YouSaid · the spoken record

Noel Smith

lines on the record: 114
first: 2022-08-01
most recent: 2022-08-01
sittings or episodes: 1
sources: podcast

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“There are innumerable stories like that. So I always like to gravitate toward, okay, shut up, tell me what to do because if you're not telling me what to do, why am I listening to you? And that's why I've tried to give a little bit more of a specific answer as opposed to like, well, rates are going to go up, but then they're going to go down or they're going to go down.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Which is why what I've said, which is tell me what's actionable. Because for every argument you can hear done equally compelling counter-argument. I've been doing this for so long and I've heard so many great compelling ideas and stories as to why XYZ is going to go up or down and just watch them just totally not work. Like we discussed earlier, you know, the herbal life short from Bill Ackman, that's a very convincing story. I sold some herbal life based on what he was doing. It didn't work. It didn't work for him. It didn't work for me. Valiant, that was a great trade for me, but it was a bad trade for him. It was different narrative.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I agree. And I think, yes, the Fed was behind the curve and they made a mistake. But there are people who said the Fed was behind the curve. And then as soon as Powell started hiking, they said, you're doing too much, you're doing too much. And it's like,”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“He's like, everyone wants more drugs, but alcohol in the punch bowl. But when Paul says something like, I have to take some alcohol out of the punch bowl, everyone's like, well, you're being a party pooper. Why? You know, party's awesome. We need to keep more. Everyone loves hating on the guy, but again, he has a very hard job”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Right. But yeah, and he's sort of being used as a scapegoat. Everyone is just blaming him, hey, pal. What's going on, man? You're the one who single handedly you have that iPhone and you get to input the inflation number. Why are you inputting a high inflation number? Yeah. It's like everything.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I think that most of the theater that has to happen has to happen between now and the midterms. Because once the deck chairs have been reshuffled politically, it is not imminent that he gets fired Someone else gets his job. So I think that most of the pressure he's getting from above is coming between now and will heat up before the midterm elections.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“SPY or SP500 ETF. That's really interesting. Noel, you're kind of making me think that Powell could do 100. 100 now, 100 in September, 100 in August, December, and then pivot. I also think that the curve is pricing in a pretty rapid series of cuts after the hike, when generally They hike and then they stay stagnant. I mean, it's only a matter of like eight months before they start cutting again, which is itself remarkable. But yeah, I think Powell can't get to 5% in December and then immediately start cutting. He has to do at least some.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“That I think is going to happen. So, are we in a recession right now? Yes. Is that recession have to be end of the world? No. How do you trade it? You have to time the pivot if there is a pivot. Right now the market says that pivot happens in winter. I don't know. So if the recession is much deeper, well, that pull the pivot forward. If the recession is shallow, will it push the pivot out? Your guess is as good as mine. I would guess that the Q1 next year feels about right. Is it tradable? Kind of tough. I would say that you don't want to be short the market here. That's why I think it's tradable. I mean, if you have to make a decision right now based on this conversation, buy spoofs or sell spooz, buy spoo.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Have the market go down enough so the ratio between real rates and nominal rates compresses so as to manage things. And he's kind of doing it. You know, the market went down a lot because they were behind the curve. But the idea that we have negative GDP tomorrow and whatever the definition, the new definition of recession is, but the old definition was two consecutive quarters.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“He's a very tough guy. I agree. Yeah, he's got a tough gig. In terms of the depth of the recession, which is the depth of the recession means when do we pivot if we pivot at all, which is really the essence of this trade. So if you were to blow off everything in this interview and focus on the thing that is most actionable, it would be to accurately predict if and or when the Fed will pivot. What is the terminal rate? And then when do we change that? And part of that is politics. And the reason it's politics is because we have a midterm election coming up in November. Right now it's predicted that the Democrats will suffer. And then that will in turn be difficult for Paul and his cadre. I don't know. I'm not part of that club, but I would say that it is in Powell's best interest to”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“And also, like, he is the market in the same way, like, let's say that this show, like four guys became the most popular financial show in the world, of course you would not get alpha from it because I'm talking about things that affects the broadest people. So it's like in the same way that everyone, you know, shorts the bottom and buys the top. Like, yeah, that's what Kramer's going to do because you do it person watching. You are him. He is you. Yeah, he is beta. He's not alpha. He's a very smart guy. I agree.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I think that it is politically expedient for Paul to not break everything. You know, everybody loves to bang on Kramer because he's wrong a lot. I've met the guy. He's a very smart guy. I agree. You know, so people love to just hate on him because he says some stock and he's totally wrong about it.