Flirting with Models

In this episode I speak with Guillermo Roditi Dominguez, managing director at New River Investments. This was one of the more unique and wide-ranging conversations I have had on the podcast to date. We begin by discussing Guillermo’s approach to portfolio construction, which is heavily focused on the idea of under-writing risk. How he goes about achieving this, though, takes us from adjusted valuation measures to the positioning of large, systematic players and even to the importance of higher frequency tax data. After discussing the macro framework, we dive into how decisions are made within equities and fixed income. Again, Guillermo stays consistent to his philosophy of underwriting risk and I found his example of allocating to mid-caps versus large-caps in 2020 to be particularly insightful. While we spend a lot of the episode talking about under-writing risk, we end the episode with Guillermo’s view as to why the right tail is actually more difficult to manage. So make sure you stick around for that. I hope you enjoy my conversation with Guillermo Roditi Dominguez.

Tina Lindstrom is a Partner at First NY, where she manages an oil volatility portfolio. She began her career at Susquehanna and eventually worked her way up to managing both the high cap equity index group and the commodity volatility group. This gives her the unique perspective to be able to compare and contrast how these two markets operate. Tina explains what makes commodity markets unique, how the structure of markets has changed over time, how relative value trades might emerge, and what happens when you’re trading volatility and front-month futures go negative. Please enjoy my conversation with Tina Lindstrom.

David Fauchier from Nickel Digital Asset Management discusses the evolution and fragmentation of crypto markets, highlighting differences in rules and opportunities. He explores why traditional high-frequency funds may not dominate crypto. The conversation also delves into managing a fund in the crypto space, addressing risks in asset exchange and custody, due diligence red flags, institutional interest in cryptocurrencies, and the emergence of decentralized finance (DeFi).

Darrin Johnson is the first independent trader I’ve interviewed for this show and with that distinction he brings an entirely new perspective. After learning about how Darrin began his career as an independent trader, we get into the bulk of the conversation that circles around his process of shorting volatility in the S&P 500 complex, including options on futures, index options, VIX futures, and VIX ETPs. Darrin provides insights into how he plays certain tenors over others, why knowing when not to be short is the most important key to risk management, why the upside can be riskier than the downside, and thinking through managing a trade over its lifetime. Towards the end of the interview, Darrin paints a realistic picture of what it means to be an independent trader, in both the opportunities and constraints unique to his position. We finish with the advice Darrin would give to anyone serious about starting a career in independent trading. I hope you enjoy my conversation with Darrin Johnson.

My guest this episode is Cem Karsan, Founder and Senior Managing Partner of Aegea Capital Management. Cem began his career in the pits, and so we begin our conversation with a discussion by comparing and contrasting today’s market versus days gone by. And, perhaps more importantly, the wisdom gained from that era. It was in the pits that Cem began to understand and develop his intuition for markets and what would become the colorful cast of characters he uses to describe what’s driving flow: Gary the Gorilla, Vanna, and Charm the Sloth. How these characters cooperate or fight amongst themselves provides Cem with a forecast as to how markets should behave. It seems like these are new and growing forces, but Cem argues they’re as old as time. And, more importantly, increased awareness does not mean they can just be arbed away: they are, potentially, fundamental forces of markets. We end our conversation with a discussion of how these flows can have profound impacts for equity factor performance and what this all means for stock pickers. I hope you enjoy my conversation with Cem Karsan.

In this episode I am going to read Newfound’s latest research paper, LIQUIDITY CASCADES: The Coordinated Risk of Uncoordinated Market Participants. This reading will refer to a number of figures within the paper, so I urge you to go to our website, thinknewfound.com, and download the PDF so you get better follow along. This paper is unlike any research we've shared in the past. Within we dive into the circumstantial evidence surrounding the "weird" behavior many investors believe markets are exhibiting. We tackle narratives such as the impact of central bank intervention, the growing scale of passive / indexed investing, and asymmetric liquidity provisioning. Spoiler: Individually, the evidence for these narratives may be nothing more than circumstantial. In conjunction, however, they share pro-cyclical patterns that put pressure upon the same latent risk: liquidity. In the last part of the paper we discuss some ideas for how investors might try to build portfolios that can both seek to exploit these dynamics as well as remain resilient to them. I hope you enjoy.

My guest this episode is Kris Sidial, co-CIO of The Ambrus Group, a volatility arbitrage focused firm founded in 2018. Kris recently joined Ambrus after spending several years on BMO’s exotic and listed options desks. While time on these desks gave Kris the experience of managing a large derivatives book, what convinced him to take the leap to a new firm was growing confidence in a thesis that market micro-structure had undergone a regime shift. And in Kris’s view, this regime shift supports his approach to building a volatility arbitrage book. Kris’s approach is broken down into two sleeves: long and short volatility. Within long volatility, Kris plays a unique flavor of dispersion trading. Within short volatility Kris plays contango in the VIX futures curve and kurtosis trades that seek to exploit mean-reversion and overpriced volatility. With several moving pieces, we spend the back half of the episode discussing each sleeve, the underlying approach, how Kris thinks about managing risk, and how it fits into the whole. What becomes clear is that while we discuss each sleeve independently, they do not exist in isolation. The portfolio is designed to co-exist, with careful thought about how positions in one sleeve offset risk in another. From a unique fundamental outlook to the holistic approach to portfolio construction, this episode has a lot to offer. I hope you enjoy my conversation with Kris Sidial.

“Keep an open mind. But not so open your mind falls out.” My guest in this episode needs little introduction: Cliff Asness, co-founder and managing partner at AQR. Cliff has done dozens of interviews, podcasts, talks, and fireside chats over the years. He is also a prolific writer. So, my goal in this conversation was to try to find the questions he hadn’t been asked before or had not answered himself already. How did his formative experiences in the dotcom bubble shape his perception of markets? Why should we stick to factors like grim death? Which of his dozens of papers have been woefully overlooked? Where has he changed his mind over the years and what is he most confident in going forward? Cliff is fountain of knowledge of quant history, research, and practical experience and tells some fantastic stories along the way. Please enjoy my conversation with Cliff Asness.

Today I chat with Euan Sinclair, Partner at Talton Capital Management and author of the books Options Trading, Volatility Trading, and the up-coming Positional Option Trading. We begin our discussion with Euan’s experience as a market maker as I try to get a better understanding of what a market making operation really looks like from the inside and how it has changed over the last 15 years. Of particular interest to me, given how much market makers have been villianized in recent years, were Euan’s comments on misconceptions about market makers. We then turn to the buy side, where Euan has spent recent years and is largely the subject of his new book. We discuss common mistakes, sources of edge, thinking about directional versus volatility bets, and the seemingly overwhelming degrees of freedom that options trading offers. I know I walked away from our conversation with both an increased appreciation of the nuance in these topics, but also several new ideas for both edge and risk management. Please enjoy my conversation with Euan Sinclair.

Today I am speaking with Omer Cedar, CEO and co-founder of OmegaPoint. One of the significant trends in quant equity over the last decade has been the attempt to better control for unintended bets and idiosyncratic risks. At OmegaPoint, Omer comes at the problem from the opposite direction: helping fundamental managers better focus on their idiosyncratic risk and recognize the factor risks they may be unintentionally taking. We discuss how quantitative investors have impacted markets, how fundamental managers should think about factors, the low-hanging fruit for optimization, and surprising lessons Omer has learned in evaluating fundamental portfolios. The idea of embracing idiosyncratic returns is, arguably, the antithesis of traditional quant investing. But in discussing the lessons learned about unintended bets from the opposite direction, I think there are important ideas that quants can take away. I hope you enjoy my conversation with Omer Cedar.