Money manager & author of The Second Leg Down=adaptive hedging, Market Tremors=positioning risk, Tales from the Engine Room (on the way), not investment advice.
The mighty
@jam_croissant
joined me to discuss options flows, feedback loops, positioning models, liquidity and a great deal more on Top Traders Unplugged. I hope you enjoy it. Thanks!
Please find the results of my interview with the options flow master
@bennpeifert
for Top Traders Unplugged below. Thanks Benn!
06 Volatility Series: Finding True Value in the World of Volatility ft. Benn Eifert — January 5th, 2021 - Top Traders Unplugged
I thought it might be nice to give a very concise summary of takeaways from my "Market Tremors" book (co-authored with
@AshBennington
). Please ping me with any questions and/or comments ... thx.
Hi, I have agreed to host a semi-regular podcast covering macro, volatility, risk and possibly beyond, any suggestions? I am more than willing to read outside of my comfort zone if something looks compelling. Thanks
#fintwit
:-)
I am pleasantly surprised to see that The Second Leg Down is at least momentarily ranked
#1
in the Banking section on Amazon, which piles the pressure on for the next book...
Thanks.
I recently interviewed eminent physicist and expert practitioner Jean-Philippe Bouchaud for Top Traders Unplugged. For those who like their finance with a serving of econophysics, this will hopefully be a treat.
geeky note: if you take a log normal process, i.e. return = drift * (time step) + vol * sqrt(time step) * (random draw) & adjust the drift based on dealer demand for deltas, proportional to -(open interest)*(dealer gamma), you get fat tails even in a constant vol setup. amazing.
01 Volatility Series ft. Hari Krishnan — October 27th, 2021 - Top Traders Unplugged may be of interest, given the recent release of Market Tremors. Thanks to
@JasonMutiny
and
@TopTradersLive
:-)
the genius of
@SqueezeMetrics
: they were the first to incorporate market prices and POSITIONING risk into a single indicator and release to the general public. the VIX calculation, completely indifferent to (>0) open interest, doesn't quite manage that. 🍺
I would argue that the best way to hedge against the disruptive forces of AI (e.g. on the labor force) is to gain expertise and exposure to physical commodities on the long side. We can't do without those, no matter what the future holds. I am happy to discuss further on request.
I was recently back on the air, with the consistently excellent
@JackFarley96
, to discuss "paper farming", its surprising connection with hedging, and a potpourri of other topics. Thanks 👍
Didn't Victor Niederhoffer say something about, after an eventful trading day (no matter the direction of your P&L), digging out your best headphones and listening to the heaviest music you can think of? I couldn't agree more ... Trade well & be safe out there.
Here's a new preprint that applies some of my Second Leg Down and market positioning ideas to commodity markets. Unfortunately I am not distributing it widely, but DMs are welcome. Thanks as ever.
2/ Whereas macro involves formulating a view & structuring a position around that view, hedging should *not* involve a strong view: it largely reduces to the deployment of a "bag of tricks" to defend against uncertainty in the most convex, yet cost effective way possible.
Here's a simple chart that tracks the 1 year trailing correlation of daily E-mini returns and volume. Large down days have always tended to have higher volume, but the correlation is more negative now than any recent time other than Feb 2020 and Feb 2018. Warning shot or noise?
I recently interviewed David Dredge, one of the most thoughtful practitioners in the long vol/convexity space, for Top Traders Unplugged. Please see below 👇.
A new interview with writer David Orrell takes the volatility series further in a complex systems direction, before we slingshot back with
@jam_croissant
to the land of volatility. I enjoyed this freewheeling discussion greatly.
1/ I have been watching
#fintwit
#volatility
Twitter quite closely recently, possibly too closely for my equanimity ... However, given recent market moves, I thought I should make an important point.
Hi Fintwit, I need a bit of advice. I'm finishing up a white paper on commodities that is a bit lengthier but similar in spirit to the legendary
@SqueezeMetrics
articles. Can anyone suggest the best avenue for publishing it? I'm not really looking for an academic journal. 👍
1/ Hedging concept: THE CONVERTER (from Market Tremors) The case studies we have presented in this book fall directly into the “Grey Swan” category. These are events that do not occur very often and cannot be timed exactly, but are the inevitable outcome of excess leverage ...
I recently wrote an article summarizing Market Tremors for Wilmott magazine. Please follow the link
for more details, or ping me with direct questions. Many thanks.
While this is by no means original, I thought it might be worth explaining how to incorporate QE into an equity valuation framework. This may be timely as the Fed divests assets such as corporate bonds.