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So I know you're a volatility expert and you don't make trades necessarily based on macroeconomics rarely, if ever. But do you think that we're headed for a recession? How do you feel about the fact that the recession call is so mainstream as evidenced by I was watching CNBC the other day and Jim Kramer had like a recession basket. It's like a flavor of salsa. So there was mild, hot, and then extra spicy hot. And then also, which, if you think there's recession, which do you think it's going to be? Which flavor of salsa? Mild, hot or spicy hot.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, which is why Apple Stock has been such a great Google Stock has been so great. But if you look at the retailers like Walmart or whatever else Target, you will see that The way to interpret their prices is that they're going to be making less money, which is why the stock went down. But how they clear this excess inventory is to sell their product for less than they currently are selling it for in aggregate. And so they have to sell each unit for a little bit less so they get rid of it. And what that'll do is it will compress prices in time.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And like a lot of companies, the things that have gone up the most, like I think eggs are up 33%, like cereals up 25% or something like that year over year. That's used by individual people like you and me. But like Google or Apple does not necessarily consume eggs as cost of goods sold, you know?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So let's look at Walmart. How much will Walmart go down? 10%. Why do they go down 10%? Well, because they said they have too much stuff. So, what happens when you have too much stuff? You lower the prices to get rid of your stuff. What happens when you lower in prices? Inflation goes down. So when inflation goes down, inflation expectations go down. So what happens when the port of Long Beach starts to get rid of some of their clogs? This stuff starts moving. That will attenuate inflation. It will be born in the prices and it will probably be bullish for the market. You know, target's going to come out and it's going to be the same stuff. You'll see that the stuff that they thought they needed to move is going to come down in price. And the stuff that you need, like gas, maybe it doesn't, right? The stuff that you might want, like, you know, Kindles, they can't give those things away fast enough right now. And that's going to equilibrate into a lower, because that's happening on a wholesale level now on a retail level that'll be...”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“What about just earnings are really bad? And yeah, like what if we were a few days into the main series of earnings, but what about if companies are not making money because their revenues are going down and their costs are going up?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Inflation goes to 12%. We go to a kinetic war with Russia, we go to Connecticut with China in Taiwan or something. Barring that new new information, I don't think that's a good bet. I don't think it's a good trade.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Scalp it at some point during the day, you know, you put you set your parameters down one standard deviation or up one standard deviation, you hedge out your deltas and go back to sleep. It's a piece of cake. It's been a very easy living. But the forward volatility, if you look at VIC futures, they're like $28. So going back to exceedance, you know, what's the chance you buy a bunch of volatility now? You sit on it to Jan and you make money. I don't think it's that high. I mean, we'd have to realize considerably more because it's going to decline, right? It's going to decay. So you have to take into account time and volatility and the vault path. Those three things are going to be difficult to overcome barring new, new information.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“What's more important is what is the ratio between those two, and where did you buy it? So what has happened is realized volatility has often exceeded implied volatility this year, which is kind of rare. So if you're just long a bunch of gamma every day, so you buy a bunch of like, say, weekly S&P 500 straddles and you go to bed flat, you wake up with a delta, you head your delta, you rinse repeat, that's for making money, which is frankly a really easy living. One of the easiest ways to make money in 2022 so far has been just to be long a bunch of volatility.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“All right, I've got a question. Is it that the S&P 500 realized volatility is muted relative to the single stock realized volatility? Or is it that the implied volatility, which you'd expect to spike, as we saw in 2020, it's like if someone falls the first five feet from a building, like they're probably going to fall the next five feet, right? That effect I know it's both, but which is more important.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and that opinion has been borne out in my book as well. Some of the hedges that we've had on have not worked to expectations. Now, Valla has gone up in 2022, but if you look at it relative to other market drawdowns, it has gone up considerably less. That's actually maybe the sleeper story of the year. There's a lot of things that have happened in 2022, but the reaction function of market goes down. option prices of option volatility goes up has been very muted. And as a volatility guy, that is very relevant to my business.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Trade that you want to try to pretend like you know ahead of time. I'm talking about here today now what's the trade? It's pretty fairly priced. And if I had to lean one way or the other, I probably lean a little bit long. And that's what I think is the most sensible based on the information I have as I sit.