April 26, 2025 • 21 mins
Over the last few years, retail traders have gotten into options in a major way. Selling puts, buying calls, trading volatility — what used to be the domain of niche experts engaged in practical hedging has exploded into the public sphere. And there was a lot of easy money during a time when every dip was bought, and stocks mostly just went up. But what have we seen in recent weeks, with the extraordinary trading since April 2? On this episode we bring back one of our favorite guests, Benn Eifert of QVR Advisors. He describes what's been going on in the markets, and why a lot of social media "volfluencers" have suddenly gotten very quiet.
Mentioned on this episode:
Matt Levine on MicroStrategy’s Infinite Money Machine
Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:07):
Tracy, we have been in a leather jacket.
Speaker 3 (00:10):
Yeah, well it's not just a leather jacket. It's a
black leather blazer with sort of braided edges. It's got
a little bit of a wait, is this an insult
or a compliment? I don't know, a little bit of
a little bit of a Ren fair Field.
Speaker 1 (00:23):
Absolutely, that's a big to a volatility nerd. That's a couple.
Speaker 3 (00:27):
Okay, good, all right. I was a question.
Speaker 4 (00:29):
This is like one of it that would be a
very polarizing not to me.
Speaker 2 (00:34):
I do not have renfair vibes. But look, I respect it.
These are renfair time, These are fair times. I get it.
I get it.
Speaker 1 (00:42):
Absolutely. There's pictures of me on Twitter in you know,
Nightingale armor with his swords, So I think this is
a fair game.
Speaker 2 (00:50):
I did a deadlist.
Speaker 3 (00:51):
I'm both the most popular trader and most successful trader
at Citadel. That is going viral, barges.
Speaker 2 (00:58):
This isn't after school special.
Speaker 3 (01:00):
I've decided I'm going to base my entire personality going
forward on campaigning for a strategic pork reserve in the
US Black Goal. These are the important questions that robots
taking over the world.
Speaker 4 (01:10):
No, I think that like in a couple of years,
the AI will do a really good job of making
the Odd lotch podcast. One day that person will have
the mandate of heaven.
Speaker 3 (01:19):
How do I get more popular and successful?
Speaker 2 (01:22):
We do have.
Speaker 3 (01:25):
You're listening to lots More where we catch up with
friends about what's going on right now, because.
Speaker 4 (01:30):
Even when the Odd Lots is over, there's always lots More.
Speaker 3 (01:33):
And we really do have the perfect guest.
Speaker 4 (01:39):
We are, of course with Ben Eiffer qv R Advisors.
Then who's been getting steamrolled the most by this market?
And I have some thoughts on this market, but I
want to hear your No.
Speaker 1 (01:49):
It's a super fun market. I mean really, First you
had the deep seak thing, yeah, right, and that was
really interesting because equity markets went down, but the fund
was all under the surface, right, what did we sell
off eight or ten percent? And index? It wasn't a
huge deal, but there were like eight standard deviation moves
in market, neutral factor type relationships and crowded equity long
short and so you saw you know the type of
(02:11):
people that had the really popular equity positions. You'll Nvidia
and you know Tesla and all these kind of stocks
just get really really murdered. You heard of a lot
of pain at the big multistrats. Again you have to
put that in context because they're pretty well risk managed.
The losses weren't that large in percent terms, but you
had again just very very very large moves. And then
I think the interesting thing about that was that led
(02:32):
to a lot of d risking in hedge funds. So
you had pretty high gross in net leverage coming into
that and then it came off quite a lot, you know,
a lot of d risking. And then when you know
that when Liberation Day hit, I think positioning wasn't nearly
as you know, as offsides as it could have been otherwise.
And so you did see obviously big drawdowns in the
(02:54):
equity market and big rallies back a lot of volatility,
but I think, you know, the losses that you saw
among head funds probably weren't as bad as they would
have been otherwise. Another interesting thing to note, and we
you know, we talked about this a lot. There really
isn't that much of the kind of super crowded short volatility,
short tail risk, tail risk selling kind of stuff out
(03:14):
there that there was, like in twenty nineteen twenty twenty
for the pandemic. So you didn't see that those kind
of fireworks right there. Weren't like hedge funds getting liquidated
and people getting carried out in body bags and big
auctions of all their positions making markets go crazy. You
just didn't really have that kind of stuff. What you
had was a pretty fundamentally driven, you know, orderly sell off,
followed by you know, goofy rallies back and forth on
(03:36):
Trump tweets and what's he going to do and all
this kind of thing. But it was really, I think
much more about about you know, fundamentals of expectations of
what is policy really actually going to be and how
much does that matter for the economy as opposed to
like technical positioning hedge fund blow ups and people getting steamrolled.
Speaker 3 (03:52):
Yeah, I feel like the positioning point is really important
and is probably one of the reasons like we had,
I'm doing air quotes here, but that orderly sell off
versus something super super chaotic. But that said, I mean
we're talking about it being a fun market. I feel
like I have to make the obvious disclaimer, which is,
I'm sure it's very fun if you're in options and
in volatility trading. But if you're in the sort of
(04:14):
long term buy and hold game, this feels almost like
an impossible environment to navigate, right, Like one day we're
up two or three percent, the next day we're down
two or three percent. Everything is riding on like what
Scott Besson says, what Lutnik chooses to say, and god knows,
you know what Trump is going to say in his
latest press conference very much so.
Speaker 1 (04:34):
And you know, and in today too, it's like, well,
yesterday we were up three point two percent and then
there was a bunch of walking back of the unilateral
terra production position, and then we sold off, you know,
halfway back to flat almost immediately. I think there were
I think someone.
Speaker 4 (04:47):
By the way, we're recording this April twenty fourth, it's
ten oh eight am.
Speaker 2 (04:50):
Every time we have a Yesterday.
