Short Volatility: The Keg Looking for a Spark

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

Short Volatility: The Keg Looking for a Spark

The Interview ·
Featuring Chris Cole, Harley Bassman, Mike Green

Published on: July 6th, 2018 • Duration: 68 minutes • Asset Class: Bonds/Rates/Credit, Equities • Topic: Volatility, Bonds, Macro, Equities

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.

Comments

  • JD
    JUGAKALPA D.
    30 November 2018 @ 01:43
    one of the most important point Harley mentioned was the normalization of the VIX calculation. Be it realized or implied if VIX calculation is based on absolute bps like MOVE index it might correct the dampening of the VIX TS across the last 8 or so years till fed 2017.
  • JC
    Juan C.
    16 September 2018 @ 03:57
    It's about time for RealVision to interview Mike Green.
  • RP
    Ryan P.
    21 July 2018 @ 21:14
    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 July 2018 @ 16:42
    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 July 2018 @ 04:24
    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.
    • FC
      Fran C. | Contributor
      16 July 2018 @ 22:20
      401k forced distributions are mandated , it’s not a pure choice
  • BS
    Bill S.
    14 July 2018 @ 23:50
    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 Done.
  • CC
    Charles C.
    14 July 2018 @ 22:13
    brilliant. more like this please
  • PP
    Paul P.
    14 July 2018 @ 03:44
    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 July 2018 @ 01:13
    Harley's trade: https://www.google.com.sg/url?sa=t&source=web&rct=j&url=http://www.convexitymaven.com/images/Convexity_Maven_-_Catch_A_Wave.pdf&ved=2ahUKEwjzuPvG8prcAhXKNo8KHY4nAYkQFjAIegQIABAB&usg=AOvVaw3_deK-zouX_5FZsiLpTV8U
  • DC
    David C.
    12 July 2018 @ 15:20
    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
    • VM
      Vincent M.
      13 July 2018 @ 15:51
      I would agree if Mike had little to contribute but he has tons to contribute and probes the ideas having looked at the subject himself. Love Mike G, J. Grant, and Grant and Raoul...
    • DS
      David S.
      14 July 2018 @ 18:19
      Michael Green is a great interviewer. His comments are substantive and move the dialogue forward. Never enough from Mr. Green. DLS
    • JK
      Josiah K.
      16 July 2018 @ 19:32
      Mike needs to let the guests talk...
  • RS
    Ronan S.
    11 July 2018 @ 06:21
    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
    • AM
      Andrew M.
      11 July 2018 @ 12:33
      http://www.easybib.com/guides/citation-guides/mla-8/how-to-cite-a-film-or-video-in-mla-8/ should help
  • LT
    Lucas T.
    11 July 2018 @ 01:15
    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 July 2018 @ 22:32
    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 July 2018 @ 16:32
    I sometimes struggle to keep up with some of the concepts but overall a brilliant piece. Looking forward to next meet up next year
    • PC
      Peter C.
      10 July 2018 @ 20:08
      Yeah, this apparently is a topic for advanced traders. What book/video to read/watch in order to get myself to be just able to follow the conversation? Any recommendations? Thanks.
    • MK
      Michael K.
      11 July 2018 @ 19:11
      Peter C see my comments below
    • PC
      Peter C.
      12 July 2018 @ 18:39
      Thank you Michael. They are apparently very complicated. For a retail investor, I guess Peter Brandt's video is what I could focus.
  • DS
    David S.
    9 July 2018 @ 02:41
    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
    • MK
      Michael K.
      9 July 2018 @ 11:32
      I ThinkPad im the words of Chris Cole himself, volatility is the vehicle of truth. If the truth is ugly, volatility will reveal it. Suppressing it will only make it more violent down the line. But if you truly want an education in derivatives, people study these matters for years and years. The hallmark books including some less well known for me are Options, Futures, and other Derivatives by Hull, Natenberg’s Option Volatility and Pricing, (my absolutely favorite) Euan Sinclair Volatility Trading (the most practical and balanced quant vs actual trading), and the deepest and most complex Taleb’s Dynamic Hedging.
