Monetary Matters with Jack Farley

Kris Sidial: "Graveyard Day" Is In Store For Short Volatility Traders

Sep 22, 2024
Kris Sidial, Co-CIO of Ambrus Group, shares his expertise on volatility markets and the recent sell-off in August. He discusses the dangers for short volatility traders, emphasizing the deepening risks as market conditions fluctuate. Kris analyzes how VIX pricing is impacted by market mechanics and liquidity challenges. He also highlights the importance of portfolio rebalancing and diversification to mitigate potential downturns. With insights on tail risk and the challenges in options trading, this conversation is a must-listen for market enthusiasts.
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INSIGHT

Short Vol Trade Growth

  • The "short vol" trade, betting on market calm, significantly increased in size over recent years.
  • This was driven by various factors, including increased inflows to short vol hedge funds and adoption by quantitative investment solutions programs.
ANECDOTE

Short Vol Survival in August

  • Despite a large volatility spike in August, the short vol trade surprisingly survived.
  • A confluence of factors, including margin calculation quirks and a VIX repricing error, allowed short vol positions to persist.
INSIGHT

Market Fragility Assessment

  • Volatility markets remain fragile, susceptible to sharp moves from macro shocks.
  • However, the S&P 500 appears less fragile due to anticipated rebalancing flows from Registered Investment Advisors (RIAs) in Q4.
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