Convexity Maven Harley Bassman: How To Survive The Next Rate Cycle
Episode publishedPodcast: Resolve Riffs Investment Podca...Resolve Riffs Investment Podcast
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Mean, you wanna go and play Robinhood and do options, be my guest. But most of you should be constructing longer term portfolios where you're not gonna trade that often, structure it right, size it right. And at the end of the day, I can assure you, you'll be better off. You won't be as much fun in the party, but you will be smiling at the end of the day.
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Okay. Good morning. Good afternoon. Good evening. Wherever it is your time. I'm here with Convexity Maven, Carly Bassman, who's back on as a guest after two or three years. Harley, we had you on in, it was probably, you know, 2019, 2020 now is sort of pre pandemic, I think. And I know it was interesting, Dan, you had a really neat trade set up that you were working on that you were deploying as an ETF, which worked out really well. Want to get into that a little bit later. Harley, you're currently, what, a managing partner at Simplify ETFs and also invented the MOVE index. Harley, let's start
Well, suspect, well, thank you for having me back. Fun to be here. The VIX came out, I think in '90, I think it was '94. And I, at the time I was running bond options at Merrill Lynch. And I saw the VIX and go, wow, that is a darn clever idea, man. Because the problem you had with, with options is how do you explain it to people? How do you level set what's high, what's low? And the BIC basically does that in a very easy kind of way, but easy to calculate. And I said, geez, I'll do it for bonds. It's a good way for me to go and sell options to people, clients at the time. This was thirty years
That's the same thing with the VIX, right? You you know, just spend so long with the VIX hovering kind of between, you know, ten and fifteen, and it just feels like nothing's ever going to happen again. And the term structure is so steep that to buy puts against something happening is just so expensive. Like you say, you're burning so much data. And then by the time it pays off, it pays off so suddenly that, you know, no one's actually able to capitalize on it. And then once it's, once you're in full panic mode, the last thing anybody's thinking about is I want to sell vol.
When the VIX is over 40, no one's selling vol. Yeah, exactly. Is why it's 40.
Right, right. So then, so who were the natural buyers of this when you created it? You were reaching out and you're pitching this buy at 80, sell at 120. Was this a structural trade that some institutions put on or was it tactical?
All option trading is basically the same when you think about it. And this for equities also. When you sell an option, a stock's trading at $100 you sell the $105 call for three
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