    • FC
      Fran C. | Contributor
      9 July 2018 @ 11:40
      The options books by Espen Garden Haug are extremely good and underrated too
    • MK
      Michael K.
      9 July 2018 @ 11:59
      Also, what is risky? And what is a quantum leap so? Is a put option bought before a market crash risky? I don’t ask this in jest. It’s a deeper question that it seems. My response to the “see derivatives are dangerous because of The VIX ETF’s in February” I would counter the exact opposite. The derivatives market is remarkably dynamic and order. It washes failure out very quickly. The VIX ETF’s blew up and the folks who chose to trade them lost Money, but aside, regardless of you we feel about it, US markets have bounced back. EM isn’t falling apart because of Vega exposure. Anyways, all I’m sorry I’m very excited about the topic as this is what I do, and I’m learning and have been following all three of these folks for a long time. A treasure to get to hear their latest honest thinking.
    • MK
      Michael K.
      9 July 2018 @ 12:05
      Lastly, above all the formal education and “hard” work and barriers used to make the matter sound too smart, it is mentorship and community among option participants that I think gives the greatest breakthroughs. In this way, RV can be a part of that. But hooking up with some real life users of options can offer the educational quantum leap, like in all matters of our lives we need each other.
    • DS
      David S.
      14 July 2018 @ 17:52
      Michael K. and Fran C. thank you both for your excellent comments. Although it is too late in my life to dive into derivatives, I am a fan of derivatives as investment vehicles. My problem with the derivative market is that herd mentality and reflextivity drives the overall market to major tail risks, i.e., MBS crash. The derivative market obfuscates and exacerbates these risks, because most investors just cannot see or understand the market interactions. I hope you are right that over time the derivative market will become more rational and understandable. My cave-man way of playing this is to be liquid and buy crash to crash. DLS
  • DS
    David S.
    8 July 2018 @ 22:13
    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
    • MK
      Michael K.
      9 July 2018 @ 11:26
      The de risking happens when the plan IS fully or near fully funded. The insurance company manages the interest rate and duration risk across the expected lifetime of benefit payments. Check out “LDI” or liability driven investment principles as it relates to pensions.
    • DR
      David R.
      10 July 2018 @ 20:34
      Yeahbut what does "fully funded" mean. Typically assumes 8% annual return, which is insanely optimistic given that the 7-12 year ROI per the wildly-accurate GMO is actually *negative* for all financial asset classes except EM equities at a measly 2%. If ROI is zero (an optimistic assumption) instead of 8% over the next decade, then a "fully funded" pension plan is actually less than half-funded and will likely go bankrupt after a dozen years of payout and zero-to-negative total returns. One of the next, biggest crises ahead, especially as government worker pensions are guaranteed by taxpayers who have no such pensions.
    • MG
      Michael G. | Contributor
      13 July 2018 @ 17:41
      “Fully funded” plans are typically classified as 105% funded with the capability of remaining so with a mixture of high-rated investment grade and matched currency sovereign bonds. The overfunding of 5% is effectively a first loss tranche that protects the insurance company who has now assumed the risk of loss. It is only contingent in the event that the insurance co falls below investment grade rating themselves, hence corporations can shed the liability.
    • DS
      David S.
      14 July 2018 @ 18:14
      It is reasonable to me that that few will be able to fully fund pensions without major additional contributions in the next ten years. The pension fund is still a contingent liability and should still be shown on the B/S to investors. Its funding could be noted and what insurance company is in charge and its performance. (GE is reported to have lots of GE stock in its pension plan.) It is time to look at changing the pension plan reporting requirements to better reflect corporate liabilities to investors. DLS
    • MK
      Michael K.
      16 July 2018 @ 12:26
      David - i feel like you’re repeating and spinning the same tune when you meet information that doesn’t suit you. The above response is on the money. 105% funding with high quality corporate and sovereign bonds. What else do you want them to do? Corporate pensions are in far better shape than public. Some are overfunded. Many are underfunded. Why “is it Time?”
    • DS
      David S.
      30 July 2018 @ 21:18
      Michael K. - You are probably right in that I am trying to make the same point in different ways. Fully funded can certainly change. What I would like to change is the corporate reporting to show that there is a pension plan. The percent funded at this time and which insurance company is in charge of the plan. This is not difficult or costly. It may and should make a difference in investing. DLS
  • PG
    Philippe G.
