Value After Hours S06 E08: Vixologist Jim Carroll on the VIX, vol, 0DTE options and Burgelman's Trap
Mar 4, 2024
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Delve into Vix and volatility with Jim Carroll, exploring complexities of VIX futures and zero-day options. Uncover market disruptions from derivative instruments like VIX and historical trends of rate cuts. Compare VIX futures, tail risk products, and Spitz Nagle strategies. Learn about flywheels in company success and navigating market dynamics with hedging strategies.
Vix remains a relevant measure of implied volatility despite evolving complexity in expiry periods and futures options.
Market volatility stayed low in the past year, termed the 'year of no fear,' impacting performance of volatility instruments.
Businesses utilizing flywheel effects like Amazon and Vanguard showcase strategic compounding driving sustainable growth and momentum.
Deep dives
Understanding Vix and Volatility
Vix, a measure of S&P 500 implied volatility, indicates market fear; the index has evolved to include various expiry periods and futures options, adding complexity. Concerns arise about zero-day expiration options and their impact on Vix. Despite challenges, Vix remains a relevant measure of implied volatility. The market's ecosystem and interactions continue to influence Vix dynamics.
Reviewing Volatility Trends
In the past year, volatility remained subdued, termed as the 'year of no fear.' Vix levels dropped to multi-year lows, with minimal days above 20. Amidst market moves, volatility instruments didn't perform optimally. Steady but unspectacular market movements influenced volatility dynamics, affecting options and hedges.
Exploring Business Flywheel Concept
Businesses, like Amazon or Vanguard, exhibit flywheel effects where positive feedback loops drive growth. Jim Collins' concept highlights strategic compounding and momentum within successful companies. Various industries successfully implement flywheels like 3M's diversification or Disney's expansion. Understanding flywheels aids in assessing business sustainability and growth strategies.
Navigating Volatility Hedging Strategies
Hedging against near-term volatility focuses on seeking convexity in the wings to manage downside risk cost-effectively. Evaluating skew, option costs, and tail risk instruments offers insights into prudent hedging approaches. Leveraging options on UVXY or VXX ETFs allows flexibility in adjusting positions amid uncertain market conditions.
Monitoring Market Signals and Risk Factors
Market signals, such as skewed volatility measures or cheap convex hedges, warrant attention amidst geopolitical uncertainties and potential market triggers. Evaluating options pricing, with a focus on convexity and cost-efficient hedges, aids in prudent risk management strategies. Adapting positions based on changing market dynamics remains crucial for navigating volatile market environments.
Value: After Hours is a podcast about value investing, Fintwit, and all things finance and investment by investors Tobias Carlisle, and Jake Taylor. See our latest episodes at https://acquirersmultiple.com/podcast
We are live every Tuesday at 1.30pm E / 10.30am P.
About Jake
Jake's Twitter: https://twitter.com/farnamjake1
Jake's book: The Rebel Allocator https://amzn.to/2sgip3l
ABOUT THE PODCAST
Hi, I'm Tobias Carlisle. I launched The Acquirers Podcast to discuss the process of finding undervalued stocks, deep value investing, hedge funds, activism, buyouts, and special situations.
We uncover the tactics and strategies for finding good investments, managing risk, dealing with bad luck, and maximizing success.
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ABOUT TOBIAS CARLISLE
Tobias Carlisle is the founder of The Acquirer’s Multiple®, and Acquirers Funds®.
He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, the Amazon best-sellers Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014) (https://amzn.to/2VwvAGF), Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012) (https://amzn.to/2SDDxrN), and Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016) (https://amzn.to/2SEEjVn). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Prior to founding the forerunner to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam.
He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).
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