Avsnitt
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It was a pleasure to welcome John Marshall, Head of Derivatives Research at Goldman Sachs, to the Alpha Exchange. Our conversation explores a number of critical topics starting with the meaningful growth of equity funds deploying options as part of a risk management overlay. John describes how covered call ETFs and systematic vol-selling funds have quietly reshaped the supply/demand dynamics for index optionality. He makes the point that this cohort—unlevered, yield-focused, and largely buy-and-hold—is proving more resilient than the vol-selling programs of past cycles, with implications for both market stability and the vol risk premium.
Next, John shares his team’s efforts to find what he calls “asymmetry alpha” in the options market, focused on event-driven, catalyst-based trades at the single-stock level. We learn that option pricing is increasingly being informed by company-specific fundamentals. John explains how his team connects metrics like free cash flow yield, return on equity, and event-driven catalysts to the pricing of volatility and skew.
Rather than relying solely on historical vol or peer group comparisons, this approach seeks out asymmetries in option markets that are grounded in the evolving health—and risk—of individual balance sheets. John argues that these additional, company specific variables are often overlooked by traditional volatility frameworks and as a result, can help identify mis-pricings in the tails, informing more precise use of calls, puts, and risk reversals.
I hope you enjoy this episode of the Alpha Exchange, my conversation with John Marshall. -
Greetings and salutations loyal listeners, welcome to what promises to be another exciting addition to our Sayings on Vol and Risk. To set the table, last year, I did a 5-part series with 25 Sayings. These are concise statements I’ve wound up using many times over during the course of my career to help myself and others think about market risk. These pitchy proverbs are market maxims that explore the drivers of unanticipated change in asset prices.
With the first 25 saying completed in 2024, I recently added 5 new ones, getting us to 30. This podcast gets us to 35 in total.
Hope you enjoy and find interesting.
31. “Risk management suffers from a failure of imagination.”
32. “Markets are a never say never business.”
33. “Broken markets break down.” ~ Mike O’Rourke, Jones Trading
34. “This is not your father’s ETF market.”
35. “Doubt is not a pleasant condition, but certainty is an absurd one.” ~ Voltaire
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Saknas det avsnitt?
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Today’s world of ETFs and mutual funds increasingly features new flavors, a popular one of which is derived from embedding optionality. There are plenty of ways in which one might contemplate risk managing and shaping the distribution of equity returns using options. Common strategies like overwriting create income, but limit upside. Others like the zero cost collars create both upside and downside guardrails on returns. These strategies can be back-tested. Because they also exist in the market, with more than $200bln in AuM, the performance of the funds can be evaluated as well. With this in mind, it was a pleasure to welcome Dan Villalon, Global Co-Head of Portfolio Solutions at AQR Capital Management, back to the Alpha Exchange.
Dan walks us through the findings from his research, published in a two-part series on the AQR website. In these notes, Dan dissects the drawdowns and returns across these funds. The findings are rather striking: across a wide sample of buffered funds and option-based strategies, very few delivered both higher returns and smaller drawdowns. In fact, most underperformed their beta-adjusted benchmarks on both fronts—meaning they not only lagged in returns but also failed to meaningfully protect against losses in periods like the COVID crash, the 2022 inflation-driven drawdown, and the volatility of early 2025. Even strategies designed explicitly for downside protection often fell short when it mattered most. I am a big believer in option strategies and in the value of the SPX options market as a vehicle to transfer risk. These results were a surprise to me.
Dan outlines three key drivers: the persistent cost of buying options, the structural frictions involved in implementation, and the surprisingly high management fees for such rules-based products. Dan also introduces a more behavioral theory—what he calls the "placebo effect": the idea that investors feel safer simply because they're told they’re protected, even when the data shows otherwise.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Dan Villalon.
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With nearly three decades at BlackRock, Mitch Garfin brings a deep well of experience to his role as Co-head of Leveraged Finance, overseeing high yield and leveraged loan strategies for the firm. In this episode, we explore the evolution of the credit landscape — from structural shifts in the high-yield market that leave indices of higher credit quality to managing risk in a world of tight spreads but always shifting macro narratives.
Mitch shares how his team navigates dispersion, with recent focus on considering the implication of tariffs on different sectors. His team positioned for tariff-related volatility by reducing exposure to sectors like autos and consumer products perceived as most exposed to trade policy risk. Conversely, Mitch saw better value in the tech and insurance sectors.
