The Derivative - Convex (CONVX) to the Core with Certeza’s Brett Nelson

Episode Date: October 28, 2021

In this episode, we sit down again with one of the OGs of VIX futures trading & options, Brett Nelson, CEO of Certeza Asset Management, and discuss their new mutual fund — Convex Core and how it relates to their Macro Vega hedge fund strategy. Join us to hear how the mutual fund aims to participate when the market is up, exploit opportunities when things get bumpy, and then protect heavily when the market is down. Brett explains why Convex Core isn't just an overlay strategy and how utilizing changes in Vega & Gamma can help protect you in a rough market. We talk about the Geometric Loss Problem, Certeza's three regimes of Volatility, their equity component, dialing through options, looking for the mathematical structure in the market, the rebalancing premium, and the importance of educating Advisors/Investors on volatility as an asset class. Finally, we ask Brett's opinions on some well-known relative value or Volatility arbitrage trades, asking when they work and when they don’t. And rounding things out is a discussion on the two new VIX ETF products coming out, and Brett’s thoughts on Delta Hedging Market Makers, just how critical "flow" is,  and what the next disruption event could look like. Chapters: 00:00-02:46= Intro 02:47-06:04= Covid = A Missed VIXportunity 06:05-025:02= A Flawed Mentality & The 3 Regimes of Volatility 25:03-38:09= Masquerading As an Equity Strat & the Rebalancing Premium 38:10-48:21 = What Works? What Doesn’t in Vol Arb trading 48:21-54:39= VIX ETFs: Good, Bad, or Ugly? 54:40-01:11:55= Delta Hedging Market Makers: A Game within Games Check out our previous episode with Brett here: Seeking (VIX) Certainty with Certeza's Brett Nelson Follow along with Brett on Twitter @CertezaAM  Don't forget to subscribe to The Derivative, and follow us on Twitter at @rcmAlts and our host Jeff at @AttainCap2,  or LinkedIn , and Facebook, and sign-up for our blog digest. And visit our sponsor, the CME Group at www.cmegroup.com to learn more about futures and options. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit www.rcmalternatives.com/disclaimer

Thanks for listening to The Derivative. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits, and listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk

of substantial losses. As such, they are not suitable for all investors. Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. When we talk about using volatility, a lot of people use volatility to protect the portfolio. The idea there is convexity, right? Because if you don't have heavy, heavy convexity, in other words, something that is increasing at an...

It's the difference between velocity and acceleration in your car, right? Your speed is your velocity, but your acceleration is saying, are you going faster each moment than you were the moment before? Convexity is that, I'm going increasingly large. And when we talk about using volatility, we have to use convexity because if you didn't have heavy or steep convexity, you're paying an absolute fortune to protect yourself to use volatility, right? So what you want something is that is relatively cheap to you, if not sometimes free to you to use, that is going to increase in value as the market

starts to drop or starts to run lower. And that's that convexity we were talking about. And any user of volatility or VIX or even the option side that they gave me options has to know what that convexity is and how to exploit it to prevent themselves from just bleeding to death as they try to protect the portfolio. And we created what we think is an optimized experience for the investor in terms of how to participate in the markets, in the equity market specifically, recording on a Friday, but so be it. You'll probably listen to this on a Thursday. But we're happy to have back on the show today, Brett Nelson, the founder and CIO of Certezza Asset Management, and now Certezza Fund Advisors,

which we'll get to in a second. But Brett's one of the OGs of VIX Futures Trading and Options, starting personally as far back as 2004 and professionally back to 2012, I believe. And here at RCM, we've had investors in those programs for the better part of five to seven years, before vol was cool. So welcome, Brett. Brett, how does it feel to be in the cool kid space these days? We're in the cool kid space. Yeah, it's been really fun. It's really nice and super excited

to be here today, Jeff. Right. When you first started VIX, like nobody really cared, right? Yeah. No one really knew. No one really knew that VIX was even tradable when I started trading it. Right. And technically it isn't, right right technically it's not a real thing um it's kind of vapor we always say VIX is vapor right I like it uh and we did a pod before which we'll put in the show notes talking through your background on as one commenter put out online spending way too much time talking about Utah skiing uh so we'll skip over that, except just

tell me, what's it looking like for this winter? It's going to be a good ski winter? I hope so. We could use it. Yeah. Have they had any snow yet? No, but we just got cold as of yesterday, so we'll see. Got it. And you remind us where you are. You're north of Salt Lake? North of Salt Lake, about uh 90 miles north and was it ogden uh logan actually so logan got it logan logan utah hedge fund capital of the world yeah mountain mountain town hedge fund capital um so yeah it's worth noting that our last pod we did actually uh in person right in a studio there Salt Lake, which must've been like a week before COVID got really bad, right?

It was just barely, it was not, well, it was a week before the market effectively crashed, but the market was already dropping seriously because COVID was becoming a thing. So we were, it was right before everything locked down. Yeah, I remember that it was a Sunday night, right? And I came into the studio and you were in the corner with a laptop on a Sunday night. And I'm like, what's going on?

Yeah, and the Asian hours were opening and I knew that it was going to be big because COVID had just become a thing and the market was just absolutely tanking in Asia. Yeah, that's right. And we stupidly didn't talk anything about that on the pod. So shame on me. But yeah, I'm just surprised that we were like, things seem so normal. Then we're like, oh, there's this thing. And yeah, the market's going down. But at least me personally, I wasn't thinking like, this is going to affect the US in such a big way. Well, you weren't thinking this is going to be the single biggest VIX event in the history of VIX. And I'm talking to the VIX guy, right? Exactly. Right. Missed opportunity. What's new? I know it's new. I teased it in the intro there.

