For Mark Friedman, the Founder and CIO of DLD Asset Management, the convertible bond market has always made for interesting study.  Sitting at the intersection of critical asset classes, the convertible bond market requires investors to assess risk from many dimensions at once.  And with valuation components derived from equity, interest rate, credit and volatility risk, converts have provided Mark with plenty to analyze over nearly 3 decades in markets.  Our conversation is a retrospective on the evolution of this hybrid product – from Mark’s early days trading Asian convertibles in the mid 90’s to the high vol, crowded era of the early 2000’s, all the way to today.  Along the way in our discussion, we happen upon some of the important risk events in converts that Mark has traded through.  He highlights some of the ancillary risks that an investor assumes in a converts, specifically, borrow, dividends and a vol dampening take-over, and how the market has sought to address these.  We also spend some time assessing the changing buyer base in converts, from a market once dominated by arbitrage accounts to one in which long only capital has become a great proportion.  Lastly, we discuss portfolio construction in a world of low rates, active Central Banks and risks that originate from sources not previously contemplated.  In this context, Mark shares his thoughts on tail risk hedging, recognizing both its value and cost and preferring to keep it simple using listed options.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Mark Friedman. 

As founder and CIO of QVR Advisors, Benn Eifert spends his time looking for opportunities in volatility markets and helping his investors protect capital through periods of uncertainty. With the surge in volatility that has recently materialized in GameStop and a number of other stocks with high short interest, it was timely to have Benn back on the Alpha Exchange to share his always excellent insights on option market dynamics.  Our discussion considers the emergence of a factor that may have been hiding in plain sight – crowd sourced convexity that left option hedgers short gamma.  In the process of laying out this recent single stock risk event, Benn clarifies some of the misconceptions that may be common around the retail options trading community.  From Benn’s vantage point, some of these investors are hardly unsophisticated and understand leverage, positioning and the feedback loops that can occur when dealers are hedging options from the short side.  As we step back and consider the ecosystem of supply and demand for optionality in the equity market, Benn describes the losses that were imparted on short volatility strategies in March 2020 and how that figures in to a VIX that has been persistently high relative to the metrics it is typically related to.  Lastly, given that 2021 has demonstrated that stocks can actually crash up as well as crash down, we consider the implications of GameStop on the volatility surface.  Here Benn sees good reason to expect a persistent, extra premium to the upside call as a result of recent events.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Benn Eifert.

We take things in a different direction on this episode of the Alpha Exchange and focus on the importance of leadership and culture at large financial institutions. With this in mind, it was my pleasure to solicit the insights of Mark Miller, a personal mentor of mine and a capital markets professional whose sell-side career has spanned 4 decades. Having served in the role of global head of sales at Citigroup, BofA and HSBC, Mark has led significant teams of professionals across product areas and geographies. In this context, we explore the challenges and opportunities inherent in bringing together a firm's resources on behalf of its client base. We also discuss the process for evaluating talent, and for Mark, the successful salesperson is highly competent in understanding market pricing dynamics and often has the capacity to be a trader. In conjunction with this, a salesperson's success is contingent on having earned the trust of her or his clients. We also talk about leadership and what it takes to establish a cohesive culture. Here, Mark has strong views. In his rendering, good management is no surprises and being a source of feedback that is both consistent and fair, even if uncomfortable, is a critical deliverable of a leader. Lastly, I solicit Mark’s insights on diversity efforts on the Street. While certainly seeing progress over the course of his career, he also sees plenty of further opportunity to expand the presence of women and minorities in the field of finance. I hope you enjoy my conversation on leadership, culture and mentorship with Mark Miller.