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. Right now the market is pretty fairly priced. Hovering around this 4,000 level where there's a lot of options that are struck there is kind of a little bit of a tractor beam pulling the market toward it. We're not going to break materially above it or below it unless new information comes out by the time everybody watches or hears this, which will be after FOMC. Powell says something again out of consensus and in exceedance, then fine. We will get a move. But assuming that he knows exactly what he's going to say in most of the data between now and tomorrow has been basically leaked either to the press or to the relevant parties, then the options market is reflecting that that data is not going to be out of consensus. The options market is not reaching for insurance and there's no mathematical reason to be overly worried here now from these prices. Again, not from six months ago or some other fake.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, this is only so much you can do of the trade. Once you get too big, it's just the trade is not big enough. Yeah, exactly. No, well, as you reach a close, do you have a party message for the audience?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The real answer is it's too small for me. There can be edge in there, and those trades can be legitimate. You know, if you're buying gold rings at the pawn shop and then selling them retail, fine. Maybe you made a thousand percent. But you're not buying gold bullion by the kilo, by the ton and making a thousand percent. It just can't be done”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Noel, how do you think about short squeezes and particularly like what we've seen this year where there's a lot of stocks that no one's ever heard of, but they go up 200% in a few weeks. I noticed a lot of the specs that despack can skyrocket because there's such a high redemption rate that there's only like a million or two million shares out. And then they get people buy a lot of call options. People are stuck short. And then it goes from $10 to $7 to $30. Do you ever get involved in stuff like that, or is that sort of too small for you?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Can be made to make decisions that seem irrational in price function but are rational in terms of their P&L. Like they're forced to do things they don't want to do. Like all of us all the time at some point.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The same trade. So these things can go a little bit longer and be more painful than some people who aren't market makers understand. So that's why these things get stretched. Because a lot of the participants have to wiggle their way out of being saddled with a position that they don't necessarily want. And those things can be reflected in the price. You know, say for instance, you love BMW cars, right? And so because of that, and you have 200 grand sitting in your checking account, and then you end up buying five BMWs, but the price of BMWs goes to 10% of what you think they're worth and you want to buy more. You might not have available capital. So that, you know, you want to buy them. Or maybe your short BMWs, right? And they keep going up. And then you have to buy them back. It's a short squeeze in BMWs or Eurodollars in this example. My point is that the marketplace is bigger than the participants of the marketplace. And so therefore, the participants...”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The euro-dollar market is extremely smart and extremely big. And it's the biggest paper there is out there, really. But it can be really one-sided for a long time. So people that I know from the market making community and the euro dollars, what happens is they're all standing around in the pit in Chicago and then, you know, a giant pile of paper gets dumped on their heads and they're all wearing it. They're like, oh man, now we all have the same position and we're all losing money at the same level. And then the tide goes the other way. And then now they're all on the other side of the trade. So ideally when you're a trader, what you want is, you know, you want to have feel right in the middle and you want to have your bid offer spread and you make money on the bid offer spread. And that's how you make money. You have no opinion whatsoever in the instrument. You're just making bid offer spreads. But in reality, what happens is, you know, especially in the euro dollar market, you know, some central bank economists will say, okay, rates are going up. So they go out and they, you know, they buy tons of euro dollar puts or something like that. And then the entire euro dollar trading community ends up.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So everyone talks about how the euro dollar is so smart. And, you know, there's definitely something to that. But do you think that the SP 500 options volatility market is smart? In other words, if people are buying tons of volatility, that means that something's going to happen. And if they're not, as they are now, that means it's going to be pretty chill on the way down.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Generally speaking, when I say volatility without giving it a specific tag, let's just assume that we're talking about SP 500.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“That's a chicken shit answer, if you ask me, because it's not actionable. Like I said, I look at this as I want to distill everything. So, when you go into these ethereal conversations about whatever, what the Fed may or may not do, and it's more ideological or maybe ephemeral than it would be to be actionable, while maybe intellectually interesting, it's not actionable, so I don't ultimately care. So going into how do you trade this based on volatility, again, look at what they're doing, not what they're saying, because a lot of people that talk in the media don't either run money, don't run substantial money, or don't have a track record, or don't make money. Sometimes, you know, these guys just don't make money or provide alpha. Maybe they hug an index. And if you look at what the consensus in the smartest paper is doing, generally speaking, they are saying that nobody is reaching for volatility. When nobody is reaching for volatility, they're either wrong in mass or we're going to have more of what is happening now, which is the market is going down, not crashing down. And that is a distinction.