But what's new is you've launched a mutual fund. So tell us a little bit about how that differs from your head front strat, Macro Vega, and what the impetus behind all that was. I'll let you roll with it. Sure. Yeah, Macro Vega is purely a VIX statistical arbitrage program. It's meant to be completely non-correlated to anything, pure alpha driven. The mutual fund is called ConvexCore, ticker C-O-N-V-X. We took a dramatic shift with this structure to bring our expertise into the public equity world, getting it into the hands of advisors and retail and everything like that. Whereas, you know, the hedge fund and managed account space and alternatives is a little bit more exclusive

and a little bit more geared toward sophisticated investors. And the mutual fund is not the same strategy. We didn't simply just convert our big strategy over. We took our learnings from the volatility space and we actually applied them to the equity markets, so large cap equities. And we created what we think is an optimized experience for the investor in terms of how to participate in the markets, in the equity markets specifically, while not being so prone to the downside. So we've got significant downside protection in the form of our learnings in both the volatility space and options, which is where my background is, as well as full participation in the upside of the equity markets. So that's really the goal

there. It's not to be uncorrelated. It's to participate when the market is going up and then exploit the opportunities when things get bumpy and protect heavily when the market is going down. I love it. And the, so would you consider like an overlay strategy or similar to how some people do overlays with options, but go ahead. I mean, it's a good question because that's one of the things that led to it was that we had a lot of people saying, Hey, you're VIX experts and we love what you're doing in VIX. Can you overlay it with my equities? And I always joke with them and say, yes, I can give me full control of your equities and I'll do that. And then they'd say, yeah, I'm not giving you control of the equity book. I just want you to do the hedge component. And I would look at them and say, I can't do that optimally. I would really like to bring the equity exposure and the volatility exposure together into a perfectly united package. And that core satellite approach where they'll say, we've got this core equity, and then we satellite

it with a bunch of alternatives, which is the space that you and I are very familiar with. And we said, hey, you can still use our macro mega product for your satellite component because it's non-correlated, and you can still use other long ball products for protection and everything. But we want to come in and actually fulfill that core equity. We want to kind of replace this, what we think is kind of a flawed mentality around buy and hold equity, that passive component. We think it should be done better. So dig into that a little bit, if you will. What's flawed about it? Well, let me give a little bit of an example.

If I came to you in the space that we operate in and said, hey, Jeff, I've got this fantastic opportunity for you. It produces about 6% a year over decades. And it has a sharp ratio of about 0.3 or 0.4. And the biggest peach trough drawdown was only about 53%. You would look at me and say, well, that's not a good opportunity at all. That's a terrible opportunity. And I would say, but that's exactly what spiders buy and hold passive is. That's exactly what it is. And so when we studied into it, we said, it's not that the good years

in equities aren't good enough. It's the bad years are catastrophic. And so the point was to say, can you actually build kind of a mathematically based program using expertise and options and volatility to say we're going to participate in the good years, which is what everybody wants and get rid of those just absolutely catastrophic circumstances. How does that compare with like, I feel like the same thing is being sold to retail a lot, but as a buffered note or as the J.P. Morgan hedged equity of some of those structures, right? Of like, hey, we want to give you upside participation and kind of cap your downside with these option structures. So compare and contrast with some of those structures. Yeah. So first I'll talk about kind of you mentioned one of the gorillas in the room is the 500 pound gorilla is that JP Morgan hedged equity fund. And a lot of people are familiar with it. And so are we. The issue with that is that's the traditional approach to hedged equity. I'm going to give you basically muted exposure to the market. So preferentially a better risk adjusted profile, which I think they actually do versus passive equity. But for example, if the market's up 10, you're going to be up six. If the market's down 10, you'll only be down five or four and a half. So the risk adjusted

profile is probably better, but nonetheless, it's still muted. And so the question is, can you actually get that downside protection and still fully participate in the upside? Do you have to give up half or 40% of the upside? That's one of the big questions. We don't think so. And then in terms of, you know, the other, the other concepts of, of what hedged equity is, right. It's to say, okay, we can say, what are the best ways to protect? Structured notes. Okay, let's say, what is a structured note?

A lot of the structured notes are structured like, we will protect against, for example, a 15%, 20% downside, maybe even 30% downside, depending on the note. And then they'll say where there is this sneaky little knock in event. Right. So you as the investor feel like you're perfectly protected against all these circumstances until it gets really, really bad. And then you're going to take the entirety of the loss. Right. You get protected against the first 10% of the loss and realize everything after that, which seems backwards. And we say that's exactly backwards because people don't inherently care about a 5% or a 10% fluctuation in the market. That's what

equities do. That's the risk premium of the market, right? So we'll allow them to just participate in the 5%, 10% down. It's when you get to 20%, a lot of people are probably familiar with what we call the geometric loss problem, right? The geometric loss problem is if I lose 10% in my portfolio, it only takes 11% to get back to break even. If I lose 50%, it takes 100% to get back to break even. If I lose 50%, it takes 100% to get back to break even, right? It's a geometric problem. And so we say, why would you protect someone against the area that is easy to recover from and then make them endure all the pain from the thing that's hard to come back from? That just doesn't make any sense at all, right? And so we do

the exact opposite. Our approach is to say you participate, you may or may not participate in the first little bit and you participate in kind of the five to 10% zone. And then we start hedging things off heavily, or I should say our hedges start to protect you once it starts to get hairy at 15, 20%. That's where we come in very strongly. Which seems more the model of the bigger players, right? Of the pensions and whatnot, maybe the more retail is done. But to that point, that's made kind of further out of the money options, very expensive, relatively, right? So there's the skew and there's lots been written on like, there's so much demand for these

tail options that they're somewhat overpriced. So how do you solve for that? Or are you solving for that? Or what are your thoughts there? We actually discovered you don't really have to solve for it because functionally that's not where, it's not where really the money is made in the market in simple terms.

You need to have protection on. We all know that you can't buy insurance on a burning house, right? So you can't really come in as the house is on fire and say, I'm going to protect this, right? It has to be there, but it doesn't really have to constitute that much of the portfolio because we're not really talking about the problem comes in when you take the mindset of something like the JP Morgan hedged equity. When you say, I'm going to protect you against all loss. So if the market's down two, you're only going to be down one. Or if the market's down five, you're going to be down three. If you take that mindset, insurance or downside

protection becomes incredibly expensive, right? If you ditch that mindset and say, protection really only needs to protect the catastrophe, right? Then the protection or the hedges or the insurance, whatever you want to call them, actually become quite cheap and they can be on all the time. And that's not really, they're not really robbing a bunch of return from portfolio. And then you also come in and you realize what we do, what we know about the markets is that the opportunity for extra gains or excess gains is actually due to volatility. It's not due to the direction of the market, right? And so if you know how to exploit volatility, then you don't really care so much how much the catastrophic hedges are costing you uh so in more mathematical terms would that be your focus more on being long vega than um long skew or long gamma i guess yeah i would say the

more accurate way to to phrase it is that we exploit the the the changes in vega and gamma right because the opportunity is when the, and you know this because, you know, we kind of mentioned it before we started a little bit in just casual talk. The opportunities come when the market gets bumpier, not when there's no volatility, when everything's calm and the market is just grinding higher, there's no opportunity for excess performance there, right? there. Where you come in and actually exploit the market inefficiencies is when things get bumpy. And that's manifested in terms of, to your point, vega and gamma. I feel like people realize that on an

