We Study Billionaires - The Investor’s Podcast Network TIP702: Hedging Against Market Crashes w/ Kris Sidial
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Feb 28, 2025 Kris Sidial, co-investment officer of Ambrus Group, dives into the world of tail risk hedging. He reveals how this strategy can shield investors from market crashes and enhance long-term returns. Kris discusses the volatility index (VIX) and examples of historical market downturns where tail risk strategies excelled. He emphasizes the importance of strategic cash positions and the psychological biases that can lead to underestimating market risks. Plus, he shares insights from legendary traders that shaped his investment philosophy.
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Understanding VIX
- The VIX, calculated from S&P 500 option prices, reflects market fear.
- It can be considered "volatility on steroids" due to its variance-based nature.
March 2020 Example
- March 2020 exemplifies a successful tail risk hedge, with some firms achieving triple-digit returns.
- Tail risk traders aim to understand option value and sell risk back to the market during panics.
Other Tail Risk Events
- The August 2024 Japanese Yen carry trade blowup is another tail risk event example.
- VIX spikes over 40 happen more often than people think, roughly every few years.