Speaker 1 (04:52):
Or something that's right, very good point, keep going yeap,
So we had I think just this morning I saw
an article I think Alexander wrote it at Bloomberg saying,
you know, we're in a traders are trying to trade
Trump tweet's market, and that's really hard. You know. I
think that generally speaking, anybody that you talk to the
success rate of sitting there at your computer and looking
at what just got tweeted or what article just came out,
(05:14):
and then sort of doing trades and making money, Like
nobody makes money at that. It's incredibly difficult, right, It's
a very choppy market. The people who do, of course,
as you point it out, volatility traders have a very
non consensus view on what's fun and what's not right.
We love this, but yeah, I think that's.
Speaker 3 (05:27):
Your definitions of fun may vary.
Speaker 1 (05:30):
Exactly back to the renaissance fair point.
Speaker 4 (05:32):
So, I thought there was a very interesting point about
deep seek, which is that what it really obliterated were
the market neutral factors that had been working on. That
is very interesting, And of course, you know the pod
shops that we're always talking about, their game is to
find those market neutral and then this was a thing
that just rearranged everything.
Speaker 2 (05:50):
You know, when you're on.
Speaker 4 (05:52):
Before you talk about the TikTok option influencers who are
always looking at various Greek letters like alpha, beta, Gamma, delta,
Epsilon's zeta, ata, theta iota, Kappa, lambdamu when oopsilon is
trading way out there on some extreme all these trades
are premised on some sort of mean reversion that there
(06:13):
isn't a dislocation, and then eventually a normal returns, right.
And it may go further out and the sigma and
the row may get further blown out, but eventually they
come back to normal. How much of this is like
a crisis of people really don't know that some sort
of fundamental economic mean reversion is coming.
Speaker 1 (06:32):
Yeah, I think that's something really important to that, right.
I think that people are very conditioned in this market
of the last many many years, really post credit crisis, right,
that that sort of nothing ever happens. We talk about
this a lot, right, but that any kind of sell
off will be immediately bought, It'll immediately come back, any
kind of all spike will get sold. And you know,
even in the pandemic, obviously people got run over on
(06:53):
that view, but we still did come back. It's just
that it got really crazy for like a month, right, Yeah.
And I think this feels very different, where this isn't
a flat in the pan with a technical squeeze and
a big explosion of stuff like this is. You know,
there are the real fundamental issues here, which is that
you know, the US government is out there doing totally
crazy economic policy that every economist in the world for
(07:13):
the most part, will tell you is totally crazy. And
they're also changing the goalposts day to day on what
exactly that policy is going to be, and they've really
eroded the market's confidence that they kind of know what
they're doing, not only on tariffs, but I think on
everything else now, right, I think that one of the
most important things that Liberation Day did was, you know,
take the market, which really up to that point, I
think you have to say, kind of believed that the
(07:35):
tariffs thing was like this four dimensional chess strategy and
negotiation and everything else crazy that Trump was saying, you
kind of discount, right, because he's not really going to
do that. He's got a plan. And really the market
really had to re rate that whole expectations of how
to interpret everything that Trump and his administration say or
say they're going to do, because gosh, they said they
were going to do this crazy tariffs thing and then
they did it five times crazier than everybody thought they
(07:56):
were going to do. Yeah, right, and not just crazier
in terms of levels of tariffs, but in terms of
like the clownishness of implementation, right that like the chat
GBT night before tariff table with the Penguin Islands and
like the whole thing. Right, So then when Trump is
out there saying, Okay, tomorrow, you know, next week we're
going to deport thirty million immigrants or like whatever crazy
thing that he says, the market kind of has to
take that more seriously now, right, or at least question
(08:18):
like what are the possible implications? And so I think
it's a very different environment going forward, right, It's unlikely
that that's going to just change and that he's going
to suddenly turn into like a really serious guy.
Speaker 3 (08:29):
So, speaking of things being weird, and there are any
number of weird things that we could choose to talk
about here, but like one of the weirdest to me
has been what's been going on in equity volatility. So
we've had a very big gap between the VIX, which
is implied volatility versus realized volatility, which you know, like
maybe explain the difference to us just to begin with,
(08:50):
and like why we've seen that gap really developed?
Speaker 1 (08:53):
Sure? Absolutely, So the VIX is up is something that
everybody talks about, but not everybody really thinks about exactly
what it is, right, it's the fear index. But what
it is is it's a level of what's called implied volatility.
So in some sense you could think of it as
the market's forecast for realized volatility over the next month
based on option prices. It's a little bit more nuanced, though,
(09:13):
because calculation that they chose for a VIX isn't regular volatility.
It's something called variance, which is volatility squared but then
normalized back into units that are volatility. And the distinction
there is that it's so the level of VIX is
the level of what's called the variance swap, and a
variant swap pays you, as a volatility trader who buys
it proportional to the square of volatility. And so what
(09:34):
that means is if volatility doubles, you actually make a
whole lot more money, or if volatility goes up by
four times, you make a ridiculously amount more money. Yea's right,
there's a big slope to it, and so you have
to pay a big premium to buy a variant swap
relative to what you would pay to just buy volatility.
And so when you compare the VIX to realize volatility
or how much markets are moving on average. On average,
(09:57):
there should be an extra premium there. It's not just
direct comparable. Now to Tracy's point, though, realized volatility recently
has actually been generally much higher than like the average
level of the VIX. Now, the VIX did spike into
the fifties kind of briefly, but it's mostly come back
down into like the thirties and high twenties. But yet
markets are often moving you know, three percent in a
day or four or five percent in a day, which
(10:19):
implies a much higher level of implied volatility.
Speaker 3 (10:21):
It's a crazy chart. So you can you can chart
on the Bloomberg on your handy Bloomberg terminal, like the
Gamma index versus the VIX. You could see that like
the jaws kind of opening over the past few weeks.
