YouSaid · the spoken record

Rick Selvala

lines on the record: 70
first: 2018-02-26
most recent: 2018-02-26
sittings or episodes: 1
sources: podcast

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“Work hard but play hard life is short and you got to enjoy it along the way. And in addition to Michigan football, nothing's more important than family and friends and treasure them.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Understanding that it's okay to make a mistake, that it's okay to fail. No one wants to make a mistake. No one wants to fail. But those are the things that do make you stronger. They make you better. And it's okay. What's more important than making the mistake is how you respond and react to it.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Jiridillian's daily dirt nap is it's a little salty and edgy, but there's a lot of good information in that just as one example, and there are several others.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“My parents are great people. I think they never said it, but they did it every day and it would just be nice. It's so easy. It's free. And treating people with respect, whether it's a colleague or it's a family member, it's a friend or it's the waiter, it's the bus driver, be nice and the world will be a lot better place if more people had that approach. And they were big readers and that to this day treasure that as well. Yes.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had my daughter on my chest. She had just been born. And so that made it really special. As a participant, well, it's more about my kids, who are much better athletes than the old man. But when my daughters New Canyon High School, Lacrosse team won the state championship, and she's a defender on that team that was very exciting. And then my son plays basketball for St. Luke's last year. They won the New England's and he hit a big three to help turn the tide. And that was exciting. And the last one I'll mention was my dad and I playing in his member guest, and we won the tournament. And he was so excited because he's been in about 50 member guests and never won. And we just happened to the moon, the stars, and the tides aligned and seeing him be that happy was really special.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“We were down most of the game. And in the final minute, there were three touchdowns scored. Michigan went up with a minute left. Notre Dame came down and scored with 30 seconds left. And then Michigan drove 80 yards in 30 seconds to win it. And it was Bedlam. The other highlights I would say was when the Detroit Tigers won the World Series in 84. My dad and I were there. I was in college at the time. He drove down. Picked me up. We went to the game and it was about as exciting and be able to share it with my dad was incredible. When Michigan won the national championship in 89, I was in business school and half of my section, we were all at the Alston Sports Depot. And that was a great shared experience. And then when Michigan won the National Championship in football in 97, they beat Washington State and the Rose Bowl.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“From our house, I guess the most recent win which sadly is several years ago, I had my whole family there and that just, it was such a fun game. It was an exciting game and to have them all there and celebrate was a big deal. The Michigan versus Notre Dame under the Lights game, which was the first ever night game at Michigan, it was the largest. This was probably 2011, 10, 11. It was Brady Hook's first year, so I guess seven years ago. So call it 2011. Largest crowd ever see game”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“This could be a segment all on its own. As a big sports fan. I mentioned earlier that I went to Michigan, so my parents hadn't missed a home game in 62 years until this last year when my mom sadly passed, but my dad kept the tradition on.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“calls in that instance and you know and rebalance that way and conversely when Vaul gets cheap like it did for much of last year we'll migrate towards a stock replacement strategy we'll sell fewer put spreads in that environment and we'll get our longs from long calls so it's sort of a natural we want to stack the deck in our favor as many ways as possible sell richvall by cheap vault sell spreads by unlimited and try to be long vega but also earning theta at the same time and just be more opportunistic and take what what's being handed to us all in the name of beating the s p over time but in a completely different way”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“And let's, you know, when we do sell options, let's stay shorter dated to take advantage of time decay. And when we buy options, let's buy a little longer dated so that we're not hurt by that theta bleed. And then let's add another element and say, hey, let's rebalance these things more on a vault regime spectrum so that when vol is sort of normal, I'd say call it 20 is its long-term average. Call it 16 to 24 once standard deviation kind of move. Within that, you know, you're sort of no x. You've got half on the calls, half your delta's from long calls, half from the short put support side. But as Vall gets richer, you want to sell more and get more of your delta from the short put spread side. By the way, the markets collapsed and were okay selling some more put spreads, lower strikes and selling more ball wind balls really high. And we'll buy less.