Trump’s War on Markets | Benn Eifert on Volatility, Tariffs and Growth of Derivatives-Embedded ETFs
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this door. I am joined by Ben Eifert, Managing Partner at QVR Advisors. Ben is a specialist in volatility and we've got some volatile markets. So it is a perfect time to be speaking to Ben. Ben, welcome to Monetary Matters. How are you doing? Jack, I'm doing great, man. Thanks for having me. This is going to be fun. Ben, before we talk...

all things volatility. What is your macro view? Would you agree with me that it is Trump tariffs and news flow on the Trump tariffs that is moving the market and not really that much else? And how are you thinking about that as well as your overall outlook?

Yeah, I think very much so. I mean, I think there's a couple of things moving the market. I mean, like with anything, to really get some volatility, you usually need some crowded positioning, high gross and net leverage. You very much have that coming into this whole episode, right? You had hedge funds at record high levels of gross and net leverage.

everybody got very the initial reaction to trump was very positive you know everybody was very bulled up there was this kind of narrative that he was going to be good for business deregulation and tax cuts and everything i think what was you know missing in that narrative is that

Actually, if anything, certainty and stability is more important for businesses than tax levels on the margin or regulations on the margin. And Trump has been very much all about uncertainty, right? Very volatile policy stances. The market's not sure how to process uncertainty.

the newest Trump tweet or the newest Trump advisor policy pronouncement, right? Okay, are they serious? Are they bluffing? Are they negotiating? What are they doing? Is this meaningful? Tariffs have been very much that way, right? For now, for a month plus, we've been doing this kind of cat and mouse game of like, okay, we're going to do 25% tariffs on Canada and Mexico. Okay, just kidding. Okay, yeah, we really are. They give them another couple of weeks. And I think markets have discounted a lot at this point. I think the

idea that tariffs are going to be actually meaningfully implemented. I probably come down on the other side. I think actually Trump's senior advisors, you think of Stephen Moran and Stephen Miller. These are very nationalist, xenophobic kind of isolationist guys. Stephen Moran has written a ton on exactly what he wants to do on the tariffs front. You know, and they really I think they're really going to do this. I think they're going to do broad based

you know, unilateral tariffs, there's going to be escalation, there's going to be, you know, there's going to be negotiation, he'll drop some of them when, you know, world leaders kowtow to him. But I think your baseline has to be that they're actually going to do this. And there's going to be pretty negative impacts on the economy.

So you think Trump means business and that he and his team are intent on reordering global trade as they would define it, and they are intent on that mission, and they're not too concerned about the market going down a little bit?

I think Trump says he's not concerned about the market, but I think you have to call call nonsense on that to some extent. You know, Trump is very narcissistic and focused on everybody sort of celebrating him and the stock market celebrating him. Right. So I think, you know, with equity markets down 10 percent, Trump definitely was getting nervous. But I think ultimately these they do mean business. And, you know, when you think about, you know, the tariff story that Stephen Moran is pitching to Trump, it's really

You know, and in a nutshell, it's we're going to make the rest of the world pay for our tax cuts. Right. Trump loves that story. That's like very much up his alley. It's just like we're going to build the wall and make Mexico pay for it. Right. So he's like totally bought into this thing. And, you know, I think you're going to actually see it happen.

And what's your view of the Steve Moran, Donald Trump vision of high tariffs and particularly the Steve Moran view that, oh, the econ 101 view that tariffs are always bad is not true because the elasticity is with the rest of the world. They have to import to the U.S. is the strongest market. We are the ones with the cards. What do you think about that?

I mean, Stephen Moran has a paper and a podcast on this. I posted a long Twitter thread about this. I mean, it's completely idiotic. I mean, Stephen Moran is a joke. And if you talk to the economics community, I think he kind of always has been. I mean, ultimately, his view rested on this kind of hand-wavy notion that exchange rates... Well, two things. First, he said that he thinks the US dollar is overvalued because of

the US dollar is the global reserve currency and that creates capital inflows. That's a fair enough starting point. I think there's people who would agree with that. But then he says he wants to use tariffs as a mechanism to re-equilibrate global trade. But then he argues that tariffs are going to cause the US dollar to appreciate further vis-a-vis

trading counterparties in order to offset the impact of tariffs on consumer prices. Now, that's just completely backwards because he just framed the whole argument as like, we want the US dollar to come down. We think the trade is out of equilibrium. So now he's just like completely undermining his own position in the first place. And then when you actually look at his argument that exchange rates more or less move to offset

offset tariffs impact on domestic prices. First of all, that's crazy. Nobody agrees with that. There's tons of evidence that that's totally not true. The evidence that Steven Moran pointed to was literally he just pulled up a chart of dollar China over the couple of years surrounding Trump's first set of tariffs.

And he like eyeballed the low on that chart and the high on that chart and just sort of like connected the dots and said that that was the impact of tariffs, which is completely nonsensical. Obviously, currencies move for like all kinds of reasons. Dollar China is volatile. It went right back down sort of shortly after that high. Many, many other currencies that had no tariffs involved sort of

retraced by just as much in emerging markets. This is just total nonsense, no evidence of any kind. Nobody agrees with him. Data doesn't agree with him. Research doesn't agree with him. He's just pitching to Trump because he wants this job. And I think actually the podcast that Steve Moran shared that on was my former podcast, Forward Guidance, with its new host. So shout out to Forward Guidance and Felix Javine. People can check that out. Ben, I think

A lot of economists on the street might agree with you, but and then they take that conclusion and they then they say, because this tariff stuff doesn't make sense. The Trump administration is not going to do it. Do you agree with them? In other words? Yeah, of course. I mean, the market's not going to decline because Trump is going to to reach a deal. What do you think about that?

I think Trump has bought into this argument. I think that ultimately, like, you know, Stephen Moran has achieved a position of prominence in the administration by telling Trump something he wants to hear. That's how you get a guy like Trump to promote you. Right. This is sort of like you look at the history of Trump's advisers. They kind of come and go very quickly if they disagree with him or if they tell him things he doesn't want to want to know. Right. This is sort of how you work with a narcissist.

And, you know, at this point, I think Trump has bought into it. Now Trump can change his mind quickly. And if markets are down 10 or 20 percent over the course of a year because we're sort of creating a huge mess in the global economy, he'll probably change his mind. Which, by the way, is another self-fulfilling reason why none of this makes sense. I mean, you hear you hear proponents talk about, oh, we're going to do onshore and we're really going to rebuild American manufacturing companies.

