Alpha_Ex_LLC

It was great to have @macrocredit Alberto Gallo, the Founder and CIO of Andromeda Capital Management back on the podcast. We explore his framework for thinking about the left and right tail in markets and why he sees credit investors as largely under-compensated for bearing both illiquidity risk and uncertainty of outcome. Lots of insights here at a critical time. “Long (cheap) Vol through Short Credit” Apple pod: podcasts.apple.com/us/podcast/alb… Spotify: open.spotify.com/episode/4EPtjZ… YouTube Video: youtu.be/J4eWn4YFMKs?si…

@DerivativesDon August 2008!

@Alpha_Ex_LLC Pretty wise forward curve back in August

one for the ages... VIX futures curve today (white) vs end of August, 2008 (blue)

There are 3 important, recent changes in the prices of options at the SPX index level. First, Implied vol is up. This is entirely due to the re-awakened bid to implied correlation. Second, a large vol risk premium has emerged. The VIX has recently been roughly double 1m realized volatility. The third pillar of the repricing is skew. The market is bid for downside. There's 11 vols in the 1m 95-105 risk reversal and ... Every global equity index has very well bid put skews right now Check this chart out. It's definitely cherry-picked. I am showing 1m vol by delta today versus 11/10/22, the day the SPX had a +5% up-shock on good CPI news. The degree to which the curve was so much flatter back then is pretty remarkable. That flatness meant you could collect a fair amount for OTM calls and use that to finance your put protection. Today, it's a very tough setup for an investor wanting to collar the SPX, given the steep skew.

@KrisAbdelmessih @s_doar Bberg calc on terminal

@Alpha_Ex_LLC @s_doar Nice...what's the source for RC? Do you calculate it or from elsewhere

This is a fascinating time to study market prices. The table below shows the "single stock VIX" (VIXEQ) at Friday's close and 3 other times when it was at roughly the same level. The spread and ratio of the VIXEQ to the VIX are very related to the level of implied correlation. Implied correlation is the single risk factor I've spent the most time on over the past two years. Just like implied vol, implied correlation is driven by carry. That is, its spread to realized. When realized vol goes down, so does implied vol. That's because the economics of the hedge portfolio for an option deteriorate when realized vol falls. Implied correlation also falls when realized correlation falls. The last several years the SPX has experienced realized dispersion (low correlation) to an extent nearly unimaginable just a few years earlier. The dampening of vol at the index level has been wonderful, but potentially leading investors to underestimate how much risk there was in the index. I've argued that never seen before levels of realized correlation have been a risk hiding in plain sight. What we see now is a repricing of the relationship between single stock vol and index vol. The numbers below tell the story. The VIX is 10(!) points higher for the same level of single stock vol. If you had the dispersion trade on (and depending how you had it structured), that could be a pretty significant neg mark to market. Here's what's worth appreciating. The final column is realized correlation. It's up, but not by a great deal. Essentially, the market has simply bid up index vol relative to SS vol because it's willing to pay more for future correlation. That's the spread in the last two columns - the CMP "Co-movement Premium". Again, to recap, the market has moved the VIX up by 10 without moving single stock vol at all. It's demand for index vol driven by a bid for correlation. If you are in the trade where you are effectively short correlation and you are watching the world of risk unfold, risk management is job#1 and that's about reducing sizing and seeing where the market will ultimately reprice to. What makes the repricing thus far so worthy of thinking about is that it has not been driven by a surge in realized correlation (ala the Tariff Tantrum of 2025). It's all risk premium and specifically correlation risk premium.

I wish I understood the sizing and reaction functions better. There are many listed option strategies, of course. But also every QIS desk has created something that essentially banked the implied to realized correl spread. How big are those and how do they react? One way to think about this from an ecosystem of supply and demand is that one large supplier of SPX vol is having to rethink the economics of its hedging strategy (ie buying single stock vol). That spread between VIXEQ and VIX just got way too wide. But it was bailed out many times by the random and often huge one day single stock moves.

@Alpha_Ex_LLC Great post dude. What do you think we see markets wise if dispersion unwinds ?

