The Derivative - Who Would Want to SELL Options, with Mark Adams of Warrington Asset Management

Episode Date: October 29, 2020

For every option buyer, there is a seller. The brave souls who are accused of picking up pennies in front of a freight train. But are they dumb? Crazy?  Or just better at timing the market than the rest of us? Understanding option strategies which involve collecting premium seems easy, but there’s way more that goes into this recipe. As Jeff Malec asked our guest in this pod “Give it to me straight, partner” (41:25 mark) in the world of options selling. Mark Adams, Assistant Portfolio Manager and Chief Quantitative Officer at Warrington Asset Management is here to break down exactly what means to be an options specialist and the struggles and successes of operating options-based strategies. We’re talking with Mark about Dallas Cowboys, Volmageddon, stock buying for COVID, FANG+ as part of the index, short gamma trades, free put options, moving from the Federal Reserve to Warrington Asset Management, short vol developing a short or long bias, equity replacement strats, top TX BBQ spots, where the market makers are hedging, explaining complex strategies to RIAs, and the biggest mistakes people make when selling options. From the episode: LJM – the autopsy blog. 00:00-01:42 = Intro 01:43-11:17 = Background Texas Bred to Internship turned Partnership 11:18-25:26 = Digging into the Fundamentals 25:27-47:34 = Volmageddon – Tactical vs Strategic 47:35-57:34 = Everything from Greek Indicators to Calls & Puts 57:35-01:00:01 = Terminal Breakevens 01:00:02-01:03:36 = Testing Strategies 01:03:37-01:11:04 = Favorites Follow along with Warrington & all of their funds at warringtonasset.com. And last but not least, don't forget to subscribe to The Derivative, and follow us on Twitter, or LinkedIn, and Facebook, and sign-up for our blog digest. 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. Everything is, you know, we're not going past Friday with any of our positions yet, and we're keeping them extremely far out of the money. So our long is 200 points out of the money, because we seen moves you know so we have a a 200 point you're probably a 150.1 by three foot spread but our long is about 150 points below the market so you've got

this kind of you know we call it a bear trap because we are seeing these you know down 90 point days if you put that too close to the market you know one it's going to be expensive and two you can get blown through really quickly on your ratio point days. If you put that too close to the market, you know, one, it's going to be expensive. And two, you can get blown through really quickly on your ratio. All right. Welcome back, people. I feel like we're a little bit of Fox News today, having Nancy Pelosi on or Rush Limbaugh going on MSNBC to talk with Rachel Maddow. No, we're not getting political right before the election. I'm talking about having an option seller here on the pod where we've usually typically had more long option, long vega, long gamma and so forth managers. Then you can shake a stick at. But

there's an option seller for every buyer, right? So why not talk to the other side? Why not hear how a pro manages the short option risk we all think we know so well? So to help us out with that a bit, we have Mark Adams. Welcome, Mark. Thanks, Jeff. Good to talk to you. You too. So thanks for coming into the hornet's nest a little bit here. Mark's the assistant portfolio manager and chief quantitative officer, the CQO. I haven't heard that before. I like that.

At Warrington Asset Management, who's the sub-advisor to the Catalyst Warrington Strategic Program, symbols CWXIX, and the Rational Tactical Return Fund. The ticker there is HRSAX. STX. hr stx excuse me and long time options trader so i'm excited to dig into how he views the market and the option world uh so where are you down in dallas yep dallas texas yep um and we were just chatting before we got started it's cold there cold of course oh yes this is our winter right now i

guess 40 degrees and rainy but you know it is what it is and are you a cowboys fan i was born into it and i'm not gonna admit too much of it right now hang our heads a little in shame but you know it ebbs and flows we had a good run about 20 plus years ago yeah it was fun but not so much right now brutal this year my buddy's a cowboys fan i just keep texting him like man this is it just keeps getting uglier and uglier it's at a certain point i want us to lose to you know improve the draft pick but you know it's a little early for that and then all the packers fans are like ha you took our you took our terrible coach good luck oh yes we definitely did that um and where are you in the city or in the burbs

or what? Nobody's just outside the city. Not that far, probably 10 minutes from the office. So not too bad. You know, it's a big spread out city, but I live relatively close to a, you know, uptown area. Yeah. My brother's down there in Addison. Okay. That's a little further out. Yep. Not too far. Um, and so you guys have been going into the office or what? You know, in shifts. Right now I'm at home. Some people go to the office. We've got a smaller space, but we only have six people.