Speaker 1 (10:32):
Yeah, very much so. And again that's really reflects a
you know, aggressive bet on the part of market participants
that realized volatility has been high, but it's going to
be lower over the next month than it was, and
it's and actually the degree to which you see that
in your chart is understated because of that variant swap effect.
You're actually not really even comparing the right number with
the right number to compare would be like at the
(10:53):
money implied ball, which you can also plot in Bloomberg.
Speaker 3 (10:56):
Oh what's the ticker for that?
Speaker 1 (10:57):
So you would just do SPX index and then you
would do there's going to be a field for it,
which would be like one month, one mt h something
something field.
Speaker 3 (11:07):
But yeah, oh awesome, Yes, this is very useful.
Speaker 1 (11:09):
Thank you. There you go, And that guy will usually
be anywhere between say three and eight or ten points
below vix, depending on the level of X. So with
VIX at fifty, that's probably at forty or thirty eight or.
Speaker 3 (11:19):
Something like that. You know.
Speaker 4 (11:20):
Tracy and I we put on events, trivia events, et cetera.
One of the dreams that we have though, is a
Bloomberg terminal live company competition terminal Olympics where we get
like twenty traders and they're all seated at a terminal
so good calculate actually, and they always flashes on a
screen who gets the answer first?
Speaker 2 (11:41):
Like, how well do you know?
Speaker 1 (11:42):
So that would be such a good tea.
Speaker 4 (11:44):
I think we think Ben for coming on if nothing else,
to give us quotes and news about functions for when.
Speaker 2 (11:50):
We eventually put this on.
Speaker 4 (12:05):
I don't follow like you know, the Wolf of Gamma
or whatever on TikTok you've seen anything good?
Speaker 2 (12:10):
What are they saying they got?
Speaker 1 (12:11):
They all got real quiet?
Speaker 2 (12:17):
What are you seeing out there? You got any good?
Like tweets or you know sellers or whatever.
Speaker 1 (12:22):
Seriously, so as you know, like on a regular basis
in normal environments, like everybody is tagging me in ridiculous
like tweets or Instagram posts or whatever that that these
kind of option selling influencers are making, you know, the
coal options grind guy and like all these people. And
as of you know, a couple of weeks ago, there's
just absolute crickets from that community because the types of
(12:42):
trades that you know, they they advocate, as we talked
about last time, you know, they make a little bit
of money on average, you know, for a while, and
then they give it all back or twice as much
back when something like this happens. And so there's not
a whole lot of talking coming from that crowd, and
you see it reflected. You know, obviously you can't see
what you know is how happening to those highly over
leveraged individuals that are unfortunately following that kind of advice.
(13:04):
You know, you can look at how well like covered
call ETFs are performing relative to just the underlying and
things like that to get a little bit of of
a little bit of a sense. You know, look at
the mstr covered call ETF for example, right, And it's
just bad because the worst possible environment for those kind
of strategies is when you have a sharp spike in
(13:25):
realized volatility, and especially if there's like a lot of
chop and back and forth, you know, mean reversion, right,
because you'll have a situation where where they're selling like
these weekly options, right, and you have a really big
sell off for a week, they lose a bunch of
money on their puts, and then they sell some calls
and you have the big rally back, and then they
lose their money on their calls. And again, none of
this is like something that they explain to their followers.
(13:47):
They just sort of tell their followers that the income
of the strategy is like the option premium that they sold,
and they don't conceptualize the possibility that you can actually
lose money when you sell the option.
Speaker 4 (13:56):
Tracy, every once in a while, I'm reminded that we
exist in world where there's like fourteen ETFs.
Speaker 2 (14:03):
That are based on various doing things.
Speaker 4 (14:05):
Micro strategy is crazy amazing anyway, Sorry, well, also.
Speaker 3 (14:08):
I'm still blown away by the fact that micro Strategy
also calls out the volatility and its share price in
its earnings call as like a selling point.
Speaker 1 (14:16):
Look how volatile we were in circuits and it's beautiful, right,
But I mean Sailor is very smart, right, so Sailor
understands all this stuff perfectly. If you if you can
run a really really high volatility company, yes you can.
It means hedge funds love your convertible bonds and will
pay anything to get your convertible bonds. Yeah, it makes
your actually makes your credit cheaper.
Speaker 3 (14:33):
And I gotta say, if people want to hear more
about this, we did record a lots more with Matt Leveeh.
Speaker 1 (14:37):
It was a great episode.
Speaker 3 (14:38):
God, it feels like so long. It feels like it
was two years.
Speaker 1 (14:40):
We get the.
Speaker 4 (14:40):
Luxury of talking about micro strategy for a whole episode once.
Speaker 1 (14:44):
Pretty amazing.
Speaker 3 (14:44):
I feel like this is kind of the secret of
volatility and options trading, which is like you think that
a lot of these guys, a lot of these influencers
would really enjoy this particular trading environment, but so much
of it is based on that mean reversion that Joe
pointing out that a lot of stuff just blows up
when you finally get volatility right, it really does.
Speaker 1 (15:04):
Wait not to come back to this, but MSTR. But
did you see that there is going to be MSTR
for Solana?
Speaker 2 (15:10):
Yeah? Yeah, and they're yes, they're trying to I was.
Speaker 4 (15:13):
I actually appeered on a crypto podcast recently and I
was like, I'm tapping out this.
Speaker 2 (15:18):
I don't understand MSDR.
Speaker 4 (15:19):
But now there's a bunch of like copycats, and the
question is can anyone really repeat this?
Speaker 3 (15:24):
Yeah?
Speaker 1 (15:24):
Yeah, but GSR just led a big round and to upa.
Speaker 2 (15:27):
I just have to read these. Sorry, I have one
more question, but I just before I do.