intuitive level in a March 2020 thing of everyone's freaking out, they're buying the insurance as the house is burning. From a vol of standpoint, that's easy to be like, oh yeah, I'm happy to sell VIX at 80 because no way it's going to stay at 80. But you're kind of saying from the flip side too, right. If there's maybe in layman's terms that from 40 to 80 is some opportunity in there. Yeah. And, and, you know, I've mentioned this before, but there's, there's essentially three categories of the, of essentially volatility, or let's call them three regimes. You know, a lot of people talk about two regimes, high volatility, low volatility, but let's, let's actually break them down a little bit, a little bit differently and say, it's actually not high

and low volatility. It's like the base state, which is a grinding calm market, right? Usually grinding somewhat upward and when we're talking about equities, that's the base state categorized by low volatility. It's like Jan through August this year. Yeah, or even talk about in lengthy periods, 2013, 2014, 2017, the entire year, things like that. That's the base state of the market, right? There's not opportunity for volatility exploitation there. The interesting part is that we know during that category to get technical, that there is a volatility risk premium. So the market is almost always slightly overpricing volatility during that

base state. So this is where you'll start to see in the vol market, you'll start to see premium sellers absolutely killing everyone, right? And to the point of you hear about this iron condor trade that is becoming so popular with retail, they're just massive condor sellers out there for those who know what the condor is. And they're trying to exploit the base state of the market but it performs incredibly poorly outside of the base state of the market which is which is just the grind right yeah and then you've got effectively the next state is is not straight into catastrophic you know kind of moonshot volatility it's really more this, you might call it a high

volatility regime, but the state is one of a more choppy market, right? And that's where volatility arbitrage is really where you want to be, right? You've got opportunity in the fluctuation of volatility over time, okay? And then you've got the third state, which is what you might call the momentum state, right? And we would say this is categorized by divergence. So if I said volatility or the VIX, for example, is typically a convergent instrument. So it likes to, if it goes high, it wants to come back down and revert to that kind of base level of high teens or mid teens. In the divergent state or the momentum state, we're talking about, for example, a March 2020 or October 2008 type scenario. Volatility actually becomes divergent in that it becomes a momentum trade, which is contrary to its convergent nature, right? It's not mean reverting anymore.

It's not mean reverting. It's the exact opposite. It becomes momentum. It's a breakout trade. And in that state, there is no telling how high the limit or how high the ceiling would get, right? Those who are familiar with ETFs in the VIX space, you know, they were familiar with the idea that, oh yeah, some of the VIX ETFs could double like in a February, 2018 event. But then what we saw in March, 2020 is that some of them that had only ever doubled before or two and a half X kind of upward movement went six X higher instantly. Right. And that's that momentum divergence we're talking about where everyone loses their mind and will take fire insurance on whatever burning city is on fire.

Right. At any cost. I think there's even more technical reasons that have become, which I want to talk about later. Then it becomes market makers needing to delve ahead and just becomes a self-fulfilling. Corey Hopstein calls it a liquidity cascade where one thing leads to another and all this momentum. market makers needing to delta head and just becomes a self-fulfilling uh cory hopstein calls it a liquidity cascade where one thing leads to another and all this momentum pushes in that same direction exactly that's interesting and speaking of hopstein the uh they talked about jp uh hedge equity program the other day and i think it was rodrigo on that pod resolve riff said it's if you map it with the 60 s&p 40 cash it's nearly an identical curve so really really all they're doing is giving you 60 uh stock exposure which is you could do that on your own but go ahead put your 18 billion over there um the interesting thing is that the people who run it they don't claim that it's

anything wildly sophisticated they go back to most of the time when i hear that i hear comments coming from them they actually admit that it's terribly unsophisticated you know it's it's not particularly sophisticated at all and it's not trying to be simplicity sells um so coming back two things you had a great term in there but i it passed over my head or I misunderstood it. You said something about convexly or something. Did you say that word convexly? I can't remember. It was like we get equity exposure convexly or something. There is there is the reason that we call our fund convexvexCore actually plays on our idea of convexity.

Because, you know, when we talk about using volatility, a lot of people use volatility to protect a portfolio. The idea there is convexity, right? Because if you don't have heavy, heavy convexity, in other words, something that is increasing it, it's the difference between velocity and acceleration in your car, right? Your speed is your velocity, but your acceleration is saying, are you going faster each moment than you were the moment before? Convexity is that I'm going increasingly large. And when we talk about using volatility, we have to use convexity because if you didn't have heavy or steep convexity, you're paying an absolute fortune to protect yourself to use volatility. So what you want is something that is relatively cheap to you, if not sometimes free to you to use, that is going to increase in value as the market starts to drop or starts to run lower.

And that's that convexity we were talking about. And any user of volatility or VIX, or even the option side of the bag and the options has to know what that convexity is and how to exploit it to prevent themselves from just bleeding to death as they try to protect the portfolio. I did a little skydiving back in my younger years. And one guy explained, he's like, you don't lose your stomach because you're going 150 miles an hour, right? This way in the plane. And then you just switch direction of the velocity.

So there's no acceleration. It's just a switch of the, of the direction of the velocity. Yeah. And I did that once or two. And the only time your stomach jumps is the moment that you exit the plane slightly. And then after that, that brief moment, there is no acceleration. You're floating. And then coming back for a second, just touch on the equity component of all this.

So we've got the vol piece. It's going to kick in with that convexity. I still might argue that everyone wants that convexity so badly that that's why that it's overpriced because everyone wants that convexity um but your models are saying that doesn't quite matter as much i'm not saying it would be nice if it was lower priced yeah right but that doesn't mean that we don't need it or we're not willing to have it just because it's slightly overpriced yeah and if it remains overpriced, I guess, right. It's only a huge problem if it's overpriced and now it's right price the next day or the next month. Right. Yeah. Because you'd lose some of that or, and, and by it being slightly

overpriced, you are losing some of giving away some of the convexity you should otherwise have. Right. But right. Maybe if it's 10 to one convexity, maybe you have 10 to 1.2 convexity now or something. Yeah, something it's not it's not that it's not too dramatic. It's not too dramatic to overcome. It's what I was getting at is it's not the primary return driver or the thing that would ruin a strategy. Right. It's not it's not cutting that convexity in half or even by. yeah, got it. So onto the equity piece. So are you doing just an index, single names? What's the beta portion look like? No, we focus on S&P 500 because we want a representative broad-based index that is that we like to stay away from idiosyncratic risk. Others like to build models

around whether or not they can choose the best basket of stocks. We don't like to mess around with that. We're mathematicians by nature. We're not stock pickers, right? So we look for the mathematical structure of the market. And the easiest way to do that with the broadest, I just said the highest liquidity with the greatest capacity for scale is the S&P 500. Right. So we basically position our exposure to the S&P 500 itself and tie ourselves to that. And that's via owning the ETF, owning futures, a little bit of both? Options on primarily through options on either the ETF, the SPX index, the cash index itself, or the E-mini futures. Got it.

