YouSaid · the spoken record

Kris Sidial

lines on the record: 101
first: 2023-06-25
most recent: 2023-06-25
sittings or episodes: 1
sources: podcast

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“Yeah, well, of course, right? On the other side, there has to be a buyer of these type of options. I would say market makers end up inventorying that type of stuff, majority of the time. And it works out, right? Because at the end of the day, if you're a market maker, you're utilizing these sort of zero DT stuff to help hedge your gamma risk much more effectively than you did previously, right? So that's kind of the fit and fit that we end up seeing is that, all right, market makers are using this to hedge their own exposure in a cleaner manner, whereas the end user is actually the one that's ending up selling them, right? And I think one of the largest amount of cell flow that we identified was actually coming from the RA community, right? So you may have like an RAA that's out in the Midwest that may say, hey, I want to generate, you know, another 4% for my client this year. How do I do that? Well, let me sell zero DTT S&P options that are 2% out the money, you know, on the calls or the puts or”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“There's tons of people that are trading them. I think the important thing to understand about that is that, you know, the narrative that was driven by a lot of the media was that this is retail driven, whereas that's not true. It was really more so larger institutions are using this in different fashions. And in the paper, we talk about how these institutions are using this in different manners. I would say the other misconception was that everybody is YOLOing the zero DT options. And when you looked at the data, it said something completely different. Everybody's actually selling these zero DT options for some sort of overlay or some sort of a yield program. Who's buying that?”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, this is a super hot topic. And we wrote a paper about it that got a good amount of traction that we're quite happy about because it seems like people had a lot of misconceptions around the zero DT options. Everybody's trading these sort of zero DT options today, right? I would say that it's become a big part of the derivatives ecosystem. You know, you're seeing market makers, you're seeing fall shops, you're seeing larger insurance plans, you're seeing”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“The tales and what this looks like for the investor at the end of the day is that they're flat on all of those by the end of the day while still being long the tails. So if a tale event happens, they are always in that sort of tail protection. But the alpha that's being generated does not deteriorate the sort of, or I'm sorry, the tails that's being carried is offset by the alpha that's being generated. So it's really this sort of balancing act there.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“No, I would say with a couple of the sleeves, they do have a little bit of correlation. It's slight, it's really slight. But the flavor of these type of things, right? The book, or the way how we think about this, you know, for investors is really, okay, if you have an investment or you have one side that is long tails effectively, and then in the other bucket that's running these sort of intraday strategies, you're looking to capture sort of like a behavioral dynamic. So maybe there are very aggressive buyers and sellers of a specific common stock or a specific derivative if we can go in and we could take advantage of that on a very shorter timeframe, right, within its like, whether it's like five minutes to an hour and a half or something like that, be very fast in and out of these trades, the returns that you make from there could”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“So, when you think of that, you know, VIX is effectively variance, right? There's realized vault, there's implied vault, and then there's variance that trades at a higher rate. So variance is really like volatility squared. And when you think about that, when you have variance trading under implied volatility, that's sort of like, that doesn't make sense. Things are dislocated. How in the world could that happen? Well, during events like that, those are situations that present itself, right? You don't want to put yourself in a situation when you're hedging against tail wrist to be in something that compromises that.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, totally. The term structure was absolutely backgradated. They weren't pricing out that sort of forward vault at the same rate. They were pricing out short dated. So it definitely wasn't that like December was at 90 or higher sloping or anything like that. But that's the thing, right? It's like for that scenario, that is absolutely true. But like the next tail event may be different, right? The whole term structure may move in unison. Like it may move up the exact same amount of wallpoints. And that sounds abnormal to some people, right? Like that sounds super abnormal to some people to say that like how in the world could that happen? But you had very weird things that took place during that sort of time. I think there was one time period. Ben Eifer talks about this a lot, right? Where there was a time period during, I think in February, implied variance was trading lower than S&P implied vault.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“And if you remember in March 2020, I think the spot VIX went to 80 around there. I mean, I'm sure you know, but what did forward volatility, like what did December 2020 VIX future, what did that trade at during, let's say, I think the bottom was, I'm showing off now, the bottom was March 23rd. I think the peak in VIX was actually March 18th. Was it like was December 2020 priced at 90? Like it was still upward sloping or when you have this sort of cascade liquidation and the VIC spikes to 80, is the term structure backwardated and the forward December's price at 50 or 40?”