YouSaid · the spoken record

Benn Eifert

lines on the record: 87
first: 2022-06-20
most recent: 2022-06-20
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Why would you need a VIX to hit some particular high number? Stocks can go down in a grind down where people are just selling stocks and volatility is relatively moderate to low. And then eventually they can stop and then stocks can bottom. None of that has anything to do with VIC 70.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Associated with the massive market swings, with fear of banks going under and all this sort of stuff. The market didn't bottom until March of 2009, but volatility had fallen pretty significantly at that point. Credit spreads had tightened and credit markets had started to normalize. But equity investors were still panicking and selling out of their positions. So again, there's absolutely no reason to think or no evidence that would suggest that you have to have that a big VIC spike will tell you when the market has bottomed.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“I mean, there certainly don't have to have volatility spikes coinciding with market bottoms. They generally don't, right? There's no evidence for that at all. Look at March of 2020, which was a classic crash. Vall spiked the peak of volatility was two days before the peak of the trough of the market. The last two down days in the S&P were a down 4% day and a down 2.5% day. I think both of those days volatility collapsed like in a big way on both of those large down days in the market because there had already been a big series of liquidations the prior day that reset volatility to crazy levels, right? So volatility and market are just two different related things. They're not the same thing. Same with if you think back to 2008, peak volatility was really hit in Q4 of 2008, right?”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's very typical. So you have volatility, variance, arrival calendars that know the various known catalysts and know the various impacts that those might have on term structure shapes and so forth”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“But dude, your models or some volatility managers' models incorporate events thing. Oh, J Palace, next week is FOMC, perhaps vols across the board should be a little bit higher. Friday's CPI, perhaps Vall is a little higher. Oh, no Fed speakers are doing anything. Maybe Vall is a little lower. Is that something that you think about or no?”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“World where you just have 10 things you think about the world, and then all the trades that you have on because of that is obviously that's what macro investors do and macro vespas can be very smart. It's a very different workflow. It's not something you can do naively, right? Because lots of people think things about the world and you don't necessarily know, even if you're right about this thing that you think is the trade that you have on going to work. It depends on how it's priced incorporating what expectations about what's going to happen then where you see that all the time with like, are rates going to go up or down if CPI comes in at x level or whatever, right? It's like, oh, like CPI beat Wall Street expectations, but implied inflation is down, it's because well implied inflation was pricing in a bigger beat and like, you know, so anyway, that's a very different workflow. That's a very different approach. There are lots of, you know, there's macro managers out there that do that kind of thing. We approach macro again more from a defensive perspective.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Tons of upside calls because they thought the Nika could double or triple on the back of that. And it did, right? So you had a massively volatile explosive move up. And anybody that was like selling upside calls to buy downside puts just got totally destroyed. And the point is that was a macro structural theme that was manifesting itself in derivatives markets through a derivatives markets price. And you had to know that. You have to be able to think about derivatives markets dislocations and things that look like derivatives markets dislocations and understand where they're coming from, what kind of flow is driving it. Is it price insensitive, customer flow, is it directional customer flow, but not really like informed on ball or is it smart macro people betting on a state of the world that you don't want to just be short on the other side of the trade from them? And that's how we interact with macro, right? The view, the way of approaching the”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“In Japan, there's an equity index, it normally would have your typical inverted skew or put straight at a higher downside strikes puts straight at a higher ball than upside strike calls, flattened and flattened and flattened and then fully inverted where upside calls traded at a meaningfully higher ball than downside puts. And there were lots of derivatives people who didn't think much about macro who just said, well, this is silly XYZ reasons or why this is. And let's sell some calls and buy some puts on a ratio and have some kind of a trade that bets that this is going to go away. Well, the reason that that was happening was because the Nike had been, you know, totally stagnant for decades after Japan's bubble burst and recession and Shinzo Abe was proposing like all of these very dramatic market reforms and aggressive central bank action and all kinds of stuff and like macro investors were coming into the market.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“I don't really have macro views, so we don't, it's not really part of the process in any kind of offensive sense. The way that I mostly relate to and think about macro is from a defensive perspective. So thinking about when you think about dislocations in derivatives markets and how they manifest, sometimes what's really a macro structural change can look to the naive observer like a dislocation in derivatives markets. So I'll give you some examples. So weird derivatives nerds think about skew and the price of upside ball versus downside ball and we think about the different things that affect skew in derivatives world. In 2012, MiK SKU, which so the Nikay index.