Alpha Exchange

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

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.

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 co

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

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.

The subject at hand in this discussion is the unbelievable launch of options on IBIT, the bitcoin ETF. What I’d like to put forth is that the financial characteristics of the underlying asset – bitcoin - pave the way for IBIT options, already off to an amazing start, to become a critical industry risk management tool.The unique risk characteristics of bitcoin and how they shape the option vol surface in IBIT will underpin the success of its options. Specifically, bitcoin has 3 financial characteristics that pave the way for tremendous option adoption. First, it is a high vol asset. Second, bitcoin exhibits a great deal of vol of vol. Bitcoin goes through sleepy periods and also those when the daily fluctuations are huge. And the third of the financial characteristics, perhaps the most important of them, is bitcoin’s nearly unmatched propensity for positive spot/vol correlation.I am really bullish on this new and exciting options complex. I hope you enjoy this perspective and find it interesting. Be well.

The “flow desk” as it’s often called on the sell-side is about repeatability and scale in the service of institutional clients. It’s a competitive business with not a lot of margin for error, especially in a product like equity options where being on the wrong side of a misbehaving Greek could spell trouble. With this in mind, it was great to welcome Ali Samadi, Head of Flow Equity Derivative Sales at Nomura Securities International to the podcast.Our conversation explores aspects of the salesperson / client interaction that make a relationship stick. Namely, Ali suggests that first and foremost, one must understand the client’s objective and tailor the coverage experience accordingly. As a derivatives expert, he sees opportunities to utilize the volatility surface not just in the construction of trades, but also as a source of information, as it may provide clues as to where investor interest is concentrated. We also talk about addressing the inherent negative selection risk for a sell-side desk. This includ

A major theme of Alpha Exchange podcasts over the years has been the impact that financial products that live and breathe within the markets have on asset clearing prices. Events like the crash of 1987, the GFC, the 2018 XIV event or the unwind of short variance exposure in March 2020 come to mind as examples. More recently, the substantial growth of leveraged ETF products has gotten a lot of attention, as a potentially amplifying factor with respect to underlying asset volatility.With this in mind, it was a pleasure to welcome Mike Green, a partner and Chief Strategist at Simplify Asset Management back to the Alpha Exchange. Our conversation drills down on leveraged products written on MSTR, the bitcoin buying company. Mike first describes how a leveraged product’s rebalancing requirement resembles a short straddle, buying when the underlying rises and selling when it falls. He next makes the case that the two times leveraged long products, MSTU and MSTX, are unique in that they are large in size and written

What follows are some of my recent thoughts on a favorite topic: the interaction between option prices and the assets upon which these options are written. Specifically, I share thoughts on price / vol spirals, which come in two flavors:  a) the asset plummets and vol explodes  b) the asset surges and vol explodes. In the first, which we might call "Melt Down", the asset nears a bankruptcy cliff as vol surges. See GFC.In "Melt Up", there's typically some version of a short squeeze involved. Everyone’s trying to get their hands on the same thing all at once. And that brings us to MSTR, the bitcoin buying engine run by Michael Saylor. There are some important considerations for evaluating risk in MSTR, driven by the fascinating interaction between the stock and both the leverage ETFs and options that sit alongside it. Especially given the unique empirical and implied distribution of bitcoin, these products create powerful powerful feedback loops that ought to be understood.I hope you find this discussion intere

It was a pleasure to welcome Victor Haghani, the Founder and CIO of Elm Wealth Management back to the Alpha Exchange for an engaging discussion on those turbo-charged financial products called leveraged ETFs. Our conversation is focused on the large product suite built around MicroStrategy, a software company whose mission appears to be solely focused on the accumulation of bitcoin. Itself a stock realizing 75 to 150 vol, MSTRs two times daily return products – MSTU and MSTX – have experienced one month delivered volatility levels approaching 400.Victor shares the recent work he and team have done to model scenarios for these products based on price and vol assumptions for MSTR. The punchline is that investors need to carefully consider the risk exposure they are getting and be prepared for potentially large losses should the underlying stock fall and volatility rise. In the course of our discussion, we contemplate the directionality of the MSTR premium to its holdings of bitcoin and whether that is itself li