Speaker 4 (15:30):
Here's some of the ETFs Defiant daily target two x
long MSTR ETF yield max MSTR Option income Strategy ETF
t REX two two x long MSTR daily target ETF
bit wise MSTR income Strategy. Oh there's another one st
key day, one hundred percent MSTR and one hundred percent
coin TF. So I guess it makes us some coinbase
(15:51):
in there.
Speaker 2 (15:52):
There's a lot more. I just had to read those
in last question for me, Like, if you're.
Speaker 4 (15:56):
A long only investor, just a normal whatever investors I am,
you know you have two choices I think, which is
one the hope and praise strategy, which I always actually
think is very legitimate because that does tend to work
out over a long enough timeline. Or they're like, oh,
I really need to think about diversification strategy or something
like that. Okay, in your world, don't you still have
(16:18):
to have some sort of view because if the question
is do some of these Greek letters snap back into
place or there's a gap between where this Greek letter
and this Greek letter are pricing to make money, don't
you still need.
Speaker 2 (16:31):
To have a view like I do.
Speaker 1 (16:33):
That's a great question. So there's a couple of different
important things here. There are different types of trades in
the derivatives world that are driven by dislocations. Some of
those trades make money on realized dynamics and markets and
don't rely on some implied Greek coming back into Okay, right,
so Tracy was talking about, you know, realized volatility and
(16:53):
implied volatility. This is like a simple dumb example, but
just suppose that implied volatility was just always way too low,
and realize volatiley was way higher for short term options.
You would just buy short term options and hedge them
all the time, and you would just make money constantly. Yeah,
and you wouldn't need that to ever change. Wouldn't ever
want that to change. You wouldn't ever want that dislocation
to go away. Okay. So there are some things like
that that we can make money based on a dislocation
(17:15):
but without requiring the dislocation to close. And then there
are other things where exactly as you point out, you're
trading an implied dislocation and you're going to only make
money when it reverts. And for things like that, you know,
we really have to think hard about, Okay, where is
this dislocation coming from? What flows are driving it? Are
those flows that are going to be persistent and not
go away and it's unlikely that those dislocations close. Are
(17:36):
there fundamentals that actually cause that dislocation to stay there
even if it doesn't really make sense? Or is this
something that is being driven by temporary supply and demand
dynamics in the market and you understand what might push
it back over what kind of time horizon? And the
latter is an interesting trade. The former really isn't, And
you actually have to think very hard about that. You
can't just look at the level of the Wazoo parameter
on a screen and sort of say, which, by the way,
(17:59):
is the made up parameter that exotic derivatives traders you know,
use to claim why you're losing money on your trade
with them.
Speaker 3 (18:05):
Man, I'm always looking at those parameters. That's a big mistake. Okay,
Well I have a very simplistic question based on this conversation.
But okay, implied volatility down quite a bit, realize volatility
is still up quite a bit. Is buying vall that
sort of hedging protection? Is that cheap at the moment? Like?
Would you be a buyer at these levels? Basically?
Speaker 1 (18:25):
Yeah, if you believe as I think I do, that
Trump two point zero is not a low volatility president,
right that one way or another, Right, this is different
And that doesn't mean the world is going to end necessarily,
but that this is not like a ten percent realized
volatility market, and he doesn't want it that way, he
doesn't like it that way. Then yeah, I think you
have to look at when you look at the overall
(18:46):
volatility landscape, there are a lot of things that are
relatively cheap, and you know, in our core business we're
absolute return. We're always looking for what's cheap and what's expensive,
and you know, hedge trades and so forth. But we
also do help big institutional investors with tail risk hedging
and with things that are outright defensive to protect their portfolios.
And yeah, there's still lots and lots of opportunities for
(19:07):
that because really in this market we talked about this
a little bit, but the knee jerk reaction of most
market participants is that when volatility goes up, they just
think you have to sell it, and they do a
lot of risk on trades in the volatility markets, which
don't necessarily make sense, you know, from a risk reward perspective.
Most of the time, they should just buy equities, to
be honest, if they want to be bullish.
Speaker 3 (19:27):
Actually, you just reminded me. I mean, one of the
other things we just saw was like this huge contraction
in risk appetite across the entire financial industry basically around
April second, that Liberation day. Who is selling vall at
the moment, and have you seen continued appetite to sell
volatility in the current environment, yeah, no very much.
Speaker 1 (19:47):
So, so one thing that you can always tell is
when you get a sell off like this and the
VIC spikes a lot. So VIX went to a little
over fifty. Look at where the front month Vick's future
is trading, and that tells you whether people are buying
or selling ball. So the front month VIX future had
you know, five or six days left to maturity early
after Liberation Day, and it was trading at you know,
(20:08):
thirty two when the VIX was fifty, right, So it
was implying massive speed of normalization and mean reversion because
everybody's selling it. And the VIX future is the best
thing to look at because it's the tourist instrument, right,
So you know, vall traders, you know, trade the VIX
inasmuch as there's dislocations in it. But if you're just
a regular equity guy and you think ball is too high,
you don't go trade options. Options are too much work.
(20:29):
VIX is really easy, right because you can trade the ETFs,
you can trade the futures. You don't have to think
about like the gamma and the you know, the baga
and all that stuff, and so there's an overwhelming appetite
to sell ball on ball spikes from a lot of
parts of the hedge fund community, from tourists, from volatility
tourists within the hedge fund community, and from retail investors. Also,
retail investors are very much dip buyers and ball sellers
(20:51):
on spikes.
Speaker 4 (20:53):
Valdi tourists would be a good name for a trivia
team one of our trivia nights.
Speaker 2 (20:58):
I'm a Volatility that is a good A good name,
be a fun one.
Speaker 4 (21:05):
Lots More is produced by Carmen Rodriguez and dash Ol Bennett,
with help from Moses Onam and kil Brooks.
Speaker 3 (21:10):
Our sound engineer is Blake Maples. Sage Bauman is the
head of Bloomberg Podcasts.