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Replacement. One of the things we're excited about is sort of an alternative to being long the market is using volatility instruments to more efficiently get that beta. And the idea of that I mentioned earlier, when you're along the market, you're effectively long a call and short to put. And so half of your delta, let's say, comes from the long call side and half comes from the short put side. Well, let's be more thoughtful about that and let's say, and I mentioned earlier on the SKU thing, if the VIX is at 20 and if calls are 15 and puts her at 25, well, let's buy calls cheap and let's sell puts rich. That sounds like we're being handed a little bit of an opportunity. And when we sell puts, let's put on a spread so that we have a little bit of a guardrail in place so that, you know, when you do have that really outsized event, you're hurt less.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, I think the growth in volatility related instruments will continue because as people understand how they can be used properly, as we mentioned earlier, like the pharmaceutical, as the drugs get better and the doctors get better and the research gets better, we'll continue to see growth and I see that similar thing happening in the volatility space. So the original three are still adding yield and how do you do that most efficiently, most effectively, reducing risk and how do you do that most efficiently, most effectively. Obviously buying puts is the norm, but maybe there's more stock replacement that's built into that as an alternative. But again, that will be between experience and technology and research, et cetera. I see that continuing to evolve. And then when you get to the leverage side, whether it's leverage or it's...”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think it's fair. Yeah. When you see an instrument that most people who are in it don't understand and you see it attracting capital, it's usually a recipe for heartache at some point.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that stuff there, is that if you look at last year when volatility was just so low and the market was creeping higher and compare it to your long history in these markets, is that just a, for you it's a feel that, boy, doesn't feel right.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I don't hear a lot only because again, we don't delve into that space. What do I believe? I believe that often stories are written to get clicks and eyeballs. And so the more sensational, the better to stir things up. Not to say that there isn't a story there and some truth there, but that they often are now balanced approach. It's not a point counterpoint. It's sort of a, hey, this looks like something we can go in and look really bad. So I believe there's stuff there. I don't know that it's quite as extensive as some would legally.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yet we don't trade any VIX instruments. We only trade options on the S&P 500. And so for us, the VIX is a reference. It's a beacon. It's sort of a general measure, but it's not something that we trade or have a lot of. And so there is a trade there that again looked really good until it didn't related to the rolldown. But these things require sort of a daily rebalance. And they can look very good as a short-term, as a relatively easy way to put on a short-term, I don't want to say bet, but I guess bet or trade. Over long periods of time, you might have the right view and think you expressed it the right way and find out that you actually lost money, even though you think you did everything right. So again, this is not our space. And unfortunately, it can sometimes...”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Economic driver underneath it. You know, the VIX is drived from the implied vault of index options on the S&P across the full range of strikes. And it's 30 days out, so it's interpolated between the front month and the second month. So all of a sudden that just got a little funky. It was corrected very quickly, but I think that obviously scared a lot of people. And a billion and a half dollars looks like it kind of went away.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Several weeks, if not a month, where things will remain a little more jittery both directions, but they tend to settle down. And eventually you determine it's either it was a market phenomena or something bigger. In this case, the VIX spike that we saw on the towards the close of the fifth and the opening on February 6th was exacerbated by these inverse VIX ETNs that a lot of people were sort of getting into because they looked really good for a long period of time and then they blew up and when they blew up it required a ton of VIX futures buying and it caused the volatility curve to become sort of unknown because as I mentioned earlier the VIX is like a duration number but when you're just buying the duration number back how is it impacting the the whole curve and so it was a very unusual”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Would have an up 20% year in the ninth year of a bull market, but that January would come out of the chutes on top of all-time highs and be up 7.5% in the first, I don't know, 11 or 12 trading days. I mean, that... That was screaming this is too euphoric, way too much too fast. And lo and behold, we see the reversal in a hurry. And so when you look at a graph of the VIX over the last 20 plus years, it's about every 24 months or so that you see one of these spikes where the VIX will get up to certainly 30 plus, if not touch 40 tends not to last very long, tends to, there will be a period of...”