So we can kind of, you know, some people will be there, some remote. And that's what's so easy about this type of setup. You can work from the office a couple days, work from home, others. But it really doesn't impact us. It just doesn't. That's what we've all kind of learned is that, you know, being in the financial services space, we aren't making widgets. We don't need to physically touch something in order to produce what we do. I can do, you know, we do this via phone, via chat, via text message all day long.

And it works just the same. And have you found it's been actually easier to talk with people because Dallas is not necessarily on the hedge fund route of allocators, right? So you get more meetings, more calls? Definitely, especially at the onset. I mean, when the stuff hit the fan in March, we had pretty decent performance in both our funds. So it was all day every day phone calls which is great and it's continued because we've had okay numbers and you know and as people are you know still reticent to get up and move around how many of these have we done i mean i've done you know these type of interviews multi you know kind of uh one on 50 different kind of presentations screen share they all they work really well and we've seen,

especially because we have some European investors, we can't get over there. So doing these type of things makes life a lot easier. And frankly, it's a whole lot cheaper and easier. We don't have to take a two week trip to see five people. That's a day. I think we're going to see more and more of it. What was just in the news? Singer in New York is going to bail and move to Palm Beach. I can see that. Yeah. For those those guys taxation too is a big deal so yeah for us you know we've got that thing there for the moment at least right if not bigger right they'll do the first steps palm beach the next is puerto rico for those guys exactly probably yeah cool and then uh but you're originally from st louis yeah i went to undergrad in st louis and

that's where i worked a little bit i'm originally from dallas okay born and bred um so where in st louis billikens uh no uh washoe in st louis washoe okay yeah which had the uh it was the most expensive undergrad in the country there for a little bit i don't know maybe no i was there forever ago so it was you know i graduated in 2000 so it's it's been a bit um yeah i'm stunned you know i my kids look at that school i've got it now my oldest is a 15 year old so he's into computer science he's like oh wash u has a good program i was like well okay let me start saving even more money then so yeah yeah it's it's embarrassing how all colleges are like that though i actually went my wife's cousin uh graduated there and we drove down i went to the graduation there about five years ago so yeah

i love st louis love it's beautiful campus great place to visit i always say the um and i can't remember if we comboed that with the eclipse we went down through st louis to see the eclipse what was that two years ago oh that's right yep yep you're right i think they had a pretty good view up there um so give us the uh so from st louis back to dallas how'd you end up at warrington well sure so the the gosh you know if you if you rewind far enough after after undergrad i may major in finance, you know, if you, if you rewind far enough after, after undergrad, I majored in finance business, you know, the business East mortgage board there. Uh, so I worked for the federal reserve. Um, and I knew pretty quickly that I wanted to be an investment.

So this was a 2000, you know, and we're all bitten by the stock bug. So I'm sitting here day trading during stock or during, you know, often, you know, when I'm should be working, you know, so I knew really quickly that at the Fed you were day trading. Yeah. Well, not too aggressively, but I know. Yeah. Back then I wasn't in the research department, so that was, you know, nothing, nothing. And this was, you know, back when, when, you know, the E trades of the world, we're all still going and, you know, pretty easy to do that kind of stuff. So I started there.

I knew pretty quickly I wanted to get into the investment field. But my degree was in finance management, not really in investments. So that's when I knew I needed an MBA. So that's when I came down to SMU a couple of years later. And that's where the connection to Warrington came. You know, when I needed an internship, you know, after the first year, I canvassed the SMU alumni in the Dallas area, you know, talked to a couple dozen people, some good fits, some not. And that one of the people I talked to was a gentleman named Scott Kimple at Warrington. I go meet with

them. And at that time, he was managing about 10 million, you know, friends and family, some clients, nothing crazy. 10 million for a hedge fund, as you know, is pretty small. But he kind of said, you know what? Not too small 20 years ago. That's the thing. Back then it was fine, you know, and now it's a different world. But back then it was him and an assistant. And so I said, all right, here's what I'm looking for. Here's what I can do. And he said, well, I'll tell you what, can't pay you anything, but I'll let you, I'll intern. You help me out. I'll teach you some things. At the end of the

summer, I'll give you a good recommendation. Perfect. It's exactly like Eric Dickerson got a Trans Am. Can I, I need to get something. I know I need something on the table. Come on, help me out here, partner. But yeah, but I knew, you know, that's what the experience is, is the ultimate thing. I need to have that transition, need to get away from the Federal Reserve type of experience toward the investment management side. The summer progresses, Scott and I hit it off swimmingly, you know, we compliment each other really well. And toward the end of the summer, you know, he's like, hey, can you stay on during the school year? Sure. Happily. So work a couple of days here and there.