    8 July 2018 @ 21:27
    Gotta love it when interviewer and interviewee(s) click like that. Great back-and-forth.
  • SW
    Scott W.
    8 July 2018 @ 15:44
    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?
    • MK
      Michael K.
      9 July 2018 @ 11:34
      Please consider checking out the books in my comment higher above. Especially “Volatility Trading.” And it is a greater jump than you know, but deeply rewarding.
    • MK
      Michael K.
      9 July 2018 @ 11:44
      Also check out Colin Bennett’s Volatility trading originally from Santander. Very approachable, all things considered. It doesn’t require a graduate level in math, but to trade options professionally it is often merely the first step. For me personally, it took about five years to congeal, and this is all while on a desk. I am thankful to have been given the patience and opportunity to keep at it. It truly takes years to make a trader. And that’s to say that the concepts become no longer theoretical but instead intuitive. Then there is aligning our intentions and conclusions with our actions. This is a challenge that never goes away and is the “art” of trading. That’s been my experience anyways, I hope to remove ego and hubris from the matter.
    • SW
      Scott W.
      9 July 2018 @ 12:36
      appreciate the recommendations Micheal K!
  • FC
    Fran C. | Contributor
    8 July 2018 @ 12:45
    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 (http://www.artemiscm.com/s/Artemis_Q32015_Volatility-and-Prisoners-Dilemma-x71i.pdf) and for the entire short vol trade last year (http://www.artemiscm.com/s/Artemis_Volatility-and-the-Alchemy-of-Risk_2017-y6ss.pdf). 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
      Louis C.
      8 July 2018 @ 13:48
      We didnt here the same thing then. I heard him saying it stemmed from a liquidity in eqty cash space (he even mentioned it was hard to do some size in spx futs at some if I am correct) leading to the vol events... . Anyway, not so important. The real sign the VIX ETP strats were over was when the article (from WSJ?) about that retail manager resignation to become full time short Vega trader and be a millionaire came out in the mass media to the attention of everyone... from then the bomb was ticking :-)
  • LC
    Louis C.
    8 July 2018 @ 11:33
    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).
    • FD
      Felix D.
      9 July 2018 @ 12:56
      I had the same thought when they talked about OTM options. There is actually a paper out there which shows that OTM options could be "manipulated" with relatively little capital. This then sent VIX up and allowed the manipulators and profit disproportionately from the calculated blow-out (i.e. inability to hedge quickly/simultaneously) in ETPs
  • CS
    Cameron S.
    8 July 2018 @ 03:28
    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 July 2018 @ 02:19
    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 July 2018 @ 00:23
    Final comment - just to clarify, loved Chris Cole and Harley as well. Both fantastic in their own right.
  • JH
    Jesse H.
    8 July 2018 @ 00:21
    Can’t wait for next year’s 1st anniversary of this. Please do it again!
  • JH
    Jesse H.
    8 July 2018 @ 00:18
    ...on his own. Funny enough, that friend now works in finance too (in London).
  • JH
    Jesse H.
    8 July 2018 @ 00:17
    ...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 July 2018 @ 00:15
    ...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 July 2018 @ 00:14
    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 July 2018 @ 23:04
    Mike Green is a stud.
  • SB
    Stewart B.
    7 July 2018 @ 21:00
    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 July 2018 @ 20:13
    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 July 2018 @ 17:44
    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? https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer
    • DS
      David S.
      8 July 2018 @ 07:08
      Thanks for the comment. Hopefully someone can address the discrepancy better and in more depth. In the transcript, I believe they are referring to just the percent of the growth in EPS and not as a percent of the total EPS. Just a stab. DLS
    • FC
      Fran C. | Contributor
      10 July 2018 @ 14:30
      CC lays out his numbers in a recent paper from 2017. David S. is right that you need to look at it as a percent growth on the EPS and not as a % of EPS. Also, the 40% number is from 2009 onward and not 2000. Beyond that, you must account for the cumulative effects of the buybacks over time, they same way you would account for compounding of returns over time. For example, a 2% return is not impressive, but compounded each quarter over many years that becomes impressive. To this point, if you reduce the share count by 2-10% every year for a decade, the compounded effect when compared to a "theoretical" EPS stream without that share count reduction is very large. JPM isn't taking into account that compounding effect, looking at it on a per period basis only, and even then their numbers seem low. In Q1 2018 buybacks were about 1% of the entire market cap of SPX.