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Completely, we run a bunch of different strategies, and they're all very specific, and none of them are involved. Having a particular view on the vault of a three month Tesla option or whatever.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Think for us, again, there's all kinds of different volatility traders in the world. We're not sitting around here looking at different options and being like, well, I think that option should be 24 volt, but it's actually 25 volts, so we're going to buy it. Like our workflow is very, very different. The starting point for everything that we do is recurring strategy themes where there's some particular type of dislocation that we understand really well, that we have models of, that we have a whole research infrastructure for and understanding what kind of a trade we would put on around that kind of dislocation that's hedged in a particular kind of way and market neutral and so forth. So we have no idea if like that option over there should be 24 vol or 25 vol or 26 ball or whatever.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Think about buying short dated options on some meme stock, it's very hard to know there is no such thing as a fair vol in some theoretical sense, right? There's just a meme. What does this meme talking to do? I don't know. It could go up 200% tomorrow. It could do all kinds of things. Like what you have to think about is what is the bet that you're making? What's the payoff profile of that bet? What's the downside? What's the upside? What are the reasonable range of scenarios and kind of probabilities in some kind of sense? why are you kind of doing this? And again, probably a bad idea trading options on mean stocks. But I think that's thinking about things in very simple price and payoff and probability world makes much, much more sense than anything else.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So as an individual investor, I think first of all, you should have a pretty high bar to using options in the first place because it just raises lots of, usually individual investors are busy. They have day jobs. They have families. They have stuff. And there's just a lot that can go wrong with options, right? If you're really thinking about using options, even thinking about VAL as a starting point is probably the Not necessarily, you don't ever want to do that, but that should be like the seventh thing that you think about, right? The first thing that you're thinking about is what the payoff profile of that position is, what the time horizon is, how that relates to your view, how that relates to what your upside is and what your downside is and whether you think that makes sense.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“I want to talk about if someone were to buy an option, and let's say the bid is $250 and the ask is 290, obviously a bad thing to do is just buy it at the market and then you'll buy it at 290. You probably would want to put it out at 270 or 250 and then you'll get a better price. But even if they get it at 250, let's say they're buying that with an implied volatility of 60. Could still be a bad trade if the true price of implied volatility should be 30. How should people think about that? Maybe how should retail traders think about that? And then how do you think about it where you don't have a fundamental view on the stock necessarily? Like what are you using to price it in? Historical realized volatility, historical realized volatility of other things. So yeah, I know I gave you a lot.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“And often their investors didn't know that they were doing that kind of tail risk selling or whatever it is. And I think it's a tough psychological thing to resist, obviously. You see it. I think that investors need good quantitative to become equipped with good questions to ask to validate and verify that managers aren't sneakily selling tails. But I think that that's really the obvious thing that you do just see. You see a lot of people fall into over time.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Among more professional types, I mean, I think that the obvious area there is that, you know, markets are pretty competitive and not nearly as inefficient in a direct sense as people give them credit for a lot of the time. And it's tough to make money. And what often happens over time is that during quiet markets or during easy times, professional derivatives traders and volatility traders will get sucked into selling tail risk and doing sneaky things to make a little bit of extra money, right? Because they get paid for it and makes them feel good and makes them feel smart and the bad thing probably won't happen. And that always ends the same way, which is that, you know, once every five years or 10 years or however many years it is, that crazy thing happens that they didn't think was likely to happen and they blow up spectacularly.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“And think this is free money. It's sort of I'm selling to buy this stock at 50 if it goes down and I'm getting paid for that, right? So I talk a lot about that kind of stuff. I think you have to really understand the economics of the transaction that you're doing and why it might make sense.