Today Jason Buck is joined by Hari Krishnan in the first of our series on Volatility, where we discuss the benefits of adding volatility strategies to your portfolio, why it can pay to avoid hedging when the crowd is already doing so, explaining the 'Put slingshot', how markets are different today from decades ago, protection against tail-risk, the psychology behind large markets sell-offs, and some thoughts on the effects of leverage on the markets.
In this episode, we discuss:
- The benefits of tail-risk hedges / adding volatility hedges to your portfolio
- The importance of avoiding group think (in hedging)
- Some thoughts on what is known as the ‘Put slingshot’
- The new nature of stock market movements
- The repricing of risk during fast downturns
- Tail-risk protection versus Trend Following
- How tail-risk protection can complement an existing allocation to Trend Following
- Some of the psychology and mechanisms behind large and sharp market moves
- How positioning and leverage end up creating challenging markets to trade in
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00:00 - Intro
02:59 - Why should somebody include volatility or tail risk into their portfolio?
04:35 - Do you think rolling option puts is a good hedging strategy?
07:47 - The tradeoffs between near-term and long-term option pricing
09:03 - Can you explain the differences between ‘Gamma’ and ‘Vega’ options profiles?
10:15 - What are your thoughts on rolling options?
15:05 - How do you think about the timing of adding and removing volatility protection?
18:27 - In your book you mention the ‘Sombrero Trade’, can you describe what this is?
21:54 - How risk becomes repriced during sharp selloffs
25:04 - Does tail-risk protection help long-term Trend Followers?
25:04 - Are you looking out for inflection points such as in March 2020, where everybody ran for the exits at the same time?
43:15 - What are your thoughts on the huge amounts of passive inflows to the markets and the in-elasticity it creates?
49:08 - What about the those who say the Federal Reserve (the ‘Fed put’) is the ultimate protection and therefore no other protection is needed?
54:10 - How do you think about those funds who use ‘vol targeting’?
01:01:12 - How do you think about ETFs when it comes to ‘whales’ positioning?