Seeking Options Expertise

There was an interesting back and forth between our own Jeff Malec and Sean Brown of YCharts on a recent episode of ‘The Derivative’, talking what the responsibilities of a FinTech software platform are in terms of balancing nice looking GUIs and gamifying investing, and the responsibility to make sure that the users actually know what’s going on and the risks they are taking. This was brought into sharp relief last month with the tragic death of a young trader who was way over levered on Robinhood.  For the nasty bits of what’s going on there, check this NY Times article.

Just to drive this point home even more, three pieces of as dense (in a good way) content as you can get centered around the huge amount of complexity that comes along with options trading hit the wires in the last two weeks. Just how complex are options pricing, bid/offers, and strategies. We dug into the recent musings of these professionals and were left scratching our heads and asking more questions (and we do this day in and day out). Take a look/listen:

Squeezemetrics dishes on GEX/VEX
If you aren’t following SqueezeMetrics on twitter @SqueezeMetrics….start. It seems all they talk about is the GEX and or VEX, but their recent paper shows why it’s so important. It provides a map of where and how liquidity is taken and provided to the S&P 500, and by default – sort of the whole system. Buckle in and take a sip or bite of your best brain food as you get tidbits like this:

Ironically, the only thing that can really cause those 20% to 30% declines in the market is when so many people sign up to provide liquidity via put sales that a mere sign of the scarcity of liquidity (IV going up) automatically withdraws that liquidity from the market right when it’s needed most. But hey, whenever something as simple as the supply and demand of a market’s limit order book becomes so abstracted, you should expect to see little ironies like this, where everything is suddenly turned on its head. Of course, the underlying truths of the order book will never change—options are just one way to take and supply liquidity. What’s dangerous, though (for us and for the whole market), is when we conceptually distinguish options and their underlying. They are not distinct.

Now more than ever, options are the order book. Hopefully, the concepts of GEX, VEX, and the “implied order book” provide a tidy new framework with which to understand index liquidity, its drivers, and what that means for the stability of the broad market.


See the full paper here.


Benn Eiffert on Flirting with Models pod with Corey Hoffstein
Benn makes a living doing complex variance swaps and more, but allows Corey to pepper him with some ‘dumb’ questions around option/vol strategies like selling puts, when want to be long, selling covered calls to generate some extra income, Iron Condors, and trading VIX products like SVXY or TVIX, before going into the nitty gritty of harvesting implied minus realized, dollar Vega exposure, buying a straddle – and more.


Listen to the full podcast here.


Mutiny Fund’s Jason Buck interviewed by Hari Krishnan on RealVision
Here we listen to the CIO of a fund dedicated to finding the best of the best in the option space essentially admit that, yes, it is that hard – and so they sort of punt and hedge all best by employing many different types of option profiles across many different managers, in what Buck calls an “ensemble” approach to anti-fragility. Buck and Krishnan rigorously examine the benefits of different long vol strategies, such as options, shorting indices, and relative value trades on the VIX. Krishnan explains his quantitative framework for evaluating options, and gives in-depth option trading insights based on their tenor and “moneyness.” Buck and Krishnan discuss how a diversified approach to long volatility can heighten the benefits of long vol exposure, especially during “Minsky Moments” such as how the coronavirus pandemic markets have been experiencing since earlier this year.


Watch the full video here.


The Takeaway
The takeaway = options and volatility/VIX trading is about as hard as it gets in the investing world. This is just three short works touching on some of that complexity, and it made our heads hurt (in a good way). The takeaway = seek out expertise. Seek out those who understand variance squared, greeks, higher order moments of the distribution (tails), and more. Your portfolio will thank you for it.

The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

Limitations on RCM Quintile + Star Rankings

The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.

See the full terms of use and risk disclaimer here.