Welcome back to the last installment of “20 Things to Do Before You Ask for a Price”.  This 4-part series has been geared towards illustrating how the equity derivative salestrader can be a meaningful part of getting two institutional counterparties to “yes” with respect to the transfer of option risk. The salestrader, sitting between the trader and the client, can quarterback the process by appreciating the context of the trade and contributing insights on the risk profile of it. Context is about the client, the underlying stock, the trade motivation and the risk environment. The risk profile is about the many nuances of different option trades and what they imply for how the sell-side trader will think about pricing and providing capital.In today’s highly electronified markets, prices are streamed continuously by tireless bots with neither faces nor names.  But risk transfer still occurs the old-fashioned way as well – and these voice trades require superb communication, led by the salestrader.  If you are

It was a pleasure to welcome Rocky Fishman, Founder and CEO of derivatives advisory firm Asym 500 back to the Alpha Exchange. An area of specialty for Rocky is evaluating systematic trading strategies, like vol targeting, that live and breathe within equity markets and potentially sponsor feedback loops.The focus of our discussion, the growing universe of leveraged ETFs, a unique product set that has been on my mind and that Rocky has recently done a deep dive on. We start our conversation by revisiting the August 5th VIX event that saw the S&P options market turn highly illiquid as the prices quoted for deep out of the money puts reached unheard of levels. For Rocky, while the event came and went, there are lessons, namely that the tails can exert themselves suddenly.With respect to leveraged ETFs, Rocky sizes the US universe as $135bln in assets under management for leveraged and inverse products, $120bln of which is in equity products. He walks through how both the leveraged long and inverse products o

Welcome to Part 3 of “20 Things to do Before You Ask for a Price”. To review, “20 Things” is a to-do list I developed more than 2 decades ago while running a derivative sales team. The desk committed a substantial amount of capital in pursuit of business, which made it easy to win trades but also easy to lose money in the process of winning those trades.  20 Things was about playing defense and offense simultaneously by requiring the salesperson to be an active part of the price discovery process. While the trader would ultimately make the price and bear the risk, the salesperson, through 20 Things, could be a valuable part of the process. The result: better risk taking and a more sustainable business.  Here are things 11-15.  I hope you enjoy and find this useful. I wish you an excellent Thanksgiving holiday.11. Corporate action? Is this stock a deal name or subject to some other corporate action?  Use the CACS function on Bloomberg to look for corporate actions. Deal names can have very unique implied distr

While the SPX has enjoyed a banner year in 2024, a series of risk events have mattered, including the August 5th spike in the VIX and option pricing uncertainty into the US election. Credit spreads have generally behaved in benign fashion, however. What will 2025 bring for the world of credit and what risks should we pay attention to? With this in mind, it was a pleasure to welcome Dominique Toublan to the Alpha Exchange. Now the Head of Credit Strategy at Barclays, Dom landed on a credit derivatives desk in 2007. With a deep background in physics, Dom quickly saw that while derivative products may utilize some of the complex equations that underpin the physical sciences, markets are prone to episodes of disorder with unpredictable outcomes.Our conversation first considers the behavior of macro credit products in the period before and after US Election. Here, Dom shares that the same vol premium observed in equity options was visible in both credit spreads and credit implied vol as well. In the aftermath of t

We are back, with installment number 2 of “20 Things to Do Before You Ask for a Price”. It’s a to-do list for the equity derivatives salestrader who chooses to be a relevant and constructive part of the option risk transfer process that a buy-side client and sell-side trader engage in. Small trades – like buying a pack of gum – can be consummated quickly. Large trades – like buying a house – typically take a while. But large trades that are borne in a moment’s notice – that’s a unique thing with unique risks. Things 6 through 10 are about quarterbacking trades to completion in the context of being short information asymmetry.  I hope you enjoy and find this useful.6. Is the order outright or delta neutral?  This dictates speed of response needed to the client. There’s more time on delta neutral orders.7. Check option market depth. Evaluate the screen market using OMON function.  How wide are the screen markets?  Is the option better bid or offered? 8. Check volume. Use the OMST function to see option volume i