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. Yeah, yeah. Sorry, you're teaming me up. So I just got to go off. Like, I feel like people can have a 10-year thesis about the fall of the euro or the yen is going to replace the dollar. But is the dollar going to go up or is it going to go down? In the next one month, three months, six months, or year, you know, like, and if their thesis is extremely non-actionable, and I think that's totally legit, then they should like say it, you know? The other total move to do, and I've seen this all the time, is I'm short. I think the S&P 500 will be, I'm bearish on the S&P 500, but I think the next month will be bullish. So you build in both sides of the trade. And obviously that can be legitimate view, but it also can be an effective tool for obfuscation.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“That we go to like you know 3200 or something like that prior to that, it's completely on the table. I don't know any more than anybody else. But if I'm looking at the options market, and this is like this is an important point. If you look at what they do, not what they say, because there's a lot of people like me that go on media or whatever and talk about stuff, but I talk about trades because it drives me nuts when people just talk about theory. Because ultimately what I want to know is I've got a green button, I got a red button. Which one do I pick? Because I don't know.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Powell wants his job, so he has to try to not get fired from the incumbent party. And in order to do that, he will try to not either, he has a very difficult job where he has to tame inflation and not break the market. So this middle ground is kind of what the Fed fund futures and euro-dollar futures are pricing. They don't know. It's not a crystal ball. It is just a price discovery reflection of what's happening right now. And that can change at two eastern with the FOMC decision. But if we go into a really deep recession, the idea is that pivot would be pulled forward. If we go into a very shallow recession, it might be pushed out with a higher terminal rate in the overnight lending rate. But nobody knows, right? And so what's the trade? The trade is probably long, but the idea”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“It's priced really fairly right now. And so it's priced based on a couple different presuppositions. The swiftness and the shallowness or deepness of the recession is relevant, and what that's doing is informing the timing of the pivot. So the calculus is going something like, well, past.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes, okay. So one consensus trade now, not consensus on the mainstream news networks, not consensus certainly at the Federal Reserve, but consensus in the Eurodollar Futures market, the Fed fund futures market, is that there will be a Fed pivot at the end of this year, if not the beginning of next year. And you can see that by the curve inversion where projected interest rates, forward interest rates for Fed funds and euro dollars are lower in March of 2023 than they are in December of 2022. What side of the trade would you take on that? Who are you going with it? A euro curve market or the Fed?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Friction, the bid offer spread because you have to take somebody else's offer, and then you're even incrementally tiny bit wrong as a tiny little losses and you just continuously bleed money. So again, you have to be able to make some kind of out of consensus trade, otherwise you're just creating commissions for the clearing firm.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So, how do we interpret this data so as to make it out of consensus so that we can make money? Because if you just use the data that's readily available to you that's readily available to everybody, your trade will be consensus because the consensus is just the aggregate of all the opinions. So what we do is we lean into this stuff incrementally. And that's the voodoo part of it. There is always some subjectivity to the trade because if it was all quantitative, this is borne out in the data. It's oftentimes difficult to provide real alpha. So because what you do if you add up all these zillions of numbers, you come up with the same thing everybody else has come up with, which is the Fed fund futures are here, the euro dollar futures are there. And well, I guess I'm just trying to, I'm kind of in the meat of the bell curve and there's no trade, right? The options are already reflecting this. Everybody already knows this. The straddle is widened to reflect these differences of opinion. And there's no edge. So by the time you trade with.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So, this is some of the voodoo in it, right? I don't have data that everybody else doesn't have. This is like a golden era for data. It's never been better in my lifetime, anybody's lifetime, to get access to a lot of data. Now, that data comes out of a fire hose and there's, you know, it's very difficult to figure out what's actionable and what isn't actionable. But, you know, you can get more information now than you ever had been able to get ever.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I think that is such a good point. And yeah, I've anecdotally seen that where if TLT is down two percent, I would be shocked if the Nasdaq is not down 2%. In fact, there have been a handful of days where TLT crashes and the Nasdaq crashes. And I'm like, wow, this is different. But so you said you think interest rates are going to go up. Is that because you see the forward interest rate curve, Fed fund futures, euro dollar, LIBOR, whatever, pick your poison, or because you just have a tired period like, oh, I have a macro view. I think interest rate's going to go up.