Next, we discuss advancements in trading technology and the implications for liquidity. Here, he argues that the electronification of credit markets and the growth in portfolio trading is having profound impact on risk transfer, reducing frictions and transaction costs. In the process, he shares how his team leverages tools like ETFs and the CDX product to manage exposure.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Mitch Garfin. -
In 2024, I did a 5-part podcast series called “25 Sayings on Vol and Risk”. These are observations I’ve found do a nice job of describing how markets work, or perhaps better said, how markets sometimes fail to work. Because markets are always teaching us lessons, I couldn’t help but add to the original 25 with five new sayings. I’ll follow up in short order with another five.
Here are our Sayings 26-30:
26. “Financial market objects at rest tend to stay at rest.”
27. “Realized vol rules the world.”
28. “My portfolio is more diversified and liquid than I thought, said no one ever.”
29. “The ten-year note, not the SPX, is the risk asset.”
30. “Shake hands with the government and sell what they’re selling.”
Hope you Enjoy!
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As Global Head of Equity Derivatives Research at Bank of America Merrill Lynch, Ben Bowler is helping the firm’s institutional client base understand the complex risk dynamics that impose themselves on today’s markets. His process often leads him across asset classes, looking for linkages and developing stress indices that may provide early warning signs for US equity markets.
Our discussion first considers the recent SPX vol event, which, from a short-term severity standpoint, Ben puts in a category with the GFC and Covid. He further makes the point that since the Tariff uncertainty was self-imposed, it was as if we were in the midst of the Covid crisis but already had the vaccine in hand.
We then explore the work that Ben and his team have done on the concept of fragility. Here, he argues that the speed and magnitude of vol spikes, flash crashes and tantrum in markets has increased. In fact, in US single stocks, he suggests that fragility is at an all-time high with the reaction to earnings faster and more violent. Two factors may be playing a role. First, there is substantial crowding in certain risk exposures, like large cap tech. And second, liquidity provision, increasingly electronic in nature and sometimes rapidly withdrawn during times of stress.
Lastly, we discuss the history of innovation and how investors have generally pulled forward the benefits of path-breaking new technologies, leading to asset price bubbles. Here, Ben is thinking about right tail risk and how important optionality may be in hedging the risk that the AI bubble could inflate substantially.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Ben Bowler. -
Corey Hoffstein, the Co-Founder and CIO of Newfound Research is among the investors expanding the financial product set available to the RIA community. A client segment that has long been fed a diet of 60/40 exposures, the high-net-worth community is finding the need to diversify beyond stock and bond exposure. Using their innovative approach to return stacking, Corey and team are making alternative sources of risk premium accessible and packaged in an ETF format.
Through our conversation, we first learn that from a behavioral standpoint, introducing entirely new securities with new exposures has been a challenging ask. With return stacking, the diversifying strategy is put on top of an existing stock or bond exposure, packaged in one security. We discuss Corey’s recent white paper, comparing the risk characteristics of corporate bonds to that of merger arbitrage and how each exposure interacts with stock and bond markets. He finds the correlation of risk arbitrage returns to those of the equity market are lower than corporate bond spreads to equities.
We also review a realm of trading strategies that Corey has focused on substantially over the years, trend following. He walks through the manner in which trend can be defensive and how it behaved specifically over this recent significant market drawdown. We finish by getting some of Corey’s thoughts on the broad topic of risk premiums and which like merger arb and vol selling ought to be persistent sources of compensation.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Corey Hoffstein. -
In six short trading days from 4/2 to 4/9, the SPX realized as much vol as it did during the ENTIRE year of 2024. The protracted risk-off that began with the “Liberation Day” fallout ranks only behind Covid and the GFC in terms of severity using data going back to 1990. While we've likely moved past peak VIX, in the aftermath of recent chaos is an overhang of uncertainty that may hamper critical decision-making. I see plenty of lingering uncertainties - from the uneven communication from the WH, from the unpriced reactions of our trading partners and from how the market will need to price in the potential economic and corporate profit fallout from the last several weeks.
Unfortunately, the recent period has been a totally unforced exercise in negative branding for both the dollar and US government bond market. For the VIX to run to 50 and for duration not to rally concurrently is a bad outcome, amounting to an asset pricing taste test that went poorly. Scott Bessent and Company need to more effectively safeguard one of our most prized possessions, the US government bond market. The Ten-Year note, not the SPX, is the risk asset. The real financial tail risk that would bring about a spiral higher in the VIX would seem to lie in the potential that long-dated UST yields rise quickly. From a contagion standpoint, the Ten Year is the vulnerability. It’s not being treated as such.