They're all virtually interchangeable. Got it. And that's just, that's how it works in your models? Or you have, how would it alternate between those flavors? Mainly, it's just basically granularity. Okay. Because mathematically, they're pretty much interchangeable. A lot of people might argue, for example, the Spiders has dividends where the E-Mini's don't. People just need to understand that that's all priced in. If it wasn't, there would be an ARB in the market. And since we're not all sitting here becoming rich off of that ARB, it doesn't exist.

So it's really a question of how large do you want the contracts to be? The largest are the SPX, half as big are the E-mini, and then a 10th of the size of the SPX are the SPY, the ETF options. Got it. But I guess why options instead of outright owning the deltas or the... It's interesting because that question has been asked a lot as to why certain, why, why larger banks haven't been able to do what we've been able to do. And one of those, one of the answers to that question is that there are sometimes handcuffs put on someone.

So for example, if I must own the underlying, right. In order to express my opinion, I'm slightly restricted on tech as to how much exposure I can have, especially if there's some, for example, some type of tax consequence. So I can't pare back my exposure to equities because it would be a taxable event if I did, for example, or I can't get above an exposure of 100% in times. So because I can't fluctuate my exposure to the underlying, if I own it, I can't properly position my exposure for whatever the conditions of the market are. So we express it through options because mathematically we can tailor very specifically exactly what mathematical profile is being rewarded the best at the time. It's like the, it's the old Warren Buffett thing,

right? You want to value something. You want to make sure you're getting a value for your risk dollar, right? If something is overpriced for a unit of risk, don't buy as much of it or don't buy any of it. And if it's underpriced or you're getting overcompensated per unit of risk, take more of it. And that's the way it works with options. But with options, we can just dial it in so precisely that we know exactly what the experience is going to be when the market moves. And that helps you probably pair up with the vol on the downside as well. Yeah. So when things get bumpy, we can adjust our exposure in terms of, for example, the quantity of contracts we're buying and selling to exploit or in our technical speak, to arbitrage the volatility complex as it's doing it. And the nice thing about the options too is if I was doing it with the

underlying, I would have to go out and try to use something like either VIX futures or VIX options or something like that in order to exploit my underlying equities. But since I'm already using the options on the equities to express my opinion on the equity themselves, the volatility components built into them so that I can just exploit it directly. Love it. Two questions. So what was it like? So you guys did this whole mutual fund, recommend it. Was it a bear? Was it a lots of lawyers, lots of paperwork? For those in the, for those in the private world, in the hedge fund and commodity pool space, and especially in the managed account space that haven't, haven't ventured into mutual funds. If you want to get ready, it's, it's so much more onerous to start

a mutual fund and so much more costly. And even the ongoing, the operational cost of a mutual fund is just many times higher than either a hedge fund or a private fund of any kind or a managed account. And so there's definite hurdles to trying to get into the mutual fund world and so many competitors. But then at the same time, you and I have both seen kind of this opportunity to bring hedge funds slash alt programs and models into the mutual fund space for a group that didn't know they had access to them. And that was really the driver there. Right. And when you have outright people like JP Morgan, who are admitting that this isn't the most sophisticated thing to be like,

okay, we are trying to bring you a very sophisticated thing. It seems like there's definitely a market for that, which I'm always asking, like, do you feel like this is the best time ever to be a rich dentist investor, right? Like you can trade for free on Robinhood, you can get access to hedge fund pros like yourself via mutual funds, you can have inverse or levered ETFs. Like it's probably the most you can shoot your foot off. But also, you know, you have the most tools in the toolbox probably at any time ever. Yeah, no one. I mean, and it's evolving right now, because you and I in the space that we're in, you know, that, you know, you have the most tools in the toolbox probably at any time ever. Yeah, no one. I mean, and it's evolving right now because you and I in the space that we're in, you know, that, you know, RCM brings more and more what you would say what used to be kind of niche alt strategies into mainstream. That's kind of a focus that you guys really like to pursue. And that's what's creating the environment we have now is because we have what have been dubbed liquid alts or hedge fund strats inside of a mutual fund.

People don't really understand that it is the best time to be like a retail high net worth or something like that. You have, through traditional means, you have access to strategies you never, no one but either the ultra high net worth family office or fund to fund space ever had access to. So along those lines, though, this is complex stuff. You got to educate the investors or educate the advisors.

How do you go about getting them to understand what it is that's going on behind the curtain? Yeah. So one of the things you have to realize, too, is that while your followers will be, you know, pretty, pretty, you know, understanding and and more sophisticated of the type of things we've been talking about here, you know, VIX and volatility and derivatives and options and and and gamma and vega and things like that. A lot of that, especially in the traditional RIA world, is just not going to go over well. You have a portion of RIAs that are highly sophisticated, and then you have a larger portion that are just not particularly sophisticated and don't care to be. And then you have kind of a middle range that would really like to be more sophisticated, but they, these alt, these kind of liquid alts and more accessible alts for their clients haven't been around long enough for them to really get the

education. So we, we do a lot in terms of trying to first bring it down into the, you know, the nomenclature and the vocabulary they're used to. So for example, the convex core mutual fund that we talk about, whereas I would talk to you about, yeah, it's a volatility arbitrage strategy masquerading as an equity strategy, right? But to them, the part that they care about is that it's a hedged equity strategy, just like the JP Morgan, but more sophisticated and more optimized. Right. And so, so we look at it and we say, we're not going to go to them and say, Hey, we've got this, this fantastic volatility derivative strategy. We look at them and say, we've got a hedged equity strategy. And if you'd like to look under the hood a little bit, we're happy to educate you within the derivative space. And then, and then there's the other side of the equation too. I

think it's been quite interesting because we have to bring the retail crowd into the alt space through some of these new things like the liquid alt mutual fund strategies. And then at the same time, we have to educate the traditional alt players into saying, look, almost none of you are 100% alternatives, right? So let's do that core satellite thing, but instead of doing passive equity core, let's do liquid alt, better version of core, and then still bring VIX strategies and that kind of stuff into your satellite alt portfolio,

whether it be, you know, it could be real estate, it could be private equity, or more like what we talk about managed futures. And how much of the, I don't want to say back-tested or tested performance, what you bring is from the rebalancing effect as well, right? If I'm going to get this to kick in right as equities are down, invest more of that back in equities. So what do you see is that rebalancing premium? There's a there's a pretty fair amount of rebalancing premium.

