Hedgeye Podcasts Hedgeye Investing Summit Spring 2026 | Nancy Davis, Founder & CIO of Quadratic Capital
May 4, 2026
Nancy Davis, Founder and CIO of Quadratic Capital, pioneers interest-rate volatility strategies and created the iVol ETF. She discusses cheap implied rate volatility and large option purchases, hidden short option exposure inside core bond funds, and how iVol serves as portfolio insurance across different macro regimes. They also cover ETF design choices, operational barriers, and when optionality becomes most valuable.
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Long Gamma Profits From Rare Volatility Jumps
- Being long gamma (long options) benefits from jump moves because you buy low and sell high on volatility spikes.
- Nancy Davis notes her interest-rate implied vol sits ~3.1 bps daily vs ~16 bps during SVB, making current rate vol historically cheap and attractive to buy.
Core Bond Indexes Hide Short Volatility Exposure
- Core bond portfolios (e.g., AGG) are implicitly short interest-rate OTC options because mortgages and callable bonds embed homeowner prepayment and issuer call options.
- Nancy quantifies ~35% of AGG exposure as short OTC options (mortgages ~25% plus callables ~10%), creating hidden short-vol risk.
Use Curve Options To Fix TIPS Duration Risk
- Do consider inflation-protected exposure with curve optionality instead of plain TIPS because TIPS are long-duration and can hurt if duration sells off.
- Davis says her ETF uses a Bloomberg TIPS index plus curve spread options to offset duration risk.
