Protecting Against Portfolio Disaster

Featuring Jerry Haworth

Whilst many investors have concluded spending cash on hedging is a waste of money, Jerry Haworth, co-founder of 36 South Capital Advisors, argues that the time is ripe for tail hedges. Jerry explains what a tail event is and what it’s not, and examines various hedging strategies. He also outlines the characteristics of the current environment that makes this type of hedging so compelling at the moment. Filmed January 8th, 2018 in London.

Published on
15 January, 2018
Risk Management, Derivatives, Volatility
31 minutes
Asset class
Commodities, Equities, Bonds/Rates/Credit


  • DS

    David S.

    22 2 2018 22:26

    0       0

    Example of tale hedge option at 13 minutes in or 17.5 minutes left. Sorry could not find bookmarks. DLS

  • sm

    stephen m.

    9 2 2018 02:54

    0       0

    Would be interesting if the realvisiontv people gave there comments when they see many of the same questions. I liked the interview but timing is everything and even with low vol these strategies can get expensive which the speaker did not talk about bit is exemplified In the fund spoor returns. Sometimes a systematic trading fund is a cheaper route and effective but. It guaranteed to payout like pure protection.

  • DS

    DAVID S.

    8 2 2018 13:29

    0       0

    Hi, good interview and content. Please could we have some details about the option trades like? ie: is it a long dated Buy Call OOM for OIL, and a long dates OOM Buy Put for SPX? thanks

  • AG

    Abhimanyu G.

    21 1 2018 14:41

    1       0

    Hi, does anyone know how i can access a chart of historical implied volatily of a 5 year 10delta put option on the s&p? At the moment i only have access to the bloomberg terminal and saxo. Many thanks

  • B

    Bojo .

    20 1 2018 16:46

    0       0

    This was brilliant, thank you.

  • TP

    Tom P.

    19 1 2018 18:46

    3       0

    The managers at 36 South talk a good game. However, they're in the business of 1) maximising their winnings when they're right, 2) minimising their losses when they're wrong. Unfortunately they're down ~15% *per year* since 2011 in their Kohinoor fund. An investor in their fund needs to make 200% when the PMs are right just to get back to their entry point. The protection they're buying is too expensive or they're getting their sizing totally off fleek.

    That said, it was a good interview. Thanks RV.

  • TM

    Todd M.

    18 1 2018 04:03

    1       0

    Outstanding flow and discourse. Brilliantly presented.

  • EF

    Eric F.

    18 1 2018 00:52

    11       0

    I've just listened to this having watched it once also. Really keen for any input on where / how to get 5 year options (puts specifically). I'm guessing this may not be available for retail customers? Any guidance appreciated.

  • DS

    David S.

    17 1 2018 23:06

    0       0

    Great presentation of a complex subject. The first time I think that I know enough to ask the right questions. Since 2008, the money printing, low interest rates, stock buybacks, and pension fund volatility strategies did not result in higher consumer prices, but in higher P/Es and lower interest rates. Long-dated tail hedges maybe good insurance, and maybe an even better way to just make some money. DLS

  • ZP

    Zach P.

    17 1 2018 21:47

    0       0

    Very informative presentation. Looks like Jerry also publishes some great material on his website as well.

  • ST

    Shannon T.

    17 1 2018 16:07

    1       0

    Absolutely brilliant! Thank you!

  • CS

    Chris S.

    17 1 2018 15:04

    0       0

    Exactly the right questions and very well answered!

  • JH

    Jesse H.

    17 1 2018 01:23

    0       0

    Top notch. Thank you, RV.

  • HH

    HODL H.

    16 1 2018 23:07

    2       6

    Buy tail hedges....but we won't tell you ideas on where or what to buy

  • MB

    Matthias B.

    16 1 2018 20:36

    0       0

    besides the Q, this was very good

  • MB

    Matthias B.

    16 1 2018 20:35

    8       0

    apologies if this question was already asked but as a retail investor, can one buy a 5y SPX put at strike 2000? or is that only possible OTC for insti ? tks a lot

  • JL

    Johnny L.

    16 1 2018 16:14

    2       0

    Very good program and especially nice to hear another person on RV say they don't know what is going to happen in....unlike CNBC or Bloomberg where nearly every guest is 200% certain stocks go to the moon for the next...

  • T~

    Tshort63 ~.

    16 1 2018 15:10

    1       0

    Outstanding. As a relatively new investor, the conversation helped deepen my understanding beyond buying things that are inversely correlated. I have been thinking when my hedges come to fruition how do I exit and his approach to regret backstopping at 8 hoping for 10 or beyond made a lot of sense. More top quality RealVision content. Thanks RV

  • PB

    Pieter B.

    16 1 2018 14:58

    1       0

    Awesome presentation! Smart, humble and very interesting!

  • SD

    Stephen D.

    16 1 2018 10:28

    10       0

    Jerry is not only a very experienced volatility trader and a very smart man, but he's very modest. He didn't mention that 36 South had amazing success in 2008, They launched that Black Swan fund in Jan 2008 and it made 236% that year. Another of their funds made 73%. Jerry knows what he's talking about and is someone who deserves the greatest respect.