I wanted to welcome you all to a new, 4-part series of the Alpha Exchange, “Twenty Things to Do Before You Ask for a Price”.  In short, this is my thinking on what a derivatives salesperson ought to do instinctively and nearly instantaneously in his or her interaction with a trader colleague being asked to price option risk for a client. These 20 things constitute a real time to do list for the salesperson that adds alpha to the process of price discovery and can allow the trader to take more risk by mitigating certain kinds of risks.  In this short podcast, I share the first 5.  I hope you enjoy and find this useful. Know the client.  Who is the client, what is desk relationship and what are the client’s expectations? This starting point is a critical component of quarterbacking the price discovery and execution process. Every client is unique. Know the risk environment.  Is vol better to buy or are clients dumping options? What is the backdrop for the commitment of capital around the street? This is critica

A resounding Trump win. A collapse in vol. Bitcoin “number go up”. And up. And up. The French Whale on Polymarket got paid. A star was born in Scott Jennings. The Fed eased. And, Powell, in the words of DiCaprio in Wolf of Wall Street said, “I ain’t f’n leaving”.  That’s the summary. But there’s lots more to explore and in this short pod I aim to provide you with some food for thought on the risk front. Markets have been well behaved and the VIX spiraled lower as most expected it would on November 6th. Still, there are plenty of risks on the horizon and we ought to recognize what volatility is all about. It’s how the market processes change. And it’s pretty difficult to argue that we have not just experienced profound change in the leadership and governing philosophy of the United States. Taxes and tariffs, regulation and immigration, foreign policy and Fed policy. I finish the discussion with a recommendation to stay quite long, but also spend a little premium on a put spread overlay. It feels like a small p

Of all the concepts focused on throughout the discussions hosted on the Alpha Exchange, the notion of “carry” is one of my favorites. In its most basic definition, carry measures the income or cost to holding an asset in the steady state, when nothing changes. Underpinning the assessment of value in any option trade or strategy is a view on the favorability of carry at a given point in time. Can I own options for free or at least at meaningful discounts to their value? Mr. Market makes this very unlikely.  Can I be especially well compensated for being short optionality? These are challenging questions, worthy of careful study. And in this context, it was a pleasure to welcome Shailesh Gupta, the Head of Structural Alpha at Simplify Asset Management to the podcast. Our conversation explores areas of carry in the market, why they exist, how they can be harvested and what can go wrong in the process. Shailesh shares his views on the pricing of interest rate volatility, where the vol risk premium has been especi

It was a pleasure to host a discussion with Meb Faber, the Founder and CEO of Cambria Asset Management. Our conversation begins with the question of whether it’s a good idea to buy the market at an all time high. To this, Meb argues it’s actually a great idea, pointing to the data and that markets in an uptrend continue to move higher.We incorporate the notion of a trend following strategy, which Meb illustrates can be helpful in managing the inevitable and substantial drawdown which forces many investors out of the market and destroys the value of compounding in the process. No strategy is perfect, and trend following can underperform during sideways, choppy markets. But it has proven important to cut off the deep left tail with reasonable success. We also explore the work Meb has done on shareholder yield, a strategy that he’s passionate about and argues works particularly well in foreign and emerging markets.Lastly, we talk about that a vastly under-appreciated aspect of return generation in investing: tax

Is Trump in the price? Wall Street is asking this question. In this podcast, I walk through how the market prices implied volatility around the US Election, focusing on the SPX, TLT and even DJT. As option premiums are much higher than justified by recent realized, there’s an enormous vol risk premium, the result of a withdrawal of vol supply. There’s interesting information coming from betting sites like Polymarket and early voting data as well that might help us better understand the election probabilities and the implications for how the market prices options. Lastly, I consider the relatively rare co-existence of a high VIX but low SPX implied correlation and what that means. I hope you enjoy this discussion and welcome your feedback. Have a great week.