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“And you kind of wish you could buy the 50. What you should do is sell a put at 50, and then it's like you're getting paid to buy the stock at 50, and it's kind of like almost free money or it's like too good to be true or whatever, you know, that's ridiculous because, well, what if the option is only five cents and there's a relatively large probability that you hit earnings and it gaps down to 45 or something, right? So now you've in which case that option is going to be worth three bucks and you just lost a massive multiple of the maximum that you ever hoped to get, right? So my point there is just anytime you buy or sell an option, you have to be thinking about what is the possible payoff. You have to think about probabilities a little bit because options are very asymmetric. So it sort of depends what probability is that things move and how much you're getting paid for it or if you're selling it or how much you're paying and is that reasonable. That might be a difficult calculus to do, but you can't just ignore any of that calculus.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“So, I would say a few things. I mean, I think on the retail side, you do see historically there's always been a lot of effort to sell retail investors option selling strategies one way or another. And that's true, I think, among the older generation of retail investors, and it's more newly true with a lot of the Reddit crowd. So you think of like Theta Gang on Reddit is all about this. And I think generally there isn't anything inherently wrong with selling options, but usually there's a very misleading narrative about what you're doing and why and why might it work or why might not it work? So in particular, you'll hear things like, well, if you like this stock at 50 bucks, but it's trading at 50 bucks.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“The SP is now, and the SP is trying to rally, I'm going to be hedging and hedging and hedging and creating pressure and resistance there, right? But again, it all just comes back to like, is this kind of general speculation from open interest or is this like there's a good reason why we understand where this positioning is and where it comes from?”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Well, there can be, right? The question is, how do you know that? And you might actually know that. So sometimes, for example, there are very large mutual funds that we don't need to name or whatever, but that will have a known position and it's a giant position and you can see it and you know exactly who holds the other side of that position and whether they're long or short and what hedging they will need to do with respect specifically to that position. Now it gets complicated because they no doubt have hedges and you don't know where those hedges are and how whatever whatever, right? But they may not be expiring and they may not be really nearby. So again, if you have a really good understanding of the picture and where it comes from, then that can be a real thing, right? Because if I'm a bank and I have a massive position and I'm long options 25 basis points above where”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“I think what I'm, you know, the net positioning of dynamic hedgers and what kind of weird positions they might have and how stocks might move can generate really interesting outcomes. I think that lots of people read way too much ex ante into things. And then you see a lot of ex post rationalizations, but they may or may not be right. If you really happen to understand very well for a variety of reasons that the street is really, really short gamma on this particular expiration right at 4,000 and you're pretty confident in that, then that gives you some information. And there are obviously folks that spend a lot of time on how to come to that conclusion and be confident in there. But I think it's, again, it's tough to just look at open interest and have a lot, read a lot into what the implications are.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Really, option expiration is a priori things could be weird, but like you really don't have a lot of information as an outsider or even as a fairly informed insider about what all those things are, right? Because it depends entirely on how lots of different people are positioned. You'll see people make naive comments about the size of expiration or about the impact by looking at open interest or something. But that doesn't tell you anything, right? It maybe tells you directionally a little bit of something. But, you know, if there's 10,000 lots of SPX on the expiring 3,500 strike, you don't know who holds that if they're a dynamic hedger or not, if it actually even is meaningful in the sense that there might be 10,000 calls and 10,000 puts and the same dealer holds a long position and want a short position in the other. And there's actually no optionality on that line, right? And you don't know any of that. So the...”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“About a call option that's expiring later that day. And it's maybe that call option is currently in the money by 50 basis points. And you're kind of expecting to end up in the money and to get stock. But then if all it takes is a 1% sell-off and now all of a sudden you're an equal amount out of the money. And if you've only got a couple hours left, you know, the delta could be swinging from 90 to 10. And you could be having to aggressively re-hedge if you're short that option or long that option, right? And so that's the interesting characteristic of expiration is you have lots and lots and lots of random option positions that dynamic hedgers, market makers, volatility arbitrage managers might need to hedge in different ways kind of aggressively and maybe unexpectedly based on what happens to stocks, right? And so the”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So, you know, options expiration is just the regular periodic expiration of options. You think of there's monthly expiration and then there's somewhat bigger quarterly expirations where you also have where you have the monthlies rolling off and also quarterlies. The thing that is a little interesting about expiration is when you think about an option the dynamism of that option in the sense of how fast its risk exposures change as the underlying price changes for a very long dated option