Mentored at Legg Mason under the tutelage of legendary investor Bill Miller, Samantha McLemore is a student of finding value in corporate equities.  Now the founder and managing member of Patient Capital Management, Samantha shares her perspectives developed over two decades and through several cycles of the value factor.  Our conversation is an exploration of Samantha’s framework, keenly focused on finding opportunity based on valuation and with a long horizon in mind.  In Samantha’s world, embracing out of favor securities allows capital to be put work when and where others are reluctant to and sets the stage for achieving long term excess returns.  In this context, she recounts her purchase of UBER during the early days of the 2020 lockdown, seeing potentially strong upside relative to what she deemed as manageable downside risk.  We talk more broadly about the underperformance of the value factor in recent years as Samantha notes that the high growth segments of the market are in demand in an environment where investors have become less sensitive to valuation.  For her, some of these high flying stock prices warrant caution, especially as a vaccine provides the potential that business as we once knew it becomes more the norm rather than the exception.  And in this context, Samantha and her team are looking closely at the cruise line sector, again embracing disruption and volatility in pursuit of long term alpha.  I hope you enjoy this episode of the Alpha Exchange, my discussion with Samantha McLemore.

Working as an architect in the 1990’s, Tania Reif saw first hand the devastating impact on local communities of the currency crisis events that occurred with some frequency in her home country of Venezuela.  Gripped by the field of macroeconomics, Tania ultimately earned a PhD in economics from Columbia University, writing her dissertation on currency crises.  Our conversation brings to life Tania’s framework for the “why” of FX crisis events.  In this context, she shares her assessment of the multiple crisis events in the 1990’s, contrasting this today’s more stable emerging market FX environment.  Pointing to fixed exchange rate regimes, Tania describes the vulnerability that comes from a sudden stop of external financing after a period of excessively loose monetary policy.  The result, a balance of payments crisis that leads to a large currency depreciation and inflation shock.  We also discuss financial contagion and Tania makes the point that when countries have parallel risks, an event in one country can have implications for regions that investors deem similarly vulnerable.  Unsurprisingly, amidst our discussion on foreign exchange dynamics, we also discuss today’s era of remarkably low rates.  Pointing to the opportunity to capitalize on low borrowing costs to try to improve the circumstance of those impacted by the pandemic, Tania argues that if easy monetary policy does not ultimately translate to higher productivity and growth, we risk being stuck in a world of very low rates for a very long time.  Lastly, we discuss crypto currencies, an asset class that Tania has strong interest in and is very optimistic about.  The fixed supply of bitcoin, relative to the ongoing debasement of fiat currencies, addresses the conflict that individuals and Central Banks find themselves in.  With a view that the institutional adoption of crypto is increasing but still has far to go, Tania is bullish on growth in the market cap of bitcoin and believes investors should have some portfolio allocation.  Please enjoy this episode of the Alpha Exchange, my discussion with Tania Reif.

Gordy Lawrence, Director of Global Derivatives at Wellington Management, spends his days searching for value in optionality.  With a framework geared toward assessing option prices on both an absolute and relative basis, Gordy and his team support portfolio managers throughout the organization with the aim of utilizing derivatives to improve the up versus down capture profiles in portfolios.  My conversation with Gordy explores this process – how proxy hedges are evaluated based on historical performance through stress periods and how circumstances unique to a specific period might be given special consideration.  In this context, Gordy details his firm’s purchase of puts on the Euro Swiss cross in late 2014 at a remarkably low level of implied volatility, based not simply on option carry considerations but based on fundamental work and a view on the wherewithal of the SNB.  Sharing perspective on the current low level of US interest rate volatility and its divergence from the VIX, Gordy notes that with respect to rate risk, the Fed “has its thumb on the scale”.  Continuing to explore this, our discussion moves to equity volatility.  In significant contrast to a few years earlier when VIX ETP product growth was rampant and vol markets were well supplied, today’s equity volatility environment is impacted by the combination of a supply shortage along with strong demand for options from retail.  There may be another factor at work contributing to a high VIX and that, in Gordy’s view, is skepticism that market liquidity will be there when it is most needed.  All of this will make for a fascinating year in markets in 2021.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Gordy Lawrence. 