  • DS

    Dan S.

    16 1 2018 05:59

    9       0

    Very much enjoyed this video. It would be a dream interview to get a Real Vision interview with Mark Spitznagel as a master of the tail hedge.

  • AC

    Andrew C.

    16 1 2018 04:15

    3       0

    @Jerry: Fantastic video, thanks.
    A question- "99% of people don't expect oil to go anywhere or to go lower".

    Erik Townsend (Macrovoices podcast, 12th Jan) just said "the long/short ratio is 10-to-1, so everyone is expecting oil to rise".

    Can you advise where you got your info?

    Which is true?

  • DG

    Don G.

    16 1 2018 01:32

    0       0

    I read the comments re: questions being added. I have listened to this and watched this and I don't think it helps. It's pretty obvious. But, I must say I can only watch during cocktail hour so I can't be objective. I think this was top notch.

  • WS

    William S.

    16 1 2018 01:31

    0       0

    Excellent. I've always loved listening to Jerry Haworth. Clear thinking; logical courses of action.

  • CB

    Chris B.

    15 1 2018 21:53

    5       0

    Check out ticker TAIL

  • ii

    ida i.

    15 1 2018 21:49

    8       0

    I love this man: "the good portafoglio manager is responsible for the structure of the portfolio not for the happiness of his clients". This is going to be my answer when my clients ask me why we are not short the VIX

  • TH

    Tomi H.

    15 1 2018 21:32

    22       0

    Last couple weeks I've been progressing through this book called Tail Risk Hedging by Vineer Bhansali so I was very excited to see what's this video is about. I have to admit that after watching this, I am a little bit disappointed.

    First of all, I was missing some sort of tangible aspects on how tail risk hedging is done in practice and why. For example, why on earth do you want to buy long expiry options (LEAPS) vs. you buy shorter expiry, but more frequently? I don't think this thing can be addressed just so that "you want to have more time for things to happen", because clearly you can just buy cheaper puts more frequently.

    For example in Bhansali's book there is discussed in the chapter "Basics: Tail Risk Hedging for Defense" that rolling tail hedges is more efficient strategy than buying long maturity tail hedges. He gives couple good reasons why you should favor more frequent rebalancing of hedges:

    1. Having more frequent hedges "averages" out the premium spend and the attachment point.
    2. It avoids "cliff" effect on hedge becoming more distant as we near expiration
    3, More frequent rebalancing of tail hedges might go better with the overall recalibration of the portfolio exposures within the one year period.

    Of course the efficacy of rolling tail hedging vs. leaps depends also on what kind of volatility environment we have: Is the volatility curve flat, steep or inverted? Because now we have steep vol curve (short term vol lower than longer term vol) as Jerry explains and rolling tail hedging does even better in steep vol environment than in other environments. So now should be the best environment to use rolling tail hedging strategy?

    So basically there are all the arguments standing behind the fact that we should use more frequent tail hedging now. There is also calculations done in the book to demonstrate that more frequent tail risk hedging might be better. I think there should have been more work put on to explain why Jerry favors long maturity tail hedges.

    My second point: Jerry says you should buy OTM index equity options if you want equity tail hedge. What index should we choose? Because I heard Nassim Taleb saying some time ago that the s&p vol is now the most expensive vol out there (when we compare it to other indexes). So I was missing more clarification on this, what is the best place to buy tail risk hedges? In my personal opinion it's actually high yield ETF options (HYG,JNK) where you should find cheap tail hedge, because there you have the liquidity migration away from the cash market to the CDS/CDX market which causes a huge liquidity mismatch between the ETF and the underlying bonds. Now because high yield bonds have a lot of beta risk and the common liquidity factor with equities, the "tail event correlation" between high yield and equities should be approximately the same or the tail event can be even bigger in HY vs. equities. Just an opinion though.

    Finally, I don't know if this is the content you cannot get from EVERYWHERE right now. Everybody's talking about rising equity-bond-correlations and how this can lead to disaster, everybody is talking about low vol (VIX and S&P vol especially) and everybody says that deep out-of-the money puts are cheap. So even though these are important things to discuss, I have to say that almost everyone is aware of these.

    I don't know what other real vision viewers expect, but I wish there was more profound discussion on the subject and maybe a bit more practical information.


  • LP

    Lynn P.

    15 1 2018 20:36

    1       0

    For the retail investor, the obvious hedge mentioned was to hold a higher allocation to cash. IF one wished to add a bit of tail risk protections, how does one "buy VIX"? The symbol "VIX" does not register on my brokerage account. There is a symbol BSWN (listed as UBS AG VelocityShares VIX Tail Risk ETN linked to the S&P 500 VIX Futures Tail Risk Index Short Term), but I'm having trouble learning about how it is structured and if it would actually provide the protection of being "long the VIX". Any information or direction of where to learn more is appreciated.

  • AH

    Andrew H.

    15 1 2018 19:56

    1       0

    So can anyone give an "exact" example how to structure similar trades that he is talking about.

  • MH

    Marco H.