it's a very non-dynamic for a very short dated option that's about to expire if the underlying stock price we'll talk about stocks it's the same for anything right is pretty close to the to the strike and the option is very close to expiration that's an extremely dynamic risk position where just think for a second”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“I mean, in general, no. The option market doesn't hold in the aggregate like lots and lots and lots of real risk. In any one given investor's portfolio, I think if you found a hedge fund that had a big complicated option portfolio and wasn't thinking about their interest rate exposure and wasn't managing it, like they may have lost a percentage point or two accidentally or made a percentage point or two accidentally. But I think that's pretty unusual. I mean, I think for the most part, In the aggregate, that's a very small exposure in options markets as compared to the more primary types of factors that we would think.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Where I tend to believe, at least part of the narrative, anything similar to you, that big fast moves up in rates, spooked a lot of investors in equities and risk assets, especially tech investors. And that was one of the reasons why we saw a lot of selling of tech. Another reason was just that tech had massively gone up for arguably no particularly good reason the year or two before, especially, and not just tech as a whole, especially the more speculative, unprofitable tech. There's the number of price charts that you look at, right, that just massively rocket shipped, went up 5x in a year or two, and then have then come right back down. Sort of every chart looks the same within that space. And so interest rates probably helped catalyze that unwind, but the unwind kind of needed to happen because they went up because tiger bonds.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Selling equity wall and buying Treasury Wall or something like that. But again, because the correlation is so low, there's not a strong transmission mechanism there where if one gets too high, people will sell it and buy the other one. That works with things that are 90% correlated, right? Not with things that are sort of 40% correlated. So I think it's more the latter, right?”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Vol follows moves and stuff. Vol is about kind of what the underlying spot price has done and is likely to do and what are people worried about, right? I don't think there aren't really. Strong first order cross asset of all linkages in the sense that if equity vol goes up, rates vol has to go up or vice versa, right? They are very different markets and there's lots of examples historically of big disconnections between the two often. Think back to 2018, we had some material equity market volatility in February of 2018 and again in December of 2018 and nothing macro cared at all and people kind of scratched their heads, but it's like this was just a technical weird squeeze in equity markets and a rerating of temporary rerating of equity multiples and why does that have to add anything to do with other ball there aren't you know that you would see some hedge funds doing things”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Phase shift in macro volatility, so in rates volatility currency volatility. And that really came from certainly those volts spiked in March of 2020 because everything was spiking and everything was crashing. But that was a very brief event and it wasn't really a macro driven event. I mean, the pandemic is macro in a way, right? But it wasn't, it didn't have interest rate drivers. It didn't have currency drivers versus this last six months. There's a lot of different things going on, but it's very caught up in this narrative around accelerating inflation, dramatically accelerating inflation. The Fed response to that, where yields and interest rates are going to go, what's going to happen to currency as a result, right? It's had much more of a core macro driver, and that's been reflected in some of the highest macro volatility that we've seen against since 2008.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“And also, it moves across the yield curve, right? And it wasn't necessarily one that had insane single day moves, although we had a lot of big ones, also it just had a huge trend and it liquidated lots and lots and lots of the typical sellers of volatility at the short end of the curve in rates. And so you're kind of, I think, slowly now starting to see some normalization there as the yield move kind of slowed down and realized volatility in rates has come back off a little bit. But this is really the first time in several years that there's been a sustained material”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“On the rate side, again, yeah, we don't really pay attention to the move index because it's not a thing that is tradable and is interesting, right? But it's what you can kind of, what they'll show on CNBC, but we'll certainly think about where at the front end of the curve, right, you have Treasury Futures options and your euro dollar options. And so those valls, along with the longer dated swap and implied balls that you would see are very high. They've started to come back down a little bit, but they actually got to 2008 type of levels about as high as they ever are in history, about a month ago. You think of the size of the rate. This is really the biggest fixed income sell-off, the biggest, fastest fixed income sell-off in history, pretty much. I mean, it exceeded the size of a 94 moves certainly in losses on duration.