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“This move this way, and we didn't think this would move that way, and we ended up losing money or something like that, right? Because at the end of the day, then it's pointless. It's important as people who are thinking about tail risk investing to make sure they are invested in something that does not compromise the mandate of what they're trying to do. And when you're in these sort of structures that carry these type of basis risk, timing, risk, belly risk, it can be good for a trade, for a speculative trade, totally, right? If you say, I want to sell December volume by front month volume, yeah, totally. Maybe that works out and you get a spike and you make money. But as from a tail event where things can get really dislocated and crazy, that's just a risk that you probably don't want to take.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, exactly that, right? And they were saying, Oh, we're Vega flat, and we are long tails like. And what ended up happening was as the S&P was going crazy and S&P fall was going crazy, they were losing so much money, but the long credit fall that they were carrying did not catch up until the end. If you look at credit vault, it wasn't exploding during February. It started getting crazy during that time, like I think the second or third week of March is when credit ball started to blow out. So they were losing so much money on the short S&P vault. And then finally, the credit vault caught up. But these are the type of risks as a tail risk investor you don't want to take. You want to avoid that type of thing because the last thing you want is during a crash, the manager comes and says, oh, I'm sorry, we only made 8% or oh, I'm sorry.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“We've heard this millions of times, and one thing about a tail event that you can guarantee is that it won't be similar to the previous tail event, right? And I actually knew people who were traders that applied these sort of, again, dogmatic sort of structures, but they say, yeah, just sell the December and then buy the short data. And then maybe in the next tail event, maybe it's something that prices the term structure completely wacky. And the December volatility that you're short. Blows out further than the front month stuff that you're long. And I know many people may say, well, that could never happen, but that's what a tail event is. And we actually saw this as well with a couple of other firms in March of 2020 when they were short credit volt to buy S&P vault or sorry, they were short S&P vault to buy credit vault.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“I'll explain that one as well. But what you saw during March of 2020 was that a lot of these funds that were supposedly tail risk funds or tail risk strategies, they lost a ton of money. And people were saying, well, how in the world did you lose money when you were a tailor risk fund? And volatility went through the roof. And that goes right into what you were talking about, right? Why wouldn't you just sell December volatility to fund short-dated volatility? Because if something happens, you know, the front of the term structure is going to blow out and you're going to make way more money.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, totally, Jack. You're playing down my line now. Now we're going to go down the good stuff. So the reason why I said, and we can only discuss us from a strategy standpoint because, you know, we can't talk about other managers or whatnot. But the reason why I said we focus on a lot of short-term intraday prop strategies to offset the bleed is because those type of strategies hold zero correlation to the broad market, right? And they hold zero correlation to one another. And this becomes really important when you're constructing a portfolio because especially a tail risk catch, because previously, you've heard of a couple of firms that used to market themselves as carry neutrals slash long convexity, right? So they'll be, hey, we're going to make you money as the market goes up. And then when a crash happens, we're going to make you a ton. But inside of these sort of these sort of strategies, they carry different forms of risk, which could be belly risk, basis risk, timing risk.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“And you're like, oh, wow, now I lost 50% after a three four year time horizon. So in terms of what the investor should be looking to protect against when they think about tail events, you know, there's many other things that are better as a solution for a portfolio than a tail risk hedge to protect against a longer timeframe drawdown. So I think short dated stuff is truly in the bucket of tail reschetching.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“No, I think that it really depends on the path that you're trying to cover, right? Like a lot of hedging is path dependent to an extent, right? And if you're looking to protect against a tail event, most likely you're going to be looking to protect against one to maybe six month event, right? A S&P drawdown of 20% over the course of three years, that's not really a tail event, right? The tail event is a scenario where you may be invested in stocks or private alternatives and things like that, and you wake up and you realize something's going on. And in two weeks or a month, your net worth has been decreased by 50%, right? That's a true tail event. It's not a scenario where you say, oh, it's three years now down the line, right? And the market's just been slowly grinding.