VOL01: The New Nature of Stock Market Movements ft. Hari Krishnan
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 26 October 2021
⏱️ 72 minutes
🧾️ Download transcript
Summary
Today Jason Buck is joined by Hari Krishnan in the first of our series on Volatility. Topics discussed include: 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.
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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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Episode TimeStamps:
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 inelasticity 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?
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Transcript
Click on a timestamp to play from that location
| 0:00.0 | For most allocators, they can manage the risk of a 1% down move every week. |
| 0:11.5 | They'll eventually get it into their heads that the market's trending down. |
| 0:15.3 | What they cannot cope with is a sudden down move, a Valmageddon, Feb 2018 type move or early phases of COVID type move. |
| 0:24.0 | That's what they cannot tolerate because it happens so quickly. |
| 0:27.3 | They don't have time to sit around a committee, hash out ideas, do everything in a structured |
| 0:31.9 | way and react appropriately. |
| 0:33.8 | So that's where they need the protection. |
| 0:35.2 | So that's really one important goal that I think you yourself have identified in the various things you run. |
| 0:42.5 | The need for a threshold on losses that allows you to do everything else that you do in your portfolio. |
| 0:50.9 | For me, the best part of my podcasting journey has been the opportunity to speak to a huge range of extraordinary investors from around the world. |
| 0:59.8 | In this series, I have invited one of them, namely Jason Buck, to host a sequence of in-depth conversations on the topic of volatility. |
| 1:08.5 | In today's world, the concept of volatility has moved to the top of the |
| 1:12.0 | agenda of many investors as they try to analyze and understand the riskiness of their portfolios. |
| 1:18.9 | With ever increasing uncertainty around the globe, knowing if you are essentially long or |
| 1:23.4 | short volatility in your portfolio can mean the difference between ruin or survival |
| 1:28.4 | when the next crisis emerge. |
| 1:31.0 | The aim of these conversations is to try and understand |
| 1:33.9 | the experiences that have influenced |
| 1:35.9 | these highly specialized investors |
| 1:37.6 | and the processes they follow to harness their returns |
| 1:41.4 | in order to make all of us better informed investors. |
| 1:45.6 | And with that, please welcome Jason Buck. |
... |
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