Latest podcast is live, featuring @KrisAbdelmessih. We discuss how to think about "spot up, vol up" episodes of the kind that option traders in crude oil are currently experiencing. Kris also shares some of the mental math he uses to translate implied volatility into option prices. "Option Pricing without a Spreadsheet" Apple podcast: podcasts.apple.com/us/podcast/kri… Spotify: open.spotify.com/episode/0g3sf9… YouTube Video: youtube.com/watch?v=H8oAeS…

SPX futures continue to inversely track crude with remarkable precision. And crude itself is in a strong "spot up, vol up" episode. Vol and spot track each other very closely. Thus, we know the market is short crude vol. Below, SP future (inverted) vs crude future...second chart is crude 1m 10d call vol vs crude future In a lot of ways, in today's environment, the risk asset is crude vol. Dropping a pod tmrw with the always insightful @KrisAbdelmessih. We talk a good deal about "vol betas" - how to think about how an asset's implied vol interacts with its spot price.

Good morning...it's "March 12 Day" --> Because we "learn the most about markets by studying the periods when things go spectacularly wrong", I am thinking about March 12, 2020 and the most intense 3 days of daily volatility the $SPX has ever seen. -9.5% on Thursday 3/12/20, +9.3% on Friday 3/13/20 and, after a weekend to think about things, the SPX plunged by 12% on Monday 3/16/20. These 3 days alone were enough to allow the market to realize 18.5% volatility for the entire year, even assuming that every other single day it was closed in 2020 and had zero movement. On 3/16, the $VIX reached 83, surpassing even its GFC high of 81.

@ThetaDecayPete @friedberg I do agree with you on that broadly. This one felt pretty independent. Rigorous thought process without an agenda.

@Alpha_Ex_LLC @friedberg What’s interesting to me is that this pod is a soapbox and tool for those at the very forefront of this change and pol movement. I’m not sure it’s not tainted by the head of the snake.

This was really good on the geopolitical landscape ….balanced, nuanced and insightful. @friedberg thoughtful questions and guiding the discussion. Thank you. podcasts.apple.com/us/podcast/all…

Very excited to add Jim Chanos @RealJimChanos to an already stacked agenda at the MacroMinds Symposium on June 4th in NYC ! We’re bringing the finance community together for a day of collaboration and to hear the insights from world class investors, all to support student education. macrominds.org/wp-content/upl…

crude vs SPX futures (inverted)....

Things you (almost) never see with a $VIX>30 backward looking realized vol on SPX quite tame...market justifiably pricing in a tremendous amount of forward looking risk premium right now

The “SVB Weekend” in 2023 was one in which regulators lost an precious hour to daylight savings …. rough timing :(

@DerivativesDon depressing but well framed

@Alpha_Ex_LLC Fat chance of nothing ever happens Small chance of WWIII

one of these is not like the others...(does not include Friday).... level of VIX has been exceedingly high relative to both the narrow range of the SPX and its low level of realized. It's a complicating factor for hedging. one factor has been the steady demand for very far OTM calls in the VIX where open interest in extreme upside strikes is now quite high.

Good morning. If you can spare 5 mins (6, actually), click the link below for a video on MacroMinds, the foundation I launched in 2020 to support student education. Our June 4th event in NYC is approaching and it is going to be fantastic (speakers below). If your firm might find value as a sponsor, please let me know and I can tell you more. All funds raised support our 3 beneficiaries. @nycfirst @100WomenFinance @ompnyc It should be an excited day of relationship building and contribution at a time of great change in markets. vimeo.com/1087121522

I think this is a "short form" failure of twitter conversations where it's easy to misunderstand each other ... I can promise you he gets the math quite well...I hosted Mike on my podcast back in 2024 to discuss lev ETFs with attention to those on MSTR. btw, Andy, you are an exceptional thinker on markets. Mike is also super sharp. Perhaps I can broker an unwind of the blocking. I'm a good salesperson. podcasts.apple.com/us/podcast/mic…

@dampedspring @Alpha_Ex_LLC Agree with Andy. The original tweet suggests the asymmetry in AUM btw levered long vs. short funds is contributing to end of day flow when market is volatile. Andy is saying both long and short funds do same thing in up/down market, so the “asymmetry” of AUM is irrelevant.

I'm blocked for a reason unknown to me but this tweet is wrong. Both long and short leveraged ETF's rebalance by selling into weakness and buying into strength. The fact that long leveraged ETF's dominate the AUM is irrelevant