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Dean Curnutt

lines on the record: 102
first: 2024-02-05
most recent: 2024-02-05
sittings or episodes: 1
sources: podcast

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“Well, you mentioned game plan, and I think oftentimes there is not enough of a game plan. You have to have a budget. You have to try to be consistent in sizing is critical. I think it's very easy even for experts to underestimate the sizing.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, that's the case. And I've looked at it on their earnings dates, big, big wins or losses for an individual stock. It just doesn't have a lot of impact on the other stocks. So day to day, I mean, look, the stocks themselves are correlated. All stocks are correlated, but relative to how they used to be correlated, it's actually quite low at this point in time.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“No stock can escape an economy that's truly in recession, right? It's really, really difficult. The flight to safety ultimately will go to the bond market. It'll go out of equities. And that's a more correlated event. So back to my, it's all about the cost of entry. 20 correlation for a six month option on the S&P. It's extraordinarily low and that feeds directly into the price of that option, the cost of hedging, which again, with no crystal ball, I just argue is just low.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Pushed each other around a little bit more than they do now, and I think that's underpriced. I think because there's so much wealth in these and because they're so spectacular, we know about the old Howard Marks concept of benchmark hugging. You'd be crazy not to own these stocks. You know, you're putting your career at risk, right? And so people are net long these stocks, they have to be. Certainly Vanguard and BlackRock and all the passive indexes are giantly alarm these things. And that's where all the wealth is. And so I think the market doesn't necessarily price a correlated move of these stocks. And to me, that gets down to the economy. At some point, you have an economics downdraft that's significant enough. Again, I'm not predicting it. I'm just saying.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“I mean, look, you could say Amazon and Tesla had very little to do with each other. Nvidia and Microsoft, you know, NVIDIA and Apple, right? I mean, they're tech companies in a lot of ways, but it's never the case that NVIDIA has a big earnings beat or miss and the stock moves a lot. And suddenly Amazon goes up or down a lot. That used to be the case where the stocks themselves”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“North of a trillion dollars in market capabulous, right? But those five companies where so much of the wealth is in the Q, in the S&P, these are historically top heavy indices. I think if you go back to something like 1970, maybe the tech bubbles end, you get something close to this, but it's very top heavy. Even among these stocks themselves, they're not correlated. And I think that's interesting. Now, look.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Given the six month implied vols on all the stocks and the six-month implied vol on the SP itself, I've got this little filler I can calculate. And that's the implied correlation, which is about 20%. That's about as low as we've ever seen it. Some of it's just because the market is, again, not volatile. Think about a period when stocks are up against COVID or the GFC or suddenly the economy changes or the Fed policy dominates everything. That's a macro variable that's going to move all stocks together. That's a higher correlation outcome. We certainly saw correlation a lot higher in 2022. As the Fed cycle matured and we got to what people conceived to be the end, the correlations come down a lot. I think when you talk about these top seven, the FAB five, whatever you want to call it, I mean, it's amazing. There's five companies now that.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Sure. Yeah. So you can look at index option prices and then you can make a comparison to let's just use the S&P to all 500 single stock options so that 500 about stocks in the S&P 500, each one of which has their own stock option. You do some math, you throw it in a spreadsheet, and you can effectively back out what the market, the relative price of the stock options and the index options suggests about how correlated the stocks will be. So if we think about an index, just like you said, it moves for two reasons. The stocks move and the extent to which they move together or not, right? Typically in low volatility like we're in now, the correlation across stocks is very low as well. It's exceedingly low right now. So this idea of implied correlation, I can look at six month options on the S&P and I can back out.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so a three month 10 delta put on the SP cost about. Almost 50 basis points. If rates were zero, it would cost about 60. It's 20%. It's not nothing.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Option prices are not at an all time low, and I'm not suggesting that they're cheap relative to the almost motionless of the stock market, right? The market's not moving, so option prices are low. But I do think that there's enough on the horizon that gives me concern. And the two things are just the treasury market, all the debt we're trying to put on with no adults in the room, no adults in the political stage as well. And potentially the impact of long and variables still not being felt. And the last thing I'll say is interest rates make their way into option prices in a kind of a sneaky way. And this is really not what the VAL community focuses on, but there's this green. So, for a given strike and expiration, that 5% interest rate actually lowers the put price by not by kind of a meaningful amount.