Forward Guidance
Hari Krishnan on Commodity Tail Hedging, Weather Volatility, And “Disaster” VIX Trades
Jan 5, 2024
Hari Krishnan, head of volatility strategies at SCT Capital Management, discusses his research on commodities, weather volatility, and the relationship between implied and realized volatility. They explore finding upside convexity in commodity options, the structural bull case for commodities, and the challenges of predicting weather compared to the stock market. They also examine the correlation between volatility and stock prices, the impact of interest rates on various markets, and the liquidity of futures contracts.
01:12:52
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Quick takeaways
- Commodity investing involves finding depressed commodities with fundamental drivers and minimizing carry costs.
- Options trading in commodities requires consideration of pricing inefficiencies and implied volatility.
Deep dives
Interest in Physical Commodity Strategy
The interview with Hari Krishnan, head of Volatility Strategies at SCT Capital Management, explores his recent interest in physical commodity strategies. Krishnan discusses the parallels between hedging and long volatility strategies and investing in commodities. He explains the goal of finding depressed commodities with fundamental drivers and warehouse them in a way that minimizes carry costs. Krishnan highlights the importance of managing timing risk and the steepness of the forward curve in commodities trading. He draws comparisons between natural gas and the VIX, emphasizing the similar risk and cost structures.
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