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lot, but what I guess I'd start with we've had a market, the S&P, which hadn't had a 5% pullback in 400 trading that, you know, called two years, which is the longest streak since the 50s. So you just had this market that has been very complacent. It only goes up. Every dip is to be bought. You've had central global central banks pumping in liquidity. And so as a result, you had VIX levels in the low teens were slightly below. Last year, the VIX averaged about 11, which was its lowest level, I think, since 1990. And we all knew at some point we were due for a healthy correction, what I, to me, which was really extraordinary, was not that last year.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“I want to turn to the current environment because we've been planning to have this conversation for a little while and maybe we would have ended it there if it was about a month ago, but a lot changed. What's going on”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I mean, I think that's everybody is looking at how can we make technology work better for us and for the strategy. It might be in signaling trades, opportunities, warning lights. And I think that will continue to evolve and improve. We're big users of technology and quantitative metrics, but there's lots of opportunity for that to continue to be a differentiator.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the equity world we hear a lot about Computer technology, big data, the quants, the big Renaissance and two sigmas of the world. Have you seen in the trading of the derivative markets the use sort of computerization making certain trades more efficient or capturing inefficiencies that come out of market turmoil?”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not good for the policies you've already written, but it's very good for the policies you're about to write. And if you are a sort of a systematic volatility seller with guardrails, like the Iron Condor strategy, then those VIC spikes aren't good for the positions you've already written, but they're also decaying. And as you replace those structures with new structures, you benefit from higher volts to wider bands, leads to more premium collected, and leads to fairly rapid recovery. So you're back on track again. So it's sort of two steps forward, one step back, and then onward and upward.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Correct, we think there is, which is why we're in the business and have been successfully for ten plus years. There's lots of research that supports it. This thing we talked about earlier, this spread of implied or realized and this risk transference mechanism is there. And so just like there are insurance companies that make a lot of money by providing homeowners insurance, for example, property casually insurance, but they're very good risk managers. We think that that's the analogy here. We know there will be storms along the way. If there were never any storms, there wouldn't be no need for risk transference. And the key is how do you weather those storms? How bad does it get? How quickly do you recover? And the one thing I'll say is like the insurance analogy is when there is a storm, it's”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“You mentioned the iron condor, which is almost the epitome of this insurance strategy, or the iron condor is you're selling insurance on the market and you're buying reinsurance. If you looked at either that index or managers that pursued it, is there over time a structural return from effectively selling insurance to the market? And in that strategy could epitomize it because you're not naked selling.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. So the index, the CBOE instruments tend to be sort of monthly, systematic, no deviation variation, human interaction, et cetera, and no actual market sort of numeric thing, but it gives you a guide. And then when you view someone's track record versus that instrument, then you want to drill down not just to outperform, but why did you outperform by how much is there style drift taken on more risk than we want? How volatile are returns? What are the drawdowns and recoveries versus things like any manager? But I think that's the critical point is really understanding, again, the risk management and mitigation side is the thing that really keeps everybody up at night.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're not their indexes only, so they're not tradable. You can't put money into them, but there are managers who are trying to deliver that type of performance.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Right. You know, so the CBOE has certain, come up with many new indexes which are helpful benchmarks. So if you're looking at covered call strategies, for example, along the market with short calls against it, you can look at BXM or BXY, for example. If you're managing Iron Condor strategies, they have the CNDR. If you're looking at put right strategies, they've got PUT. So that's a good place to start.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think so I think There, as you mentioned, there aren't a lot of option players out there. And so most of them have developed reputations good or bad, and the bad ones tend not to last and the good ones tend to last and grow.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you were to do your due diligence in the space and call around, is the market information about traders relatively efficient, meaning if you made enough phone calls, is there a good sense in the community of, well, those guys tend to be a little bit out on the risk curve. Oh, no, those guys are fine. Is that information that you think a diligent allocator could gather?”