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so here's what I would say it's very difficult to pick a comp as appetizing as the pre-GFC period 2006, 2007. You know, you had this powder keg of systemic risk building and the cheapest option prices in history, whether you're looking at credit, equities, fx options. You could have them for a song. Flip side, extremely expensive options in early 2009. As the system is starting to finally get its legs underneath it with great help from the Fed and the Treasury and committed to continuing to do it, you're forced to pay 40 VIX. So that's a really hard bar. Same thing in 2021. Still COVID, still worrisome. There's a lot of pictures of distress you can still or scenarios of distress you can still think about, but option prices are very, very high. Here you have a situation where stocks are at an all-time high.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“And so you really want to be able to be a buyer of those outrageously cheap assets because at some point you know the Fed and the Treasury. They don't want the assets to further cheapen. Their game plan is to try to pump them back up, right? And so what you need to be able to do is put yourself in a position where you have the capital to do that. So what Ackman was able to do is protect his existing portfolio, but give him money to essentially execute on his shopping list a very, very cheap stocks like Hilton Hotels. And so forth where everybody else was selling them.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“There's been a lot of option premium that's been eviscerated, certainly in 2023. And for most periods, it tends to be a better time to sell options than buy them. But what we do know about these periods of these episodes of crisis is that they can come from any sort of any asset class can be the source of it. It can come geopolitically. It can come internationally. And they can be very, very substantial, right? And so the other part is most of these risk-offs, when they get serious enough, I hate the word Fed put, but you know that the cavalry is coming.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Now there are times when option prices get so cheap that and the market just trends higher that you could do very well, right? Just owning it. So it really becomes a function of how significant the trend is. You've got to be consistently trending one way or the next for the option to work because remember options as glorious as some of their financial characteristics are this idea of being long gamma right is an incredibly valuable thing to be able to have an asset that gets longer on the way up and less long on the way down credible well of course the person that gave that to you wants something for it right that's the option premium so as a long option holder you're always fighting that time decay and it's hard i mean it's it's a tricky thing”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yes, a fantastic. That's where that positive correlation between stocks and bonds worked for you wonderfully. Yeah, look, the way volt traders tend to think about this is you do tend to think about the daily moves. So you could wind up flat in a market. Again, we could take the treasury market of last year. The market didn't go anywhere. But in a lot of ways, the ValTrader did quite well, you know, because you had these just historic SVB. you know, the November episode, the Bear Steepening episode of late August into November. So directionally, you could wind up where you started if your daily moves are big enough, the Val Trader's idea is to monetize those.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“What about the surge that started in, I think, the 1st of November? I imagine volatility was higher. Again, and I always get this confused in options terms on a period about the period of in question, like if stocks go up 1% and then go down, if they go up 1% on Monday, go down 1% on Tuesday, go up 1% on Wednesday, go down 1% on Thursday, all for one month. I guess maybe the realized volatility would be 16, but that doesn't seem that volatile to me. Whereas in November, maybe the daily moves were smaller, but that was a big surge. I mean, I think especially, I think the 20 day TLT plus TLT half SPY, that was a historic move, I would say.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“That's right. I think if you were just naked selling calls in the SP went up as much as it did, it's very easy to paint a picture where you lost money. The Delta run was enough. But if you have any little bit of stock hedge against it, the option premium that you were getting, which ended 2022 and started 2023, very high. You're getting paid so much, plus you have some Delta hedge that's running you long. It turned out to be profitable. So yeah, I do say it a little bit more from a option voltage perspective.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I just want to explain something, which is so 2023 obviously was a bull market. Stocks rose. So when you said what you just said is selling puts and selling out of the money, selling out of the money puts, selling out of the money calls both worked. Some people may be scratching their head saying, why would selling calls work in a bull market? I think what you're saying is because if you were hedged on the delta basis, so your only short volatility, you're short the call, but you bought a ton of stock, so you're not exposed directly and you kept on hedging. That's what you mean, right?”