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“So credit ball is a meaningful market, but it's nowhere near as big as markets in equity ball or in rates vall. So there aren't VIC-style indices in credit. You would look at typically at the price of the normal implied ball of swapsions on the IG or high yield indices that you could pull up on Bloomberg. Generally, those trade fairly short data, they tend to be like with anything there's risk premium sellers that are trying to earn some yield and then there's hedgers who are trying to buy. More recently, you've seen a lot of flow in some of the major ETFs. So a typical credit account for hedging purposes might be put buyer or a put spread buyer in HYG, for example, which is your typical most liquid high yield credit ETF.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Right, because the stocks only go down now. Yeah, that's right. I mean, an order gets into the weaves, right? But like the way that an order is going to be represented in the market, even if we want to buy 10,000 of these particular options, there's only going to be a few of those out in the market at once on the bid, and it's going to be canceling and replacing the price, the limit price potentially at the millisecond frequency or whatever as the market's moving and being designed to just slowly chisel into that position at mid-market or better.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Right. So you express a ton of, I guess you could say, limit orders for a ton of securities that you will only get filled on some of them. That's different than you sort of calling up your trader and being like, you know what? To see Walmart's, they're reporting their earnings tonight. Let's buy some calls. I should say. Yeah.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Dynamically in high frequency ahead of the market makers for all those options we're trying to buy, and we'll be the best offer in the market ahead of the market makers in everything that we want to sell. But we won't be on the other side also. We won't be making a market bid and ask because that's not our job. We're not market makers. We're just trying to get into positions or get out.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Everybody used to trade like the latter because why would you like deal with all of this complicated stuff of like trading lots of options electronically and coding robots and all this stuff if you just call a bank? Banks deal with that. You just call a bank, you call five banks, you get the best price and you execute that, right? But that's what's changed in the market. So there are still people that try to trade like that that have no other option, that don't have other capabilities. But liquidity for large liquidity withdrawing trades requiring capital commitment from banks and counterparties is very poor. That's the point. So when we have risk that we want, we're representing our interest looking like a market maker, but only on one side of the market. That's what I mean. So if there's these 5,000 options we want to buy, maybe we're adding to a dispersion strategy. And these are all the single aim options that we want to buy. And then here's the index options that we want to sell. We will be best bid in the market.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sure, absolutely. So volumes in the market are very large in equity options, let's say, in the US, right? And because there's a lot of volume, if one is interacting with that volume in the way that a market maker does simply by being out in the market, being the best bid in the market for everything that you want to buy and being the best offer in the market for everything that you want to sell, and there's all kinds of different market participants coming in and buying and selling all kinds of stuff, right? Then you are able to accumulate inventory that you want at mid-market or better than mid-market very easily steadily over time. But there are no banks don't have risk-taking capability anymore. So you can't call a bank and say, I need a price in $10 billion of notional of this big trade and expect to get a tight market and be able to get done, right? That's the point. And in the old days,”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sure, and really that's referring to trade execution. So when you think about the market environment that we're in, really the last several years, I think what I would characterize liquidity as exceptionally good for anyone who is participating passively in the volume of the market and accumulating inventory, but excessively bad for any market participant, that is withdrawing liquidity aggressively from the marketplace by requiring a capital commitment trade, asking a market maker or a bank for a price in some big size to commit to.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“It's overpriced in general. And it's that balance of supply and demand that really sets where this ball trade. And yeah, Val's unsingle names is trading materially higher than it did in the quieter days of the pre-pandemic time.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sets that price, right? Who are the buyers? Who are the sellers? And what's the balance and what's the realized volatility delivering and therefore what's the buying pressure or the selling pressure? And so really the market participants there, obviously there's retail and how much demand they have for different kinds of options. There's big institutions doing hedging hedge funds are big users of options, even directional hedge funds that are primarily long short, primarily trying to express views on stocks are heavy users of options to shape the payoff distribution and the time horizon that they're looking for in a stock, right? They might not buy the stock. They might buy a call spot three-month call spread, or they might buy, if they have an earnings view, they might buy a call just very short dated right after earnings or all these kind of things, right? So that, and then you'll have, of course, yield harvesting type of people who want to sell volatility because they can.