We keep progressing. And then later on in the year, he asked me, so how's your job search coming? My first response was, you tell me. How is it coming? And very quickly, he said, well, this works pretty well. So I don't want to say the rest is history, but we've had a great partnership ever since. Yeah, how many years ago? Gosh, it was April of 2002 when I walked into his office.

You haven't killed each other yet. Exactly. Not quite 20 years, but long enough. And we've had a couple of funds, a couple of mutual funds, a couple couple usage funds, everything later turned into a real company here. It goes fast, right? Like when John Cummings and Jeff Eisenberg, and we've all been working together since 2002. Yeah, that's great. And I'm always like, we're on a call and we're like, Jeff and I have been working together for 20 years. And we're like, what? That can't be true. I know. We joke about that. It's like, when I talk about having like a 15 year old kid and things

like that, I remember it's like, oh, that having a 15-year-old kid and things like that, I remember it's like, oh, that's when he says it makes him feel really old because all of a sudden I've got a high schooler. It does. My new life advice for people is because you probably got private tuition for not just college but high school and grade school down there, not as much as Chicago. But I'm like when you meet a girl, right?

It used to be when you get married, start saving for, or when you have a kid start saving for college. It's like when you meet a girl start saving for grade school. Oh, it is. It's like, it's three kids in private school here. So it's just, you know, that's part of the deal. You know, it's, we invest in our kids' intelligence, I guess. Let's hope it pays out. That's the plan. That's the call option. So let's switch a little and give

us kind of the elevator pitch on what Warrington does and you can start quick and then we'll dig into the details. Sure. There's a lot going on there. Yeah. I mean, really at the end of the day, you know, we're option specialists. You know, you take, you know, the 30,000 foot view is that, you know, we trade short term options, short term options in two different strategies that both are founded on the same research. And we kind of take this kind of bifurcated approach where we say we use technicals, you know, a number ofthe-shelf indicators that anyone uses macd rsi etc etc we have a number of proprietary ones we use that you know we've talked about ad nauseum um to a number of people all over we open on our website everything it's nothing super secret we'll share all we can but that's the that starts the technicals you know when everything is very short term like i mentioned is there you know tactical will go one to two weeks before expiration.

Strategic can go a little further out, but generally is a short term still as well. But then I think what makes us a little different, you know, some people are dogmatic on technical is the only way to make money. Or some people say macro fundamentals are the only way to make money. Well, we see the value in both. We'll marry the two. So we take those technicals, giving us a market opinion, bullish, bearish, neutral. Then we take a step back and say,

what's actually going on in the world between now and the time of the options we're looking to trade will expire. That's the kind of the macro. That's the kind of, we call it fundamentals, but we're not out there, you know, doing channel checks on Apple

or Microsoft or anything like that. What we are doing is saying, what's actually going on in the world? Is there a Fed meeting? Are we in earnings season? Is there a China trade meeting? Historic U.S. election. Exactly. Is there an election coming up?

Things at the technicals. Technicals are great at telling you where you've been. They're rear view looking. Fundamentals, the macro kind of tell you, here's some events that are coming up. And the market will have an opinion and have a price baked into that. So we take that market expectation, marry it to what we think might happen. And then we kind of have a bifurcated kind of a quantum mental approach. It's the numbers, the technicals telling us something, then this macro. And we marry that together to kind of, you know, come up with the, an overarching thesis. That's where then strategic and tactical will diverge. Strategic will use, generally will,

will buy ratio spreads, buy an option near the money, call or put, sell a ratio deep out of the money to offset the cost of that long option. Tactical takes the opposite approach. Still use that same fundamental and technical research, but then says, we're going to sell some premium. We're going to capture some premium for its investment gains, ideally. That's the difference. They both will express a bullish or bearish or neutral position, but do so in a different way. And that's, you know, the correlation between the two is almost nothing. You know, depending on what fee structure you look at, it varies from 0.08 to 0.12 between the two.

So just very different, even though it's, you know, both Scott and I working on the research and executing the trades, but it's just the execution of how we express that opinion that makes it different. And backing up, so there's option specialists, two main strategies, tactical and strategic. Tactical, shorter term. Strategic, a little longer term. Marginal. And then you're also sub-advisors for a few mutual funds,

as I mentioned at the beginning. So those are using the same strategies? Yes. The Catalyst Warrington Strategic Program Fund takes strategic, and the Rational Tactical Program takes tactical. So different ways. Easy enough. Exactly.