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“To the widermaker, I would just acknowledge that selling those has been wonderfully profitable, right? To be short vol in 2023 was a very good trade. The pricing of Val did not deliver. So being short it worked. Again, for a number of reasons, I like taking the other side of that. The biggest reason being I think the price of entry is low.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Was a day, and I want to say it was November of 2022. The S&P moved up 5%. It was one of these CPI days, big relief. And, you know, the dollar crashed down, which was music to the market's ears. Rates came down and the stock market, which was probably very underpositioned institutionally, had this giant rip higher. And so that makes that upside call worth a lot. So it makes its way into flattening the skew. Right now, we have a much lower valle dynamic. It's probably half of what we had in November of 2022 in terms of implieds. But the skew is actually also pretty flat. So you're looking at how do the money puts might cost $14 or $15. It all depends on what strike you choose. The upside call is going to cost you 10. Honestly, I like both of them. I think they're both cheap. And again, I bet.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Option pricing is it flatten the skew enormously. So if I'm thinking about buying a put that's a 10% out of the money put, what vol do I pay versus a 10% upside call? I'm sort of looking at the relative severity of the down mover is the upside. And I'm telling you this was flipped on its head in 2022. And so the skew got very flat where the upside call actually had a lot of value. People were buying the upside call because the market was jumping up.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Markets crash down. Markets crash down, not up. Except game stuff, except meme stocks. But 2022 was actually really unique in the sense that the market was volatile. S&P realized 24 on the year. That's a lot. It's about a percent and a half a day or a little 16 widget. Divide 24 by 16. But what was really unique is that the realized vial in the up days was about a point and a half higher than the realized volume the down days. That's nearly without precedent. Now, again, in meme stocks, that's happened. For a giant index of large cap stocks, that doesn't happen. Not over the course of a year. And so there are a lot of things going on there. The why of it is the number of explanations. But the way it made itself into”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“To answer your question on the SKU, we can kind of think about the relative implied volatility across different strikes. And I made the point earlier that implied volatility is really driven largely by realized volatility, right? It's the more a stock moves, the higher the option cost is going to be, the higher the implied volatility. The skew is similar. In other words, I can think about the implied volatility that the market assigns, let's just say, to an out-of-the-money put on the S&P relative to the out of the money call, as some function of the relative degree of the force of the up moves versus the down moves. Typically markets move down faster than they move up, right? Escalator up, elevator down, right? Markets crash up, not down. 2022 is really unique in that.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“The cheapness or relative expense of your being long at China ETF is based on the skew of how much the outer price one is, if it's more expensive, you can use that to finance or more expensive on a relative basis. When you look at the term structure, or I should say the skew of the S&P 500 vol space, what are you seeing, you know, what are you going to take that the vault structure is giving you? I'm going to take a guess, you know, as we mentioned, real estate volatility is low, implied volatility is low, but where is it on the wings? Like what is the odds of a tail risk that the S&P would go down below 3,000 in a few months? And also, if we're in a bull market, I mean, how cheap are calls? Are calls systemically underpriced in an upward trending market in the same way that puts our overpriced, even though there's a reason there's a good...”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Some, not all, of course, of the premium for the lower strike called by selling off an upper strike call. So I'm kind of starting to look at some of that stuff as well.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Find it to be more fun, and just I'm more equipped to think about the tales, you know, and it doesn't necessarily have to be the Armageddon tale. There's upside tails that we're supposed to think about as well. And, you know, when the pricing sets up, I'll tell you, I'm looking at something in FXI. That's an easy asset to hate, right? But it's also the price might reflect it. And so are there option structures that allow us to buy exposure in a risk-controlled way to the FXI? There's an old saying among option market people, take what the vowel surface gives you, right? So I can't predict anything, but there's some instances when option price is really set up a trade. And there are certain structures in FXI where you can do call spreads that look pretty economical. You're getting good economics to be along the lower strike call and then finance.