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Odd Lots

Why the Short Volatility Trade Is Back and Bigger Than Ever

Jan 29, 2024
45:10
Snipd AI
The podcast discusses the return and popularity of the short volatility trade, including the risks and poor habits associated with it. It explores how investors use this trade as a hedge and the increase in derivative income generating funds. The fascination with income-generating derivative strategies and the challenges faced by market makers in managing their positions in options are also discussed. The concept of being long or short volatility and the controversy surrounding zero-day options and retail trading are examined.
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Podcast summary created with Snipd AI

Quick takeaways

  • Shorting volatility has become increasingly popular again, with a rise in volume of shorter-dated options and other derivative instruments.
  • The resurgence of the short volatility trade has led to concentration of risk and potential challenges for market makers and dealers.

Deep dives

Short volatility trade and its popularity

The popularity of shorting volatility has returned, despite the potential for one-off events and increased market uncertainty. Shorting volatility post the 2008 financial crisis became popular due to low interest rates and central banks suppressing volatility. However, shorting volatility has become increasingly popular again, with a rise in volume of shorter-dated options and other derivative instruments. This raises questions about why short volatility is back and its implications for the broader market.

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