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“What a bucket of very out of the money put on the S&P, very out of the money puts on the S&P, very out of the money calls on also sort of these VIX products, and perhaps very out of the money puts on single stock names, but very short dated, one month, two month, and none of the one year's product. Is that still tail risk or is there something that's missing when you only have short data volatility?”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Perfect example, hedging with front month VIX futures could be great, but if you just do it dogmatically, those are the results you're going to get. You're just going to lose money consistently. And then when it does spike, that spike is not even going to bring you back to even.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Or the fund, the manager doesn't provide alpha. And then really what happens is the investor is really dissatisfied with the end result. But really, it was an educational thing, right? It was this, you should have understood that something with such a heavy bleed and the impact that it will have to your portfolio may be suboptimal over a time frame of 15 or 20 years or something like that. And that's kind of why I think our approach, we did this whole like presentation at the Global EQD conference, not this past one, but the year before, really discussing this sort of new unique way to trade tail risk where you could use a lot of active intraday prop trading to offset the bleed and then belong the tail so that at the end of the day you're flat. But if in the case of a crash, you have a significant return. And I think for investors, that's just a much cleaner way than just by put and bleed, right? Because as what you said with UVXY.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Totally, totally, exactly. And that's what that whole sort of compounding effect does is because the geometric return at the end is higher because, yeah, now when you have this big explosive return in a crash, you're able to now take those returns and then reinvest it into the market and you outperform significantly. But if done incorrectly and nine out of 10 times some of these managers will do this incorrectly or these sort of programs will do this incorrectly, that's what you end up getting, right? And to me, I think that there's just a big disconnect from the industry because what ends up happening is you have investors that are always seeking alpha. And nine times out of ten, these sort of dogmatic tail risk approaches or even some tail risk funds that we've seen apply these type of approaches. So what ends up happening is the investor goes in and they invest and they're like, this is great. You know, I'm going to have a tail risk hedge and then either the strategy doesn't provide.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“And is that assuming that when Puts finally pay off that the investor reinvests those proceeds at lower prices now that the S&P 500 because you expect most Tailbox projects to have negatively returned. So that's even after they got the assist from the math.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“One chart that we have. I wish I could show you the chart on here, but there's some other stuff on there that I guess we can't share. But really what it shows is that, look, dogmatically buying one month S&P puts was worse for you over the last 15 years than just being unhedged completely. So you could have just said forget the puts. I'm just going to be unhedged and return with a higher career than using that sort of tail risk hedge. And the reason why is because of the bleed. So that's why our view is that, all right, if you could do something where you just are flat, use a lot of active trading to be flat. And then in the case of the crash, have a significant return. It's significantly better than these sort of systematic approaches where you're just buying the tails and losing and losing and losing until you finally get a pop.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, totally. So it just has to, the alpha has to come from somewhere, right? Like you cannot escape that sort of view. And really, that's what we try to provide for investors is this sort of flat return. But then in the case of a crash, this sort of explosive return, right? So you're not bleeding out consistently. That's where it becomes challenging because if you go through, and this brings up the whole like ergonicity sort of component, which it's like, where do you land in time, right? So maybe if you invest in a poor tail risk strategy today, a crash happens tomorrow and immediately you make a large return. And then you just bleed, bleed, bleed, bleed for years, right? Or here's another scenario where you start here, right, today and there's not a tail event for seven years and you bleed, bleed, bleed, bleed. And then when the crash happens, you don't even make half of what you initially invested. And at the end of the day, when you look at that, and we ran in our most recent investor letter, we ran this.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and so sorry, so it literally because it, I guess it does a reverse stock split. So now it's at 20 bucks. But if you bought it in October 7th, 2011 and you bought, it was that stock share is worth 20 bucks. Now it's worth less than 20 bucks. It just changed on my screen was worth 1.7 billion dollars. So if you bought 1.7 billion dollars worth of UVXY, it's now worth 20 bucks. So that, I mean, that's tail risk. And obviously you have that very negative correlation, which is very good. And that's why people do tail risk. But yeah, it's a negatively returning asset in the long term. And what you try and do is just limit that and try and get some very, very cheap puts. But people who are buying a one-year S&P 500 put are not doing that.