First of all, like what company would make massive investments of hundreds of millions or billions of dollars, you know, over like a 10 with a 10 or 20 year investment horizon, knowing that like Trump could just change his mind about this next month or next year and does all the time. Right. He changes his mind intraday anyway. And even if he didn't like the next administration will probably just undo whatever he does. Right. So like there's no like lasting permanent, even if you believe this kind of story that

American businesses would want to reinvest and we'd move sweatshops back to the United States or something like that. The permanence, the belief that this is like a stable policy regime going forward is just not there from any circles that you look at.

And I also say, even if the long-term changes of tariffs were a good thing, I think there's a timing issue, which is if Ford and all these companies are going to reshort manufacturing, that takes one, two, three, four, five years, whereas the negative impacts of tariffs are going to be almost immediate. Yeah.

Ben J. Yeah, very much so. Trey Lockerbie : Ben, how do you view this market when you have a risk? I mean, the various estimates of, okay, the tariffs, they could make real GDP go down by 30 basis points or as much as 1%. What is that impact going to be on Apple, Nike, Tesla, all these companies that makes things in China? How is that going to change the S&P earnings estimates for the S&P should the value therefore of the S&P go down? Ben J.

Are you going to have, I guess, the multiple contraction as the earnings estimates go down, the price goes down more than the earnings estimates, and then in the volatility market, your world, are the volatility markets going to price in and somewhat of an overreaction? So if earnings estimates only go down by 5%, the market goes down by 15% and the volatility spikes way, way more than that. How are you sort of viewing this market right now?

Yeah, no, it's a great question. I mean, you know, it's always tough to predict like how multiples are going to respond to, you know, to fundamental impacts. But yes, you know, if Trump goes through with, you know, 25% broad based tariffs on lots of countries, and if they retaliate, and it goes to 50%, like that's going to have big, meaningful impacts on earnings per share across, you know, the S&P 500, it's going to, you know, that'll take some time to kick in. And it's going to depend on a lot of different things, how big that impact is, right?

I think the question about multiples is really, I think right now the market very much has still been discounting the idea that Trump is going to do anything that's really going to hurt the economy or really going to hurt companies. I think the market narrative is still really like tariffs are a negotiating tool. We don't really know exactly what he's going to do, but he's not going to really do this. And there are many other

possible policy issues, you know, deporting like 30 million Americans or lots of other kinds of lots of other kind of things that the market discounts heavily. Like, OK, is Trump really going to do this? And once I think if the key question is like, say, Trump were to come out and meaningfully do large scale broad based tariffs and stick with them for a while and not be reversing them, I think that makes the market go back and reassess

all of the other kind of crazy stuff that Trump tweets about or talks about wanting to do and saying, well, shit, like he's demonstrated the willingness to actually go through with some of this stuff. Like now, what do we have to believe and have to kind of re-rate beliefs higher on a lot of that stuff, right? And I think that's where you get potential impacts on multiples, where you've got, you know, potential volatility. The tariff story, I think,

you know, it could definitely create some pretty significant headwinds for equity markets. It's not obvious to me that it should lead to some giant, messy, short term crash, even though it's I think it will be a surprise the extent to which he goes through with tariffs. It won't be like all of a sudden it'll be over some period of time. You know, the market will be adjusting. Right. It's not the sort of unknown unknown that just hits the markets all of a sudden and sort of flips everybody's positioning.

You know, but I think that certainly it creates a lot of pressure. You know, if you have again, if you have pressure, pressure on earnings per share and then you have pressure on rewriting, you know, this idea that like, look, Trump might actually do a lot of this crazy stuff that he talks about. Again, Trump is very much kind of a chaos agent. Right. He's very much enjoying sort of upending the order of things. And that's not what business is like.

Tax cuts are great for businesses like tax cuts, obviously, but much more so businesses like a stable policy environment where they know what they're dealing with and can make investment decisions. They can make hiring decisions without feeling totally left out in the cold. What is the positioning in the market? Is the market prepared for this equity market, but also the volatility market owning puts?

If, let's say, Trump tariffs are an economic car crash, I'm not saying they are, but let's just say that's the case. If everyone owns car insurance and most people own a lot of S&P puts and calls on the VIX and the like, then they were very well prepared to generate income as the market falls and redeploy that into markets.

the stock market at lower prices. On the flip side, if no one own puts and people are actually short volatility and short puts, you could have a market accident. Where on that spectrum would you say that the market is and how is that informing your views on stocks and volatility? Yeah, I'd say there's sort of somewhere in between. So about a month or six weeks ago,

hedge fund gross leverage and net leverage were pretty much at highs. Everybody was really long. Everybody was really bullish. Everybody had a lot of relative value risk on in the multistrats. This drawdown in markets and more importantly, the drawdown in

kind of single stock positioning relative value trades within multistrats, which was much harder hit than the equity markets. You're seeing like six standard deviation losses in some of the multistrats on like crowded popular equity positioning. Like that took some significant amount of the length out of the market and of gross leverage out of the market. So like we're still at modestly high levels, but we're not nearly where we were like two months ago. So that risk has come off a bit. And then when you look at derivatives markets,

Hedge funds were doing a reasonable amount of hedging coming into a month or two ago. SKU was steepening. The market was buying puts from dealers.

There was a lot of monetization of those trades as the market got down to down 10 or 11%. SKU has come off pretty materially, but there isn't big, big, crowded, dangerous short vol positioning in the market. I mean, when you think about volatility positioning and volatility selling, there's kind of a few different categories.

There's huge amounts of institutional call overwriting and cash secured put selling and those kind of strategies.

Those are market stabilizing strategies because they supply when a big pension fund via Neuberger Berman is selling call options to Wall Street, Wall Street's holding them, they're selling some of them to us, and we're having to dynamically hedge those positions. We're long gamma, we're long options that are at the front end of the curve, which means when the market's trying to go down, we have to buy. When the market's trying to go up, we have to sell. And that's like a market stabilizing force.

The kind of dangerous vol selling is really like highly leveraged tail risk selling, right? So people selling like big size in far out of the money puts, people selling variant swaps, all that kind of stuff.

And that, honestly, like there's some of that, but it's much, much, much lighter than it was, say, coming into the pandemic in March of 2020 or something. A lot of the big, crazy tail risk selling came out of the market, got blown up and hasn't really been reestablished. Investors are still a little bit wary about that stuff.

You know, so I don't I don't think you have the kind of either super, super high leverage in hedge funds right now or the kind of very dangerous positioning in derivatives that you would need to get those kind of super crazy big crashes. So there aren't that many folks who are short volatility in a dangerous way or short tail risk. And so you say the value of tail risk, the valuation of tail risk is roughly fair in your estimation.