We're not the most creative in our naming, but that's okay. We're trying to make it not too confusing around here. And so which do you want to dive in first, tactical or strategic? Let's go tactical. Yeah, because's say inside of strategic in a way exactly it's kind of the you know strategic is the older one you know and that started in january of 97 tactical is a little newer um tactical came on you know we started it in may of 12 first started just with you know proprietary money uh then rolled it out to

clients once we knew it was a very real program. But essentially, like we said, it takes that market opinion and then expresses it using short-term options. What we're doing is at the onset of a trade, say three, five business days before expiration, we're going to say we are mildly bullish. So in that case, what we'll do is to balance, I guess, the calls and puts that we're doing, the sizing of those, and the premium we're looking to collect will be an expression of that market opinion. So like I said, if we're mildly bullish, we may say, you know what, we're going to sell a half contingent of calls, maybe a full contingent of puts because we're slightly bullish. If we're ultra bearish, we may sell a full position of calls and no puts,

a la March of this year. That was going to be my question. Are you ever fully on one side? Oh yeah, very much so. And that's, like I said, that's an expression of, we are not dogmatic in the, in the always having to have a full position on, you know, some option traders, I think we can get into the differences. Like we kind of talked about some option traders, you know, the power of theta, that time decay is such a big deal for some option traders. They say we have to have full positions all the time, no matter what. And that's a great way to write your ticket out of this business. I think that is a one step out of the door because being dogmatic that way, I think is ridiculous simply because you don't know what tomorrow is going to bring. So that's to the kind of simplistic option strategy. I'm just going to sell these puts every X date, collect that premium. If something bad happens,

I'll try and maneuver around. Exactly. Exactly. Which, which can work, which can work great. You know, there's some of these, these, you know, put right strategies out there. They make indexes based on you sell X percentage out, blah, blah, blah. And there's a market for that. I think that's great. But I do think that's where being a discretionary manager, that's what you're paying us for. You're paying us to say, you know what? This doesn't make sense to have a massive short put position

right in front of a coin flip. You're playing a lot of risk for possibly very real returns, but that's not what we're doing. We're looking for nominal gains. If you look at our return stream, a good month is 1%. So we're not out there looking for that 20%, 30% annualized return. That's just not in our cards. That's just not how we operate.

But what we are trying to do is avoid those big downs as well. And so how far out of the money are you typically? You know, on the put side, it depends. I would say on average position, I would say a VIX in the mid-20s, we're 7% to 10% out of the money for about a week before expiration on the call side. It'll generally be a little closer just because the way, you know, skew, we may be four to 6% out of the money. Again, these are, we're not taking a lot of premium, you know, on an option like that, you know, on a call side, you're maybe taking 20 to 30 cents on the put 60 cents to a dollar and we'll do that in you know in decent decent size but again not anything extraordinary so that in a given week a 25 basis point return is a lot for us yeah you know you if you pull up the hrstx ticker symbol you see a lot of this like that a little stair step flat you

know and you know i get calls with people saying so are you guys not trading well we are but it takes you know to move a penny it's about 16 basis points just based on the denominator so that's you know we're trying to be the steady as she goes kind of boring admittedly stick to what we know but then you know try to avoid the big nasties because that's you know so far so far so good And we can get into what we do to avoid that, but that's really our calling card. Yeah. And so if you're not necessarily selling theta, but that is part of the premium collection, but that's not your main goal. So it sounds more like you're kind of trading the delta, the direction of the move, but through the options instead.

Well, you are trading- You don't have to be right on the direction. Well, I'd say we're just not maximizing theta. I think that's the separating thing. Because these options, it is all theta because there's no intrinsic value to them. That's really where we're making our money, but we're not ramping it up so much. I think that's where I differentiate us between other options traders. I guess you're not cominging it up so much. I think that's where I differentiate us between other options traders. I guess you're not coming in with a view on implied is expensive to relative,

so we're going to sell, right? It's being sold no matter what. Exactly. There are times where we would rather have implied greater than realized. We want to have that, obviously, but that won't preclude us from doing a trade, especially if it's two, three days before expiration and there's, and you're selling

an option seven to 10% below the market, you know, something like that. If we can get an okay, that's the, you know, weighing the potential risk and reward. If we can make those 20, 30 cents on a high probability trade, you know, that's what we like to see. It's not a, you know, but there's no dogmatic kind of trade based on that. There's no, we have to have a position. A lot of it is, okay, look, here's this, you know, and I like to point to it. We've been staring at screens for 20 years and Scott case, you know, 30 plus years. So there's that, that feel from the market. You stare at a screen long enough, you get that feel of like, this doesn't feel right. My spidey sense is off here.