    • FC
      Fran C. | Contributor
      10 July 2018 @ 14:37
      to support how impactful this really is, consider that free float shares are at late-1990s levels, even though market cap is at all time highs --- there you go
    • FC
      Fran C. | Contributor
      10 July 2018 @ 14:51
      for example, If companies buyback just 1% of their shares a quarter for 20 years--- at the end of that period there are just 45% of the shares you would have otherwise had without a share-buyback program. Earnings could stay totally flat over 20 years, but you would have a very healthy +6% EPS growth rate annualized. Are buybacks not making a difference at 1%?
    • FC
      Fran C. | Contributor
      10 July 2018 @ 14:56
      because calculated another way their impact in any given single quarter is technically only 1% of the growth. $100 revenue / (100 shares - 1 share buyback) = 1%
    • RM
      Robert M.
      11 July 2018 @ 22:42
      The JPM figure of .2% is EPS growth. So avge EPS growth from 01-17 was 6.9% of which the share count contributed .2%, revenue 3% and margin 3.8%. Their chart doesn't show much change in this mix from 2009.
  • TH
    Tamas H.
    7 July 2018 @ 17:33
    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 July 2018 @ 16:14
    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 July 2018 @ 08:01
    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.
    • MK
      Michael K.
      7 July 2018 @ 11:56
      I interpret that your comment in full good spirit, but I hope you appreciate Mike Green isn’t a clever college intern eager for someone to just come along to buy them coffee and spill their beans. While he does seem down to earth, generous, and personable, he in his own right a figure in the field. I feel like unintentionally your comment is condescending. Anyways. My deepest respects for this presentation, legends and I am fortunate to listen.
    • MG
      Michael G. | Contributor
      7 July 2018 @ 13:10
      Appreciate the sentiment. No offense taken! Time constraint is the limit, not a lack of interest.
    • nF
      nicholas F.
      7 July 2018 @ 19:26
      Michael K, sorry you interpreted my comment as you did. I should’ve been more forthcoming as to how fortunate we are to hear these great minds being interviewed. You interpreted very incorrectly. Unfortunately, you felt the need to degrade my comment as condescending which By no means did I try to portray Michael Greene to be analogous with the college level intern (as you mentioned unintentionally). If anything it would be he other way around as myself the one eager to learn more would be buying the coffee. I should’ve been more clear and more in depth. I’ve been fortunate enough to follow these gentlemen for a while now and it was a comment more surrounded by the fact that these are some of the sharpest minds in finance and I’m trying to soak up and listen to everything they say in order to get better every day on the desk. Find some of the smartest people you know and surround yourself with them, and then, just listen. Sorry you felt that that I was being condescending, I will note that and better reflect in my comments. Thanks for the understanding.
    • MK
      Michael K.
      9 July 2018 @ 11:22
      Thank you. I thought my comment was not cynical or negative but in fact it kinda ended up being condescending in its own way. I apologize for that. Mixing money, anonymity, and the competitive nature of this business makes it easy to go that way, and it’s not productive. Thank you for your not needed clarification. It’s me who needs to correct and you write like a gentleman.
  • TH
    Timo H.
    7 July 2018 @ 05:54
    Apology accepted!
  • HA
    Hammad A.
    7 July 2018 @ 04:54
    Mike Green is an excellent professor
  • RB
    Ros B.
    7 July 2018 @ 01:12
    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. :)
  • LJ
    Lucille J.
    7 July 2018 @ 00:22
    Many retirees have no money save
  • LJ
    Lucille J.
    6 July 2018 @ 23:46
    Chris Cole, is a bright dude
  • SL
    Steven L.
    6 July 2018 @ 23:38
    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?
    • JS
      Jesse S.