    15 1 2018 19:46

    1       0

    Loved it. But where to buy 5 year puts on oil or the S&P as a retail investor?

  • tW

    tgwtom W.

    15 1 2018 19:39

    1       0

    Made me smile • "the other thing I'm not a big fan of is this dynamic hedging, which my grandmother's knee will start twitching when the black swan event is just about to happen, and I'll put on the position then."

  • JO

    JOHN O.

    15 1 2018 19:34

    8       0

    I found the content both interesting and helpful. But as long as others are commenting on the production - here are my two cents. I very much enjoyed the format and style. However, I had the opportunity to watch the video as most of my colleagues are out of the office today and the phones are quiet since its a US Federal holiday. Given the hectic pace of life, or maybe just my inability to schedule it effectively, I often download the MP3 version of the show and listen to it in my car, at the gym, etc. If you are willing to edit the MP3 versions and have a narrator read the screen text I would get almost as much out of the MP3 as I do out of the video. Obviously I would miss the graphics but that's the deal I make with myself when I choose to go audio-only.

  • IO

    Igor O.

    15 1 2018 19:02

    2       0

    All my portfolio high convexity. And i like it this way.
    Great interview.

  • MC

    Minum C.

    15 1 2018 18:52

    2       1

    Terrific discussion, and very good colour provided on tail hedge position sizing and overall discipline.

  • BD

    Bruce D.

    15 1 2018 16:15

    22       0

    Absolutely superb analysis and discussion that is so pertinent to today's investment climate! I could care less about the sound, music, or color of the presentation.....I find it fascinating that some complain about the production, while not focusing on the meat on the bone. This presentation might just save your portfolio from the long term destruction of the buying power of your assets, which last time I checked is what risk analysis is all about. THANK YOU so much for this, as I now have an exact plan to hedge my long equity for the next five years. This was a fantastic video!

  • EL

    Edward L.

    15 1 2018 15:27

    12       1

    One of the best interviews ever. This is invaluable to the retail investor, especially when the concepts are obvious but the execution is not.

  • EL

    Elizabeth L.

    15 1 2018 15:11

    5       5

    MR Haworth's discussion is really important to me. I will listen to it again to get maximum benefit.
    I would like to kindly say that producing videos in this manner, mostly black screen with partial face visible and questions posted, I find extremely unpleasant and distracting. I do not know what MR Haworth looks like and wouldn't recognize him if I met him. This type of screen display affects the viewer in an unpleasant way. It is nearly like a podcast except one can't just listen because to know the questions being asked one has to stare at a nearly all black screen. The only reason I can see the producers doing this is to employ cost containment measures. i would respectfully request we return to full visual and full color production and request audible questions as well. Respectfully offered.

  • V!

    Volatimothy !.

    15 1 2018 14:23

    3       0

    Any ideas on how to better share this information. My father recently became fully vested in a pension. I've warned about pension vol selling and equity risk yet because of my market inexperience my thoughts are muted. Not to mention he's part of the herd in CNBC pastures. He has no choice when it comes to the pension but he won't sell stocks because of the dividends. I feel I'm going to watch him get wiped out (along with many Baby Boomers) and there is nothing I can do.

  • CS

    Christo S.

    15 1 2018 13:15

    0       0

    The acoustic was arduous. I lost the mood for listening. Maybe because english is not my first language.

  • GO

    Greg O.

    15 1 2018 12:21

    5       0

    Some really good points. Given where the Mr (buble) market is, seems like the tail risks plays make a lot of sense, whether as hedges or pure plays. But as he points out, it should be a longer term play.

    The only things I disagree with are:

    1. if it is a "hedge" then why looking to make money on it (like 10x etc)? Once you wind down that hedge you're left exposed. If it just a pure bet, then yes.

    2. The notion that CBs might decide to increase rates because of the wealth gap effect. That's wrong. It is never a CBs job (nor possibility) to take care of that, it is a job of lawmakers, even though everyone (including lawmakers) seems to think nowadays that CBs indeed can or should take care of that. CBs hope that lowering the rates will stimulate the economy and investment that will later trickle down to all, but whether it does is beyond their control. CBs should be responsible for price "stability" (BTW very low but stable inflation fits into that definition so why pushing it to some arbitrary 2% number is beyond me?), and not for anything else that is really beyond their control like "full employment" mandate or wealth gap/distribution. Therefore in reverse, CBs should not adjust policies because of such problems.

    This is not to say that they shouldn't be increasing the rates. Of course they should as the notion of near 0% cost of capital is just flat out stupid and as CBs just figured out it doesn't work for the real economy at all, only creates another bubbles. It's just the fear that doing so will make the markets unravel, besides other issues like currency wars etc. Seems like the current CBs are trying to do all the job of policymakers but without their tools. I'm sure policymakers are happy with that! Someone is trying taking care of the real problems for them and will take ultimate responsibility for that. But nobody considers the fact that they (CBs) don't have the tools for that. So Ms Yellen and the likes, keep staring at your "dashboards"...

  • PU

    Peter U.

    15 1 2018 11:27

    0       0

    Very good