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“So certainly single name both realized and implied ball are higher in this environment than they are than they would have been say in 2019 by quite a lot as one would expect. Yeah, think of market makers depends on what you mean by set the price, right? I mean, market makers do move the prices of options quickly in the very short term in response to flow, right? So you mentioned GME. Certainly one job of a market maker when you have kind of a big stampeding herd coming in to buy call options, right? I mean, the market makes got a very dynamic about understanding when flow was coming and moving prices to accommodate and accumulate the inventory they needed to hedge and all that kind of thing. But market makers don't really in some sense set where the price of like average S&P 500 single name volatility is, right? I mean, supply and demand.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Crane, or because you know people are doing some hedging or demand or buying upside calls for that matter and single names on the other hand are moving like crazy. That's a way that a manager like us participates in that kind of opportunity set.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“In that underlying factor, sector rotation, crazy earnings moves, and so forth. You've also seen the indices, as we discussed, not really realizing that much volatility, a much healthier, more normal volatility risk premium in index as compared to the pre-COVID days when there was a lot more aggressive volatility selling. And so on average this year, the opportunity set really has been to be long single-in volatility and short index volatility. Again, in different sizes depending on how attractive that is at a moment in time with current pricing, right? But that's the kind of position where someone like us will be very dynamic. Sometimes the opportunity is the other way to be long index volatility and short single name volatility. But in a market where, again, index isn't really realizing that well is staying relatively bid because people are worried about you.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So, I mean, in general, in single name volatility and index volatility, folks like us, so for example, we have what's called the dispersion strategy, dispersion generally refers to trading volatility on the index versus volatility on the underlying components of the index and synthesizing an exposure that's related to correlation, to how correlated or decorrelated are the names in the index behaviing. And certainly there's been lots of good opportunities this year in dispersion where you've seen, again, very strong fundamentals for single name realized volatility.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“So, obviously, a huge amount of realized volatility someone's making money, but as someone who's trading the options specifically to get exposure to a first, second, or third order degree, not specifically just the directional way the stock is going to go, what are the opportunities there? Because you said earlier that retail call options are going down. So if it's not that retail investors are paying like perhaps a non-economic value for, they're overpaying for implied volatility, what's the opportunity?”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“That name overnight into terrible liquidity just to get out. And so you see these huge swings. Yeah, you see Facebook moving 30% on earnings, you know, Mega Cap Tech Tech names moving like crazy. combination of factors I think is driving a very very active landscape in single-in volatility plus amplified in some cases probably by complex option positioning among the retail community and dealer short gamma positioning and so forth so it's been a very fruitful landscape there and again a lot of that is sort of averaging out to some extent at the index level and in some sense you know making us feel more calm than it really is”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Sympathy moves that names have for other names on earnings announcement. I think you have a combination of a continued ongoing relatively low liquidity environment, again, in terms of banks' ability to warehouse risk. And you have lots of crowded positioning and hedge funds, hedge funds, long short equity hedge fund world has just gotten incredibly large. And people have very big positions on that they get stopped out of earnings come in poor and so a pod at 0.72.”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Rightly or wrongly, mostly rightly, I think people assign different sectors or different types of companies big betas to those factors, right? It's like, okay, yields are going up a lot. What should happen? Tech should sell off tech. There's this idea that tech is like a long duration asset, right? We have a bunch of growth out in the future and you have to discount those cash flows very heavily versus like energy and materials and cyclical stuff like that where it's like, oh, great, inflation, but prices for the stuff is way up and it's super robust and you're going to be able to get into new mines and dig new capacity at what used to be unprofitable. Now it's wildly profitable. And so that stuff's up, right? So when you have the big yields up and inflation scare day, what do you have? You have tech selling off. You have all that other stuff rallying and at the index level it's kind of netting up, right? And so I think that's part of it. And then another part of it really that you see in the earnings announcement moves and the”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT
“Yep, so that's totally been the story of this year, as you've said, right, is quite high single name realized volatility, pretty high sector volatility, much more moderate index volatility, right? Lots of diversification and decoration and rotation under the hood. What are the drivers of that? I mean, there certainly have been continued ongoing fundamental drivers of sector, factor, type of realized volatility and factor rotation, right? So you think of, okay, what are the big macro stories that people are excited about, inflation and interest rates?”
2022-06-20 · Forward Guidance · Trading Volatility in Volatile Markets | Benn Eifert · IDENTIFIED FROM THE TRANSCRIPT