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Right. And it's very humbling, right? I think we're supposed to be humbled by the stuff that we don't know. It's surprises, I think we're supposed to. And I think that's really what I try to do when I look at option prices. Most people live in the base case, the central tendency. You ask a strategist, what's the S&P going to be up or down this year? You know, that to me is your base case. I find that exercise to be painful for those folks because there's no sense of what's the path. how volatile the path is.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think that there's a certain category of market events where on a CYA basis, you're told under no circumstance be short that risk. Cover it off. I don't care what it costs. So I always remember back to Brexit, the period before Brexit, the central asset to follow to me to indicate the severity of the market's expectation around June of 2024, that vote was implied voluntary pound. It got to outrageously high levels, so uneconomical to buy. And I just think of it as someone gets tapped on the shoulder and is like, listen, I don't care what it costs. Just buy the put, you know. I want to be hedged. And I think there were some similar sense in, it certainly made its way right at the end in 2016 where it suddenly appeared that, wow, these polls are much closer than we thought. Remember, people thought that the Trump candidacy was doomed. And suddenly it was like, wow, this guy might have something here. And you saw it emerge in the VIX then. And it certainly happened in 2020.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Does not make me comfortable set against very skinny option prices. I think there's a disconnect there. It reminds me a little bit of cyber risk. How are you going to hedge a cyber attack? What are you going to do? You don't know if it's even happening until it's happened. If you look at the VIX curve all the way out into October and November, there is what we call a kink. And it just goes up almost for no reason. And you could argue that the market is effectively saying that that first Tuesday in November is a special day and a potentially volatile day, right? So it's already making its way into market pricing. The event 10 months from now is already making its way into market pricing, which is pretty unique. We saw it in 2016 a little bit. We saw it in 2020, but it's already made its way into 2024's pricing.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“The looming contest between two presidents and two Americas, one headline, second is Elon Musk is spreading misinformation, but X's fact-checkers are long gone. And in the first one is by Thomas Friedman, incredible author and columnist, a Titanic geopolitical struggle is underway. So, you know, geopolitical risk, political risk, almost always more bark than bite. you know, it finds a way. I just can't help but think that the US as the centerpiece of risk.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“You know, you're not just your front month VIX future, but your second month VIX future well below 20. Again, the economics of these things are that you usually lose. That's insurance. But I think the entry point is sufficiently interesting. Just touch on the election really quickly. I think, boy, it's going to be a rough one just in terms of us as citizens, right? We've got the celebrity death match here. No one wants it to happen. I want to just read to you. I just wanted to give you three or four New York Times headlines. And this has nothing to do with the New York Times. This is to do with, you know, where we are as a country. So I just took a screen grab of these things here. So let me just pull it up. So this is the times from today.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“For logical reasons, most of the VICs action is going to be in Feb and March right now. So you're going to The curve is going to impose a point roughly per month on you for each of those months. Still low, you know, you still have an entry point. I mean, for a long period of time, it was over a year, the second month VIX feature was stuck above 20. You know, part of the COVID crisis, it wrought so much capital destruction to the equity derivatives community, people that were short vial going in, lost so much money that even as all these other metrics, we talked about the move index going to 40 in 2021, the VIX and sort of other metrics that are related to it spent a lot of time at very elevated levels. And I think that was a function of there just wasn't enough capital. Maybe it was in the psychology of fear where people weren't willing to step in. But finally, you broke it. And so now you've got.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“So you have had even more upward slope and curves, but the fact is it's punishing. It's the roll down effect. With VIX options, there's a couple things going on. The VIX is a very unique thing. It's forward starting one-month vol. If you buy nine-month VIX futures, and we'll just touch on the election for a quick sec, but the nine-month VIX future or 10-month VIX future, that's going to get you out into October, November. You're betting on one month vol in 10 months. That's just not something people bet on a lot. Occasionally, I'll see a six-month VIX option trade go up. And there's not a lot of liquidity out there. And it just doesn't seem to me to be a lot of motivation to say, well, in six months, I think one month VAL is going to go up or down a lot. That just doesn't resonate with most people. So for liquidity reasons.