      7 July 2018 @ 13:55
      It’s just the reciprocal of the concept that QE was deflationary because it allowed companies to gorge on debt and create excess capacity in their industries (especially when it was erroneously assumed that global demand would be rebound sharply, energy complex being a good example from a few years ago).
  • NE
    Neil E.
    6 July 2018 @ 23:05
    So much covered. Great content!
  • LS
    Lee S.
    6 July 2018 @ 22:14
    Great interview. One i'll have to watch a second time and probably a third...
  • RM
    Ryan M.
    6 July 2018 @ 21:46
    Holy smokes this was amazing!! wow!
  • AI
    Anatoly I.
    6 July 2018 @ 21:31
  • RA
    Robert A.
    6 July 2018 @ 19:14
    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!
    • AG
      Abhimanyu G.
      7 July 2018 @ 02:54
      I find Chris Cole absolutely fantastic... could listen to him speak all day long! Would you (or Chris if he's reading this) by any chance be allowed to share the net performance of his Vega Fund in 2015, 2017, and 2018 ytd? The 2016 performance is listed as +19.7% nett, but I can't seem to find the rest online... many thanks.
    • RA
      Robert A.
      7 July 2018 @ 21:59
      AG, suggest you go to the Artemis Capital site and have a look @ their tear sheet. However, I also suggest that you acquaint yourself with the philosophy behind his Vega fund. I'm not doing Chris justice with this, but here goes; this is how I explain the purpose (as I see it) behind the fund to friends who are interested in it.......it is an Insurance policy and Portfolio ballast against a Black Swan event....another RV guest gave a great interview on how to “size” one’s “deep portfolio protection” which was excellent....so, back to Vega—Chris, IMO, structures the fund to pay off on a massive Volatility spike that stays at an extremely high level for quite awhile and would probably be accompanied by an Equities drawdown in the 35-50% range and where neither the Equities nor Volatility came back to their former levels for a good amount of time. My take is that if Equities dropped 15% and Volatility moderately spiked the Fund might not make any money....but if there is a BIG event the Fund will go up many times over. What Chris and is team cleverly do (again, IMO) is sell “modest” Volatility spikes in order to fund the Options outside of reasonable probability or predictability which will offer a HUGE payoff should “things really get out of hand”. The fund can, and has had 20% losing years, but his aim is to provide the best insurance at the most reasonable price (through the use of his strategies) against a BIG event that would otherwise play real havoc with a Portfolio. Sizing is the key—you only need to have a dollop of the Vega Fund to provide quite a bit of balance to a Portfolio....which can make otherwise large losses manageable. Hope this helps and my apologies to Chris if I over simplified this.
    • MS
      Mark S.
      8 July 2018 @ 02:23
      Appreciate Robbert A comment. I guess what constitutes a moderate spike in vega. Whatever it is one has to be prepared that they are going to lose it all as during those spikes one never knows if this spike is just the beginning of a super nova.
  • WW
    William W.
    6 July 2018 @ 18:56
    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 July 2018 @ 17:30
    RV at it's finest, thanks Mike Harley & Chris (this transcript will surely get dog-eared, fine summer beach content).
  • KF
    Kristian F.
    6 July 2018 @ 17:02
    YES! love these guys, fantastic.
  • RS
    Richard S.
    6 July 2018 @ 16:45
    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 July 2018 @ 16:18
    Could listen to that for hours.
  • DS
    David S.
    6 July 2018 @ 15:09
    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 July 2018 @ 14:42
    Top conversation, but too short. It should be a entire afternoon.
    • CN
      Charles N.
      7 July 2018 @ 03:10
      Give them some liquor, too!
  • CG
    Cody G.
    6 July 2018 @ 13:18
    for the film buffs: the remake of Wages of Fear was called Sorcerer directed by William Freidkin. Both are outstanding viewing.
    • MN
      Marcus N.
      6 July 2018 @ 15:21
      I knew that I'd seen "The wages of fear" twice (in remake), and, after a little research (thank you, Miss Google), the first version is called "Violent road", and the second is "Sorcerer".
    • DC
      Dave C.
      6 July 2018 @ 22:00
      Sorcerer had a great soundtrack by Tangerine Dream.
  • PU
    Peter U.