And that's a lot of times the indicators will back that up. But just seeing the feel and getting in the flow of the market can really reinforce, you know, sometimes it's good to be conservative rather than aggressive.

And generally, we're going to err on the side of conservatism because of that. But inside that conservatism so if you're trying to make this 25 basis points a week what are you risking in order theoretically what are you risking in order to get that 10 five obvious you you the obvious risk of any short option is potentially unlimited we have to say that of course of course the the way we hedge them is we say if if this position starts to and at the

beginning of every trade our risk management comes in and says if this you know say we have a put that's 10 below the market uh if the market drops three percent in is relatively short order say we're four days before expiration that type of move will generally trigger us to reduce that position by half or push the entire position down not out in time generally we don't like to go four days before expiration, that type of move will generally trigger us to reduce that position by half or push the entire position down. Not out in time. Generally, we don't like to go out in time because in the current market, we don't think you're compensated for rolling out. It doesn't seem to be there. But in that case, if the market goes well before we're moving 10%, if you sell that option for, let's say, 80 cents, and it's still three days

before expiration, you drop 3%, that's probably going to be $2. Just using estimated numbers here, of course. But that type of trade, you say, oh, I'd rather risk losing that dollar or two, because you lose 10, 12 basis points on that trade. But in order to keep maintaining, we can sell that 80 cents, and we can sell that trade. But in order to keep maintaining, all right, we can sell that 80 cents and we can sell that dollar knowing that that's our trigger point to kind of minimize that risk. And do you ever worry or feel like the other side is overcharging you to get out of that? Yeah. I mean, there's always that risk. You know, it's not necessarily an overcharge because there's, you know, when you're doing these trades, there's, you know, you're trading with two dozen, three dozen, whatever different people.

So there's always other market makers. And that's a, you know, it's a matter of, you know, we're not that big of a player. Our largest fund is 220 million. So that's big enough for the space. We could move the market if we dumped all of our, we did a full trade at market go kind of thing. But that's not really how we trade. We trade in bits and pieces.

That's our MO. We prefer to step into and step out of trades as needed. I was curious because your long ball counterparts are like, we're the liquidity provider and these guys are seeking it right at the wrong time. And we're going to just be sitting back saying, okay, right. Like Eddie Murphy and trading places. Right. And I think the key is to do your trade, do your hedging preemptively because if you're coming in and you know,

if you're doing that trade when you have to, yeah, that price is going to be worse than you expect it to be yeah but if you say like a vom again and those people at 305 trying to exit those options and yep and i i have a good anecdote about that that specific week right there but i'll jump into that in a second if you want to um but i do think that's it i think that's one of the separating factors of you know we're hedging these positions you know we'll talk to other people like why are you hedging this? Why are you getting out of that position so early? It's because of that point exactly.

We don't want to be buying this into a fast market or in a bid-wanted situation. Or on the opposite, an extreme meltdown. We don't want to be covering calls on the market screaming higher after they announce a know, available to everyone tomorrow or something like that. Yeah. So that type of potential risk out there, we like, we seek to avoid that by hedging early and, you know, oftentimes hedging unnecessarily, admittedly, but that's okay. We're fine with that. Hedging means that pushing it out or covering? Generally either covering that risk or pushing it up in strike, generally not pushing it out in time. And not buying wings or something of that nature. Yeah, usually not because then you're just making a short spread and you still have a lot of exposure.

