Excess Returns Investing in a Flows Driven World | Cem Karsan
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Oct 3, 2024 
Cem Karsan, a financial expert from Kai Volatility Advisors, shares insights on how current geopolitical tensions in the Middle East and Ukraine are shaping market risk. He discusses the influence of inflation, Fed policies, and the evolving role of options trading in managing volatility. Cem also examines historical election patterns and their implications for markets, critiques the rise of passive investing, and explores AI’s impact on productivity and investment strategies. His perspectives illuminate the complex interplay of today’s market dynamics.
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Geopolitical Trends
- Geopolitical events like the Middle East conflict are part of a larger trend of global conflict driven by protectionism and populism.
- These events matter long-term as they shift the global landscape but may not have short-term market impacts.
Options and Volatility
- Increased options usage doesn't necessarily increase volatility; the way options are used matters.
- Short vol positioning during an acute event will exacerbate a decline, while hedged positions can dampen volatility.
Current Market Positioning
- Current options positioning creates a right-biased market with a fat left tail due to high skew from the election and year-end events.
- A market decline of 20% would trigger this tail risk, while a rise to new highs could exacerbate potential future declines.