Most most of the alpha that we see when we go through, you know, we go through decades and decades of history and attribution in the options model, most of the alpha is actually generated on people have a really hard time adjusting to the reality of what the market is right now. So let's use that absolutely huge hedged equity mutual fund as an example. When we look at that hedged equity huge mutual fund, we say it's incredibly static. It's simple, but it's static. It doesn't account for path dependency in the market. It doesn't account for volatility circumstances or anything like that. When it doesn't account for any of that, it doesn't really account for overcompensation, rebalancing a portfolio, trying to redeploy capital or anything. And so what ends up happening is you say, I put on this exposure and I put on these hedges and now the market has moved and the market can move huge or can move very small, a very small increment in a short amount

of time or a large amount of time. But what you do know is that the reason you put the position on the hedge on or the other trade on in the first place is because that was the optimal place to put it on at that moment. And as soon as the market moves or time passes, it may or may not probably isn't optimal anymore. And so we talk about rebalancing. We have to be exploiting the market that exists now, not the one that existed a month ago. And so all of the rebalancing effects and the fluctuations in volatility in the market, those are exactly what caused the opportunity. So long as whoever's managing the portfolio is adjusting their optimal positions to be reoptimized at the moment. Yeah, I think like some buffered note, people structured products don't understand.

Right. If the market's been up 50 percent in the last 10 months, like it has been, and you have a 20% down knock-in and knock-out, like you're risking that 30% from what you made plus the 20%. It's not a trailing stop, so to speak, right? It's from when you did the deal 10 months ago. Yeah. And it's also, it's the idea of, you know, we call it thinking on the margin, right. Or thinking at the margin. It's, it's this idea of saying, oh, well, I'm up 10% in my portfolio. So if I gave that 10% back, it's not a loss. So people get it in their head that, that that's not their money. And I'm like, no, any money that's in your, any liquid, any liquidation value in your account is yours right now. That's the same person wouldn't

be looking at their account and saying, Oh, I'm on a 50% drawdown, but it's not a real loss. No, that's a real loss. It's there, right? And you should make all of your choices based or your decisions based on that existing. And if you're at the top end of a note where it's not going to pay anymore for the next three years, that's the other problem with the notes, right? That we didn't mention is not only that knocking events, but you're locked in forever. You don't get to get back out of them. Yeah. And you just made me think all these people freaking out when it got floated, they're going to tax all investments, like mark to market end of the year. Yeah. blowing up i'm like hey that's that's our

world and options and futures it's not that bad we've always been there right and i'm like i feel like people do think like if i'm up 100k i feel like that's my money i don't just go yeah that's the market's money shifting gears a little bit um we've talked a little bit about VIX volatility arbitrage. So I wanted to kind of pick your brain in some of the standard vol-arb trades out there and kind of just get your off-the-cuff thoughts of what are those pros, what are the cons of those different types of trades. So I'll start with VIX calendar spreads, either whatever you think. What's the typical trade there in a VIX calendar spread?

The typical trade, the heaviest trade as far as indirectly or directly is going to be, front long back, whether it's short the first month, long the second or some version of that. And the reason that's the biggest is because that's the premium selling trade. That's the volatility selling trade, which is going to make money, I don't know, 90 some odd percent of the time. It's very consistent until it's not. And then it's absolutely catastrophic. But the being long, the back end is in theory supposed to help you mitigate that potential for catastrophe, right? Yeah. And if you've done it correctly, there actually is opportunity there. If someone's very unsophisticated in their understanding of vol, then it's kind of playing with fire, right? But if you can do it correctly, that's actually one of our more

favorite methods of exploiting, not necessarily short front, long back, but the calendar spread in general, whether it's Leo long near month, short far month, we tend to do things in ratios. So we want to know exactly how much protection we're going to get to your point in that back month. So if we're collecting some short volatility in the near term, we want to know that at a certain point, the convexity, for example, is going to kick into our favor and kind of come and swoop in and give a safety net to the portfolio. So that's best exploited as a vol-arm strategy. So it's not static over time. You don't want to just sit in that trade forever. You want to make sure that

you're analyzing the VIX term structure and you're coming in and you're saying, where along the VIX curve is the best value right now? And then do you see that being implemented when the curve shifts? Sounds like you're saying you don't want to just come in the fifth of every month and sell front month by three months out. Yeah. That blind calendar, you know, rolling methodologies, they're so indiscriminate that they're bound to get it wrong. And, you know, there's a behavior in the VIX term structure where you say, okay, there's

pivoting in the term structure, which where you say, okay, there's pivoting in the term structure, which means kind of a steepening, right? And then there's shifting where there's not much of a change in the shape of the term structure that shifts, right? Shifts up or shifts down. And the interesting part is that it pivots under certain conditions and it shifts under certain conditions. So let's say you can put exposure on where you're saying okay yeah for example short short front long back in a pivot scenario where it's pivoting against you that's going to it's going to sting right but if you know that with a high level of confidence that it's going to start shifting at a certain point then that spread is going to stop blowing out on you and you're

you're let's say you're in a ratio your extra longs on the back are going to stop blowing out on you. And you're, you're, let's say you're in a ratio, your extra longs on the back are going to start shifting higher at a dramatic rate. Right. And so you can exploit those tendencies. And, and there's a lot of, there's a lot of nuance to the structures there that gives a lot of freedom into how you can do that, which is kind of what our macro Vegas based around. We have many,

it says seven or eight different primary structures with nuanced variations that you can exploit the different tendencies of the curve love it um and so ratio you're saying maybe i'm short one front month and long four back month or whatever the ratio it could be one to four it could be one to two um time time to expiration or tenor has a lot to do with that next one the so-called long long short short trade where i'm i'm long the s p and as a hedge i'm long vix or i'm long some puts would be a similar thing so like simplistic trade there was you know when implied lower than realized i I'm going to go long, long. Do I have that right? But, um, whatever, or short, short, right. I'm short the market and I'm short the thing that goes, you know, short, short, long, long thoughts there. Yeah. Um, we've seen it done successfully, um, on a couple of rare occasions. Um, the rest of the time it, um, from my perspective as being

one of the guys that's been in VIX so long, it's an incredibly tricky trade to get right. You have times where the relationships kind of, let's just say they, I don't like to use the term break, but let's just say the relationship breaks for an extended period of time, something like a year or a year and a half. And then at other times, you have a very short-term circumstance where the relationship breaks. Like let's reference an actual example, late 2018, the October, November, December 2018, where normally with that size of a move in the S&P to the downside, you would have had VIX 50, VIX 60. But instead, you had VIX 25, VIX 28. And so if you're sitting there, your long equities and you're saying, it's okay, I'll be long vols as a hedge. You didn't get any hedge. And that speaks to the nature of trying to just rely on a very consistent relationship between volatility and equities. And it's not consistent. It's not perfectly correlated, right? And so when you're

using volatility as a hedge, you need to be somewhat diversified and then you need to actually be able to layer on that convexity pretty heavily when you need to. And so I don't inherently love the long, long, short, short trade. I think it's- I think we had Ben Diefert on the pod and saying that there's no signal there. When he ran it back through some testing, I'm sure it can work, but there's no signal there. Yeah, and the interesting part is that when someone actually shows that they've got a lot of kind of consistent gain from it. When you run the attribution on their model, what you usually find is that they were just kind of behind the scenes selling volatility. And it was a short ball trade that they managed to kind of escape a couple of hairy circumstances that eventually hit them.