Then you're not doing any delta hedging or things like that. No, no, no. I think with that kind of stuff, we don't like to use the futures for the delta hedging like that because one, the options we're trading have such low delta that once they acquire that delta, then we should have hedged. You want to be out anyway. Exactly. like that because one the the options we're trading have such low delta that you know once they acquire that delta then we're we should have had you want to be out anyway exactly exactly right you're putting on one micro exactly it's like it doesn't make a lot of sense to do and

especially since we trade the mutual fund alongside a lot of smas so you have to kind of parse your positions to say all right here's my kind of least common denominator. We need to do at least this many, many options in order to kind of allocate across everything. Things you have to think about in that kind of situation. So you mentioned an anecdote about Volmigan what was that all about you know what i'd love to use that one as an example because you look at our return that month we had up about one point depending on the program 1.2 to one and a half percent you know both programs strategic and tactical or profitable and one of the things we'd like to use one of the tools that we kind of i'll put that in our technical indicators which seems totally

impossible for a short vol program exactly because a lot of we know you know how many you know funds that shall not be named went out of business that month you know um that's because of that dogmatic approach we have to have a lot of short volatility no matter what and then when vix triples in two days you know you get a lot of trouble do their names rhyme with rj's smuckers in that range yes yeah um the yeah we had we had a lot of calls that week like how did you make money you know how did they lose so much so yeah anyways i'll say if you we had and we had a nice blog post, we'll put it in the show links on LJM. What went wrong? Massive, massive notional exposure. Exactly. They were very big and you know,

and I can't speak to how they trade. I just know they were very big and they lost a lot of money. I can't say here's what they did, but I can tell you what we did. So, you know, if you rewind to the Friday before that, one of the tools we like to use is looking at the slope of the VIX curve. So generally it's, you know, positively sloping, you know, spot VIX is underneath month one, underneath month two, yada, yada, yada, very nice and boring, kind of positively sloping. When that inverts, when there's a double inversion, when spot VIX, the cash VIX we all see

on CNBC or Bloomberg TV, When that goes above month one future, which is then in turn over the second month future, you get that double inversion. When that happens, that's when it's potential for crazy volatility. Friday, February 2nd, 2018, the VIX curve inverted. Middle of the day, probably one o'clock central time. So we saw that and we're like, wait a minute, that doesn't look good. Market was already weak that day. We said, you know what we're going to

do? We're going to close out all of our positions for next week. This doesn't look right. You know, again, it's a, you know, a feel of the market, market falling into, you know, after, because earlier that week, you know, the market had peaked that January. It was crazy. We were screaming higher. Then all of a sudden the market really started tailing off very quickly into end of January, early Feb. We saw that and said, that doesn't look good. The feel of the market is not great. The technicals are telling us this VIX curve inversion is flashing a bright red light. So we closed.

So Tactical went into the weekend with no position whatsoever. I think we had some short calls, well above the market and strategic had nothing. Obviously, history then shows us Monday volatility goes crazy, Tuesday gets worse. At that point, we're sitting there looking for opportunities. And after probably three or four more days, we then stepped in. Once we kind of saw, you know, things returned somewhat normal, figured out what the root cause of this was and said, okay, this is some things were going on. Some funds blew up that kind of probably exacerbated it. And then we're able to, you know, look for up to- Then as a vol seller, it's green light go, right? It's like-

Not fully. It's a, you know, we, that's our, it would, you know, hindsight being what it is, it's easy to say, oh yeah, sell everything you can but in that case we're like all right let's just step into trades and we did go what 12 to 30 12 to 28 i can't i'd have to look back i think at least 30 but it was it wasn't 80 right that's the issue there like okay we're selling at 30 what if it goes to 80 exactly and that's the trick right there and people ask us that same thing like in march well why didn't you sell a lot of premium March? You know, you should be, you know, VIX was at 60. Well, that's great.

But like you say, you know, if the market goes, if you wake up tomorrow and we're to limit down again, how many times are we to limit down? Yeah. You know, that just doesn't make a lot of sense to us. We're not swinging for the fences like that. Yeah. And I think like 87, all the VIX wasn't around, but it would have printed like 128 or something. Something like that, exactly. Some insane number that people –

and even that with the crazy delayed tape back then. Yeah. And then so take us into March 2020 because similar, you'd think vol, you'd think option seller, you'd be taken out in a body bag, but it worked out for him. So in that case you know we saw you know in in if you look at a couple indicators that we were using even as early as january we kind of saw you know the vix curve got flat we saw a number of things that that told

us you know wait this doesn't feel right you know it doesn't it there's underlying weakness in the market there's not a lot the index was doing fine but it did not look healthy and we had some indicators telling us this we then took a step back so the technicals were saying be cautious but we didn't know there wasn't some bright red light saying you know go to the sidelines be careful but at the same time we use that macro like we talked about you know in middle january late january we see this you know the flu and going on in china as virus it's all over there and admittedly at the time we thought it was more going to be more of a supply chain issue

