In this episode of Excess Returns, we’re joined by Noel Smith, co-founder and CIO of Convex Asset Management. Noel shares his unique journey from biochemistry and the military to market making, high-frequency trading, and running a volatility-focused hedge fund. We dig deep into volatility, regime models, income strategies, dispersion, tail hedging, and more, offering a rare look inside the world of professional options and volatility trading.
Topics covered:
Noel’s background: biochemistry, military, market making, HFT, hedge fund launch
How markets have evolved since the 1990s
Why volatility is the best source of market information
Regime shift modeling and its role in strategy selection
Using options for income and the trade-offs investors should understand
Volatility harvesting and risk-defined short vol strategies
The impact of zero DTE options on markets
Dispersion trading and correlation dynamics
Bond vol arbitrage and volatility surfaces
Opportunistic trades like GameStop and meme stocks
Tail hedging, its costs, and how to monetize hedges
Lessons on flexibility, risk, and never being married to positions
Timestamps:
00:00 Intro and Noel’s unique background
06:00 How markets have changed behind the scenes
07:00 Why volatility is the best information source
09:00 Regime shift model explained
19:00 Using options for income – benefits and risks
24:30 Volatility harvesting strategies
29:10 What the VIX does (and doesn’t) tell you
30:30 Zero DTE options and systemic risk
33:20 Dispersion trading explained
42:00 Bond vol arbitrage
45:00 Opportunistic trades: GameStop and beyond
51:30 Tail hedging and rebalancing
54:30 Lessons on flexibility and risk management
