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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“Know that's a really good question. So, if something is high, why wouldn't you sell it? And if something is low, why wouldn't you buy it? That's the style. No, no, that's a deceptively good question. The reason is because almost all of my trades have a quantifiable justification for them. If Bonvall goes up from here or down from here, I know it's a wasted opportunity. Do I think that Bonvall is probably a sale from here? I kind of do. But why? Show me the number, Noel. Show me the data. Why do I want to sell this strangle or these straddles or whatever else? And give me a mathematical justification for your judgment. I don't have one. That's why I don't do it.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I recently interviewed Nick Timoros in one of his recent articles, he wrote exactly that, that the Federal Reserve may give less forward guidance in the future and sort of close ranks about where interest rates are going to be. We'll see again. We just past noon, Eastern time on July 27th, shortly Jall will address the nation. So Noel, why are you more keen to short equity volatility? S&P 500 volatility than you are to short treasury volatility? Because if treasury volatility is on the tenure note as high as you've ever seen it, I mean, that sounds like a pretty good time to short. I mean, and if there's no FOMC meeting in August, why not?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Of sample. I don't have reliable data going back to 1981, and how much would I even trust it if I did? I wouldn't, because it's not the same. So, you know, the bond market, because it's out of sample for everybody, the bond market, you know, volatility is extremely high and really nobody knows what's going on, specifically like Fed Powell. And I kind of think that they might even stop doing Ford guidance to plug the show name because I think it's making it easier for them to have egg on their face with their, you know, they have to go on camera, talk about what they think is going to happen in the wrong all the time. So I think that they might eliminate the concept of Ford Guidance, which I think Bernanke started. Simply because I think they want to stop embarrassing themselves.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Simply because I'm comfortable in the derivatives market and I feel like I can get asymmetry there versus if I'm wrong in the futures or in TLT or whatever, then I can be wrong all the way down or all the way up. It cuts both ways. So I typically like to do spread option. I spread things against each other within the futures market or the options on the futures market. And that way I can have a very defined loss if I am wrong. That's why I do that. But people should really try to understand the bond market, however resources they can find and look at what's going on with the cash bonds. Look at what's going on with the bond futures. What's going on with bond volatility? You know, right now bond volatility is as high as I've ever seen it. And it's difficult to trade that from a quantitative standpoint because the historical data that I would look at to inform my future opinion or my current decision on my future view is”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“That's a very, very easy step to get. But if you really noodle it through, there is a relationship between interest rates and everything. And, you know, understanding the stock market and understanding the bond market are just, you know, it's like, you know, they're the same thing in a lot of ways. They're just different versions of the same thing. So the interest in trading the bond market, you know, I focus on the 10-year note simply because that's where the paper is. I tend to generally express my opinions in bonds and options.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“That's a good question, Jack. I don't think anybody's ever asked that. So, stock skew and volatility has a certain shape and personality, right? As you talked about before, Carvana goes down and then vol goes up, right? But bond volatility is not like that. Bond volatility shifts back and forth all the time, might be skewed to the upside, might be skewed to the downside. It might not have any skew at all. So puts versus calls have a totally different reaction function to what's going on. And the bond market is a very different thing to trade than the stock market, but they are so useful.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Noel. So you said that you backed into the bond game. What have you, you know, how do you view trading bonds? Do you trade just the volatility of bonds? I know you focus on the 10-year note, treasury note a lot. Or do you trade the volatility specifically? And is there anything different about trading treasury volatility as composed to stock volatility?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So we'll stick with our Jack Farley analogy. Jack wants to do stuff and he wants money to do that stuff. How much of Jack Farley Coch can you take on at zero percent interest? Infinity. And if saying it's a de minimis number, like, you know, two or three percent, you can still take on a lot of debt to fund your future ideas, okay? Now say debt is 50%. How much debt do you take on? Well, probably none unless you think you can exceed that, right? You've got to be able to make at least that vig back and then some. So that's the kind of theory that goes behind this, which is when interest rates are low, people can fund their hairbrain schemes. And if interest rates are high, you can't.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“There is a fundamental theory. It's not a technical theory. It's a fundamental theory that stocks are based on their future cash flows, which are discounted back to the present using interest rates. So when interest rates are at 0%, a speculative growth stock might be very enticing, but when interest rates are at 5%, they're much less enticing. How much of the price action that you track in the market every day confirms or denies that theory? Because, for example, when interest rates crashed in March of 2020, Tesla did not do well. But Tesla, the real Tesla bull market started as interest rates were extremely low, but rising. So low and rising is much better than crashing. But also now they're steadily rising. They're rising to higher levels. And that's very bad.