So with the market going on, and then I think last month, September was kind of an example of that in reverse, right? You had the market go down, but the far out of the money stuff did nothing. That's the interesting part. If you know, you know, for someone like myself that has a long history in options and then jumped into VIX futures incredibly early and used the VIX as an instrument, like right as it was released, you have a different understanding because you can look into the mathematics of the options if you dig deep enough, and the options will actually tell you how sensitive the volatility complex is

going to be to a sell-off. So it's not going to catch you by surprise, for example. If, for example, we talk about that late 2018 circumstance, the options market was indicative that if the move continued, there wasn't going to be much of a vol response. And then more recently, the setup within the options complex, specifically the Vega curves and everything, are telling you that there is going to be an kind of over exaggerated vol response for a very small move a two percent down move in the market is going to be a 10 15 up move in ball and then well i guess we touch on that similar trades can be done with options as we're saying right so you could be long the underlying and and short some so we'll skip over that one and uh the other one

seemed kind of some people say this is vol art but i'm not sure but essentially selling vol one to you know close by and buying whether it be vix calls or whatnot buying way out of the money vix calls so you know i'm kind of selling the vix uh 20 on. And then if it spikes up to 60, I'm going to get paid out way more on those calls than I lost on the spike up. Yeah. And that's an interesting one because intuitively you might say that it makes sense in terms of saying I'm going to exploit a tendency within the vol complex. And then because it can go really bad in a hurry,

I'm going to put some type of like heavy convexity trade in so that, you know, I don't get absolutely crushed by it. And I don't disagree with the mentality of it. I disagree with the execution in a lot of circumstances, because I will say if someone doesn't have an options model that they're highly certain in that is saying that, for example, those long calls are underpriced somehow, then the general assumption is that they're accurately priced and they're accurately reflecting exactly the amount of hedge that they're going to give you or not give you for the circumstance. And that's the case with options in general. If you can't say that they're incorrectly priced, then the base assumption is that they're correctly priced and that there's no inherent edge in any structure you're going to put on.

Right. Right. Yeah. It would have been my theory for a long time. Like the price, the option is reflecting the actual probability of that event happening. We always we always say that's that's primarily someone mistaking structure for strategy right yeah which is back 10 years ago that was in a bunch of pitch books that came across my desk of like what's your alpha that options decay over time yeah i'm like i'm not sure that's alpha that seems just like a structural thing that's structure that's not strategy yeah and it seems to me even if you're selling that nearby or the belly or you call it

and having those it's kind of a you know if you ran that over 100 years it's going to be net break even right yeah um so you have that you'd have to add some sort of timing mechanism or i'm going to oversell and then quickly shift to those calls or something of that nature. So you mentioned VXX there. There's two new VIX ETFs coming out. I'm sure you saw that news. Yes. Any thoughts on that?

Welcome? Get into the party or what? My general thought is welcome. More liquidity is better. Yeah. And I say that for basically just the markets in general. I'll express my opinion without risking sounding in matter of time. It should have happened in August 2015. And they got lucky and it didn't happen until February 2018. But had the had the market stayed at its midday highs, or I should say the volatility market stayed at its midday highs in August 2015, the blow up would have happened then. So the writing was on the wall for years, and then it finally happened. And part of that was because a lot of the participants in the VIX ETN market didn't understand the significant nature of the counterparty risk, right? A lot of people say ETPs

as if there's no difference between an ETF and ETN. There is a distinct difference between the two. And the new products are ETFs, which- I'll just give a little, I'll give some explainers there. So ETPs is the overall umbrella exchange traded product, P for product, ETF, exchange traded fund so think mutual fund but with minute by minute liquidity and then an etn is an exchange traded note so yeah the tvix was actually credit suisse i believe was uh their note so you're actually they're a counterparty

and if they wanted to buy the vix futures and do everything on their own they could they could also just be like we'll make good whatever happens on that product, right? Like they just, they owed the price, whatever the price of the ETN was, they owed everyone who bought that ETN that gain or that loss without, I think mostly that they were hedging it. That's what caused everything to unravel. But yeah, that's the interesting, the interesting nature of the two ETNs is so you might ask, why did the first one, what did XIV, like why did the reverse VIX, right. Or the inverse VIX, why did that blow up in February 18?

And the other one didn't until later. Right. And it's because the ETN is a double-edged sword on the one hand, any inverse product in VIX is going to blow up as an ETN because the bank is not going to be left holding the bag when VIX skyrockets to infinity, right? And so that one's going to blow up in that catastrophic meltdown type event. The other problem with the ETN that the ETF doesn't have is that in an extreme reward scenario where you're actually on the right side of it as the investor and you stand to make a fortune and then the bank isn't able to pay you the fortune that you're owed. Right. That's a huge problem. So you as the investor in an ETN scenario get burned both ways.

It's terrible. Whereas on the ETF side, you might still have some of the significant problems with the inverse product, but at least with the regular product, even if it's levered something, the assets are supposed to be held, right? So you will be paid out on your positive side, at least that's the argument. And then we'll dig further into the super technical hole here before we pan back out. But some of the problems with all those products was the VIX settlement, everything around that. A lot has moved towards TAS. Any thoughts on how all that plumbing has gotten better or how it used to work, how it works now? Yeah, the creators of the two new ETFs, I will give them a little bit of props, I guess I would say, for the way

that they structured their close compared to, they recognized the weakness before. TAS is better as far as being able to use the TAS market is better, but the bigger thing is a time-weighted close value, right? Instead of just using that, you know, the special quotation of the VIX or something like that, which is an instantaneous price and everyone has to adjust to it. Now, I will say, we at Certezza, we actually don't like TAS that much. And the reason for that is we're quant guys, we're mathematicians. We don't like blind prices. We don't ever like to structure something where we say, whatever price you're going to give us at the close, that's the one we're going to take. We hate that stuff. Yeah. And TAS, another definition here,