For those of you who have access to
@RealVision
Pro, I will be on the air today at 2 pm EST for a Q&A about Market Tremors hosted by
@AshBennington
. Thanks!
St. Petersburg authors dominating my February reading schedule, the first book speaks for itself & enjoying the authentic voice of
@agurevich23
greatly!
The Top Traders Unplugged volatility series has officially gone macro, hours before a crucial Fed announcement... Please follow the link for my recent wide ranging interview with hedge fund manager and author
@agurevich23
Thanks! Hari
@VitruviusCurve
Excellent points. That is exactly why ML + long vol can be a powerful combination. ML to uncover fine structure in a large assembly of "average" returns & long vol to cover regime breaks and extreme outcomes.
166 Systematic Investor Series ft. Hari Krishnan – November 15th, 2021 - Top Traders Unplugged
this one is hot off the press and hopefully useful to allocators who want to blend trend and long vol across market regimes. thanks.
A cheery, beery night @ the
@ludlowhotelnyc
to celebrate
@MarketTremors
with crisis predictor Peter Tran to the left &
@AshBennington
in the middle. Thanks Real Vision & hopefully everyone appreciates I was flashing a signal of respect at the two of them :-)
Private equity funds have a marketing edge for 2 reasons. 1. No mark to market + capture of liquidity premium. 2. (novel) ensemble averages to calculate risk & return, given the absence of a reliable time series for a given fund. 2. is a flawed assumption.
@ole_b_peters
1/ A geeky thread, which has strong applications that I will disclose later. Given a stack of images that we know to be trees (ground truth), modern algorithms can find trees in new images. But is the same true of financial time series?
@QuantVol
No no no no, at a minimum, we can learn that positive median outcomes push extreme ones further along the left tail, especially in the current regime ... I understand your scepticism, but strongly believe that
@nntaleb
has a deeper understanding of this than most of us do ...
I am delighted to have interviewed the mighty
@leadlagreport
for Top Traders Unplugged. If you are interested in sequential asset class moves, risk indicators and the psychology of dealing with drawdowns, this may be for you. Thanks 👍
171 Systematic Investor Series ft. Hari Krishnan – December 20th, 2021 - Top Traders Unplugged here's a new podcast where we touch upon (no implementation details) various ways to reinterpret trend and counter-trend model development in an ML context.
Random rates/complex systems/feedback question of the day ... How much would the Fed have to raise Fed Funds in the next year for the odds of a rate CUT in the following year to be > 50%? Whatever that might be, doesn't seem to be baked into the options market. Grazie.
4/ My only point in this 🧵 was to suggest that investors shouldn't conflate hedging with all or nothing directional bets when staring in the coal face. Thanks.
Hi, I'll be in London for the next couple of weeks, with a possible detour to Germany/Switzerland. Please DM me if you would like to meet up & I will try to organize a low key pub evening. Kind regards, Hari
@choffstein
SCT has been managing strategies based on ML for a very long time. ML is good at dealing with "Mediocristan", finding repeatable patterns in a large quantity of data with the tails removed (Winsorized). Hedging covers unexpected volatility spikes/breakpoints.
@VasantDhar
I recently appeared on Real Vision with
@profplum99
and
@AshBennington
to discuss Market Tremors & hope you enjoy the back and forth discussion, thanks!
Will "Zombified" Markets Lead to a Global Liquidity Crunch? | Real Vision
I recently appeared on Real Vision to frame the Fed's attempts to control inflation as a control problem that may not have *any* palatable solutions. Please see below.
The Fed Has Chosen Its Horn | Real Vision
1/ Here's are two interrelated surprising mathematical facts, indirectly related to Central Bank policy controls, in advance of the Fed announcement. Suppose you have a function f(t) that is smooth. Even if df/dt approaches 0 as t goes to infinity, f doesn't have to converge.
@NihilistTrader
I don't disagree, but is your goal a. to help people or b. to create a barrier to entry. I would guess a. but a lot of quants seem to indulge in b.:-)
@RaoulGMI
I can try. Econophysics: distributions have the fattest tails over short horizons, and become increasingly normal as the window increases. Practicality: you have short convexity in your book, and need to plug a gamma hole once vol has gone bid = buy high gamma/vega stuff.
@bennpeifert
Great stuff. Please allow me to speculate further. Markets are behaving as the text books would predict (for once)! An exogenous shock (inflation print ex energy) pushes risky assets down, prices react in an orderly way, and network effects are muted given positioning!
3/ Vol "arb" is another beast entirely, something I do not focus on & something that requires great discipline & attention to detail on the risk management front. It can be done, but requires the right PMs & investors.