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Well, for people that are watching or listening to this, my advice would be get a really good handle on the bond market and what interest rates do to all of your other investments, whether it be gold, you know, Ethereum or Carvana, because it is a relevant factor into the pricing and the forward expectations of all of those things. So, you know, as somebody who I started as an options trader and I became more of an equities trader and then you just kind of back into the bond game almost by accident at some point because you realize that interest rates are driving all of these decisions at some level. So you just have to start learning the bond market if you're going to be good at predicting stock markets.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Because the SP 500 is denominated in dollars and treasures really are just dollars, it makes sense that treasuries would increase in value. Also, I mean, the real fact is that when stocks crash, people are much less sanguine on growth and inflation, so long-term bond yields fall. The Fed is going to cut interest rates because we got to save everything. So short-term interest rates fall. That's worked. But now it doesn't work.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's going to be bank deposits. It can be gold. It can be lumber, right? It can be all kinds of things that, you know, money in its fundamentals thing is, you know, something that people are going to use as a medium of exchange.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Right, and Jack Farley Corp, we get financing on our bonds when we issue bonds, we pay a yield that is relative to the treasury yield. So if interest rates go up, we pay a higher rate. But then there's also the credit spread that's unique to the Jack Farley Corp. I think that historically the reasons that bonds do well when stocks go down is because bonds really are dollars, right? If you have a lot of money, you typically hold dollars in like short-term treasury bills rather than a bank deposit because banks only insure up to 250,000. I'm sure there's like some sort of insurance you could buy. But for a lot of it, like when JP Morgan, there are assets are either loans, short-term treasuries, long-term treasuries, as well as reserves with the Fed. But there's no really such thing as money, as people think of it. You know?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“What's in your pocket? And if you're down to pocket change, then your stock price is really low and your volatility is extremely high because you will do whatever it takes to feed yourself. And so Jack Farley Stock at that time gets very volatile and very low. And so if interest rates go up, your chance of getting this credit for a good price is very low.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Plane two. What's the chance you go out and buy a bunch of Ether? Not very high. What's the chance you buy a boat? Not very high. Because there's a correlation between Ether boats and the S&P 500. Now, those are extremely wide parameters for illustrative purposes, but they do, if you start to narrow them down, you can start to put a fine point on these correlations and realize that they do change with time. And the idea that Carvana trades with interest rates is a real thing. The idea that this is something that a lot of people should figure out that debt is the relative of equity prices because Jack Farley stock price is partly priced, the market price of Jack Farley stock is a function of Jack Farley's ability to get money. And however much you have in your pocket right now, then however much you have in your bank, and then however much credit you have access to. And if you have terrible credit, then you have to go down to what's in your pocket, right? Or what's in the bank. And then if you don't have anything in the bank, then you have to go.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The correlations of anything are related way more than people want to talk about. People say, well, what's the correlation between ether and carvana? Well, think about it in the extremes. Save the S&P 500 went to 20 million, okay? And everybody has, you know, hundreds of millions of dollars. What's the chance you buy some ether or Solana or Bitcoin? The chance is much higher. What's the chance you buy a boat? It's also much higher. Even if you don't even want a boat, you're like, ah, you know, it's like 13th on my list of things to buy, but I got a lot of money, so fine. Number 13 it is. Conversely, say the S&P 500 goes to two.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Correct. So, risk priority involves many different asset classes and varying different ratios. Go positive and stay positive for a long time between stocks and bonds in a rising interest rate environment was something that, I mean, I've been talking about it for many years, but I decided to really press upon it where I was willing to write a paper and throw it out publicly so that I thought that the risks that have been borne out in 2022 were prescient at that time.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So, risk parity is not just stocks and bonds, it involves commodities. I've gotten called out in that before, so I want to be careful. But yeah, it's a way to exploit the negative correlation between stocks and bonds, but the correlation has been positive this year.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Then also being short volatility via short bond put spreads. So what that means, if you noodle this through, what I'm doing is I'm being long bonds. With a theta component, because I'm short put spreads, which means I want bonds to kind of go up, but I'm also short volatility, which means I want stocks to kind of go up, right? In general,”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Positively correlated in an inflationary environment. One of my trades is being short volatility by also being short put spreads in the bond complex. That trade totally breaks in an inflationary environment because it's kind of a knockoff of a risk parity trade”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I was writing about it whenever you're putting something out. Publicly, even if it's not a prediction, it kind of is because you know you're timestamping it and you know that it's going to go out at a certain date and people can point at it and be like, yeah, you know, you're an idiot. The reason I wrote the piece is kind of what's come to bear. The relationship between stocks and bonds is predicated on a low interest rate environment where bonds have been in a bull market since I was in high school and it turns out that was a pretty long time ago actually junior high So really nobody that's trading actively today other than the extreme geysers have been trading back then and then the data sets that they may be using are really not that relevant. So this data is mostly out of sample for almost everybody But the notion that bonds go down in an inflationary environment and the traditional negative correlation between equities equities here and bonds here or bonds and equities that become”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“No, switching gears a bit, you wrote a piece recently about the correlation between stocks and bonds. You say it's a hidden risk to the 60-40 portfolio, 60% stocks, 40% bonds. That has been a rock for institutional and retail investors for half a century. Why were you so worried about it? You wrote a piece about December, and how is it that you sort of predicted this given that stocks and bonds have had a horribly year as well as they've failed to be a ballast for each other, whereas normally when stocks fall, bonds go up, yields go down, but that is the exact opposite. And both stocks and bonds have failed investors this year. Why are you writing about this?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“They have great information and they have great ability to execute. But in the first one second of you beating them is very low. In the next five seconds, it gets incrementally higher. The chance of you buying an Apple call and then being right an hour later is that's not unreasonable at all. The chance of you buying an Apple column being right two days later, 50-50 bet at best. It's not a problem. Their focus is beating you on the very small time slices. So don't be afraid of these large market makers. They're not trying to say that Apple or Carvana isn't going to go up or isn't going to go down because their time slices are very small. So if you have an opinion in Carvana or Apple, the market makers are there and they're giving you tight bid offer spreads and they're providing you with liquidity. So they're not like the, you know, the evil empire that a lot of people.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So, you know, everyone thinks of Citadel as being like this omniscient Death Star that just always knows what's going on at all times. And I'm from Chicago. I'm from the Chicago volatility community. I'm personally friends with people there. I know for a fact that they are human beings and they make mistakes. And not even that they make mistakes all the time, but they don't have everything that exists in order to make money if that was the case, then can Griffin would somehow have more houses that are bigger and more expensive.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and I would say that the average retail investor, let's say I'm the average retail investor against Bill Ackman or Warren Buffett, they could, yeah, they'll pick Microsoft instead of Apple and they'll do a better job. But Jack Farley, the average regional investor trading against Noel Smith or Citadel, it's a much harder game. It's like you can beat a really smart game board player at Checkers, but beating that up in the chess is not, yeah. So I think for a lot of people watching this video, including myself, often trading volatility itself is not a good way to make money unless you really know what you're doing. Would you agree?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Calls can easily die because the volatility is adjusted for this new expectation. That's why I always speak in terms of acceedance. You have to outtrade them. You have to be either be more right or more lucky than your counterparty. And if you're trading with market makers, it is the sole function of their business is to beat you. Beat the marketplace. And in aggregate, they usually are right.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So, yeah, Walmart's a different example because that's based on Ford guidance. Earnings Ford and Guidance and inventories. Let's stick with Carvana since you use it as an example. If I wanted to, if I wanted to be long vol in Carvana after it's already gone down, so in other words, to say I think it's going to bounce, but I don't know, I would do it via call spreads and I would limit my upside simply because the volatility that I'm buying in order to put this position on is so high even if the stock rallies 20% or whatever else, it's quite likely you won't make money. So I don't trade Carvana. I haven't traded it maybe ever so but the point of it is it can be XYZ, right? If XYZ goes down 50% and it could go back up to being down 30%”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“And how do you go about finding the stocks that you want to buy puts on or put spreads on in order to go along their volatility? Why did he was it, let's say that you made a lot of money in Carvada? I'm sure it's some other stock, but why Carvana and why did you not go long puts on Walmart or whatever, even though Walmart's had done poorly the past few days.