just trade at settlement. So you put that in and you get the settlement price, essentially. And so if you're trying to move a huge amount of volume through the market, you might say, because I don't want to push the market, that the benefit of TAS is that we've been in a situation where we've, we've had to move some pretty significant volume through the VIX market when it's, when it's pretty thin and yeah, you know, you end up chasing the market a bit. You just start pushing it around. A TAS kind of prevents that, but at the same time, you, you have two assumptions. First of all,

that the liquidity is going to be there, that the volume you need is going to be there in the task market. That's a pretty big assumption in our estimate. Because it needs a match at settlement, right? It needs a match, right? If it's all one-sided, it breaks, right? Yeah. And then the other thing is that blind pricing is never good from our estimation. But a time-weighted close helps with that, right? So if you say there's going to be a time-weighted settlement, so it's not just some like arbitrary price that no one knows exactly where it's going to hit, that helps quite a bit. Yeah. In theory, TAS could be 20% off where you thought when you put the mark order in, right? Absolutely. And that was the criticism of VIX futures,

you know, for years now is if I hold one through expiration, where is that special quotation going to be when it hits, right? A lot of people have tried to predict it. Not very many have done a very good job of it. Coming back out now, just your overall thoughts on there's been tons written and argued about that all that matters in the volatility space is market makers delta hedging. The rest is just noise and junk, right? It's where those big guys are, where they need to delta hedge, where they're making the market, and the rest is just noise. And that's where things are going to basically settle out, that it provides support, provides resistance.

Just your general thoughts on that line of argument. Yeah, I mean, I would say more so than any other market, if we want to talk about flow in general. Right. Flow is is critical within the volatility markets, right? And I would say, I would speculate that in terms of the volatility market, market makers specifically with Delta hedging is a larger part proportionally of the volatility markets than it is of, for example, maybe the equity markets. The argument being there's probably a larger retail component to equities than there is in volatility. It's more niche.

Or natural gas or something, right? Yeah. And market makers play a very distinctly important role in the volatility space still. And so it's undeniable that their delta hedging would be just absolutely critical to how the pricing is going to come out. Flow effects on both the options and the futures within the VIX complex are going to be quite pronounced. And how do you square that with your own models of, right? It seems hard to model that or have the math around, like, how do I know where those positioning are? Right. If I'm just looking

at a simplistic, I believe for my option pricing that this is underpriced or overpriced, but there's some flow dynamic that might flip that equation. How do you think about that? Yeah. And that's difficult within, it's not such a big deal in the equity markets. So as far as what we do, for example, for our mutual fund is different than what we do for our macro vega fund. On the macro vega side, you do have to, within volatility arbitrage, when we talk about volatility arbitrage, we're almost always talking about statistical arbitrage, right? Because there's not, there's not like an absolute arbitrage we're talking about. Yeah. Yeah. It might be the case in other assets.

Right. So relative value as another relative value. Right. And anytime that you talk to stat arb, you are talking law of large numbers. Right. And so when you build your model, a lot of people might say, for example, I've been in the industry for so long i have so many connections that i can start making phone calls and see who's positioning where and who has what exposures if someone has those kind of connections more power to them being able to make a phone call and know that there is a big player trying to unwind a huge position is insightful information but i it But it's a precarious

situation to be in at the same time, because you're saying my relationships and knowing exactly who's causing what is my edge, right? Yeah. Don't lose that relationship. Yeah. Don't lose that and hope that you have access to the information quickly enough or that someone's not kind of fleecing you on some aspect. And the rumor mill can be wrong as well, as far as, you know, the gossip across Wall Street. are your edge. We never relied on that. We always say the mathematics and structural mathematics is the edge. And what that requires is incredibly sound risk management and money management. So that if you're on the wrong side of someone distorting the market, it's just another one of those outliers that you just get past and you move on. But on the other hand, if your model has you increasing exposure into that loss and it just goes further and further and further until you're blown up,

I don't think someone has the luxury of jumping in and saying, well, if it hadn't been for them, the model was right. Well, yeah, you can say that all you want when you're blown up. But the reality is, if you build a model that is susceptible to blowing up in an event like that, the model was incorrect. Right. Right. But it's also to me like it's and you said this earlier, sort of priced in. Right. So if everyone knows that's where JPMorgan Hedged equity needs to be. And that got a little disproved last week of everyone thought, I can't remember the numbers, but 4340 or there was, you know, it was below that call strike and they were going to have to restrike it. And where were they going to go? And a bunch of Delta hedging, I think it was like 18 billion worth, but then they came in and did a,

basically they did another option trade to smooth out the delta hedging because they knew that everyone knew this right so it's like a game within games yeah so if you know every you can't just come in and delta hedge that immediately you're going to get screwed the market's going to get so everyone's playing the same game they're trying to smooth it out and i feel like that'll be reflected in prices which goes back into modeling and yeah and the question there is did it simply with everybody playing that game of chess right did it simply, with everybody playing that game of chess, right? Did it simply just make for slightly larger swings than would otherwise have happened, right? Slightly more volatility mispricing, because what we're really talking

about is changes in implied volatility of the options, right? That shouldn't be what they are. And so it's still a volatility game. And it's just basically coming through with your model and saying, we don't want to create a model that is incredibly price sensitive to one event or one strike being pushy, right? We want to, we want to in, in, you know, the, the famous Taleb, you know, coined phrase is the anti-fragility, right? You want to create a model that is anti-fragile. It can withstand, you know, if you're saying the model is so fragile that an unknowable or unpredictable circumstance will just absolutely wreck the strategy, then you have to ask yourself, why did you build it that way? And we have plenty of those that are on the books in the past 40, 50 years.

