The Evolution of Volatility

Market prices are the outcome of a myriad of factors. Geopolitical developments, the economy, the regulatory landscape and the actions of Central Banks all matter. So, too, do market participants and the set of products they utilize to assume or reduce risk exposures. For Rocky Fishman, the founder of newly formed derivatives strategy firm Asym 500, studying complex products and the mechanical flows they often generate is critical.

Our discussion is a review of market risk episodes and how risk management schemes that use volatility as a direct input can accelerate price moves in the broad equity market to both the upside and downside. In this context, we discuss the Feb'18 XIV event as well as the rapid repricing of risk in August of 2015 when China re-pegged its currency versus the dollar. Both events speak to the importance of the positioning that can become lopsided when realized volatility has been especially low.

We also talk about diversification and correlation. Here, Rocky makes the point that investors must respect the degree to which an impaired market can cause economically similar securities to become severely dislocated. Lastly, we talk about zero day to expiration options. Not seeing the case for Volmaggedon 2.0 at this point, his work at Asym500 will nevertheless be focused on carefully studying short-dated option flows. I hope you enjoy this episode of the Alpha Exchange, my conversation with Rocky Fishman.