Vol Curves and Vanna Charm with Cem Karsan on The Derivative

Today’s pod is all about word play playing into alternative investment. How does Jam Croissant relate to Cem Karsan? What about Vanna Charm and options definitions? Or the forever popular “there’s no such thing as a free lunch” evolving to “nothing is ever risk free”? To get together the definitions, explanations, and educated facts on all these nuances, we have FinTwit VIP & Founder and Senior Managing Partner of Aegea Capital Management, Cem Karsan. On top of alternative investment word witticism we’re also talking with Cem about how to actually pronounce Cem Karsan starting out as a market maker, Hagia Sophia, vanna informing trend following, buying options, twitter debates, Cem’s favorite jam & croissant, active to passive moves, the election pushing October, November, and December higher, how nothing is ever risk free, winner takes all mentality for market makers, market down/vol down market up/vol up, volatility retail call buying growth versus value, and all of the Greek/options definitions.


We also had some Twitter questions that we unfortunately didn’t have time to address, but Cem graciously answered them below as some bonus content!

  • From @sajidnizami: Since option positions change during the day, how periodically does he adjust his model to find out what levels to watch? That’s if he’s using options positions for his levels. Thanks.
    • We look at everything real time. Open interest and flows are only one of the factors that tie in to our support/resistance levels. These rarely change enough for the broad market intraday to warrant a major adjustment. As for our analysis on how the market will react to levels and change character, these factors change very quickly and as most of my followers have seen, we react in real time as the factors do in order to predict daily weekly and monthly turns.
  • From @zinak: What seasonal patterns does @jam_croissant see after hours/overnight? What’s interesting to him in the Asia and Europe nightly rotation? Does he follow any currencies?
    • JPY/USD is always a closely watched factor for us.  The biggest overnight factor we watch relates to the midnight to 3am CST algo front run that tends to happen in anticipation of 5-6am Stateside Vanna/Charm flow, assuming Europe looks stable and gamma events seem temporarily off the table. This is obviously more important at different points in the OpEx cycle as well as dependent on flows and imbalances in positioning as many other structural flow factors.
  • From @IvoryTowerCBpwr: What tools does he use in order to aggregate and visualize options data? Just pulling data from one of the big four (BB/CapIQ/FS/Eikon) and doing it himself, or are there more convenient options for those who want to incorporate derivative exposure into their investing framework?
    • We do this all internally with proprietary infrastructure. As former market makers we have informational advantages and see a significant amount of index block flows with a deep understanding of what kind of flows are what. Unfortunately, this is all self-developed, bleeding edge stuff that there is no textbook for or broadly recognized correct methodology for. Tread lightly, context and informational asymmetry can be significant hurdles to proper implementation.


Find the full episode links of The Derivative below:



Follow along with Cem on Twitter (@jam_croissant) and LinkedIn and check out Aegea Capital Management’s website.


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