You might as well jump in and say, yeah, we can build a strategy that's anti-fragile against all those. Why would it not be anti-fragile against, for example, JP Morgan's hedged equity having to move a large position? Right. Yeah. I think the more nefarious way would be if it doesn't blow it up, but it eats away at the edge every time, right there's like just it's throwing off the option pricing minimally to a point where the the edge disappears yeah and that's common that's common not just with big players like you know like that fund but you know we talk about that iron condor trader you know selling the body of volatility and buying the wings and that's

gotten you know so incredibly popular as the market's gone up that it does have the effect of kind of depressing the amount of premium that volatility sellers get, and then increasing the skew on the options to the point where it's hard to buy reasonably priced insurance. So there is that effect over time. But at the same time, I also think that those types of people pushing the market around also have effect on the way that the pricing moves within the underlying. So, for example, there is an effect while there's a muted effect with a muting effect, I guess, within the volatility complex and the options. There's also an effect within the underlying price action. And so also muted or less? Well, initially muted. And then and then

prone to large moves once it breaks out. Right. So you might say, for example, let's say you had a portfolio and this is just some theorizing here. Let's say you had a portfolio of equities and you had quite a bit of insurance. Because you have that insurance in place, are you more prone to selling your equities when they start moving down or are you less prone? I got it. Yeah, less. So that's the thing is that when people are well-protected and they're sleeping well at night, it leads to people who otherwise would be sellers not selling in the short term, which provides support to the market and it mutes the market itself. So a lot of protection actually mutes the market until things get really crazy. And then you've got a situation where banks have to start hedging or dealers, for example, have to start hedging a lot of gamma exposure that wasn't there before or didn't appear to be there to them before. At a certain point, you had a tipping point. And so you might say that it's artificially muted short term and then artificially volatile long term or in the larger moves the uh and i think of that i've always done this like you're squishing in the head and that pops out the tails right um that most people just think of like oh the tails are larger

than they should be but if it's some sort of curve that means where does that where does that go that means this part's getting smaller and it's got to go into the head which is the big part of the curve uh right so you're going to get more observations than you'd think in this minus one to plus one and more observations than you'd think in the minus 10 range. Yeah. And you made a, you made a really prescient comment before where you said, for example, someone right now might be in the market for a home and say, but all homes are overpriced throughout the nation. Right. So I don't want to buy a home right now, but really the only consideration is, is the home going to drop in value tomorrow? If it's going to stay overpriced for the rest of their lifetime, why would they

really care? Yeah, you need it. The flip side of that, Walter in our office and his condo in Park City, right? I think he bought it for like 400 grand and people are coming like, real estate's so crazy, like 1.1, 1.2. He's like, all right, that sounds good. But then he's like, but my kid's still there. I still need to live there. What if I take that gain? What do I do on the other side? I'm just going to spend it on something else. Flip side of that. What do you see? Is your area up there seeing huge real estate increase or it's just Park City? It's absurd. I mean, Park City is unique in the nation. That's, you know, Park City is Park City. Yeah. It's a whole lot of people knowingly, dramatically overpaying for everything.

And then just, you know, 10 miles away, it's fairly priced. But everywhere, dramatic market dislocations and shortages, 30% shortage in housing in our market. It's not uncommon throughout the Intermountain West. So the market environment we're going into is very, very strange. Dramatic housing shortages, an excess number of job postings, and no one wanting to work. We just got the employment numbers today, where actually the unemployment rate is quite low, and there's job postings everywhere. they're paying cashiers at fast food places, absurd, you know, hourly wages to go work there. And yet we're about to hit, if you talk to anyone in supply chain, we're about to hit just absurd shortages on all goods over the winter. You know, the supply chain disruption like we'd never seen before. So all of this plays into this whole, this overarching, you know, volatility discussion that we have is that, you know, when you talk about your portfolio, your investment portfolio,

do you have volatility experts is one of the questions. Do you have people that can say, we've never ever seen a circumstance in the macro economy like we're facing now in terms of potential just disruption events? And what do we do if, you know, we just learned just a week or two ago that, you know, there is, there's an energy shortage in China and there's been a 30% reduction in productive capacity in Shenzhen and other, you know, kind of production hubs. And so you're looking at it and you're saying, what is that going to do to our availability of cheap product in the US over the next six months? And then what have a volatility export or multiple volatility experts come through and position your portfolio to say, Hey, yeah, we've got you a little bit covered on that. We're going to exploit the volatility conditions because we don't know what's going to happen with

equity price. I think I'd love that because 20 years ago, right? If you're a mutual fund guy, you'd be on this and we'd be like, what do you think about what's going on in China? And what about the shipping credit, right? it would all be your expertise in analyzing the world and how it affects these equity markets these particular stocks and now which i think is part of this education gap now we got to get people around of like none of that really matters right we we want to be we're cognizant of it which is why we have that convex team why we have that volatility piece in there but what the final straw that breaks the camel we don't really care we're not trying to prognosticate that it's just be long equities and we know something's going to happen

and have that protection against yeah and you know you you guys at rcm you have a lot of people on your podcast for example that promote this idea that idea that say, look, it's not that anyone's coming in and saying we don't care what the market does. We all kind of care what the market does. Yeah. We're going to be anti-fragile, right? We're giving you the peace that allows you to sleep at night, right? That's the idea of a lot of us that come on your podcast. I love it. We had, I did one with a guy in Australia last night, actually all about the

meat market. So you think everything you just said about energy and everything, the lack of protein for the world at large is unbelievable. This was like blowing my mind of all these stats. So yeah, there's, there's problems on top of problems on top of problems. Um, but we'll probably just keep rallying because we're climbing that wall of work. Yeah. Uh, great. Any last thoughts to leave the, uh, listeners tell them where they can go learn more about the, uh, the fund, the mutual fund. Yeah, sure. You know, uh, Sertezza is the company name SertezzaFA.com. Um, it's,com. I think it's in my background here. Yeah, we'll put it in the show notes. C-E-R-T-E-Z-A-F-A.com.

That stands for Certeza Fund Advisors. We're happy to send them information. We still offer our VIX product as well for those who strictly like the non-correlated alts. And we're happy. Unlike a lot of others, we don't guard the secret sauce too heavily. Although on the mutual fund side, it's very technical and very mathematic.

So we don't want to glaze people's eyes over. But we talk freely about what we think about the volatility space, how we think portfolios should be constructed, what works, what doesn't. We're pretty open about what we've learned over the years. You know, you asked me earlier today about this idea of, you know, have we learned anything with the construction of the new mutual fund that has enlightened some of the circumstances in the VIX macro Vegas space? And the answer is yes. You know. We're a heavy research firm, so we always research.

And if anybody ever wants to just call us up or email us and say, what is the volatility complex kind of saying about the overall macro picture here? We're very open about just giving them the insight and sharing what we've got. I love it. We're going to send everyone your way of like, why this long vol program lost money when the VIX was up last month. Go talk to Brent. Yeah, we do that. We get that a lot. So yeah. Like the VIX doesn't equal volatility is, is the, is the main story there, but awesome. Well, thanks so much for coming on. We'll talk to you soon. And I think I'll be out there hopefully once or twice

to get some ski turns in. So yeah, we'll grab a drink or a dinner. Give me a call and we'll go up and we'll see how good you are. All right, done. We'll video that. Put it out on the pod. Great. All right, Brad.

Thanks so much. Yep. Have a good day. You too. The Derivative is brought to you by CME Group. CME Group is the world's leading and most diverse futures and options exchange. For more information and educational resources about futures and options, visit cmegroup.com. You've been listening to The Derivative.

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