Speaker 4 (21:15):
Please rate, review, and subscribe to Odd, Lots and Lots
More on your favorite podcast platforms.
Speaker 3 (21:21):
And remember that Bloomberg subscribers can listen to all our
podcasts ad free by connecting through Apple Podcasts. Thanks for listening.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:07):
Tracy, we have been in a leather jacket.
Speaker 3 (00:10):
Yeah, well it's not just a leather jacket. It's a
black leather blazer with sort of braided edges. It's got
a little bit of a wait, is this an insult
or a compliment? I don't know, a little bit of
a little bit of a Ren fair Field.
Speaker 1 (00:23):
Absolutely, that's a big to a volatility nerd. That's a couple.
Speaker 3 (00:27):
Okay, good, all right. I was a question.
Speaker 4 (00:29):
This is like one of it that would be a
very polarizing not to me.
Speaker 2 (00:34):
I do not have renfair vibes. But look, I respect it.
These are renfair time, These are fair times. I get it.
I get it.
Speaker 1 (00:42):
Absolutely. There's pictures of me on Twitter in you know,
Nightingale armor with his swords, So I think this is
a fair game.
Speaker 2 (00:50):
I did a deadlist.
Speaker 3 (00:51):
I'm both the most popular trader and most successful trader
at Citadel. That is going viral, barges.
Speaker 2 (00:58):
This isn't after school special.
Speaker 3 (01:00):
I've decided I'm going to base my entire personality going
forward on campaigning for a strategic pork reserve in the
US Black Goal. These are the important questions that robots
taking over the world.
Speaker 4 (01:10):
No, I think that like in a couple of years,
the AI will do a really good job of making
the Odd lotch podcast. One day that person will have
the mandate of heaven.
Speaker 3 (01:19):
How do I get more popular and successful?
Speaker 2 (01:22):
We do have.
Speaker 3 (01:25):
You're listening to lots More where we catch up with
friends about what's going on right now, because.
Speaker 4 (01:30):
Even when the Odd Lots is over, there's always lots More.
Speaker 3 (01:33):
And we really do have the perfect guest.
Speaker 4 (01:39):
We are, of course with Ben Eiffer qv R Advisors.
Then who's been getting steamrolled the most by this market?
And I have some thoughts on this market, but I
want to hear your No.
Speaker 1 (01:49):
It's a super fun market. I mean really, First you
had the deep seak thing, yeah, right, and that was
really interesting because equity markets went down, but the fund
was all under the surface, right, what did we sell
off eight or ten percent? And index? It wasn't a
huge deal, but there were like eight standard deviation moves
in market, neutral factor type relationships and crowded equity long
short and so you saw you know the type of
(02:11):
people that had the really popular equity positions. You'll Nvidia
and you know Tesla and all these kind of stocks
just get really really murdered. You heard of a lot
of pain at the big multistrats. Again you have to
put that in context because they're pretty well risk managed.
The losses weren't that large in percent terms, but you
had again just very very very large moves. And then
I think the interesting thing about that was that led
(02:32):
to a lot of d risking in hedge funds. So
you had pretty high gross in net leverage coming into
that and then it came off quite a lot, you know,
a lot of d risking. And then when you know
that when Liberation Day hit, I think positioning wasn't nearly
as you know, as offsides as it could have been otherwise.
And so you did see obviously big drawdowns in the
(02:54):
equity market and big rallies back a lot of volatility,
but I think, you know, the losses that you saw
among head funds probably weren't as bad as they would
have been otherwise. Another interesting thing to note, and we
you know, we talked about this a lot. There really
isn't that much of the kind of super crowded short volatility,
short tail risk, tail risk selling kind of stuff out
(03:14):
there that there was, like in twenty nineteen twenty twenty
for the pandemic. So you didn't see that those kind
of fireworks right there. Weren't like hedge funds getting liquidated
and people getting carried out in body bags and big
auctions of all their positions making markets go crazy. You
just didn't really have that kind of stuff. What you
had was a pretty fundamentally driven, you know, orderly sell off,
followed by you know, goofy rallies back and forth on
(03:36):
Trump tweets and what's he going to do and all
this kind of thing. But it was really, I think
much more about about you know, fundamentals of expectations of
what is policy really actually going to be and how
much does that matter for the economy as opposed to
like technical positioning hedge fund blow ups and people getting steamrolled.
Speaker 3 (03:52):
Yeah, I feel like the positioning point is really important
and is probably one of the reasons like we had,
I'm doing air quotes here, but that orderly sell off
versus something super super chaotic. But that said, I mean
we're talking about it being a fun market. I feel
like I have to make the obvious disclaimer, which is,
I'm sure it's very fun if you're in options and
in volatility trading. But if you're in the sort of
(04:14):
long term buy and hold game, this feels almost like
an impossible environment to navigate, right, Like one day we're
up two or three percent, the next day we're down
two or three percent. Everything is riding on like what
Scott Besson says, what Lutnik chooses to say, and god knows,
you know what Trump is going to say in his
latest press conference very much so.
Speaker 1 (04:34):
And you know, and in today too, it's like, well,
yesterday we were up three point two percent and then
there was a bunch of walking back of the unilateral
terra production position, and then we sold off, you know,
halfway back to flat almost immediately. I think there were
I think someone.
Speaker 4 (04:47):
By the way, we're recording this April twenty fourth, it's
ten oh eight am.
Speaker 2 (04:50):
Every time we have a Yesterday.
Speaker 1 (04:52):
Or something that's right, very good point, keep going yeap,
So we had I think just this morning I saw
an article I think Alexander wrote it at Bloomberg saying,
you know, we're in a traders are trying to trade
Trump tweet's market, and that's really hard. You know. I
think that generally speaking, anybody that you talk to the
success rate of sitting there at your computer and looking
at what just got tweeted or what article just came out,
(05:14):
and then sort of doing trades and making money, Like
nobody makes money at that. It's incredibly difficult, right, It's
a very choppy market. The people who do, of course,
as you point it out, volatility traders have a very
non consensus view on what's fun and what's not right.