Yeah, it's not nearly as cheap and it's not nearly as crowded of a sale as it would have been five years ago coming into the pandemic when nothing bad had really happened for the last 10 years. The pandemic is slowly fading from memory, but it's only four or five years out. And institutional investors who lost 100% of their investment in Allianz Structured Alpha and Malachite and a bunch of these funds sort of remember that, right? And the market has a long enough memory.

to try to stay out of that. Prime Brokers tightened up risk requirements, blowing up on Parplus and a bunch of these other things where ABN Ambro was letting tail risk slip through on too highly levered basis. So yeah, we haven't had enough time, I think, in this cycle yet to build up that sort of super crazy dangerous tail we're selling. So the stock for S&P 500 had a decline of 10%. We've retraced it 3%, so now we're down 7%.

uh but single stocks have been down a lot more than the the index but

what's been going on in volatility markets because i guess a 10 decline in you know a month or so is quite steep uh folks you know comparing all the 10 cells back to 1929 and saying actually it is relatively quick on a one month basis i guess a 20 20 day basis but then tell us about the intraday moves or i guess the one day moves have not been that extreme right it's been drip drip drip one percent down one percent up one point five percent down one percent down you know it's not like

down 6% or anything like that. Explain the nature of this drip, drip, drip market. And if there is continued bearish activity in the market and declines, do you kind of expect it to be this way and not a definitely a March 2020 moment?

Yeah, that's right. I mean, what we've seen was a very low volatility, you know, slow sell off again, 10% over a month is a reasonable drawdown. But I think the biggest day that we saw was, you know, around down 2%. And mostly it was sort of okay, down 1%, down one and a half percent down to sort of over and over and over again to get us down 10%.

you know, realized volatility on like a five and 10 day basis and didn't get much above 20. It was like 22 or 23, right? And, you know, one month never even got to 20. So this is like a pretty low volatility event. As a result, you didn't see any kind of meaningful big spike in implied volatility or VIX. VIX very briefly hit like 29 and then, you know, came back off in a hurry. You just can't sustain really high option prices and really high implied volatility if the market's not really moving them.

much. Right. You know, we did see some bigger intraday swings like, you know, the Trump tariff regime is a regime with more intraday volatility. Right. Because we'll come in. He'll have tweeted something crazy about tariffs. We'll come in down two percent overnight and futures. And then, you know, somebody will correct it or, you know,

try to calm it down and then it will rally back to flat and you know you'll you'll sort of miss that volatility but even so like again it's been relatively calm markets on the way down at the index level right again a lot of the the real pain has been in these kind of leveraged factor trades and crowdedness within single name you know relative value positioning and you know you've seen those the really popular names like you know nvidia obviously on deep seek day was down i think 17 or something you've had much much bigger names in those or much bigger moves in those really popular names

And that hasn't led to big index volatility spikes because you can't hedge that position by buying S&P puts. It doesn't do anything for you if you're losing a lot of money because you're long NVIDIA and short some value stock or something like that. It doesn't help you to hedge an index. Indexes isn't really moving. And so that pain didn't really feed through into index nearly as much.

So if you could go back in time, you know, three months or so, it would have been maybe a good trade to sell index volatility and buy single stock volatility because the S&P is not doing that much, whereas Nvidia is down 70% in a day. Depends on your timing a lot. So one month ago, that really wouldn't have worked. And the reason was...

that's a that's like a correlation or a dispersion trade is what we call in in equity derivatives when you're buying like a basket of single name volatilities and selling index volatility so yes we realized a much higher volatility event in single names than index but that's not new um that's been a theme kind of all year really the last few years and

positioning in those kind of dispersion trades got extremely crowded to the point where the relative price of single name volatility as compared to index was like at record highs. You were having to pay a huge amount of money to buy those single name balls against index vol.

A month ago, again, we were at those extreme wides. Now we've kind of contracted back in from a spread of maybe 17 or 18 points over at the three-month point down to maybe 13 points. So we've cheapened that dispersion spread. People who are trading dispersion have lost money because they were buying it at such expensive levels. So yes, single names have moved a lot more than index, but that was priced in. And actually, it was way too priced in because way too many tourists were involved in that trade.

And how are you estimating the risk and reward of a trade where you're short delta and short volatility at the same time? So you might short VIX futures and short the S&P at the same time. So that type of trade would do quite well over the past month where the stock market goes down, but volatility doesn't go up that much because it is a contained trade.

I have not implemented that trade, so I don't really know it, but just casually observing the market activity every day, it seems like that trade would have done quite well and did quite well in 2022 as well. - Yeah, so we dynamically manage exactly that kind of risk. So we'll take volatility risk against delta risk. And yeah, sort of as the market bled downward,

generally volatility didn't quite keep up with the short delta move. So you would have outperformed somewhat on that. Actually, in the rally back has kind of been the opposite where vol hasn't come down as much relative to how much the markets rallied back. So you've sort of just had a low, we call that spot vol beta or the kind of the beta of

implied vol as a function of how the S&P is moving. Generally, you've just been in a relatively insensitive regime, both on the way down and the way up there. Ben, so I think when people say it's been a drip market and the one-day moves have not been

that big, but because it's been down 1% on Monday, down 1% on Tuesday, down 1% on Wednesday, you compound that on a probably a one month basis. It has been a big move. Is there any way to sort of profit from the volatility, uh,

that if instead of measuring volatility on a one day basis, you just actually did measure on a 20 day basis, not like 20 days of one day, but actually on a 20 day basis, it is quite extreme because it seems like all or most option prices is based off of a one day pricing. And then I know there's intraday, but if you owned like a longer term option, is that reflected the fact that like actually the 20 day move is quite extreme down or somewhat extreme?

sure yeah i mean the way effectively right the way to express views or bet on a longer horizon volatility in that sense is to own you know be long or short uh options and not dynamically hedge them right so like if you say you bought a straddle and then you only re-hedged that once a month or you know you didn't re-edge it at all right then you you benefit from this trend effect right where markets are trending down they're trending down you're not re-hedging you're picking up short delta you know on your straddle on the way down and then

benefiting from the fact that even though realized volatility on a daily basis wasn't that high, the end-to-end move was pretty high. And then conversely, if you had that kind of a trade and you weren't hedging it, you would lose in the scenario where you had a lot of choppy mean reverting volatility. So the S&P was really volatile on a day-to-day basis, but you just didn't move that far from your strike because you sold off and then you rallied and you sold off. So that kind of unhedged straddle bet is a longer-term volatility or longer-term moves bet.

And so there could be a bubble in the short volatility trade, there could be a bubble in the long volatility trade.

Early on, you said, it sounds like there's not a bubble in the short volatility trade. Is there a bubble in the long volatility trade, like perhaps there was in the middle of 2020 and in 2021, where we realized volatility was quite low, but implied volatility, people were just so scared. And they had one car, but they owned like five times the amount of car insurance that they had to have. Is the market over-hedged or do you think it's kind of neutral and in the middle?

