is a definite watch again!

  • WW

    William W.

    6 7 2018 18:56

    4       1

    While I'm sure I'm not the first to say this, but this session is worth 5x the subscription price!

  • rr

    rlw r.

    6 7 2018 17:30

    6       0

    RV at it's finest, thanks Mike Harley & Chris (this transcript will surely get dog-eared, fine summer beach content).

  • KF

    Kristian F.

    6 7 2018 17:02

    3       0

    YES! love these guys, fantastic.

  • RS

    Richard S.

    6 7 2018 16:45

    12       0

    I could listen to Chris Cole all day long. Beyond being extremely incisive. Great interview .....Mike Green has conducted some exceptional talks on RealVision.

  • BL

    Bruce L.

    6 7 2018 16:18

    3       0

    Could listen to that for hours.

  • DS

    David S.

    6 7 2018 15:09

    4       0

    Really great discussion! At current P/Es it is sad that a corporation's best investment is a stock buyback. Shareholders should investigate adding covenants about stock buybacks, especially with borrowed money, and not rely on regulations. In addition, boards of directors should attenuate management incentives from stock buybacks. DLS

  • PR

    Pedro R.

    6 7 2018 14:42

    10       0

    Top conversation, but too short. It should be a entire afternoon.

  • CG

    Cody G.

    6 7 2018 13:18

    2       0

    for the film buffs: the remake of Wages of Fear was called Sorcerer directed by William Freidkin. Both are outstanding viewing.

  • PU

    Peter U.

    6 7 2018 12:55

    2       0


  • Nv

    Nick v.

    6 7 2018 12:09

    4       0

    My favourite hour this week.
    Well done, this was fantastic
    Thanks to Mike, Chris and Harley

  • CC

    Christopher C.

    6 7 2018 11:38

    1       0

    Great conversation.... Couple of thoughts that crossed my mind... 1.) Given an options equity strip from at the money to all the way out the tail, as vol increases and liquidity drops along that surface, and is perpetuated along the duration of time as well.. The question I am left wondering what is the effect of the rate of change of the rate of change (Acceleration of the acceleration) on the probability of future underlying price movements in a given direction. Specifically what I am wondering is how efficient is not just the "current" pricing mechanism for any given point in time, but might there not be disruptions in expected future pricing at specific area of the "blanket" of strips, and might those future movements not be measurable and probabilistically reliably predictable.. 2.) Given each set of "blankets of vol" for each market (Equities, fixed income and now I believe I am to understand even in the commodities space) are there not structural portfolio construction links (e.g. Risk Parity) between certain, and to the extreme any given set of blankets? And are there not correlations (Signals if you will) that can be measured between those blankets? And further don't those correlations act as pricing signal "relay stations" between different markets given cross asset class portfolio constructions, how efficiently is the current pricing signal across asset class blankets telegraphed? Given what I heard.. .not very. Seems it would be a relatively simple matter to measure and predict in real time the acceleration of the acceleration of growth in amplitude of that signal (between vol surfaces in different asset classes) and then place convex bets with a high degree of probable favorable outcome, especially if those bets were placed back directly in the most liquid underlying asset classes. (Are not liquidity providers in such a regime playing with a distinct advantage?) Seems the reverse play would also be available as a slowing of the slowing of acceleration would also produce inefficiencies in pricing which could reliably be exploited. Am not an expert in the space, autodidactical if you will, so please excuse my ability to speak in the local dialect if my word choice does pass muster for those who are local denizens of the realm.

  • DW

    David W.

    6 7 2018 11:27

    4       0

    That was fantastic, one of the best RV videos I have seen.

  • AG

    Abhimanyu G.

    6 7 2018 10:25

    14       0

    I haven't seen the video yet but I am excited as hell... TGIF