We love this, but yeah, I think that's.
Speaker 3 (05:27):
Your definitions of fun may vary.
Speaker 1 (05:30):
Exactly back to the renaissance fair point.
Speaker 4 (05:32):
So, I thought there was a very interesting point about
deep seek, which is that what it really obliterated were
the market neutral factors that had been working on. That
is very interesting, And of course, you know the pod
shops that we're always talking about, their game is to
find those market neutral and then this was a thing
that just rearranged everything.
Speaker 2 (05:50):
You know, when you're on.
Speaker 4 (05:52):
Before you talk about the TikTok option influencers who are
always looking at various Greek letters like alpha, beta, Gamma, delta,
Epsilon's zeta, ata, theta iota, Kappa, lambdamu when oopsilon is
trading way out there on some extreme all these trades
are premised on some sort of mean reversion that there
(06:13):
isn't a dislocation, and then eventually a normal returns, right.
And it may go further out and the sigma and
the row may get further blown out, but eventually they
come back to normal. How much of this is like
a crisis of people really don't know that some sort
of fundamental economic mean reversion is coming.
Speaker 1 (06:32):
Yeah, I think that's something really important to that, right.
I think that people are very conditioned in this market
of the last many many years, really post credit crisis, right,
that that sort of nothing ever happens. We talk about
this a lot, right, but that any kind of sell
off will be immediately bought, It'll immediately come back, any
kind of all spike will get sold. And you know,
even in the pandemic, obviously people got run over on
(06:53):
that view, but we still did come back. It's just
that it got really crazy for like a month, right, Yeah.
And I think this feels very different, where this isn't
a flat in the pan with a technical squeeze and
a big explosion of stuff like this is. You know,
there are the real fundamental issues here, which is that
you know, the US government is out there doing totally
crazy economic policy that every economist in the world for
(07:13):
the most part, will tell you is totally crazy. And
they're also changing the goalposts day to day on what
exactly that policy is going to be, and they've really
eroded the market's confidence that they kind of know what
they're doing, not only on tariffs, but I think on
everything else now, right, I think that one of the
most important things that Liberation Day did was, you know,
take the market, which really up to that point, I
think you have to say, kind of believed that the
(07:35):
tariffs thing was like this four dimensional chess strategy and
negotiation and everything else crazy that Trump was saying, you
kind of discount, right, because he's not really going to
do that. He's got a plan. And really the market
really had to re rate that whole expectations of how
to interpret everything that Trump and his administration say or
say they're going to do, because gosh, they said they
were going to do this crazy tariffs thing and then
they did it five times crazier than everybody thought they
(07:56):
were going to do. Yeah, right, and not just crazier
in terms of levels of tariffs, but in terms of
like the clownishness of implementation, right that like the chat
GBT night before tariff table with the Penguin Islands and
like the whole thing. Right, So then when Trump is
out there saying, Okay, tomorrow, you know, next week we're
going to deport thirty million immigrants or like whatever crazy
thing that he says, the market kind of has to
take that more seriously now, right, or at least question
(08:18):
like what are the possible implications? And so I think
it's a very different environment going forward, right, It's unlikely
that that's going to just change and that he's going
to suddenly turn into like a really serious guy.
Speaker 3 (08:29):
So, speaking of things being weird, and there are any
number of weird things that we could choose to talk
about here, but like one of the weirdest to me
has been what's been going on in equity volatility. So
we've had a very big gap between the VIX, which
is implied volatility versus realized volatility, which you know, like
maybe explain the difference to us just to begin with,
(08:50):
and like why we've seen that gap really developed?
Speaker 1 (08:53):
Sure? Absolutely, So the VIX is up is something that
everybody talks about, but not everybody really thinks about exactly
what it is, right, it's the fear index. But what
it is is it's a level of what's called implied volatility.
So in some sense you could think of it as
the market's forecast for realized volatility over the next month
based on option prices. It's a little bit more nuanced, though,
(09:13):
because calculation that they chose for a VIX isn't regular volatility.
It's something called variance, which is volatility squared but then
normalized back into units that are volatility. And the distinction
there is that it's so the level of VIX is
the level of what's called the variance swap, and a
variant swap pays you, as a volatility trader who buys
it proportional to the square of volatility. And so what
(09:34):
that means is if volatility doubles, you actually make a
whole lot more money, or if volatility goes up by
four times, you make a ridiculously amount more money. Yea's right,
there's a big slope to it, and so you have
to pay a big premium to buy a variant swap
relative to what you would pay to just buy volatility.
And so when you compare the VIX to realize volatility
or how much markets are moving on average. On average,
(09:57):
there should be an extra premium there. It's not just
direct comparable. Now to Tracy's point, though, realized volatility recently
has actually been generally much higher than like the average
level of the VIX. Now, the VIX did spike into
the fifties kind of briefly, but it's mostly come back
down into like the thirties and high twenties. But yet
markets are often moving you know, three percent in a
day or four or five percent in a day, which
(10:19):
implies a much higher level of implied volatility.
Speaker 3 (10:21):
It's a crazy chart. So you can you can chart
on the Bloomberg on your handy Bloomberg terminal, like the
Gamma index versus the VIX. You could see that like
the jaws kind of opening over the past few weeks.
Speaker 1 (10:32):
Yeah, very much so. And again that's really reflects a
you know, aggressive bet on the part of market participants
that realized volatility has been high, but it's going to
be lower over the next month than it was, and
it's and actually the degree to which you see that
in your chart is understated because of that variant swap effect.