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“You could just bleed, bleed, bleed, bleed, bleed, and then when the crash happens, you just get back to even or sometimes not even close back to even. It's just a poor application of it. So when you think of those sort of programs that are like, you know, buy a one year S&P put consistently, it's just one of those things we cringe at because it's just like, that's not the way how tail risk hedging should be done in general.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“So, some of these banks will package these sort of programs. It's quantitative investment solutions or strategies or something like that, right? So if you go to a large bank, they'll say, hey, we could do the hedging for you, right? But it's just some sort of dogmatic approach. And when you look at the results on something like this, people say, well, you know, tail risk hedging sucks. Well, it's because really you're in these programs that are going to provide you this sort of terrible product, right? Where it's consistent bleed and then every now and again you get this pop and you may just get back to even and you know then they're like well i just broke even on my tail risk hedge and you know that was that was that and some managers would argue well you were able to compound the returns so you had a higher geometric return at the end but like at the end of the day you you need some sort of alpha in the tail risk hedge tail risk hedging is a negative expected value bet to begin with right so having this sort of view that”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Totally, totally. And I mean, I feel like we are the guys in the room that just pound the table on being strictly against these sort of dogmatic vanilla passive hedging strategies. Like, you see that quite frequently, right? You'll have a person who will say, hey, I may have $20 million or maybe a family office that has like 200 million dollars or something like that, right? And then they say, or even a person with like $5 million, and they go and they look at some of these sort of solutions, tail risk solutions that they have, right? So they'll go to maybe like JP Morgan or Goldman Sachs or whatever platform they're on. And they're like, hey, you could be in this sort of program that buys a three-month option and it will roll it for you every two days or something like that. And what ends up happening is a lot of people gravitate to these sort of programs and also more sophisticated people too to the QIS programs.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“That sort of roll yield, that sort of volatility risk premium that you have to pay is jacked, right? So yeah, it's a weird view that the market has where the market is pretty much saying that maybe your recession takes place, maybe more economic instability and we'll price that vol at some sort of a significant premium. But today we don't think that there's no sort of tail event that's going to occur within a short dated timeframe.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Totally, 100%. And that's really the view, right? Is that the market is saying that, well, there's a chance maybe some sort of economic instability going forward, you know, so maybe we may come into a recession and they're pricing that sort of thing at a premium. But for right now, there is no tail event that's going to occur. And that's why you've seen one of the steepest fixed term structures, I'd say in history, probably. I'm not too sure where that would rank on a percentile base, but I definitely know that it is truly up there. I mean, the curve is one of the steepest curves that we have seen in a really long period of time. So it's really that, you know, you're seeing that sort of short dated thing where VIX is at 13 and then you're talking about in December or even, I think October, November maybe trading around the 20s right today as well. And I think that something like that is, you know, we were talking about the ETPs. Those can be detrimental for the ETPs, right? Because it's like.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“It. And so Vick's short term 30 day implied volatility. That has gone down a lot. What about the Vic's futures, I think, even though I know it never trades, but the December VIC's future is something above 20. So even though current volatility or front month VIX future is 13, or I guess that's spot VIX, which doesn't trade as 13, in December it's 21. So if you said, oh, I want to hedge my portfolio and buy a VIX future at in December, you'd actually, unless the VIX goes up eight points by then, you need that just to be flat. So is short dated volatility cheap relative to longer dated volatility?”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, you know, so it depends really what you're hedging, right? Long volatility hedging is different from tail risk hedging. Whereas like you look at the tails and you price these from like a local vault standpoint, you could look at like this option versus where that sort of floating strike 10 delta. I don't want to get too crazy, but like 10 delta Vix call was trading at six months ago, right? And check the vaults from that standpoint. But I would say generally vaults across the board are significantly cheaper, right? And yes, if you're thinking about something in terms of how much you had to pay for a, let's say, 10% one month out the money put on the S&P, it's been chopped in half, I would assume. I'd say that that's a fair assumption over the course of that time period ending in 2022 compared to today.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“No, I definitely do think the complacency can continue for a while. I do think that when volatility, there's that whole sort of thing like volatility can be bimodal, right? When it clusters, it clusters for a long period of time. And really, that's kind of our view. But the view, I guess I'd say we have is more so that, yes, this may go on for a long period of time, but when it does have its move, the move will not be like 2022. It will be more similar to 2020.