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“In volatility terms, not greater weighting in terms of deltas, right? I'm buying more volatility and growth because I think that growth can move more. Which is borne out. I am buying less volatility in something that I think will do well like energy because I think that ExxonMobil will not crash. Now, ExxonMobil's kind of crashed up, but that's a different conversation. But that is a real way to create alpha within a dispersion book is to figure out your sector weightings.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“You would want to be longer vol, that is to say more bearish on things that are interest rate sensitive. And you would want to be less long vault on things that can do well when rates go up. So once you kind of fiddle that through in your head, you can start to weight your different sectors and your different names juxtaposed to each other. And that's where the real alpha is generated. The idea that you can just go out there and sell us some P500 puts and calls and straddle, strangles, whatever, and then go out and buy the exact Vega weighted notional number of Vegas in all 54 names or whatever it is now is nonsense. There's no edge there. You cannot make money reliably doing that above and beyond luck. The real way to create alpha is to time your waiting. So to time the exit and the entry and then to wait sectors against each other. So in this situation, you would see something like a greater weighting and growth.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So part of a correlation trade is seeing what has capitulated Karana and what hasn't capitulated ExxonMobil and trading those things against each other. So the real way to assemble a real dispersion book is to figure out your sector weighting and how do you do your sector weighting? Well, you do that based on the information you're getting from a lot of times the bond market. So if you think that interest rates are going up”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Do you expect implied volatility on the 10-year note futures to collapse after, not collapse, but to fall after tomorrow's GDP reading? No, let's move back into the world of equities. I have two questions I want to put by you. The first one is, do you think that the fact, the dispersion trade, the fact that single stocks have been crashing while the index has been going down, but it's been kind of holding firm. It hasn't really seen true capitulation. Do you think that has to do with the, what's it called? The correlation between the stocks in the S&P 500. Ahistorical, is that to be expected? And do you have an outlook on the forward correlation where X1 Mobile and Tesla can go down together?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Quantifiable decision that is going to be justified based on data. To say it's high and therefore I think I'm going to sell it, fine. I mean, that's as good a reason as any. But to say that you think that VAL is high because of XYZ in your data, you don't have that data because nobody has that data. Therefore, your trade is kind of a guess.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“My point is going back to exceedance. If you don't know what exceedance is going to be, if I'm asking you about your future sneezes, but you have some new sneezing disease, your model is out the window. You're like, well, I'm 30. I've been sneezing, you know, usually once a day for the last 30 years. If I can model that out. But now I've got this new sneezing disease and I sneeze 10 times a minute. What my model is totally broken. I can no longer use 30 years of historical precedent to make a current decision. And that's the problem in the bond market. And that's why the bond market is losing liquidity and is very difficult to trade right now because the idea that it's high and therefore I should sell it. Well, why? Why is it high? Well, because I have a totally different environment. I have new sneezing disease and or inflation is higher than it's been in 40 years. It's kind of the same analogy. I have new data that is taking all of my data out of sample and I don't have a mathematical.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The valle is very high, and if you don't have any basis, when you're pricing something, when you're modeling something else, say you want to build a model for trading bonds, what you do is you look at all the past data and then you use that to inform your future decisions or your future trades. And so say for instance, a jobs number comes out and you think that bonds usually moves 10 ticks. And it's always 10 ticks. It's no matter what, it's always magically 10 ticks for some crazy reason. And then what that means is that you can buy straddles for nine ticks and you can sell straddles for 11 ticks because you will always make money either way if it always comes out at a 10 tick move. But now say for instance your straddle is or the data is now anything. It could be one tick or it can be a billion ticks. How much do you want to sell a straddle for when it can trade a billion ticks? I don't know. A billion and one ticks, right? Because that's the right price because any number higher than it will trade is the right number to sell straddle.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So 10 year Node Futures and Options are priced and ticks. So I'll talk in ticks, not dollars. So say, for instance, the GDP is coming out. And we think that it'll move the bond straddle right now is priced at roughly $1.03. So there's 64 ticks in a bond straddle. So let's call that 67 ticks. I don't want to get too wonky because that can be confusing. People aren't used to talking in ticks. But my point is that the”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT