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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“So it's going to be 75 basis points, whatever that happens to the price action. I don't know. I want your outlook on that later. But then, yeah, tomorrow from the BEA, we're going to get the advanced estimate of GDP, which I am pretty sure is going to be negative in inflation-adjusted terms, real GDP. Like if you look at the Atlanta-Fed guesses from 7, 10, 15, 20 days out, it's rare that they are wrong by a sufficient margin to make it positive. So that will be a two quarters in a row of real GDP contraction. But as you said, yes, Janet Yellen, Treasury Secretary Yellen, went on meet the press on Sunday, and she's kind of offering that, oh, the first one didn't count because of imports, exports. And, you know, there's some legitimacy in that for sure. And then the White House is sort of redefining it. But you're saying that there won't be that relevant in markets. And that's really interesting to me because I'm very, very...”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes. And so there's a big, so just my outlook, and I rarely share predictions, but this is like 1149 Eastern Time AM on FOMC Day. My outlook, and this is not some genius call. Everyone who knows what's up thinks this, is it's going to be 75 basis points. And by the way, Noel, if it's actually 100 basis points or 50 basis points, we're just going to delete this so that no one will ever now.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Bunch of wall in the short term here for the reasons you just mentioned. We have to go to the beach. You know, there is not going to be an August meeting. It's kind of predicted. And as long as Powell doesn't say anything that everyone is not expecting and also GDP tomorrow, assuming that, you know, now that GDP has been magically redefined by the government, assuming we do get a negative print tomorrow and that is an official recession as defined previously. Then I still think that we don't really crash.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yes, thank you. I was trying to think of the name of the guy, but didn't matter. So, you know, the same thing with the meme stock, right? You know, GameStop AMC, those things were all up, stocks up. And then that's also Avana trade. So as the VAL starts to go up, you know, the movement can also widen out and you can have both of those because volatility is just a prediction around a certain number. It is a breadth of numbers. So volup can definitely still happen. If Paul comes out today and says, you know what? 75 bits are off the table. We're going to zero. We're going to go negative. I mean, we're going to have volatility and it's going to be to the upside. So those upside calls instead of being 19 volt now, they're going to go to 29 vol because that's probably not too far off. So it can cut both ways. So I think the question you were asking is what do we do from here? What does VAL do? And I was saying that I don't think there is a reason to own a”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“So volatility. So you're right. When I save, when we're doing an interview, when I say volatility, let's assume that we're always talking about the S&P 500, not gold, not uranium, not oil, because those things are totally different, right? Especially in bonds. Not a single stock. Right, Bon Skew is totally different. Single stock SKU is totally different. Biotech SKU is totally different. All of these things are relevant, but not for this conversation. Let's say that we're talking about volatility as defined by the VIX or the VIX futures, VIX futures options, and volatility in the S&P 500 in aggregate. Now, Volkswagen both ways. You can have Vol up and stocks up, and that happened when the Nasdaq whale.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“And is that S&B 500 vol? And by the way, VAL typically, you know, because VAL spikes when things go down typically, like it's only really in Bitcoin and commodities that volatility rises as the underlying goes up. Obviously, there are tons of exceptions. So when you say be long ball, that's like, it's not equivalent, definitely not equivalent, but it has a lot to do with being short. If you're long S&P 500 vol, The way you make money is let's say you buy you buy puts and then this S&P 500 goes down and if you're short Delta, you make money. I know you're wincing because what I said was not completely accurate. You make money on the delta, but if you hedge the delta, you make money because implied volatility goes up. You're long Vega, right? You're in long gamma.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The timing of this conversation is just prior to the FOMC decision and meeting. So barring crazy news in the next couple hours or in the presser after the announcement, I think Vall has really, there's no really no big reason to buy Vall here now. Now, if a crazy decision comes out in a couple hours, of course this can all change. But as we sit here right now, if we get 75 bips and some kind of a 75”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“It can be futures, it can be a lot of things, but let's just simplify things and say it's stock. So as they buy stock, the Vanna or the volatility will come back in and start to come into line. And that's what I was talking about regarding this magnetic force. As you breach and you start to get more and more short, you cover more and more and more to bring you back into line. Or you let it ride. But most market making firms will not let it ride. They will cover those deltas and they will buy stock if they're short.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, exactly, exactly. And that's kind of how to think about it, which is time versus probable outcome. It's all probabilistic. And as time compresses, as time moves forward and there's less time slices, then the uncertainty goes away. And that's kind of the vanitrate. Now, to answer your real question. So as the dealer community is long about your puts, as the index starts to go through those long strikes, they get short. Okay. So say if they go to bed flat and they wake up and they're short because the index is down overnight and then they have a delta. They have a short delta and they're making money. So what they have to do to flatten out and dealers do this is they buy stock. They buy index. They buy futures whatever. Let's just say S&P 500 stock.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“All makes sense. It's exactly what we just discussed. So think about if I say to you, you know, what's the chance you're going to sneeze in the next five seconds? I don't know. I'm not really sick. So I don't think I'm going to sneeze. How about if I ask you if you're going to sneeze or for the next 10 years? You're like, well, that's probably extremely likely that will happen. So as time marches forward, so say we made a bet for, you know, late July 2032. And then as time gets narrower or narrower to our terminal part of our bet, that distribution will come in. And what you're saying is like, okay, we made a bet for 10,000 sneezes. I'm only at like 8,600. So I'm probably going to make money. Pay up.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“The old JP Morgan Collar train, they bought a put spread, so they bought a put here, and then they sold a put here so that they get this level of protection. The people in the market making community who bought that put at the bottom, they were long tons of those puts. So as the S&P 500 was going down, they were buying. They were compressing volatility. So yeah, what have you made of the price action since then? I mean, the index has kind of held pretty steady, same with the NASDAQ. And then the VIX has been falling. Does that make sense to you?”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“And what happens then is that you start to get more of a natural bid within the index itself, index being defined as the SP 500. It's a long, that was a very inelegant way of saying, I feel like it's short covering. Is all of this volatility starts to just kind of compress and go away, that means that there's more certainty in the market, the amount of schizophrenia that might be baked into the cake is less. And what that means is that the markets will tend to drift higher. And that's sometimes identified as the vanitrade. The vanna being the reaction function of price versus volatility.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“Were long puts. Yes. So, what happens is that when the market goes through a long, think of long puts from the marketplace's perspective as being like a magnet. So, you know, the force field around the magnet, the further away you get from it becomes irrelevant. But when you get right close to the magnet, it has its strongest attraction. So when the marketplace starts going down toward the magnet, it kind of goes to it. When that was the part of the thesis where I didn't think it would break materially below it, I also said I didn't think we would get a high rip until that happened. Now, part of what did happen would be the follow-up to that, which is why has the market been rallying and from a vault perspective, how is that relevant? How is that tradable? Well, if you look at a lot of the options action within the marketplace recently, you've seen a lot of short puts being covered. And as short puts are covered, the volatility with associated with those puts starts to compress. It starts to come in as those positions goes away.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT
“I guess what is genius? Is it when luck lines up for you? I think that the decision to talk about that trade was because the timing was right. There were several factors that lined up, one of which was the bottom side of that, J.P. Morgan spread, which was billions of dollars of notional value. And also the gamma at that point was getting large. So it was a relevant part of that trade. That trade isn't always relevant, but the timing of our last conversation was such that it was relevant. So like all of my trades, I don't know if it's going to work out or if it worked out for the exact reasons that I tried to, you know, illustrate. But that was the trade thesis. It ended up working out. And I think it worked out. I think that the things that we did talk about were a fairly large contributing factor to that.”
2022-08-01 · Forward Guidance · Summer Meltdown In Stocks Unlikely, Says Volatility Expert Noel Smith · IDENTIFIED FROM THE TRANSCRIPT