@KrisAbdelmessih
Semi-serious answer: my guess is that due diligence relies upon having a large enough network to cross-check everything (reputation, investment strategy and ops), while avoiding a herd mentality. Quantitative metrics are useful, but can easily be overdone. Not sure about books.
@elephant_kek
@Ksidiii
@therobotjames
I think an interesting book could be written, based on the following premise. All that's left of an ancient civilization is a series of price charts (commodities, lending costs etc.) How much of the history could we reconstruct?
@SinclairEuan
Research requires optimism, managing positions requires scepticism and some detachment from the notion that you were the one who did the research...
@PumpamentalsCAP
@SinclairEuan
@WifeyAlpha
Sadly, there is some truth to this. The main reasons to write a proper practitioners finance book are 1a. intellectual satisfaction 1b. mandates and ... way down the list, book revenues
@KrisAbdelmessih
@therobotjames
5/ In practical terms, you might want to use options as a contrarian play on regime while emphasizing the stuff that is working well. Very roughly speaking, direct exposure to the dominant regime with a hedge against a break.
@bennpeifert
While your comment definitely applies to me, not sure I agree with the strength of your statement. Short term CTAs (trading delta 1) are precisely in the business of trying to predict short term market direction.
@bennpeifert
I'll get push back from libertarian friends, but so be it. Statistically, a disproportionate number of "insanity" crimes are committed by the 18 to 21 set. This must be stopped with tighter regulations for recent HS graduates + anyone who has been convicted of domestic violence.
@darjohn25
A very simplified version of the idea is: if the expected return on what you normally like to do is low, so be it. Don't try to juice the trade to hit some arbitrary return target ... once the levee breaks, you can make it up in style.
@KrisAbdelmessih
1. Funny I was just writing up a piece along these lines, with regard to corn futures options. We don't need to look at the options order book (i.e. to see if offers were lifted), block trades or make an assumption about who likes to hedge (producers or processors), or when.
@Ksidiii
this reminds me of a problem in control theory, related to "bang bang" controls. IMO, it is unwise to monetize in one go ... better to take a small amount of profits fairly early (theta mitigation), but act increasingly patiently beyond.
@SqueezeMetrics
@emmainvest
@SqueezeMetrics
I would imagine that "within" a month & "in" a month have vastly different interpretations, given the horizon over which your methods are most effective
Shawn Hackett recently mentioned that grain futures are partly a variance swap on the weather. High volatility boosts prices, as it restricts supply, somewhat independently of average rain and temperature levels ==> maybe we should model variability directly, rather than level?
@bennpeifert
@therobotjames
@edge_slave
@SinclairEuan
@Ksidiii
@skughered
plain vanilla hedging, e.g. buying and rolling OTM 3 month SPX puts is certainly doable even net of retail execution costs, and not very different from what many pension consultants advise. however, it is just about the most expensive thing you can do.
@sajidnizami
the only caveat i would issue is: are you making money in a sustainable way or simply picking up those fabled pennies in front of the bulldozer?
Random thought of 2023 (ChatGPT inspired): I wonder whether the complexity, opaqueness and contradictions of the global financial system have been created so that a bot can never give a passable reproduction of them :-)
@PumpamentalsCAP
@SinclairEuan
@WifeyAlpha
we're not in the business of writing academic textbooks, and cajoling our professor friends to use them as a textbook, so we have to value the process intrinsically, or simply smile at prospects, based on the notion that our credibility is based on our work
@NoelConvex
Without reading any of the documentation, I can't see how a 1 day VIX makes any sense: weighted average of volatilities will be distorted by low vega teenies, 1/strike^2*(option price) loads on ATM, given the super sharp decay in prices as a function of distance from ATM strike.
@jnordvig
low signal to noise ratio for models with standard (e.g. price + volume) inputs + even lower signal to noise ratio for a vast quantity of non-standard data inputs doesn't improve things much
Here's a new, high level description of the "virtual warehousing" concept for commodities, which offers a direct and liquid way to participate in a bull market with low carry costs. Thanks as ever.
@ChrisGeorgiadi2
@Ksidiii
Good question Chris. UVXY is a note, whereas things like HYG are funds. UVXY is structurally like an unsecured bond. The issuer promises to deliver the reference index - fees but does not have to hold anything. It is in the flow desk's interest to hedge.
@WayneHimelsein
Very well said. Another thing I have learned is that the buzz of discovery can be damaging if your ego forces your new findings into your existing system/framework too quickly or in too much size.
Here's a recent interview, featuring author and Clocktower Group Chief Strategist Marko Papic, for Top Traders Unplugged. I highly recommend his book Geopolitical Alpha, as a means of identifying out of consensus trades in global markets. Many thanks.