I think it's pretty neutral. I mean, usually you get that dynamic where you get under hedging once it's been a long time since a crisis. You tend to get over hedging right after a crisis, which, of course, is exactly the opposite thing that you should be doing. Right. And then we're sort of in the middle. We're sort of in the middle here. We've been four or five years, really, since any kind of meaningful equity market drawdown and volatility event.

And investors are still somewhat wary of crazy leveraged crash selling, but they're back in dip buying mode. They're back in volatility spike selling mode. You have a lot of interest to sell every move higher and ball. And you certainly don't have massive overwhelming buying of volatility or tail risk hedging or anything like that. You see some interest in those kind of things. You did see hedge funds come out and do some tactical hedging.

as the sell-off started a month ago or so. But I think we're sort of in between there. We're very much neither in a short ball bubble or a long ball bubble. And tell us about the multi-strategy unwind, the so-called pod shops. They're very long momentum, very long certain single stocks. How much is your sense that that has been unwound? And is it likely to continue to impact market pricing in the near term?

uh our sense is that move is relatively done for now and that doesn't mean you know there won't be a second round then later this year or anything but you know what we saw was you know something like you know six standard deviation under performance of that crowded uh you know hedge fund long short relative value equity risk uh not exclusively in the pod shops but you know concentrated in the multi-strat pod shops

You saw pretty significant degrossing in those institutions. You saw, you know, various pods liquidated and fired. Those kinds of institutions are very quick to kind of cut risk and cut capital and fire portfolio managers as they start to lose money as just a risk management metric. And then we've seen generally those moves and like the volatility of those positions sort of stabilized this last week or so. So I think at least for now, it seems like it's done. The, the,

Certainly some of that positioning is still there, but I think the biggest impact has sort of played out. The VAR shock that, you know, another thing that you see with shops like that is as they start to lose a significant amount of money, you know, their value at risk metrics go up. They start cutting risk in those pods, but also in other pods, sort of trying to keep a lid on things. And that has some spillover effects across markets on other crowded trades. We didn't, you know, we've seen all of that pretty much stabilize at this point.

And so in the early minutes of our conversation, it sounds like you're skeptical of the Trump trade strategy and you think it could have deleterious effects on economics and markets.

How, if at all, do you implement that view into your market positioning? You know, you're not just trading your own money, you manage other people's money in your fund. So how do you implement that? Or do you say, you know, I have this own view and personal conviction, but ultimately, like, I trust my quantitative process, and I'm not going to lean too heavily on that.

Yeah. So in the absolute return core of the business, we're market neutral all the time. It doesn't matter whether Ben is bullish or Ben is bearish. That's not sort of our job to sort of take directional risk.

But certainly our macro views and our views of positioning affect how we think about risk and how we think about the possibility of squeezes or big moves in different types of positions. And we're very serious about that across the portfolio and about knowing where we want to be positioned in terms of places where you could see big outsized moves.

We also manage large tail risk hedges for institutions. And they're obviously by definition, we're directional because those are positions designed to be complementary to the risk assets and do well when they fail. And yeah, making sure that we have positions. One big question is path. And a lot of these questions that you're asking comes up, right? Because the types of hedges you might have for a big institutional investor, there

There are some types of hedges that might pay off very, very well in that big, messy crash, that sort of pandemic style event, but that might not do very well in a slower grind down, right? In a three to six month equities down 20% kind of move, right? Because certain kinds of hedges might be things where you're buying a lot of shorter data deep out of the money downside where you really need that big move to make it work.

we would be making sure that we're mixing in positions that will perform pretty well in that slower grind down, right? Because that's a very real risk case, right? That we have increased

Increasingly bad economic data coming in on the back and EPS coming in on the back of big tariff implementation. And it's not necessarily a big crash, but it's six months or a year of sustained downside. And you have to make sure that those kind of portfolios can do reasonably well in those paths also, because that's going to hurt generally the risk asset portfolio that asset owners own. They don't usually care that much. If the equity market is down 20% over a month or over a year, it hurts them more or less the same.

And so you need to make sure that a hedge portfolio can do well in either of those scenarios. Why is it that a one month drawdown of 20% hurts just as much as a one year? I would have thought that one month hurts way more because it's happened so much faster. Oh, I mean, it's psychologically harder, but the amount of money lost is the same. I just mean, it's not like your typical asset owner has a linear portfolio, right? They own equities, they own, I mean, and maybe some negatively comebacks, but they own equities, they own real estate, they own...

from things that will participate to the upside and to the downside. Typical asset owner isn't short a whole bunch of variance or variance swaps or something like that. But you could imagine if you're doing skew trades where you're selling a little bit of volatility locally and buying a whole lot more deep out of the money volatility on a very short dated basis.

that trade might do really well in a month where equities are down 20% and make a ton of money. It might actually lose money if you had a six-month equities down 20% event because it just doesn't go down enough in any given month to really monetize. And you just keep kind of rolling down and down and down into this money-losing grind. So the way that you structure a derivatives portfolio, the path is really important.

What are some opportunities you're seeing in volatility markets that are caused by phenomenon of people selling too much volatility here or buying too much here? What are the various disturbances that you're trying to identify? So, you know, a couple of themes are really big right now and have been for the last couple of years.

So first of all, structured notes are a very big part of the equity derivatives world. That's where high net worth investors especially get pitched notes from banks where typically they would get some kind of coupon, maybe 10% or 20% annual coupon on their investment.

As long as some underlying basket of stocks is not down more than, say, 40% or 50% or something, it might be a worst of basket of Nvidia and Tesla and Palantir and some of these other retail favorites where if any one of those stocks is down 40%, then instead of getting your coupon, you get wiped out and you lose 40% on your investment. Very simple example. They get very complicated.

But so a note like that, that's basically the investor is selling long term crash risk in stocks in order to get a get a coupon. Right. So they're selling volatility. And the effect of that, of course, the dealer issues those notes. The dealer goes out and hedges by selling long term puts, you know, variance swaps or something. And that depresses long term volatility and skew in those names. Also an index, because a lot of those notes are linked to index.

So if you look right now at long dated downside in those kind of names, it's very depressed. So firms like us will be looking to take advantage of that and probably hedging those types of positions with other types of volatility on the same underliers to express this kind of explosive downside presented by that cheap fall. Another big dislocation is that for many years now,

If you look at relatively short term options, call it like one month, 25 delta calls at the money, 25 delta puts that those options are overwhelmingly sold by large institutional income type of programs, ball selling type of programs. And that steepens volatility term structures and makes short dated options relatively cheap compared to more medium term options.

And so inevitably, Wall Street warehouses a lot of that risk. Firms like us end up warehousing a lot of that risk. It has to go somewhere. So the natural, the end users are all sellers and the buyers are all sophisticated firms that are buying it because the price is too low and hedging it in various ways with something else. And do you think those structured notes that banks are selling to investors, do you think that they are a sound investment product?

I think that the main drawback as an individual investor is they come with a lot of fees, some of which are observed and some which aren't. That's why banks love them. Right. So generally the trading desk is issuing them and getting a nice big. Usually the salesperson is getting a nice commission. Usually the financial advisor who's then pitching that note to their clients is getting a nice coupon. So all that kind of comes out of your pocket as an investor.

Beyond that, they're kind of long-term volatility selling. You should make money over time. A lot of people like that profile. Lots of people ask me about these because they get pitched them. They say, look, I don't really know if Palantir is going to double again, but I don't think it's going down 50% and I can get this good coupon. They like that profile. Fair enough, that's their choice on the risk-reward of the product. My main point to them is usually just the level of fees that are involved across all the different people who are getting a cut of it.

Okay. Your comment is not as negative as I would have expected, because I think you're kind of on the other side of the trade. Like these structured notes who investors are buying, they're basically selling puts on a basket of securities and you're kind of buying those puts. So you said they will make money over time, but does that mean when you buy these puts, you expect to lose money over time? You just maybe expect to lose less than your hedges? Or sorry, you expect to make more with your hedges that you're short. Yeah.

The difference is absolute return versus outright investing. Right. So you can think in an absolute return strategy, you're trying to buy something that's relatively cheap and hedge it with something else that's more expensive and make money over time. Right. If you're doing kind of outright long term investing, you know, ideally you would be buying something that's relatively cheap.

But you don't you're not trying to hedge it. You're not trying to be market neutral. You're trying to get paid to take risk and have a risk premium. And over time, generally speaking, you know, generally speaking, sellers of volatility and buyers of equity will make some amount of money over time, over long periods of time, because that's how the market compensates you for taking risk.

Right. And so, you know, long term investing is a different type of phenomenon. Right. Then sort of absolute return trading where you're picking related things that have different levels of cheapness and trying to create hedge trade structures and everything.

And these, the basket of stocks, are they typically like the MAG7 or the big stocks that everyone would know? Yeah, they're usually the popular names because ultimately Wall Street is trying to sell these, right? And people love Palantir. They love whatever the favorite basket of exciting stocks is, the MAG7 and the favorite AI stocks and all that. That's what you're going to see in those baskets.

And what is kind of the time horizon where the volatility gets to be cheap? At what point does the options that people are selling expire? Yep. So these are long-term structured notes. They have a weighted average life that's kind of complicated and depends on the note, but you could think of like two or three years. So pretty relatively long dated in terms of the options that are available on the screen. If you go to look at options, it's going to be like the longest dated leaps that you can buy.

Okay, very long dated. Okay. And so what do you make of these, not the structured notes, but the double levered, some instances, triple levered ETFs? I think on the index, they've been around for a while, but now the single stock ETF. So double levered.

2x leverage the price exposure to the daily moves of Apple or Nvidia. What do you make of these products? Yep. So obviously investors love leverage. We know that we see that in lots of markets and in lots of ways. It is a cheaper way to get leverage typically for a retail investor than paying margin rates because you're getting institutional financing rates through the ETF.

When you get leverage through an ETF, you get it in a very particular way. It's different than borrowing money to buy three times your market value in Tesla, right? Because that ETF

it effectively limits its own loss on the way down, right? You can't lose, if you buy Tesla triple levered, you could lose all your money, you know, on only a certain size move. On that Tesla triple levered ETF, it's going to be selling exposure as Tesla goes down and sort of you have this convex exposure, right? On the way up, it's going to be buying more Tesla and you're going to be making more and more. That introduces a really important effect, right? This sort of momentum versus mean reversion effect. When you buy a triple levered ETF,

you get long kind of a momentum factor. You really like it if Tesla just trends up, up, up, up, up, up, right? Because then you're buying, you're getting more exposure, you're buying more, it's going up. What you really don't like is a mean reverting or negative auto correlation environment, right? Where Tesla goes up a lot today and down a lot tomorrow, because then you're buying high and selling low over and over and over again and experiencing a lot of this variance drag effect.

And I think your typical investor in those products probably doesn't think about that or doesn't understand that. Right. So they don't really get why, say, for example, Tesla ends up up 40% over a year, but they didn't make three times that much. Right. Because they experienced this volatility drag. Then the other important thing to keep in mind with these things is that they create

a kind of a gamma effect on the close, right? Because they have to do those rebalances that we were talking about. If there's a really big Tesla 3X ETF and Tesla's up 10% on the day, that ETF is going to have to buy a whole lot of Tesla stock on the close to rebalance its exposure. And that creates this trendy move in the stock at the end of the day.

Okay. And how big are these products relative to the stocks? The Nvidia double levered ETF is about $4 billion, but it only $4.5 billion. But in comparison to a multi-trillion dollar stock in Nvidia, maybe that's not that much. Is it really exerting a force that ultimately could move the stock? You said that maybe from that 3.30 to 4 p.m. time horizon, but elsewhere, how much is

How much of the stock price moves can it be responsible for? Yeah, I think in most of the single stocks that have these double and triple lever ETFs, they're not yet sort of hugely outsized relative to the liquidity of the stock and relative to the market cap of the stock. So there's probably some incremental impact on the close.

but not major. But the important thing to remember also is it really depends on the liquidity environment and volumes, right? So, you know, I could be saying, look, there's not that much of an impact in this market where liquidity has kind of been okay and, you know, market hasn't been that volatile.

But, you know, you get into like a pandemic type of situation where there's really a lot of volatility and market makers are very shy and liquidity is really drying up. And the price impact of like those size of rebalances suddenly becomes five times bigger or 10 times bigger. Right. And you saw that a lot in the pandemic, including an equity index.

For other reasons, where you had big rebalances on the close, you had very large market on close orders in the S&P during the pandemic that just blew through all liquidity. And you would have days where the market was down 8% coming into the close and then ended up down 12% because of these rebalances just into no liquidity. So you really have to think about the liquidity environment when you assess how much can these products really affect the underlying market.

I think, again, you get into a crisis mode and those liquidity impacts go way, way, way up. And these products are quite big now. So if the liquidity disappears, could you see it being a March 2020 scenario, even though the liquidity right now is still there?

Yeah, I mean, very much so. The kinds of impacts these cause on markets during stress periods are quite large. And in some of the cases, like take MSTR, for example, there the levered ETFs are very sketchy because the banks that would typically give the issuer of these ETFs leverage on swap to execute these positions

The underlying is too risky, right? Nobody's going to give you 2x or 3x leverage on MSTR. So those issuers have to go out and buy call options in order to get the leverage synthetically that they need to implement their risk targets.

and they end up owning a very significant portion of the strikes and maturities that they're targeting. These are very, very big option positions to get that much delta in MSTR, for example. And if you get into a stress market environment, they'll have an incredibly difficult time rolling and managing those option positions because no dealer is going to show up and make a good market for two-thirds of the MSTR option market all at once. So I think we're yet to test that.

how those kinds of products can really function in a stressed market environment. I think it's going to be a huge mess. And is there anything else in ETF land that new products that are could also be of interest or relevance?

yeah there's generally been huge growth in derivatives using etfs over the last several years right so like certainly etfs with crazy underlyings that need call options that's a new dynamic there's a big new dynamic in buffer etfs which are typically equity index etfs that are effectively giving the owner like an equity exposure with a put spread call or overlay those have gotten very very big

and very crowded and very kind of benchmark oriented, all doing very much the same thing. So typically selling a call to finance a put spread on top of an equity exposure and creating very congested roles on the size of these products. The JP Morgan product that everybody talks about is an example of that. It's not a buffer ETF, it's in a mutual fund format, but it's the same kind of thing where those products are really proliferating.

And, you know, as you know, with the JP Morgan, when everybody is always talking about it, right, it's rolling in five days. We have March 31st is expiration. So like we're getting very close to expiration on these humongous positions that create a lot of odd market dynamics. They create a really big role that everybody knows exactly what it's going to be. And so they all everybody front runs it and they get very bad pricing and very big market impact.

Again, much worse in crisis market environments than now. But the growth of these kind of products has just been massive. Same with growth of yield generation, option selling products like JEPI and the Wheel ETF.

where, again, it's very popular to do option selling for income. There's a lot of people these days on YouTube or Instagram, option influencers telling you that you've got to sell options for income. And there's a lot of very big popular products for that growing and growing. So the space has gotten vastly bigger. The ability of investors to be effectively getting derivatives market access through ETFs.

Actually, there are some YouTube people who advertise on the Monetary Matters YouTube channel, option selling. I can't choose. So I think it has been big. And then how predictive do you think that is? Just because you're seeing a lot of ads and people are talking about it, does that necessarily mean that so many retail investors are actually short puts and short calls?

I think it has been a big trend. Yeah, I think what you saw. So first of all, retail option trading kind of exploded upwards in 2020 and 2021.

I think many of us thought that that was going to be temporary and then reverse at least part of the way because people would experience so many losses and kind of give up. Right. What you ended up seeing was that growth rate tapered off. We stopped kind of going parabolic, but like those volumes among retail traders have kept growing at a moderate rate even since those big plateaus. So like that big

big, big involvement of retail investors in options trading is very much still there. It's migrated, though. The story in 2020 and 2021 was really aggressive meme stock speculation, right? GME and AMC and all the BBY and all these kind of names.

people buying big leveraged positions and short dated calls, very, very risky trades. Right. Some people who were early to that and who were smart, like made a ton of money. Most people lost most of their money because if you're not used to trading options, you don't know how to think about risk and premium. It's very easy to just lose all your money, right? Because typically you buy a stock

Even if it goes down 50%, you only lose half your money, right? If you buy some out of the money call options and you just put your whole account into it, just if the stock doesn't go up enough, you just lose all of your money, right? So people, inexperienced traders lost very quickly. But I think a lot of the negative experience in that sector

but that matched with, hey, now these guys have options accounts open at Robinhood or at Tasty Trade. They know how to click buttons. They know how to trade options. And they're in chats online and in discords with people talking about all this stuff. They stayed involved. And what they did was they migrated to option selling. Right. So what was the problem? Why did you lose money? It was because you were buying options. Aha. The thing that's where you should have been selling them. Right. And so I think a lot of those social media influencers and Tasty Trade brokerage, which is very focused on option selling,

effectively was able to capitalize on that and then get people into option selling programs. And so you've seen a continued sustained rise in participation of retail in things like covered call writing and cash secured put selling and the wheel strategy and all this kind of stuff.

Didn't you say earlier that covered call writing and cash secured put selling actually can have a market flattening event because they sell it to you and you're, I guess, short game or long game, you explain. Yeah, totally. So they are market stabilizing. The key way to think about that is when somebody is buying an option and somebody's selling an option, what matters is who is the dynamic hedger

Are both sides hedging? Is one side hedging or is nobody hedging? In this case, it's people doing covered call selling. They're not dynamically hedging those positions. They just own the equity and they're just selling a call against it. They're selling it to Goldman Sachs who's selling it to me and we're dynamic hedgers. So the dynamic in the market is we're long those options, we're long gamma, market's going down.

I have to buy to get my risk back to flat because as market goes down, I get very short because I'm long gamma. Uh, and I,

I'm stabilizing the market buying and so is Goldman and so is Susquehanna and so is every sort of big options account. Vice versa, if the market's rallying, we're all getting long, we all have to sell. And so that dynamic reduces realized volatility, pushes against price trends, at least kind of locally within some range of the strike prices of these typically short dated options that people are selling. So yeah, that's kind of a market stabilizing effect.

What about if they're not cash secured puts and they're just selling naked puts and, you know, NVIDIA goes down a ton and people just get wiped out? Are you saying that even in that scenario, that would be market stabilizing? So in the case where there's very leveraged selling of tails, you know, typically what you'll have is there'll be some initial market stabilization because, you know, dynamic hedgers might own those puts and be, you know, re-hedging them. But as you start to get down far enough and you have

those type of traders start getting liquidated, right? Then those positions have to be forced covered, right? And puts, you know, and so now you have, okay, NVIDIA has sold off 30%, vol is already rising, and now you're forcing the purchase of a ton of puts to cover and liquid, you know, cover all the risk and liquidate all the risk of all these people who have interactive brokers accounts and are 10 to one leveraged or whatever, right? And so that's very destabilizing.

because you're taking a volatile market and a stock that's already down a lot and vols already up a lot and you're forcing a ton of put buying. So that's kind of the difference is when you have safe kind of option selling that's cash secured, that's secured by owning the underlying, that's unlevered, that can tend to be stabilizing. When you have aggressive leveraged tail risk selling, then that will tend to be destabilizing.

Okay, that makes sense. And how would you say that this volatility environment and what you see over the next few months is different than what we've had in the past?

You know, I would say this environment, the environment recently that it feels most similar to so far is probably 2022, right? Where you had, again, you had some tech, popular tech stock positioning that was pretty stretched. You started to see that unwind. It wasn't really a high volatility index event, you know, implied volatility underperformed on the move.

And then 2022, you saw kind of a full year of that with some back and forth, right? You know, this felt a little bit like the beginning of that. You know, if my view on Trump tariff plays out, you know, I could see that continuing, right? And having, you know, the rest of the year be choppy downside, but not necessarily a massive volatility explosion.

Lots of other things could happen that could turn it into more of a volatility event. Right. But I don't think I think that manifestation of incremental downside from, you know, Trump being more serious about tariffs than people think is probably equity market downside with vol up some, but not a lot. Right. So we'll see. You could could have that kind of event. It's certainly very different than a, you know, a 2020 or, you know, some

some previous market event where you had much nastier positioning, much bigger surprises that came faster, much bigger unwinds of those positioning leading to, you know, big catastrophic explosions in the market. I mean, I don't think we've seen anything like that.

even in the single stock positioning. Again, we talk about how extreme these moves have been in single stock positioning and in the pod shops. But you have to keep in mind, we're talking about losses at the big brand name shops of like 3% or 4% or something, right? They're very well risk managed

They tend to make double digits returns and like, okay, so they had a three or 4% down month. Like it's not, it's unusual. It's only unusual in that they don't tend to lose money. And so that's a relatively big loss for them. But again, this is not a catastrophic sort of market event. Right. Hmm.

I'm going to ask a question that's not necessarily for Ben, the vol trader, but just Ben, the macro pontificator like everyone else. So again, people shouldn't say that just because what you're about to say doesn't mean that your positioning reflects that. But how would the distribution that you see over the next year of the S&P, a bell distribution, fat tail?

Often what is mispriced is the right tail. All the strategists go into on January 1, they say, "I'm bearish," or it could be a 5% year, and then in 2023, 30%, 28%. And things can be way better than expected.

What do you think now about that possibility that the market could actually just have another extremely big year? Based on what you're saying, it seems like it is slim. However, to many people, it often seems slim and it happens more than people think. Yeah, absolutely. I mean, you always have to have that possibility in mind. It's certainly not my base case. I think it's relatively low probability, but I think that the scenario path would be something like this, right? It's you suddenly see Trump

shift rhetoric very significantly on tariffs, right? And saying, you know, okay, we're gonna, you know, people have been really good about this. I'm really getting the concessions that I wanted, like, so we're really going to be able to negotiate on this and like, you know, actually see him make credible, lasting, you know, deals with relatively low tariffs that are sticky and sort of

of a significant vibe shift that demonstrates that he's not going to be doing this anymore, right? Sort of takes a lot of the risk off of the table and then, you know, runs and goes through with a lot of the big tax cuts and deregulatory stuff that he's planning without sort of chasing up the more kind of populist nationalist type of rhetoric. Like I think, you know, in that type of setting, like, yeah, you could definitely see, you know, material, material equity market upside and, you know, prove a lot of people wrong.

And it's always a path that can happen. Right. I mean, I think that multiples are already stretched. But anybody who paints a really strong picture of near term equity price action based on, you know, forward EPS is just is vastly overstating the statistical certainty that you get out of anything like that. Multiples can always go higher. Stock valuations can do kind of whatever they whatever they want. Right. And so, you know, I think you always have to keep that kind of a scenario in mind for sure.

Absolutely. On estimates, people on TV two weeks ago said, I mean, estimates haven't even come down. It's like estimates have come down. Look at the market. The people at the banks, if the market goes down more, they'll lower their estimates. It's totally made up. I guess Trump has a lot of on-paper investments, Apple 500 billion, TOSC 100 billion investments in the United States that I think you do have to take with a massive grain of salt. But he could claim victory based on that.

Well, he will. He will. Trump always claims victory. That's the kind of the first thing you do is regardless of what happened, you claim victory and you explain why you were victorious and, you know, why the other guy lost. And, you know, you make up sort of the facts and the reality as you go. Right. I mean, he's a he's a reality TV guy. It's sort of totally his expertise.

And so that's what she says, like you think the risk of a market crash is somewhat unlikely, obviously always possible, but it's not like the market is ripe for a market crash. Yeah, I think generally to get a really big fast crash, right, you need some combination of

really new surprises that are pretty meaningful and people didn't see coming, or at least were very dramatically underpricing, which I think you have some element of with tariffs, but I don't think a huge extent. And then you also typically need aggressive positioning. You need a lot of leverage, net and gross, and

And it really helps to have really sketchy derivatives market positioning that will kind of amplify moves, kind of very risky leverage tail risk positioning that are going to blow up hedge funds and banks and things. You just don't really have that. So I think that the underlying conditions for a big, sudden, massive market crash aren't really there. Again, that doesn't mean you can't have some wildly unexpected event that drives it. But the kindling isn't really there to start a massive bonfire.

Ben, a hallmark of the past month has been the US stock market selling off as the European equity market goes up alongside the Chinese equity market. In the volatility world, what are you seeing on the options on China ETFs and European ETFs? How is the volatility risk premium and the pricing compared to the S&P? Yeah, no, absolutely. Those markets are much more illiquid from a vol perspective, but you've definitely seen

a lot of interest in upside in the rest of the world, which has been very out of favor. I mean, the last 10 years have been this massive U.S. bull market and rotation of investor assets globally into U.S. and especially U.S. tech. That's been a huge theme. It's been part of a driver of why crises have been so U.S. centric in the last 10 years. Even though the pandemic was global, U.S. markets actually suffered the most from it because they were the most crowded and everybody was invested in the U.S.,

You've seen the first glimmers of a little bit of a rotation of that, right? And those kind of big thematic changes are something that big investors often really like to use derivatives and options to express, right? They haven't necessarily had time to go do a ton of work to pick their favorite 20 stocks that they want to invest in European defense.

but they'll absolutely come in and lift banks on some big call spreads or calls in Chinese equities and European equity indices. And you've seen that start to happen. So you've had a little bit of a bid there on a relative basis.

That makes sense. Well, Ben, what would you say is the greatest misconception about volatility that you encounter, either on Twitter, in real life, with investors who are sophisticated in other markets, but maybe they make some mistakes in volatility? Oh, man, there's a lot of good ones. I would say

One that immediately springs to mind is it's a very common heuristic for non-specialist investors that volatility is cheap if it's low and expensive if it's high or has gone up recently.

And that's actually just very much not true if you look at data. So you can lose a lot of money buying volatility at a relatively low level because volatility is low, because nothing's going on and the markets are really quiet and realize volatility is really low.

On the flip side, actually, some of the probably the biggest money that we've ever made and many investors have ever made in derivatives markets is buying volatility after volatility has already gone up significantly. But everybody is trying to fade the spike and trying to sell it. And it actually hasn't gone up nearly enough given kind of what's going on in the world. Right. So if you look empirically at volatility.

Let's say S&P vol is 10 or 20 versus 40 or 80. Do I make more money selling it at 40 than I do at 10? The answer is no. There's actually almost no relationship, and that's very, very counterintuitive to a lot of people. Everybody wants to think vol is high, it's expensive, vol is low, it's cheap. It's more complicated than that. Markets are not that dumb. Markets are not that simple.

So selling vol at 40 is not as profitable as selling vol at 10. Is there a higher win ratio of selling it at 40? Because most of the time, when it's at 40, it goes down to 20, but the handful of times it can go to 80. But at 40, the highest is what, 80? So if you short it at 40, it goes to 80, just short more, right?

But keep in mind when you're shorting vol, so volatility markets already price in mean reversion. So everybody says like, oh, vol is mean reverting. It has to go down. Of course it does. Vol markets very literally price that. There's a term structure of vol that already says vol is mean reverting. You have to be more right than the term structure says. So like when short dated vol is at 80, two month vol is at 60, three month vol is at 40. And so if you're going to sell three month vol, like you're not selling it at 80, you're selling it at 40.

Right. And you need realized vol to be falling faster than the market's already implying. And that's kind of the thing, like usually when one month implied vol is at 80, actually recent realized vol is probably 120. And if you sell it at 80 and like that realized vol persists for just a little while longer, you're getting your face ripped off. Right. And if you sell, you know, the VIX, like my favorite time, I talk about this a lot, was like

At the end of February 2020, the pandemic was starting. Equity markets were down maybe 12%. The VIX had hit 40. Everybody says, oh, my God, the VIX is 40. That's really high. You have to sell it. But the VIX index was 40. The front month VIX future expiring in like 12 days was at 26. So people are saying, oh, I'm selling VIX at 40. No, you're not. You're selling VIX 12 days out of 26. So the vol has to collapse just for you to break even.

And that VIX future was actually trading at below arbitrage boundaries with respect to the S&P and all this stuff because everybody was trying to sell it. And it was the worst trade on earth. You were supposed to back up a truck and buy that thing and hedge it with other stuff. And again, you have this very steep roll up the curve because the market believes vol is going to go down so fast. So like, yes, absolutely, vol is mean reverting. Yes, absolutely, it will go down. The market already prices that. The question is, how much is that priced and how fast is vol going to go down?

So what you look up as the VIX could be at 80, but what you actually can buy or short is the front month futures contract. And that's off at 80. I think an extreme example of that was August 5th of last year when the VIX you could look up on Google was high, but the VIX futures didn't go up that much. So I guess...

The VIX, actual VIX that you can't trade, the peak is, I mean, you know, I don't, but like somewhere 80, 81, somewhere right there. What has been the peak in the actual tradable VIX, like the front month futures? So in the pandemic, actually, the futures did go to like 85 or so. Very briefly, you know, what happened was

There were a lot of very large, many of all kinds, but there were several very large investors that were massively short the March calls on the VIX. And they got liquidated all at the same time in mid-March in an auction that sort of, in order to take down the sizes that they were short, blew those futures to 80 plus and took them to crazy, crazy levels relative to the

relative to the S&P vol market. And then people like us kind of had to come in and compress that premium and move everything back down. So they didn't stay at 80 plus for long, but they did get there. And anytime you have a VIX spike that is 80 level, 70 level, what you said about if the market's pricing it in, that means a backward native curve. So the market is shorter dated vol is more expensive than long dated vol. What's the highest level like

far out VIX futures have ever gotten. Because I actually looked at it today to prepare and like in March of 2020, I saw when the VIX was at 80 or something, the long-dated contracts were like 35 or something. Mid 30s, exactly. That has tended to be about the ceiling on that stuff. They also got into the 30s like in late 2011 with the US Treasury debt downgrade and the European crisis and everything.

And so that was, you know, that tends to be where things get to. But, you know, an important rule in derivatives markets is like just because, you know, tail risk events don't happen very often and they're all different. Right. So you can't really make very hard conclusions based on five events of like exactly what the ceiling and some different variable is. Right. I mean, oil went to negative forty two dollars that one time, like.

crazy stuff happens and like you don't know how it's going to go next time so like betting the house on like well this particular of all can't go above like this level is a really bad idea what what do you think i know i mean you just said you can't say this but like at what level of vix is it just like wow this is this is way too high or like or is there is there no level like you know vix 120

Can every level of VIX be justified by the move in the realized vol? Yeah, I mean, exactly. It really depends on realized vol. And generally if VIX is at 120, it's probably because realized vol is 150 and like we're moving 10 or 15% a day. And like, it really depends on what's happening, but like,

The market is relatively efficient as a starting point. That doesn't mean the market's always right about everything, but as a starting point, if X is at 120, it's probably for a damn good reason. And trying to sell variance swaps at 120...

It really depends, but yes, you could still get your face ripped off because maybe the market's moving much, much more than that. And odds are, again, something really crazy has happened and you're being brave and you're more likely to not to make money probably. But it means that the world is truly insane and there's probably a lot of justification behind those prices.

Ben, earlier I asked what is the most misinformed view on volatility. Outside of the world of volatility, what do you think is the most misinformed view in markets or economics right now? I think this is already kind of starting to shift, but I think there was a, I wouldn't say consensus, but there was like a plurality view that

um that you know trump is sort of pro-business and pro-markets and i think that that's quite wrong i think trump is pro-trump and in some sometimes some ways that might align with being pro-markets but it's really not inherently the same thing at all right and depends on the political coalition and depends on you know the objectives and i think you know now you've seen trump you know launch a solana meme coin out of a delaware llc you've seen him on twitter like pumping his meme coin making billions of dollars

You've seen him install a crypto czar that announced a strategic crypto reserve that's going to be buying all of the coins that are in his personal venture capital investments. I mean, that's what sort of being self-interested does it right. You can just kind of loot the government and loot the country. And I think that's much more interesting to Trump than taking care of the needs of people or businesses or whatever. And I think that that's just going to continue to be more and more clear over the next four years.

This idea that Trump is like a pro-markets force, I think, is quite backwards. And the markets are going to come to understand that over time.

Yeah, that's interesting. I think when he first got elected, you had a huge surge in small business optimism. I think you got to look at the political bias of people because I think a lot of small business owners associate with the Republican Party. So of course, it's not a sign that the economy just got way better. It's a sign that Republicans like the fact that a Republican just got elected. Yeah, I think that's totally right.

Awesome, Jack. That was a lot of fun. Thanks, man.

Thank you. Just close this door.