    6 July 2018 @ 12:55
    brilliant
  • Nv
    Nick v.
    6 July 2018 @ 12:09
    My favourite hour this week. Well done, this was fantastic Thanks to Mike, Chris and Harley
  • CC
    Christopher C.
    6 July 2018 @ 11:38
    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.
    • CC
      Christopher C.
      6 July 2018 @ 12:16
      So a cup of coffee later... a.) it seems it is apparent to me that by running a discrete fourier transform (or a bunch of matrix multiplications) you can easily and quickly get a low resolution picture which is quickly and easily calculable and "tunable" if you will, to different frequencies of rate of change of rate of change that would identify when such events are both likely to be imminent, and with further inspection of the "vol blanket surace" show local probable discrepancies in future pricing at predictable points in "blanket surface" at future points in time. b.) this points back to something else I have been thinking about which is by running similar transforms which show the real time acceleration of breakdowns or synthesis of correlations within the same asset class... I would bet my left nut they produce reliably predictive signals of future acceleration of vol of vol events because the initial "butterflies" (which some grow into hurricanes) are exogenous events. I bet when "clusters" of these events occur they reliably predict exploitable probabilities of future vol events. It is one thing to see a vol event or sail the storm. Is it not quite another see the sparks flying, and take appropriate action before the keg goes boom?
    • DS
      David S.
      6 July 2018 @ 15:15
      I would leave third and fourth level derivatives to mathematics, physics and Chemistry. DLS
    • CC
      Christopher C.
      6 July 2018 @ 16:07
      Right.. because stock (1st derivative) to flow (2nd derivative) is "never" reflected in price (3rd derivative) and your corresponding account balance (4th derivative) in relation to everyone else's (5th derivative) or how you feel about that relative relationship. (6th derivative).
    • DS
      David S.
      6 July 2018 @ 19:37
      The concept of Derivative is at the core of Calculus and modern mathematics. The definition of the derivative can be approached in two different ways. One is geometrical (as a slope of a curve) and the other one is physical (as a rate of change). Maybe we have a semantics issue. There is no transcript, but it is certainly worth listen to again. I believe in this video they were referring to the rate of change of a curve. DLS
    • DS
      David S.
      6 July 2018 @ 19:59
      Derivative is a normal stock market term. In that case it means the value is derived from the underlying value of the financial instrument. When you talk about a second, third, fourth derivative in this interview it sounds more like the rate of change in a curve. Maybe you were using derivative to mean something more like a knock-on effect or consequence which I did not understand. Sorry. Anyway good luck. DLS
    • OD
      Octavian D.
      6 July 2018 @ 20:19
      Chris, are you not in essence looking for markers/signals of other participants early anticipation? This looks to me like finding markers of sudden changes in market behavior, happening simultaneously, but detected at a lower threshold than when things really start accelerating. This sounds like a brilliant idea to scan for these changes in real-time to get better timing. Further analysis would definitely be required to assess the likelihood of the butterfly turning into the storm. I guess the specific clustering of these changes/acceleration in activities among different asset classes could yield better predictions that seeing the moves in a single asset class. This sounds like a "radar of other players' increase in anxiety or increase in opportunity-taking." Very interesting, although I lack on the mathematical side to give any helping tips.
    • CC
      Christopher C.
      6 July 2018 @ 23:25
      That is exactly what I was thinking Octavion. (in the last part of my second post.) Thank you for restating my thoughts so succinctly. If a huge Vol event is an earthquake, basically finding the vol "tremors" that happen in the market before hand. I expect the rate of acceleration that liquidity dries up/vol rise/as bid/asks start to widen can be measured and that it is probably localized initially somewhere in the market, and then fractally spreads like a rock breaking a windshield, once a threshold is passed. So if you can find the local events or cluster of local events happening, you can probabilistically predict future vol and position accordingly. My guess is the fingerprints of predictors on previous large vol events exists in the data.
  • DW
    David W.
    6 July 2018 @ 11:27
    That was fantastic, one of the best RV videos I have seen.
  • AG
    Abhimanyu G.
    6 July 2018 @ 10:25
    I haven't seen the video yet but I am excited as hell... TGIF

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