if this is affecting china as much as it looks like and you make a product that it's dependent on you make a widget that's dependent on something that's coming from china you may not be able to sell your finished product may hurt your profits that's kind of what we thought we are not virologists we're not going to say we are yeah i remember i had forgotten until you just mentioned and i was buying like water and food because they were like yeah the supply chain is going to get even the foods which happen a little bit but not nearly as much as everyone thought medicine things like that i was kind of you know saying like just stock up on things that you have to have

um obviously did not anticipate what it became or else we would have been outright short um but that's not really how we trade either way but that was that you know the technical is telling us one thing combined with the macro of this thing going on that could be something we don't know told us to get conservative and be careful really early now we're that just means we're just dead wrong through a lot of February you know because February just was a pretty strong month until the very end at that point when we saw okay wait a minute Italy's a mess creeping into New York uh-oh let's batten down the hatches. During the month of March, Tactical never had a put, long or short, in its portfolio.

We made about a 25 basis points return that month just selling short calls. Strategic did have a pretty decent month because we were able to do the same thing. We were able to do essentially just long put spreads and make some money that way. That's the MO. We're out there to take a big, large position in that type of market,

even though volatility is great. Like you say earlier, it would be wonderful to short VIX at 60 if it goes to 2 or goes down to 12. Wonderful. But if you short VIX at 60 and it's 110 the next day, then dust off your resume. Right, and that's part of the, right, what'd you say? Scott's been at it since 97? Well, we started strategic in 97.

He started in the early 90s. He's got an interesting backstory if you want to get into that. He started with, his family ran a manufacturing company in the 80s. They sold it, and he was tasked with investing the proceeds. He found a local hedge fund. Yeah, this is a hedge fund in the late eighties, early nineties in Dallas.

Exactly. This is, you know, and, and even more so this guy traded futures options. So Scott found it, they invested some money. Scott went to work with him and learned option trading from this gentleman

named Stan Finney. That's where Warrington and kind of that's the Genesis story, if you look at it that way. Once he kind of learned how this gentleman traded, he found out, this is a great way to really invest money. But that trader was very aggressive. The typical, you know, really strong ups, strong downs, tough to really, you know, stomach those 25% months, both directions. So Scott learned from him and tweaked it and said, let's change what he does and take it into, you know, a little more conservative version of that. And that's kind of where strategic came from. So strategic, he said, this gentleman sold premium aggressively. If we tweak that a little bit, use the proceeds of that short option to

then fund the purchase of a long option, that creates that ratio spread. And that's where strategic started from. So that's the big difference between strategic and tactical. In this case, strategic will take the proceeds of those short options, funding a long option, stripping away some of that volatility. It's a ratio spread. It's not a one-by-one. And what does that look like on the – let's just use fake numbers on the S&P at 3,500. Sure.

So a good example, in a normal market or today? Because today's kind of trades, everything is, you know, we're not going past Friday with any of our positions yet, and we're keeping them extremely far out of the money. So our long is 200 points out of the money because we've seen moves, you know, so we have a 200 point, you know, probably a 150.1 by three put spread, but our long is about 150 points below the market. So you've got this kind of, you know,

we call it a bear trap because we are seeing these, you know, down 90 point days. If you put that too close to the market, you know, one, it's going to be expensive. And two,

you can get blown through really quickly on your ratio. So the way we've been trading that one, and that's, and that one's had a tough year. Strategic's up, but not much, about 1.5% depending on the program you look at. It's done okay, but nothing spectacular because of these no vol to the low. You've had a lot of realized vol.

Exactly, exactly. It's actually, it's moving pretty well. The implied vol has been mostly high, but in months like March, you know, in months like March, strategic is going to sit on the sidelines. It's just going to not really trade very much because a VIX of 80, neither of our programs excel. You know, we love a VIX of 25 to 30. That's great. There's a lot of opportunities there. But like you said, that realized vol is a lot higher than we'd like it to be, but that's part of the deal sometimes. And so let's go back to the general example,

3,500 S&P and you're selling put spread. We'd buy a put spread. So we'd buy a ratio spread for strategic. So in that case, they were moderately bearish in a normal market. The S&P is at 3,500. we're probably going to go long at 3,400 and then sell three down at probably 3,250, 3,270, somewhere in that range. So you have a decent, and that's for about a week to a week and a half before expiration. That's the normal type of position.