You're actually not really even comparing the right number with
the right number to compare would be like at the
(10:53):
money implied ball, which you can also plot in Bloomberg.
Speaker 3 (10:56):
Oh what's the ticker for that?
Speaker 1 (10:57):
So you would just do SPX index and then you
would do there's going to be a field for it,
which would be like one month, one mt h something
something field.
Speaker 3 (11:07):
But yeah, oh awesome, Yes, this is very useful.
Speaker 1 (11:09):
Thank you. There you go, And that guy will usually
be anywhere between say three and eight or ten points
below vix, depending on the level of X. So with
VIX at fifty, that's probably at forty or thirty eight or.
Speaker 3 (11:19):
Something like that. You know.
Speaker 4 (11:20):
Tracy and I we put on events, trivia events, et cetera.
One of the dreams that we have though, is a
Bloomberg terminal live company competition terminal Olympics where we get
like twenty traders and they're all seated at a terminal
so good calculate actually, and they always flashes on a
screen who gets the answer first?
Speaker 2 (11:41):
Like, how well do you know?
Speaker 1 (11:42):
So that would be such a good tea.
Speaker 4 (11:44):
I think we think Ben for coming on if nothing else,
to give us quotes and news about functions for when.
Speaker 2 (11:50):
We eventually put this on.
Speaker 4 (12:05):
I don't follow like you know, the Wolf of Gamma
or whatever on TikTok you've seen anything good?
Speaker 2 (12:10):
What are they saying they got?
Speaker 1 (12:11):
They all got real quiet?
Speaker 2 (12:17):
What are you seeing out there? You got any good?
Like tweets or you know sellers or whatever.
Speaker 1 (12:22):
Seriously, so as you know, like on a regular basis
in normal environments, like everybody is tagging me in ridiculous
like tweets or Instagram posts or whatever that that these
kind of option selling influencers are making, you know, the
coal options grind guy and like all these people. And
as of you know, a couple of weeks ago, there's
just absolute crickets from that community because the types of
(12:42):
trades that you know, they they advocate, as we talked
about last time, you know, they make a little bit
of money on average, you know, for a while, and
then they give it all back or twice as much
back when something like this happens. And so there's not
a whole lot of talking coming from that crowd, and
you see it reflected. You know, obviously you can't see
what you know is how happening to those highly over
leveraged individuals that are unfortunately following that kind of advice.
(13:04):
You know, you can look at how well like covered
call ETFs are performing relative to just the underlying and
things like that to get a little bit of of
a little bit of a sense. You know, look at
the mstr covered call ETF for example, right, And it's
just bad because the worst possible environment for those kind
of strategies is when you have a sharp spike in
(13:25):
realized volatility, and especially if there's like a lot of
chop and back and forth, you know, mean reversion, right,
because you'll have a situation where where they're selling like
these weekly options, right, and you have a really big
sell off for a week, they lose a bunch of
money on their puts, and then they sell some calls
and you have the big rally back, and then they
lose their money on their calls. And again, none of
this is like something that they explain to their followers.
(13:47):
They just sort of tell their followers that the income
of the strategy is like the option premium that they sold,
and they don't conceptualize the possibility that you can actually
lose money when you sell the option.
Speaker 4 (13:56):
Tracy, every once in a while, I'm reminded that we
exist in world where there's like fourteen ETFs.
Speaker 2 (14:03):
That are based on various doing things.
Speaker 4 (14:05):
Micro strategy is crazy amazing anyway, Sorry, well, also.
Speaker 3 (14:08):
I'm still blown away by the fact that micro Strategy
also calls out the volatility and its share price in
its earnings call as like a selling point.
Speaker 1 (14:16):
Look how volatile we were in circuits and it's beautiful, right,
But I mean Sailor is very smart, right, so Sailor
understands all this stuff perfectly. If you if you can
run a really really high volatility company, yes you can.
It means hedge funds love your convertible bonds and will
pay anything to get your convertible bonds. Yeah, it makes
your actually makes your credit cheaper.
Speaker 3 (14:33):
And I gotta say, if people want to hear more
about this, we did record a lots more with Matt Leveeh.
Speaker 1 (14:37):
It was a great episode.
Speaker 3 (14:38):
God, it feels like so long. It feels like it
was two years.
Speaker 1 (14:40):
We get the.
Speaker 4 (14:40):
Luxury of talking about micro strategy for a whole episode once.
Speaker 1 (14:44):
Pretty amazing.
Speaker 3 (14:44):
I feel like this is kind of the secret of
volatility and options trading, which is like you think that
a lot of these guys, a lot of these influencers
would really enjoy this particular trading environment, but so much
of it is based on that mean reversion that Joe
pointing out that a lot of stuff just blows up
when you finally get volatility right, it really does.
Speaker 1 (15:04):
Wait not to come back to this, but MSTR. But
did you see that there is going to be MSTR
for Solana?
Speaker 2 (15:10):
Yeah? Yeah, and they're yes, they're trying to I was.
Speaker 4 (15:13):
I actually appeered on a crypto podcast recently and I
was like, I'm tapping out this.
Speaker 2 (15:18):
I don't understand MSDR.
Speaker 4 (15:19):
But now there's a bunch of like copycats, and the
question is can anyone really repeat this?
Speaker 3 (15:24):
Yeah?
Speaker 1 (15:24):
Yeah, but GSR just led a big round and to upa.
Speaker 2 (15:27):
I just have to read these. Sorry, I have one
more question, but I just before I do.
Speaker 4 (15:30):
Here's some of the ETFs Defiant daily target two x
long MSTR ETF yield max MSTR Option income Strategy ETF
t REX two two x long MSTR daily target ETF
bit wise MSTR income Strategy. Oh there's another one st
key day, one hundred percent MSTR and one hundred percent
coin TF. So I guess it makes us some coinbase
(15:51):
in there.