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“They're right and the rest of the world is wrong. And I think that interviewing, looking at someone's background and interviewing them and their approach and their firm's approach, you can get a pretty good sense of is this someone who's swinging, is this Dave Kingman or is this Rod Carew or Tony Gwynne? And we are more Tony Gwyn. We're going to hit a lot of singles. We're going to hit for high average. We're not going to strike out. But we also are not going to lead the league in home runs.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Usually when you see really outsized returns, and I'm not talking about slightly outperforming the benchmark, which is what clearly you'd like, but strategies that there's not a good explanation, there's not a clear articulation of how this could blow up and why. But you hear certain things about strategies that are collecting nickels in front of a freight train. I would want to know that there are guardrails in place, and so it's more like picking up nickels in front of a tricycle. Understanding that there's risk, but I'd rather skin my knee than get taken out. And certainly the spectacular blow-ups that we've heard over time are usually on that side. They've been short, they've been levered, they had don't have guardrails, and probably a little arrogant in not being able to put in a stop loss and manage risk and things.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's probably common for anyone to think about is the line about old bold cowboys, right? There's old cowboys and there's bold cowboys, but there are no old bold cowboys. And people do associate the derivatives market with cowboy-like behavior. Where have you seen firms get too bold? And how can someone who's looking at it say, okay, that is a red flag in the way they're executing the strategy, whatever the strategy is within the space?”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't have a lot of defections, you don't have a lot of people coming and going, which could be a sign of dissatisfaction or potential trouble ahead, if you will. I think all those things are really important.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would start by looking at the team and to see what kind of experience and how much time they've been in the market, et cetera. Because if you're not good, you don't laugh. If you're not good, you don't advance. So I'd start with that for proof of knowledge experience, depth, et cetera. I would also look at track record, clearly, someone with a fancy back test who hasn't done it for very long versus someone who's done it for a long time through all types of markets, several different market cycles. Bullish markets, bearish markets, low vol, high vol, spikes and ball. So I'd look at the team, I'd look at the track record, I'd look at the AUM growth allocators are very smart capital continues to flow into a manager because of the other two points. Those are all going to be pretty important things. And how long has the team been together when you have a group that”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“One of the things I struggle with when I think about this is Almost a different world and universe, right? So we can go out and try to pick our favorites. The options trading world has, well, there's a different language. It's Greek. It's not English. It's how do you assess as an allocator if someone's good at derivatives trading?”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“How I would want that to work would be finding someone who's really good at stockpicking, bottom-up research, et cetera, and then use S&P index options as more of the macro bet around macro hedge around.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“One is a manager that uses covered calls, and even though sort of to our earlier point, even if volatility isn't high, stock prices are high. And so adding some yield on top when the risk of a continued run is more muted in the potential of more of a decline is there can make sense. Or, you know, managers who will use stock replacement at times to maintain upward exposure, but a more cost-efficient way of limiting the downside risk or just more traditional, if you want to earn the equity drift over time, let's say, and you're happy making $48% and you'll forego the up 30 year to reduce the down 40 year, you know, then sort of a migrating collar around some equity exposure. And then the question is generally.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Long position and replace it with cheap calls, that way if the market keeps running higher I continue to make money, but if the market suddenly corrects like it did starting in late January into earlier this week, then you're limited to the premium that you spent. And so you're going to look like a hero. And not only did you limit the amount that you'll lose because the market collapsing, but your long ball and vault has just spiked. So that's one example I think stock replacement is really one. And the other would be if somebody is long and they have a zero basis and so they don't really want to sell and take a tax event, then you buy puts, for example.