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So I do that, and that's how I navigate really high environments. My advice to people in general in a really high vault environment is to use spreads because the chance that you're going to beat the new information and exceed the new expectancy, which goes back to our exceedance, goes back to our previous comment. So if you've already blown through exceedance, you know, it's kind of like fool me once, fool me twice, right? They're going to raise their prices so high so that you're not really going to make money. So that's why I say making these bets via spreads is usually much more prudent and it's a much more sustainable strategy.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, leg risk is when you want to do a spread. Say you want to buy a call spread, which means you're buying a call and you're also selling a further out of the money call. What you're doing, and if you're legging it, is you're doing one of those two sides, not at the same time.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Right. That's what I mean by leg risk because you might get filled down one. So you'll buy a call and you'll sell a put, or, you know, say you're doing your call spread and you want to sell.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Tell you what I do. What I typically do is I go out and I will bid spreads for what I think is greater than Theo. In other words, if Theo on a spread is a dollar, I'll try to pay as close to zero as possible. Specifically, what I do in GameStop is I will go out there and bid call spreads for literally zero. And you have to leg it, right? Nobody's going to trade that as a package with you. You have to take leg risk. And I just”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I don't even know what they were because the 500 strike straddle was priced at like 500. So this document is basically either had to go to 1,000 or zero for you to make money on that straddle. The idea that it could go to a thousand when it just went from 50 to 500 is not that nuts. It didn't and that ended up being the high. But my point is that yes, the marketplace figures out very fast when they're losing money to stop losing money. And how they do that is to either widen the spreads or adjust their vols so that they can stop losing money. That's the point.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“You know that those are, you know, so as an experienced trader, you know that those things are very transitory. So we'll use GameStop as an example because we had a decent position in that. So when GameStop First, started going up, the vault started going up incrementally. And then the market makers learned really fast. They needed to massively widen their spreads and massively adjust their like my vols only go to 1,000. And they were banked at a thousand. I don't know if Vall was 1,200 or 1,001 or 1200.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So it definitely has been. I'm not at all surprised to hear that it's been a profitable trade in 2022. Has the market sort of caught up with you where it's like it's learned its lesson where it used to be pricing Carvana puts at 55 volatility and now it's pricing them at 155 volatility? And if so, how do you navigate that?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So You're making the case for my dispersion trade. That is a dispersion trade. And for people who don't know this, we did not talk about this ahead of time. So exactly that. So what is a dispersion trade? It's being short volatility in the index and it's being long single name volatility. So Carvana volatility goes nuts. You make money. Index volatility doesn't go as nuts. You make money. And then you just collect theta on top of that. So you can make money in Carvana. You can make money in an index and then you can make money all around. And that is the point of a dispersion trade. I didn't know that Coinbase was going to be down 80% or whatever. You know, some of these crazy moves. But if we have those names on and we are long volatility in them and then we hedge that off with being short volatility in the index, we can make money three times. And that's exactly why we do that trade and exactly why that has been a profitable trade for us in 2022.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“And so that is the world of the indices, the S&P 500. There are other indices like the Nasdaq, Russell, whatever. What about single stock volatility? Because I know the hallmark of this year is people own a bunch of Carvana at three hundred and then it goes to thirty, so they get just absolutely decimated in Carvana. And then they're like, oh my God, stocks are crashing, stocks are crashing. When in reality, Carvana is crashing. But the S&P 500 is only down 20%. And as you rightly point out in an article, like being long S&P 500 volatility has not been as good of a trade as you would think. Whereas being long Carvana volatility, extremely good.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I don't think there's a good reason to do that. I would have to be convinced pretty hard as to why you're going to go out and start just loading up the bus, the boat with a bunch of volatility right now.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I totally do so. I have long vault positions on. So I don't want to like, you know, the reverse of talking my book, you know, it's just in everybody's best interest to be honest about this stuff. So I have some downside long vault, but that doesn't mean that I expect the market to go to 2,500. You know, I have car insurance, but that doesn't mean I'm going to throw my car into a wall. That just means that I have this on because it's part of what we do as a business. So our investors know that if the market does go to 2,500, we're not going to be, you know, blown out. It's quite the opposite. So I think that going out today and buying a bunch of all absent the news that is coming out in two hours.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. Okay, so that's the single. So I just want to say because you think lump volatility is not a good bet, being long volatility is not a good bet now, that means you think that the VIX could go below 20, even though we're kind of in an unofficial recession.