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“So, does that, I mean, do you have a view Everyone is kind of complacent now because everyone's shorting volatility. The people who are long volatility, you know, they're kind of retreating. So actually, I think volatility is going to go up or you think kind of this complacency can continue for a while.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. That's front month VICS futures have just been destroyed for the last few months and those ETPs have got destroyed as well.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“That makes sense. So I mean, so people are shorting volatility, and that has become a somewhat popular trade. And long volatility, people who have been long vol have just suffered. I mean, if you just look at a chart of UVXY, which owns like, you know, the short-term VIX futures, it's tough out there.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“No, no, no, no, no. It's not double. I was just giving a hypothetical deer. But I'm just saying that when you think about things in those terms, you could see how another event that takes place that could be present some sort of systemic risk. You could see how volatility could go significantly higher than what people anticipate.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Didn't have these 40 act funds that were able to trade options. So now it becomes really interesting because you say to yourself, well, if back then, and I'm just giving a number of scaling, right? If let's say $500 worth of Vega was short, today you have $1,000 worth of Vega that's short, right? And that's just a hypothetical.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Correct, correct, right? So when you look at this environment today, the net notional Vega short is significantly higher than it was during January of 2020. And it's not only us. I think Morgan Stanley actually had a chart on this as well that was very much in line with what we were saying. And it's interesting because what that means is that when you think of, all right, January 2020 was a time period where volatility was really low, right? Everybody was making fun of people saying, you know, after the COVID crash, people were short variance swaps and all these people were short vault. Well, today that number is higher, right? That net notional number is higher. And a byproduct of that is all the new options that are out there, right, that can be traded, all the people that are trading these different type of products. More people have mandates that they're allowed to trade options, whereas prior to 2020.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Sort of dynamics that take place, especially because a lot more people are, I guess, in the view that volatility does not have that spikability anymore. The one thing that I would say what I thought was really, really interesting. We monitor the amount of net notional Vega that's traded, right? And what that means is the net amount of volatility for users when they this is how they should kind of think about it.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Are more likely to be selling volatility. Remember the feeling during 2021 when people spoke about selling volatility, right? It was almost like you were insane to sell volatility and that ended up being one of the best times to actually go about and sell volatility. Behaviorally, we're going back into that where people are saying things like, the VIX will never get over 50, right? The VIX is broken and everybody's selling volatility. So if the market volatility goes up, the Fed is going to come in and step in. So behaviorally, it feels like this is one of those time periods could go on for a longer period of time than people anticipate. However, if you do get that real sort of volvend that presents itself, it probably won't be reflective of the 2022 scenario. It may be more reflective of the 2020 scenario. So it's like more behavior.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think so I did this interview on CNBC. I feel like maybe like two months ago and I got a lot of pushback because I was saying that, hey, VIX could drop a whole lot lower when VIX was around like 16. And during that time, we were just coming off the whole like banking crisis thing and there was the debt ceiling talk. So a lot of people are like, all right, this doesn't really make sense. But really, that was the view was that, okay, if the market continues to move this way and people are tired of the hedges, you will get that sort of like vault puking that ends up taking place. It's like a behavioral thing, right? In 2020, those type of tail sort of long skew traits, it really, really well. Then you fast forward, everybody's trying to fight the last battle. And they end up taking the wrong trade. And then now it's sort of like the same thing. I feel like behaviorally we're coming back into this environment now where people are.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Right. And so realize volatility has a huge impact on implied volatility, especially if the market crashes down two percent on Monday, down 2% on Tuesday, down 4% on Wednesday. The VIX is going to go up and it's going to go up really quickly as people bid for protection. But then there's also, and that's, by the way, the opposite of that has been happening. The market's been grinding higher and volatility has just really been compressed and continued to compress. Do you have any sort of not a macro?”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“What you saw during 2017. And I mean, right now you're going into the summertime, liquidity is maybe drying up a little bit. Summertime trading may present itself and people, you may just get the market just up and down 10, 20 basis points. But if that continues, implied volatility is going to continue to get destroyed with it as well.