I hope you find this useful. Have a great week.
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For Matt King, evaluating market risk is often about pinpointing vulnerabilities within the financial system. Over the many years he's been advising institutional investors, he's gone where the action is - in the dotcom era it was corporate balance sheets, in the pre-GFC period it was asset-backed CP and in the last decade it's been sovereigns and QE.
Now the founder of Satori Insights, Matt shared his current assessment of risk on this episode of the Alpha Exchange. His materially bearish take is a function of what he views as US trade policy underpinned by both a misunderstanding of balance of payments math and a failure to appreciate the risks of chaotic implementation. On the latter, Matt worries that the US is earning itself a risk premium in the back end of its bond market, a troubling development especially set against the ever-growing pile of debt outstanding. Matt shows the spike in US real rates at a time when the VIX was also surging and the dollar falling as similar to the UK's "Liz Truss moment" in 2022, an event that forced the Bank of England to act quickly.
Matt argues that while Democracy ought to be mean-reverting - where bad policy leads to bad outcomes and declining popularity, ultimately motivating a change of course, today's setup in the US is one in which bad policies impact growth and further poison our politics, reinforcing bad policy. Stepping back, he sees value in gold, noting that both gold and FX vol are still too low.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Matt King.
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Market risk events come in all shapes and sizes, originating from unique sources of uncertainty. We've seen them all - valuation bubble unwinds, mortgage credit crashes, Fed policy shocks, even the shutdown of the US economy from Covid. Over the last month, investors have been forced to confront a new risk, that of the imposition of substantial tariffs by the US on its trading partners. With this in mind, it was great to welcome Steven Englander, Global Head of G10 FX Research of Standard and Chartered Bank, back to the Alpha Exchange. Our discussion begins with Steven's assessment of the setup coming in to 2025 and that was one in which the market was long dollars in anticipation of the Trump agenda.
We next talk about balance of payments identity math and how it is difficult to solve simultaneously for a lower trade deficit, higher direct investment from abroad and lower US interest rates. He suggests, however, that the speed with which asset prices moved in March and April, have complicated the decision-making process for investors thinking about making investments into the US. We next explore the factors driving the dollar lower. Here, in addition to noting that implied Fed cuts have increased by 50bps over the last month, Steven also suggests that a risk premium may be assigned by foreign investors to US assets. He points as well to pessimism about the US economy, noting that this is not yet showing up in the hard data.
There's much more to learn about Steven's framework in our discussion, which I do hope you enjoy.
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Lenin purportedly said, “There are decades where nothing happens; and there are weeks where decades happen.” It’s difficult to understate how highly consequential these past few days have been. We live in an interconnected world of international rivalries, debt, trade, asset prices and economies. All kinds of tail probabilities become more live when a shock of this magnitude occurs. From a market standpoint, however, the higher vol goes, the greater likelihood that government officials blink in some way. The scars from the market chaos of the GFC and Covid remain and the lesson is not to create hard to fix but also urgent problems in the financial system. With this in mind, there could be an opportunity to fade the exceptionally high VIX level. I hope you find this discussion useful.
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Best known for his seminal work on the information content of the US Treasury yield curve nearly 4 decades ago, Campbell Harvey has produced meaningful academic research in all corners of empirical finance. In this episode of the Alpha Exchange, I caught up with Campbell, now a Professor of Finance at Duke and Partner at Research Affiliates, on his recent work on gold, an asset near and dear to me. We discuss his piece “Is There Still a Golden Dilemma?", with Claude Erb that updates work they did back in 2013 on the yellow metal.
Our conversation explores the financial properties of gold, with emphasis on its capacity to hold its purchasing power and to help defend against equity market drawdowns. On the first, Campbell makes the point that over the past two decades, gold has easily outperformed inflation. He adds, however, that gold is considerably more volatile than inflation is. Thus, there are periods when gold can also underperform inflation. On the equity drawdown front, Campbell’s work shows that, while not an explicit hedge like an S&P 500 put option is, gold has proven durable during risk-off periods.