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“They don't tend to last that long, the GFC. You've got a pretty lengthy period there, maybe nine months of backgradation. COVID was shorter in intense background but shorter. And here we are in Kantango. I would say we're middle of the road Contango. I've seen steeper curves. I'm recalling, I want to say it's back in 2012. The VIX was at 13 and the one year VIX was at 25 or so.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, Kontango, it's a son of a bitch. It steals value from your trade. It's a thing in commodity curves. It's a thing in rates, obviously. We're inverted now, but the resting point typically for the US Treasury yield curve is Kontango. You can say that the banking system functions better, much better in Katango. It's built on Katango. And the SP Vall term structure, especially its natural resting place where it spends 80% of its time, is in Kantango. A risk off where realized VAL explodes is going to lift the VIX relative to the outmonths. That's going to be your backgradation.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“She talked about calls, call spreads on the VIX, and I'm saying it's for the audience, there is no VIX that you can buy a spot VIX. You can only buy futures on that VIX. And so let's see, there's the February futures, the March futures, the April futures, as we record this in late January. And generally, March is going to cost more than February. April is going to cost more than March. The curve is in contact or upward sloping. So that also, it's a yet another reason why hedging is more expensive. I'm looking at the term structure now and 14. So the spot VIX is at 13. You can't buy that. February is at 14. March is at 15. And then all the way going into September, it's at 17. So it generally nearly always or very, very often is upward sloping. How upward sloping is this now? Because, you know, if VIX is at 11, but in six months, the VIX future is at 21. You're not buying 11. You're buying 21.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“2024 is upon us. I can't help but think that this election season is going to be bruising and that I'm still in the long and variable lags camp. I just think that at some point this stuff, even if the Fed starts to embark on an easy cycle, long and variable is going to start to make its way into the economy. And that'll effectively have some impact on corporate profits. Maybe not huge, but you don't need a lot for this VIX trade to these VIX calls to work.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“That's what we like to call it. So the VVIX. So you combine this low VIX with this low VVIX, and you get some pretty interesting economics for VIX calls, VIX call spreads. Again, these things haven't paid off. My own base case is to expect them not to pay off. That's not why you buy insurance, right? You're not betting on it. You're trying to spend as little money as possible and get as much protection as possible. And for the reasons of the pricing themselves, and look, my view is.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Definitionally a widowmaker trade is priced based on the fact that a lot of people have had a bad experience with it before. And I kind of feel like Vic's calls and Vick's call spreads. There's a version of a widowmaker there where the VIX is very low. Not only is the stock market been very muted in terms of its volatility, the VIX itself has been very muted. So you could just run the realized volatility of the VIX. It's extraordinarily low in a kind of second percentile over the last five years or so. When the VIX is low, option prices on the VIX are low as well. So you have two things going on.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“It doesn't move enough to justify even option prices that are pretty low. It's got a very low implied volatility. But folks have found it difficult to capitalize on a risk-off basis. I'll throw just conceptually a trade or just the concept of a trade that I really like. And, you know, the old saying the widowmaker, right? I kind of like buying the widowmaker. I think that.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“So you had this thing, I called it rush rates up, stock spreads higher. That's an atypical thing, right? If interest rates would go up, you typically have the risk on risk off regime of yesteryear, spreads would come in. And so you think, okay, if I want to use the HYG, and I think the HYG is going to fall, I'm basically betting that both interest rates rise because there's a bond component here and spreads widen at the same time. I like that a ton in 2022. I thought that set up really, really well, it worked. It didn't work nearly as well as I thought it did, but you did get that movement where rates went up and there was some deterioration in the credit outlook, not a recession type deterioration, but one that certainly had credit spreads widening. I think now with HYG, you're a little bit middle of the road, and I just would report what clients report back to me is a lot of frustration with that instrument. It just...”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“It is very interesting that corporate balance sheet fundamentals. And again, I think some of this goes back to what I referenced earlier, which is companies did a great job of terming out debt at extremely low rates. That's not going to last forever. Maybe the Fed easing cycle saves everybody, right? And we actually do get to those six cuts and beyond. Hard, hard to know. But the HYG is another interesting one to look at. And as you reference, Jack, that's an index of bond prices, right? high yield bond prices, which have both an interest rate and a credit spread component. As we talked about the stock bond correlation, where it went from rates up, stocks down, stocks down rates, sorry, stocks down rates down in the old days, of correlation to the opposite where they're moving in the same direction. The same thing happened with credit spreads versus rates.