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Assume you're not and you're trying That as an opportunity. Well, what I would say is if your view is that volatility is cheap, and arguably when the VIX is around 11, 10, 9, it is cheap. You look at any, you know, it's a mean reverting asset and you look at over time. That tends to be pretty attractive level to buy. It's more to me, it's more of a, it sort of screams stock replacement at that point. And so what I would say is volatility looks cheap and why does it look cheap? It looks cheap because the market's just been going up and up and up and up and up and who needs to buy puts when the market only goes up and who needs to buy puts if Bernanke and Yellen are there with the big Fed put below. So if you think some of those things are less likely to continue and you're along the market and now you can say, hey, I'm going to sell some of my.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Lots of different things that one could do if you're more of a professional trader. You could buy straddles on the market.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“A couple weeks ago, before the market choppiness that started in February, I had a conversation with Bill Spitz, who had been at Vanderbilt and diversified trust company. And he had said the only area of the markets that he saw that looked cheap was volatility. If you shared that view, which I did not too long ago, it's a little different maybe today, how it's a good way for someone to go express that view to put capital to work and say, well, I think volatility is cheap Therefore, I should do what”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say is it's actually less scary than being along the market and nobody has a problem buying the S&P or buying stocks, et cetera. But boy, you talk about being short puts and you'd think, you know, you're playing with kerosene. So that's my take”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that's less risky than owning the stock because the puts are out of the money. So you've got like a buffer running head start before in effect you're saying, hey, I agree to buy the market on a dip. I'm not long now and if the market drops 5% or 10% however far the money your puts are and you're getting paid as well and you're getting paid over and over and over again. Now in the very short term they might get nearly as risky as being long a stock because not only are you impacted by the drop in the market but you're impacted by the spike in volatility. But the good news is you can then roll that put and now you're selling vol at a high as well as pushing your put. So I guess the point is the hearing the word short naked put sounds as scary as anything and what I”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Explaining these positions and the pretty big mark-to-market hit that he had to take was a fairly predominant part of at least one of those letters and probably only one letter because it was only a problem in the fall of a weight in Q1 of 09 and then ever since. I guess what I would say is anybody who buys a stock, it's the same as being long a call and short a put at current level. And so if you decouple those things you can be a naked put seller.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“We spent a lot of time on education. We really want to make sure people understand puts and calls and long and short and most specifically what each of our strategies is meant to do, when it'll work well, when it won't work well, and most importantly, how bad can it get? And on the Warren Buffett example, I recall when he did the trade, and if you're a natural buyer of the market on dips and you know that there's this spread of implied over realized, which is some edge that's being handed potentially to you, and you know that skew is really rich for those downside puts, then someone like Warren Buffett says, hey, I'm a buyer on dips anyway. If I don't get my dip, I'm going to make a lot from the premium. And then lo and behold, the financial crisis happened. And if I recall correctly,”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Tenure puts on the SP going into the financial crisis. So he looked really bad for a while, but then he viewed it as an insurance business. You're talking to your clients and prospects and institutions, how do you see people wrestling with a true understanding of the space as opposed to the perception that this is a financial weapon of mass destruction?”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“There are so many perceptions that people have about derivatives and volatility strategies. And the one I always love wrestling with is Warren Buffett and Berkshire Hathaway, who coined derivatives as weapons of financial mass destruction. And around that same time, around the financial crisis, he sold long-dated puts, I guess, on the S&P.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source
“Can be infinity on a call side and can be all the way to spotless zero on the put side. So I think where people really get hurt is when A, they're short ball and B, they don't have guardrails in place. And the simplest way to think about a guardrail is if you sell options to sell spreads, or if you sell an option to own the underlying. So if you sell a call on something hopefully you own the underlying because if you sell a call and you're wrong and you can get hurt very badly. And conversely, when you sell a put, then you better at least have cash set aside to buy that underlying if that event happens. The idea of being long the market and selling puts is probably, well, it'll work fine if the market goes up, but if the market goes the other way, that's obviously the other side of the coin.”
2018-02-26 · Capital Allocators · Rick Selvala - Harvesting Volatility (Capital Allocators, EP.41) · IDENTIFIED FROM THE TRANSCRIPT · source