Speaker 2 (15:52):
There's a lot more. I just had to read those
in last question for me, Like, if you're.
Speaker 4 (15:56):
A long only investor, just a normal whatever investors I am,
you know you have two choices I think, which is
one the hope and praise strategy, which I always actually
think is very legitimate because that does tend to work
out over a long enough timeline. Or they're like, oh,
I really need to think about diversification strategy or something
like that. Okay, in your world, don't you still have
(16:18):
to have some sort of view because if the question
is do some of these Greek letters snap back into
place or there's a gap between where this Greek letter
and this Greek letter are pricing to make money, don't
you still need.
Speaker 2 (16:31):
To have a view like I do.
Speaker 1 (16:33):
That's a great question. So there's a couple of different
important things here. There are different types of trades in
the derivatives world that are driven by dislocations. Some of
those trades make money on realized dynamics and markets and
don't rely on some implied Greek coming back into Okay, right,
so Tracy was talking about, you know, realized volatility and
(16:53):
implied volatility. This is like a simple dumb example, but
just suppose that implied volatility was just always way too low,
and realize volatiley was way higher for short term options.
You would just buy short term options and hedge them
all the time, and you would just make money constantly. Yeah,
and you wouldn't need that to ever change. Wouldn't ever
want that to change. You wouldn't ever want that dislocation
to go away. Okay. So there are some things like
that that we can make money based on a dislocation
(17:15):
but without requiring the dislocation to close. And then there
are other things where exactly as you point out, you're
trading an implied dislocation and you're going to only make
money when it reverts. And for things like that, you know,
we really have to think hard about, Okay, where is
this dislocation coming from? What flows are driving it? Are
those flows that are going to be persistent and not
go away and it's unlikely that those dislocations close. Are
(17:36):
there fundamentals that actually cause that dislocation to stay there
even if it doesn't really make sense? Or is this
something that is being driven by temporary supply and demand
dynamics in the market and you understand what might push
it back over what kind of time horizon? And the
latter is an interesting trade. The former really isn't, And
you actually have to think very hard about that. You
can't just look at the level of the Wazoo parameter
on a screen and sort of say, which, by the way,
(17:59):
is the made up parameter that exotic derivatives traders you know,
use to claim why you're losing money on your trade
with them.
Speaker 3 (18:05):
Man, I'm always looking at those parameters. That's a big mistake. Okay,
Well I have a very simplistic question based on this conversation.
But okay, implied volatility down quite a bit, realize volatility
is still up quite a bit. Is buying vall that
sort of hedging protection? Is that cheap at the moment? Like?
Would you be a buyer at these levels? Basically?
Speaker 1 (18:25):
Yeah, if you believe as I think I do, that
Trump two point zero is not a low volatility president,
right that one way or another, Right, this is different
And that doesn't mean the world is going to end necessarily,
but that this is not like a ten percent realized
volatility market, and he doesn't want it that way, he
doesn't like it that way. Then yeah, I think you
have to look at when you look at the overall
(18:46):
volatility landscape, there are a lot of things that are
relatively cheap, and you know, in our core business we're
absolute return. We're always looking for what's cheap and what's expensive,
and you know, hedge trades and so forth. But we
also do help big institutional investors with tail risk hedging
and with things that are outright defensive to protect their portfolios.
And yeah, there's still lots and lots of opportunities for
(19:07):
that because really in this market we talked about this
a little bit, but the knee jerk reaction of most
market participants is that when volatility goes up, they just
think you have to sell it, and they do a
lot of risk on trades in the volatility markets, which
don't necessarily make sense, you know, from a risk reward perspective.
Most of the time, they should just buy equities, to
be honest, if they want to be bullish.
Speaker 3 (19:27):
Actually, you just reminded me. I mean, one of the
other things we just saw was like this huge contraction
in risk appetite across the entire financial industry basically around
April second, that Liberation day. Who is selling vall at
the moment, and have you seen continued appetite to sell
volatility in the current environment, yeah, no very much.
Speaker 1 (19:47):
So, so one thing that you can always tell is
when you get a sell off like this and the
VIC spikes a lot. So VIX went to a little
over fifty. Look at where the front month Vick's future
is trading, and that tells you whether people are buying
or selling ball. So the front month VIX future had
you know, five or six days left to maturity early
after Liberation Day, and it was trading at you know,
(20:08):
thirty two when the VIX was fifty, right, So it
was implying massive speed of normalization and mean reversion because
everybody's selling it. And the VIX future is the best
thing to look at because it's the tourist instrument, right,
So you know, vall traders, you know, trade the VIX
inasmuch as there's dislocations in it. But if you're just
a regular equity guy and you think ball is too high,
you don't go trade options. Options are too much work.
(20:29):
VIX is really easy, right because you can trade the ETFs,
you can trade the futures. You don't have to think
about like the gamma and the you know, the baga
and all that stuff, and so there's an overwhelming appetite
to sell ball on ball spikes from a lot of
parts of the hedge fund community, from tourists, from volatility
tourists within the hedge fund community, and from retail investors. Also,
retail investors are very much dip buyers and ball sellers
(20:51):
on spikes.
Speaker 4 (20:53):
Valdi tourists would be a good name for a trivia
team one of our trivia nights.
Speaker 2 (20:58):
I'm a Volatility that is a good A good name,
be a fun one.
Speaker 4 (21:05):
Lots More is produced by Carmen Rodriguez and dash Ol Bennett,
with help from Moses Onam and kil Brooks.
Speaker 3 (21:10):
Our sound engineer is Blake Maples. Sage Bauman is the
head of Bloomberg Podcasts.
Speaker 4 (21:15):
Please rate, review, and subscribe to Odd, Lots and Lots
More on your favorite podcast platforms.
Speaker 3 (21:21):
And remember that Bloomberg subscribers can listen to all our
podcasts ad free by connecting through Apple Podcasts. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!