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, yeah. So there's an IG CDX, right? Those credit spreads are low, not pre-GFC low, but they're certainly low. And I think that's kind of one thing. If I were to step back and look at essentially what's happened here is the Fed found a way to raise rates 500 basis points, obviously increase the cost of capital substantially for these companies, but the spread itself hasn't adjusted all that much. Now there are businesses and some of which are in secular decline, which have seen significantly wider credit spreads. But if you just take it on an index basis, you just haven't seen all that much, right? So companies are facing a considerably higher cost of capital, but that's just because the base rate is a lot higher. It's not that the credit worthiness of the company has widened a great deal, right? So that's a...”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“In the realm of the dealers, right, who price this stuff and send out runs, and then they're executing on a OTC bilateral basis with clients.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“On both of those fronts, yes, not as low as it has been. It's not a record low. It might be some version of equivalent to the VIX sitting here at 13 and the low VIX being 9. You mentioned, so I think it was Procter& Gamble that priced more paper. Probably a safer bet than the U.S. Treasury, to be honest. At least it's trying to run a positive, profitable enterprise. You're right. There's a couple of ways to look at credit protection, right? There's options on credit. And that's a OTC universe. That's what Bill Ackman utilized so effectively. Pricing on that is not all that transparent. There's certainly trades that go through the market. You can track them a little bit more than you used to. So post the GFC, it was the Treasury created this swap depository registry that allows you to see prints go up after the fact. But a lot of this stuff is sort of.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Some very boring, safe company just priced an investment grade bond at the lowest spread ever. So talk about credit stress. No, there's no financing stress, at least in the investment grade bond market. So would it also be true? I know that credit spreads have narrowed consistently over last year. So maybe is realized volatility low in credit and is implied volatility low too?”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and what are you seeing in credit right now, credit volatility? Obviously, the credit default swap complex, I believe, is not what it was prior to the great financial crisis because there's regulation about, you know, it's basically, I think, holds, you know, you have to have more capital to hold these positions. But you can look at call options or put options on a high yield ETF or even ETFs or products that are just the credit spread. So it's kind of similar to credit default swap. And I believe I read in Bloomberg that”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Equity exposure. You know, sometimes I'll look at gold. I think gold's got some very interesting characteristics. So it's about trying to find a deal that might have a better financial setup than options on the S&P. I find that to be the starting point for the process. And a lot of it's just backtests. It's very hard to forecast things, but you try to just put the grid together and look at the numbers in a dispassionate from a dispassionate framework.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Listen, I'm open-minded on that. I wasn't last year. I certainly thought we would be, we would have more of a slowdown than we do now. But when you look at the period where the bond market did its best as a hedge to the stock market, it was what really when the risks of growth shortfall were top of mind for people. And that was, you know, post GFC, even though it was a generally low vol period, we were constantly worried about deflation or too much disinflation, you know, the economy was kind of sputtering a little bit. It was the 2% real GDP for many, many years. Other assets, right? Credit. We could look at options on credit or even just buying credit default swaps as a proxy for being short the stock market or being long.”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT
“Because everybody wants it, because it's the most obvious form of protection. In some ways, it tends to be the worst deal. So it's liquid. And that's important. I think as a hedger, you've got to find a way to monetize your trades very quickly. I find people do stuff that's way too complicated. And so the interest in hedging starts with the S&P and that leads to a lot of drag in terms. And so you try to think about these proxy assets. What are the assets that are going to do well in a risk off consistently, right? So, you know, we talked about the treasury market. Now, that, of course, that correlation is flipped. That's not nearly as reliable as it used to be. I think ultimately it will reexert itself as a risk-off asset when we suffer a growth shortfall, right?”
2024-02-05 · Forward Guidance · Dean Curnutt: Market Insurance Is Cheap, Stock-Bond Correlation Is Positive, And “Interesting” VIX Opportunities · IDENTIFIED FROM THE TRANSCRIPT