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“That's the beautiful thing and the scary thing about options is they can go so much further than anybody can ever guess. That were short GameStop calls or whatever else like, oh, this doc is stupid. It's never going to go anywhere. And, you know, next thing you know, the calls they sold for two bucks are trading at like 90. It's just nuts, and that happens.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And I, by pure luck, happened to buy a short dated out of the money put option on a very volatile name. And I was amazed at how much money it made. I mean, it's just like, because Long the volatility, so you had lots of Vega, and it's like if you bought something that had an implied volatility of 50 and then the implied volatility goes to 200, like. It's pretty wonderful stuff.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The pandemic was already something that I was very aware of and I put some trades on anticipating negative earnings calls in January and it just never materialized. But some of the larger, more macro hedges and trades I had on that I put on in December and January, those worked out great. And that's part of the reason we made money in March of 2020.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“And then once the Fed came in very aggressively and started cutting rates, you know, 100 BIPs at a time, the market took off. And Vall definitely exceeded the prices that like I was long Vall in that time period, but I bought that volatility in like December that I know that we're going to have a global pandemic? No. More accurately, I never talked about this. I bought a bunch of VAL in Broadcom and a bunch of other names on Apple earnings in January because at that point the Wuhan virus had already been discussed. And the thesis on my long vault trade was, hey, Tim Coco's going to come out on the Apple call and say something like, yeah, Apple products are amazing. You should go out and buy an iPhone, but our supply chain is going to be disrupted because of this sniffle that's going around in China and a lot of our stuff comes from China. And therefore, we're going to lower guidance. And on that, I had bought a bunch of volatility. And you know what happened? It died. Nothing. I lost money on those trades.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“In 2020 for sure. And again, this goes about this goes into the concept of exceedance. You have to exceed what is priced into the marketplace, otherwise you will not make money because the counterparties, the people that you're trading with, this is all they think about. So they are usually right because there is an army of people with giant heads and giant brains, with giant computers, and all they try to do is figure out how to take your money. So you either have to have better information, a better take on the same public information, or just be lucky. Those three things are usually what you need, maybe all three. So the base effects of volatility in 2020, there was a lot of systematic vol sellers. There was a relative column in the marketplace, even though a lot of people would argue that the market was already kind of broken. And then the pandemic just exacerbated this. But what happened was if you came from a steady state of revenue,”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Would you sell it? You know, so it's always a function of where it's about exceedance. When you're talking about volatility, again, it's this probability distribution. So if it is outside of the probability distribution that you purchased it, assuming you purchased it, then you make money. If it is outside that probability distribution when you sold it and you sold it for higher, then you make money. So just because the VIX is at 24 doesn't really mean anything. It just means that's what the 30-day implied forward volatility is. But that doesn't mean that it's a good sale or a bad sale. It's a good sale if you sell at 24 and it realizes 12. Great.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“No, I disagree. And being long volatility or short volatility is only good as a function of where you bought it or sold it relative to where it is now. So if you think volatility is a sale at four and it realizes two, you made money. I made money in 2017 with the VIX at nine because it realized six. Now did I think that VIX was high at nine? Yeah, that's why I sold it. But it could have gone to 12 very easily, in which case I would have lost money. So it is a function of where did you put on the trade? Are you making money in Tesla today or are you losing money in Tesla today? I don't know. Where'd you buy it?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Right. And okay, so your outlook is volatility is not the best thing to own. Implied volatility and realized volatility, not the greatest time in August because everyone's going to the beach and there's no news otherwise. But here's the thing. Okay, so if VIX was at 40 being short volatility would be good given your outlook. But the VIX is at 24. So shorting volatility, you're not getting much juice there, right?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. So just because we're in a recession doesn't mean we can't go up because we're already down. So it's always base effects, right? Where do you go from now? Where do you go from here? So if the narrative, what I'm saying is if the narrative that we shift to a more easing environment, a more easy environment around the winter next winter, we go up”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Sure, that people are going to have a lot of fun about this on Twitter. Not fun, but people are going to be going crazy on Twitter. We'll be saying, this is a recession, blah, blah, blah, blah, blah. But the price action could be very calm. And it's ultimately the price drives narratives, not the other way around always.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT