Whether stemming from a recession, a policy shock, a terrorist attack, or a global pandemic, financial markets periodically go through major selloffs. It has always been this way. Euphoria eventually leads to panic, every time. Another way to look at these crashes is through the lens of volatility (and its commensurate rise), which has become a fundamental component of investment decisions. As time goes by, innovations can (and will) suppress volatility and can sometimes give the impression that risk has been eliminated, but that is always a fool’s dream. Eventually the piper must be paid.
Our guests this week were Benn Eifert (Founder & CIO) and Scott Maidel (Head of Business Development), of QVR Advisors, a boutique asset manager that specializes in strategies seeking to profit from volatility and all its downstream effects – including attempts to suppress it. We covered:
- How markets fundamentally changed following the Great Financial Crisis
- Call overwriting – the favorite strategy of yield-thirsty institutions
- Why ‘selling vol’ is too broad a term and has all but lost its meaning
- Everybody wants protection – reflexivity and the options tail that wags the equity dog
- The behemoth equity hedged strategy that now moves the market at the end of every quarter
- “Gradually, then suddenly” – the nature of volatility
- Gamma & Vanna – the second-order ‘Greeks’ and their outsized influence in short-term moves
- Execution is key – don’t trade against the Flash Boys
- Buying what you don’t want to build
- Systematic vs Quant
Benn and Scott also described in detail QVR’s two main lines of business – absolute return and tailored solutions – providing insight into their processes and competitive advantages. We also discussed the distinct nature of different market crashes, trade monetization, rebalancing, and much more. It was a fascinating conversation and a true lesson on the current structure of equity markets.
Thank you for watching and listening. See you next week.
This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.
*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.