We move to the drivers of the gold price and here Campbell discusses the role of both ETFs and Central Banks. Lastly, and importantly, Campbell’s work shows that entry price matters. When the price of gold deviates from fair value, the forward return profile tends to be worse. Today’s substantial rally may easily continue, but investors must be mindful of the risks of buying at extended levels.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Campbell Harvey. -
In this discussion, I review the absolutely stunning level of volatility experienced by the S&P 500 right around this time 5 years ago, as the market crash resulting from the Covid shutdowns occurred. No asset – except volatility – can survive the liquidation that took place in March of 2020. I also focus on gold, which, to be clear and to repeat, is not a hedge. A hedge is an insurance contract that you must part money with in order to obtain. There are no positive carry hedges in the world. But there are assets that act considerably defensively for periods of time, are trending higher, have natural buyers (in the case of gold, we can sight Central Banks) and also possess the rare feature of "stock up / vol up"... Gold has all 4 of these right now. I hope you find this podcast interesting and helpful. Thanks for listening and keep the feedback coming.
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Now a Portfolio Manager at Acadian Asset Management, Owen Lamont has had a long career in both the markets and in academic research on them. Earning a PhD in Economics from MIT in the 1990’s and then teaching at the University of Chicago shortly thereafter, Owen makes the point that these two storied institutions approach empirical finance from vastly different perspectives, with the MIT approach to explaining market anomalies utilizing behavioral finance and Chicago embracing market efficiency.
Our conversation is about some of Owen’s current work, starting with the observation that equity correlation has been exceptionally low, owing to the manner in which large cap growth stocks are disconnected from the rest of the market. As part of this, we explore the original tech bubble of the late 1990’s, contrasting it to present market leadership. Here, Owen makes the point that the original internet stock craze had dramatically more equity issuance than we see today. Owen puts equity issuance and short interest in a category of factors that have particular significance from an information content perspective, calling both firms and short-sellers smart money.
We talk further about the AI trend in markets and Owen’s concern that the massive corporate spend may be overdone. He points to research in the academic literature that shows that high capex firms have some history of underperformance and offers competing theories on why. He gravitates to explaining excess investment in AI from the lens of over-optimism among both investors and companies.
Among the other topics we cover is Owen’s take on the “min vol” factor – that is, the empirical finding that low volatility stocks outperform the market on a risk-adjusted basis. In a manner similar to the tech stock craze of the late 1990’s, the underperformance of the low factor over the past 5 years owes to the incredibly strong performance of the riskiest stocks during this time frame. On a going forward basis, Owen is optimistic that low vol stocks can deliver better risk adjusted returns.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Owen Lamont.
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“This is not your father’s ETF market” would be one statement used to highlight the ever-expanding product mix available to investors via exchange traded funds. Today’s suite of ETFs embeds derivatives, targets non-traditional assets like private credit and crypto and can offer daily resetting leverage as well. Add to this, efforts to deliver exposures to quantitative investment strategies via the ETF wrapper.
With this in mind, it was a pleasure to welcome Roxton McNeal, lead portfolio manager of the QIS product at Simplify Asset Management to the Alpha Exchange. Our conversation begins with a review of Roxton’s background at the UPS Pension and as an active client of the Street’s in utilizing QIS in the plan’s efforts to deliver returns above a fixed income bogey for retirees. We explore a broad taxonomy of types of quantitative investment strategies, rules-based trades that Roxton puts into two categories, defensive and carry.
We spend a fair amount of time exploring the concept of carry, which he suggests results from market frictions, risk aversion and liquidity premia. He further breaks down the carry bucket into trend, absolute return and volatility carry. Here, and with the pitfalls of back-testing front and center, I ask him to share his thoughts on how he evaluates carry strategies. Stress testing and scenario analysis are critical, especially as they relate to properly sizing exposures. We finish the discussion on what might be coming next to the fast-moving ETF landscape. Here, Roxton volunteers the potential for the tokenization of assets in markets like commodities or real estate, bundled into an ETF via smart contracts.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Roxton McNeal.
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My process is about seeking out some alpha through analyzing a broad spectrum of prices, specifically the one’s that imply some probability. I will repeat that it is the options market, not the stock market that is the best economist in the world. Option contracts carry the dimensions of time – the expiration – and distance – the strike price and the resulting prices help us gauge two important questions for investors, “when and by how much?”.
