VOL03: The Evolution of the VIX ft. Stefan Wintner
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 10 November 2021
⏱️ 75 minutes
🧾️ Download transcript
Summary
In today’s episode, Jason Buck is joined by Stefan Wintner of DUNN Capital, to discuss volatility as an asset class, the evolution of the VIX from its inception until now, some of the mechanics behind the VIX, the relationship between the VIX and the S&P 500, some thoughts on ‘volatility relative-value’ trading, the reliability of the VVIX, building and running models during different market environments, thoughts on kurtosis and skew, and volatility as a necessary component for a large Trend Following firm.
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In this episode, we discuss:
- Volatility as an asset class of its own
- The journey of the VIX from its early days until now
- Analysing the relationship between the VIX and the S&P 500
- What’s known as volatility relative-value trading
- The usefulness of the VVIX
- Operating models during different market and economic environments
- Kurtosis and skew
- The need for Volatility strategies as part of a diversified investment portfolio
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Episode TimeStamps:
00:00 - Intro
02:05 - Why should somebody add volatility strategies into their portfolio?
04:48 - Do you consider Volatility to be an asset class of its own?
05:58 - What was it like during the early days of the VIX market?
08:28 - What is the VIX, and what is the calculation that goes into the VIX?
14:07 - Tell us a little bit about the relationship between the VIX and S&P 500
19:37 - How does volatility risk premium relate to other datasets you use?
25:03 - What is ‘volatility relative-value’ trading?
27:37 - How do you think about the ratio that you combine between the S&P 500 & the VIX?
30:31 - Is it true that if you see a spike in the VIX, you’ll look to take advantage via the front-month volatility in that spike?
33:29 - Do you think VVIX is a good measure for the volatility of volatility?
35:09 - How do you use options in a creative way in your portfolio?
37:22 - How do you identify and think about possible mispricings in the market?
40:40 - Do you try to track both the normal price and OTC prices?
42:00 - How do you approach building & running volatility models during different market environments?
47:22 - Describe what volatility traders experienced during the ‘volmaggedon’ of February 2018
55:06 - How did you trade through the ‘known risks’ 2020 election?
59:15 - How much can you rely on market history as a predictor for the future?
01:02:49 - Is it true you’re likely to experience long periods of flat to negative performance while waiting for those huge, profitable moves in volatility?
01:06:09 - How do you think about kurtosis and skew, and how they relate to other strategies?
01:08:56 - Do you view what you do as a necessary component of a large Trend Following firm?
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Transcript
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| 0:00.0 | The problem with the VIX in general is that the first period, |
| 0:09.0 | 2004-2011, was such an illiquid period for the VIX products themselves, |
| 0:15.0 | that it's very difficult to actually make any meaningful assumption based on these real prices that you see. |
| 0:20.8 | So what you would have to assume is you would have to assume a slippage model that is independent |
| 0:25.4 | of the experience that you had back there, even if you didn't have any experience just because |
| 0:29.3 | it was very difficult to trade in that environment. |
| 0:32.6 | And the VIX itself was way too calm and the volatility of the VIX was too little. |
| 0:38.3 | And so it was a very advantageous position. |
| 0:40.3 | If you managed to do that to just be short the Wix and short the SMP or just be short the |
| 0:44.3 | weeks, you made money very easily because of the way it was priced. |
| 0:49.3 | 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. |
| 0:59.7 | 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. |
| 1:08.4 | In today's world, the concept of volatility has moved to the top of the |
| 1:11.9 | 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 |
| 1:41.3 | in order to make all of us better informed investors. |
... |
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