The Global Margin Call | Volatility Veteran Noel Smith on Dispersion, Vol of Vol, and How He’s Trading VIX Spike & Stock Market Crash
Episode publishedPodcast: Forward GuidanceForward Guidance
Transcript preview
Preview only
Jack: Forward guidance is brought to you by Van Eck, a global leader in asset management since 1955. You'll be hearing more about a Van Eck ETF later on. But for now, let's get into today's interview. What a day in markets. Investors globally were shocked, by a huge, huge sell off in the market.
The S and P down as much as 4.44.5 percent, at the beginning of the day. Things are looking a little bit better now. The Japanese market down 12%, the biggest loss since 1987. I've even heard that the Taiwanese market is down the most, intraday since 1967. So things are looking a little bit bleak.
Again, we're getting a a little bit of a rebound, but, the VIX, the volatility index on the S and P 500, went as high as 6465. To be honest, I was, on vacation today, and I was not planning, at talking really to to anyone. We've, recorded interviews that are, you know, are going through air while I'm on vacation, but the volatility was so extreme. You know, what choice did we have? So I'm really pleased that, the last minute, we were able to speak to volatility expert Noel Smith, who has been on this show before.
Noel, as the screens behind him, would suggest is an expert at trading volatility, and he's extremely busy today. Today is like the Super Bowl, for him and other Volatility experts, so we're we're grateful he could spare the time. Noel, great to see you again. Start off, what what are your thoughts? How much of this do you think is overall macro of the reserve recession fear, a bad jobs report on Friday?
There's a yen carry trade unwind. A lot of people pretending to know what caused the sell off. Of course, no one really knows. But how much of it was exogenous to the volatility space, and how much of it do you think is coming you know, the call is coming from within the house, your world of people were short volatility, volatility spikes, and they are forced to cover, and there's kind of a a margin call on on volatility.
Noel: You know, whenever we do this stuff, we go into the realm of speculation. Nobody knows. You said that already, so that's definitely accurate. So the Chicago Pit Trader and me will just kinda get straight to the point. I feel like it's forced to unwind.
You know, if you have these lever trades, specifically like a yen carry trade or something like that, what's happening is you're getting leverage on all sides of that trade. And if you need to undo it, you have to unlever swiftly on all sides of that trade. If you look at the bid offer differential on vol products today, that's so wide so as to make it virtually untradeable, at least at anything close to what you would think is a good price. Unless you're a market maker, in which case it's a great price for you. So it's it's my feeling, and I've talked to a handful of people today.
The answer I get from everybody is nobody knows. But like most things, you know, with COVID or the global financial crisis, whatever else, it's never just that one thing. Right? It's the confluence of, your vols going up. The the Asian markets are getting wrecked.
There's an idea of a force online. There's recessionary fears. You know, we went from a few rate cuts priced into, like, you know, as many as 10 rate cuts into the middle of next year or this morning, and that's already kind of ebbed and flowed. So I don't ever think that it's one thing. I think it's, the confluence of a lot of things, and, you know, we're really busy.
Keep exploring with a free account.
A free account preserves the short preview. Upgrade to Pro for the full transcript and episode chat.