So, in no particular order, a few things on my mind that I invite you to consider alongside me. First, I explore the overlap between geopolitics and market volatility – “GeoVolitics”. If there was an index of geopolitical risk, it’s on the upswing to be sure. At some point, this uncertainty may become so profoundly difficult to price that market participants throw their hands up and assign substantial levels of risk premia, a higher price for insuring against loss across the major asset classes. I then consider the price of gold and finish with some thoughts on the tight levels of credit spreads and low level of credit implied volatility. I hope you enjoy and find this useful. Be well. -
Recently, DeepSeek, tariffs and earnings news have caused large moves in some stocks but not others, leaving fluctuations at the equity index level relatively tame. Will this volatility moderating run of low correlation continue? In this short podcast, I explore the recent history of extraordinary diversification in the US equity market along with the implications that may result. Is the market vulnerable to recency bias and assuming that ultra-low correlation is here to stay? Further, how should we think about the presence of derivatives trades designed to profit from the anti-connectedness in stocks? Is there risk of a plumbing problem in correlation? Lastly, I argue that playing defense through a rigorous search for diversifying assets as well as owning some market-based insurance is important. Bitcoin, gold and broad market put spreads are worth owning. I hope you enjoy the discussion and your feedback is welcome. Be well.
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It is said that death and taxes are the only two certainties in life. Add to these, the enormous growth of the ETF industry as a third irrefutable occurrence. Covering the landscape of exchange traded funds for Bloomberg is Eric Balchunas, a man steeped in the most plain vanilla of products like the SPY to the newest flavors of underlying exposures and payout constructions which he calls “hot sauce”.
Our conversation starts with an overview of the massive ETF haul in 2024 and we learn that inflows were 1.1 trillion and each region set a record geographically. Eric stresses how effective the product has been in providing liquidity for end users and in the continuous decline in fees that the industry has successfully achieved. With this last point in mind we touch on Eric’s book, “The Bogle Effect”, which details his interactions with the pioneering founder of Vanguard, John Bogle. Eric estimates that on the very low side, Bogle’s impact has saved investors 1 trillion dollars through lower fees and increased competition in the industry.
We next talk about innovations in the ETF market including unique structures that embed both leverage and derivatives, touching on tail wagging the dog scenarios in which a leveraged ETF amplifies volatility in the underlying. Lastly, we talk about ETFs that provide access to crypto exposure. With the resounding success of IBIT, the spot Bitcoin ETF, Eric sees XRP, Solana and Litecoin among those that will hit the market at some point as well.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Eric Balchunas.
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Since 2018, Dean Curnutt has been hosting discussions with market professionals, focused on topics such as portfolio construction, hedging, monetary policy and the impact of financial products on markets. Central to these conversations has been the exploration of an expert’s risk framework and how he or she goes about looking for opportunities. A little more than 6 years after its launch, the Alpha Exchange is celebrating its 200th episode. Along the way, Dean has been privileged to engage with hedge fund founders, investment strategists, fintech entrepreneurs, policymakers and even authors. A wonderful community of sophisticated listeners has emerged in the process.
In this special conversation, Arthur Kaz asks Dean to reflect on the podcast and how it is a part of his own pursuit of a better understanding of asset price dynamics. Viewing the study of markets as quite humbling, Dean aims to have the Alpha Exchange contribute to the financial community’s collective understanding of risk. Asked about what’s on his mind with respect to today’s risk landscape, Dean argues that both gold and bitcoin have unique, option-like characteristics that might prove valuable should confidence in the US fiscal outlook further erode.
What’s next for the podcast? Dean shares some exciting ideas for expansion, including both short and long form video as well as working with university finance departments to deliver case studies that students can use to bolster their knowledge of real-world market events. Lastly, Arthur asks about MacroMinds, the charity that Dean founded in 2020 to bring the investment industry together to support student education. At the 5-year anniversary of MacroMinds, he says that it’s time to say “thanks” – to the donors, to the speakers and to those that have come together to help the initiative raise more than $1.3 million for students.
We hope you enjoy this special 200th anniversary episode of the Alpha Exchange, a conversation with Dean Curnutt. Thank you for listening. -
Good listeners welcome to 2025 and at the risk of offending Larry David and violating his strict 3 day statute of limitations, I gotta wish you a Happy New Year.
The subject at hand is diversification. What composition of assets yields a favorable return with bearable drawdowns? After two straight years of 25+ percent returns on the SPX with just 13 vol, portfolio construction might be considered an open and shut case. But in this short podcast, I propose 3 assets to overlay on top of your base risk exposure: put spreads, gold and bitcoin. Together, this combination can play a role in managing drawdowns and also provide convex returns against a rising tide of doubt that the US fiscal problem can be addressed.
I hope you enjoy the discussion and find it useful. I wish you the best this year. - Visa fler