Over more than two decades in markets, John-Mark Piampiano has traded his share of volatility. Managing derivative portfolios over the years from both the long side and the short side of the carry ledger and across the spectrum of listed and OTC products, John-Mark is a keen observer of change in market structure, trading technology and the provision of liquidity.  Our discussion considers the manner in which price discovery in equity option markets has evolved, now well represented on the screens through pricing engines that are entirely automated.  In this context, we explore the implications of much tighter screen bid/offers for the buy-side and sell-side alike.  Gone are the days where obvious pricing dislocations come about from concentrated option buying or selling activity in one name and one part of the vol surface.  The result, a greater degree of market efficiency and increased importance on trading technology to find and implement trades that capitalize on smaller relative pricing discrepancies.  We talk as well about running a tail risk program and the challenges that come from carrying protection during very quiet periods.  Noting the increased tendency for market vol regimes to transition very quickly, John-Mark shares his thoughts on how investors should think about hedging, emphasizing the need to have an action plan to monetize premium expansion during a market sell-off.  Please enjoy this episode of the Alpha Exchange, my conversation with John-Mark Piampiano.

Cutting his teeth on the acclaimed mortgage trading desk at Salomon Brothers in the 90’s, Troy Dixon gained an early appreciation for the speed and degree to which market liquidity can turn. Now the CIO of Hollis Park Partners, a firm he founded in 2013, Troy shares the perspectives gathered in managing complex trading risk over more than two decades in markets. We talk about his time at Deutsche Bank, where he ran the RMBS trading unit, and the intense pressure to compete in the pre-crisis period for profitability in each aspect of the mortgage lifecycle. Contemplating the asset price wreckage in the aftermath of the housing crash, Troy recounts the challenges in balancing the competing interests of providing market making services for the firm’s client base while risk managing a volatile book of prop exposures. Next, we discuss Troy’s founding of Hollis Park and the path that he has sought to provide for other professionals of color in the financial industry. In thinking back on the heavy lift he undertook, Troy said, “I was naive about a lot of things, but the core thesis of it was to lay the framework for people of color to follow suit in an industry that had created a plethora of wealth for people that don’t look like me.” A firm engaged in finding value in MBS and a variety of structured products, Hollis Park capitalizes on securities that have different prepayment speeds. No conversation with a fixed income expert would be complete without an assessment of Central Banks. And on the Fed, Troy has much to say. Calling low interest rates an addictive drug, Troy sees no obvious path for the Fed to disengage from markets, expecting ongoing volatility linked to this codependency. Please enjoy this episode of the Alpha Exchange, my conversation with Troy Dixon.

Over her 22 years at Citi Group, Anna Raytcheva managed complex trading risks through volatility regimes both high and low. The Orange County blowup on the back of Greenspan’s surprise tightening campaign in 1994 provided Anna with an early lesson on the vulnerabilities that arise from owning exotic securities, especially when they are positioned with leverage. My conversation with Anna considers this and other prominent periods of market disruption and what they taught her about the limitations of modeling. With markets prone to risk on / risk off, Anna sought to develop trading signals using machine learning techniques to detect clues that a change in the vol regime was afoot.  Founding Sonya Capital in 2017, Anna capitalized on the perspective she gained trading through crisis periods when liquidity evaporated from markets.  As such, she constructs positions using global futures to implement a discretionary global macro strategy that takes economic data, policy changes and flows as inputs.  We finish our conversation with Anna's assessment of the movement to empower more women in the field of finance.  Noting that there's plenty of work still to do, she is optimistic on the opportunities for female advancement in the industry.  Please enjoy this episode of the Alpha Exchange, my discussion with Anna Raytcheva.

Armed with a PhD in astrophysics, Josh Younger hit Wall Street in 2010 as the embers of the Global Financial Crisis were slowly burning out. With a decade of focus on modeling interest rate derivatives and with the perspective gathered through unique fixed income risk events, Josh brings exceptional insights to our discussion. Our conversation aims to uncover the factors that contributed to the near collapse of the Treasury Market during the chaos that ensued in March of 2020. Characterizing US government bonds as the asset that became toxic to own, Josh helps us understand the manner in which post GFC regulatory initiatives combined with buy-side incentives to rent balance sheet left the UST market vulnerable to overwhelming the system’s capacity to bear risk. On the back-end of our discussion, Josh brings to life the factors that influence the supply and demand for interest rate options and the impact that certain products used by insurance companies have on long-dated implied volatility. Please enjoy this episode of the Alpha Exchange, my conversation with Josh Younger.