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, totally. So I think SP one month realized vol is roughly about like nine or ten. I'd say like last week it was like low double digits, but it may actually be in high single digits now. But I would say the way how the calc works is it's a rolling one month type of thing. And when you think of the recent price action, the recent price action is more in line with the realized volatility that we noticed in 2017, which is very, very suppressed volatility where you were getting S&P realized volatile at like four, right? And this is when you had a couple of instances where Vix dropped into the single digits. And a lot of people are not even, can't even fathom Vix in the single digits when you think of it. But that's how low the implied volatility in 2017 was. So effectively, what I'm saying is that the price action that we've witnessed really over the last month and a half is more so in line with”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Right, and that's a really important point you made that it's not as if the reason the VIX is at 13 is because there's so much uncertainty and the market's moving around, but people who own options are just sort of complacent. It's that the market is moving out of, it's not really moving that much at all. So if implied volatility, and I guess it's floating strike, whatever, for the VIX is at 13, what does the S&P 500 realizing in terms of realized volatility? And realized volatility is what actually happens. How much did it move over the past 30 days implied is what will it be in the future and what the market thinks it will be?”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, totally right. And that's exactly what we saw as well. There was never really that sort of panic that hit the market as well. And you noticed that when you were looking at flow intraday, there was never really a situation where There was some sort of aggressive market participant that was just trying to get out of stuff. And if you remember that time during March of 2020, that was the environment, right? It was like you would wake up and the market would be down 4%, right? And right at the open, you may go limit down or something like that. So two completely different environments. And it plays onto why we're seeing the move in volatility today.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“So, if March 2020 was a chaotic liquidation of monumental proportions, last year's sell-off S&P down a little over 20%, it was orderly. It was not chaotic at all. It was orderly. It was drip, drip, drip.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Like SP volatility, and then buy the volatility in the constituencies. So what this leads is this sort of excess suppression on vols. So you have vol getting hammered from all different approaches, from a behavioral standpoint, from just not realizing. And then now people kind of putting into more short volatility type of flavor traits.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“We've witnessed over the last two months, like over the last two months, we've seen the market just down 20 basis points, up 30 basis points, right? And then rally more to the upside. And when you have that, it's hard for people to hold on to these type of options and this type of volatility. So really what you're getting is this multifaceted sort of, I'd say, factor in the volatility landscape where people are tired of their hedges. The actual realized move in the S&P has slowed down. And the final thing I would say is that the dispersion trade has become extremely popular, right? So when you think about, you know, everybody talks about market breadth. Market breadth is really, really poor that works really well for dispersion strategies. And in 2022, that worked really, really well. So what ends up happening is the vanilla dispersion trade is people will sell index volatility, right? So they'll sell.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“Of the hedges, right? So this year, people are just like enough. I'm getting off my hedges. I bled too much money. I've lost too much money on those hedges. And this is why implied vaults are coming in. The other reason is really because when you look at the moves in the broad market, right, it's important to understand that implied volatility is the forward forecast of what realized volatility is. So what that means is that when you think of the VIX, just back at the envelope calculation, a 16 VIX would imply about a 1% daily move on the S&P, right? So if you have the VIX at 16 and let's say the market's saying, okay, we believe the market's going to move 1% and it's only moving down 20 basis points, up 30 basis points, down 20 basis points. You're technically still under what the implied volatility is saying. So that's the price action.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT
“I would say a quarter of the price, which is good for our case. In the case of the VIX, right, when you think about, all right, why has volatility been so low? It's important to understand behaviorally what transpired, right? So in 2020, a lot of tail risk funds did really well. And then you saw a lot of tail risk strategies that were more passive. I'm not going to bucket them in the same bucket as us because we're definitely not a passive tailor strategy. But you saw these sort of passive tailwright strategies do very bad in 2022 and this past year as the market grinded down slowly and then there was no large volatility pop, right? So that's the first important thing from a behavioral standpoint, a lot of people were actually trying to buy volatility, anticipating, all right, it's going to be the same thing as 2020. And when it didn't come to fruition, what you're seeing now is this sort of capitulation.”
2023-06-25 · Forward Guidance · The Shiny New Derivative That’s Taken Over Wall Street | Kris Sidial on Zero Day To Expiration (0DTE) Options & Tail Risk During A Volatility Bear Market · IDENTIFIED FROM THE TRANSCRIPT