And so the risk there is you're overweight on the sell side. So it's a short gamma trade? Exactly. You're taking in, so the ideal is that you, if the market goes sideways to slightly down, you know, and then eventually your shorts have decreased in value, but your long is held at value or increased. And that's that rate, that relationship where you're looking to take advantage of. That's what we want. Scenarios pin right below, right above the short strike, right? Ideally, but even- I mean, that'd be too scary, but-

Exactly. Generally, we're out of it long before that, unless it's somehow magically Friday afternoon and we're trading it right there. But most times, that kind of position, we're going to go into it with, it's going to be close to delta neutral at onset and almost no cost. So that's kind of one of the ideas of strategic as well. We want it to be cheap. delta neutral at onset and almost no cost. So that's kind of one of the ideas of strategic as well. We want it to be cheap. We are not looking to spend a lot of money on these. We want to go in with minimal cost, but then ideally buy it for 20, 30 cents on the package, but then come in and sell it for $4, $16, $20, whatever, if we're right. So you do want to move in that direction?

Yes. Not a lot in that direction. No, no, exactly. We don't want to, you know, in that kind of situation, we don't want a 20% move, but a 10% move would have been fine, you know, and something like that. You know, that's the MO. So strategic develops delta as we approach expiration.

You know, at the onset of the trade, a week to week and a half before, it's delta neutral. We're slightly short gamma, especially if it accelerates, we'll pick it up pretty quickly. And that's where that risk management comes in. Because like with tactical, there are short options. So we know exactly our risk points. We set up before, even before a trade, sometimes we're looking at a trade and say, this looks good, but if we need to hedge it, it's going to be a mess. So let's hold off. We've done this 20 stinking years, so we've seen a lot of different iterations here. But that's a thing that we will often do where we say, the risk management on this trade doesn't make a lot of sense.

So we need to hold off, scale back, you know, adjust. But the same kind of preemptive hedging is what we're doing in tactical, we're doing in strategic. But because strategic has, like we say, in that case, you have a long option and then three shorts. So you've got two exposed down below your short. So oftentimes, that's where we're hedging, you know, that you cover one of you cover one exposed option as the market climbs or falls lower or climbs if we're doing a call spread, and then you cover the other one as needed. So that's the idea.

You don't have it on at the beginning, but then you have it on as the market moves. And same thing as tactical there, that you could have on both put spreads and call spreads? Correct. Or you can shift one way or the other? Precisely. So a lot of times we'll start, if we're, say we're neutral, we'll put on both a call spread and a put spread, both with minimal cost. And we just want one of them to be right. If we spent 50 cents in total across the entire portfolio, that's not a lot of money when you

multiply it up with the multipliers and you scale it up per account. It's not a lot of money we're talking about. I mean, we're talking 10 basis points before costs or before fees. So it's not a lot of money what we're doing there. But the idea being if we can monetize either side, then that's a winner. Which but so help me understand the basic principle there, because harder to understand than tactical, you're not necessarily long ball, you're just kind of absolute return, but you kind of view it as you're basically trying to get a free straddle or strangle. Right. Essentially it's a, we are short vol at the onset, you know, just slightly short volatility.

But as we approach expiration, it develops, you know, depends where we're at. If we're close to that call spread, we're going to develop a long bias. We're close to that put spread, we're developing a short bias. So that by, you know, expiration or the day before, it can have some serious Delta to these positions because we are, you know, our shorts are so far to the money, 150, 200 points away, but our long, maybe 20, 30 points away or in the money even sometimes. Right. But there's no downside to that. That's just, that's kind of like the free put option.

It's a free option. Exactly. That's the, that's the huge caveat that there's those short shorts. Exactly. Cause that's the thing. If it goes too far, we've seen those a couple of times this year where, excuse me, when the market comes in doing exactly what we want on an expiration day. So we'll have to monetize it. But then you can't just monetize your long option. You can't sell it out and keep your shorts out there. You've got to close those as well.

So how do you, switching gears a little bit how do you explain all this to your typical ra investment right is his head or her head spinning by now and like just especially in texas i don't know if i just made some enemies down there but just like just give it to me straight partner what do you what are you trying to do sure so essentially with with tactical we're just collecting premium that one's easier to explain most people you know, get it. You sell an option. You sell insurance to a guy and hope it doesn't rain, you know, and you plan for accordingly. And are you getting, see, I can't even do it. I want to get more into

the weeds right away. Are you saying like, because some people say, hey, we're risking a 10% down move in a week to make 25 basis points a week right like that's the risk is we're risking this event happening or that's what we're selling insurance against this event happening it depends on our market opinion but yes i mean that's the idea it's like hey we are cognizant of the risk of you know selling options we totally understand that we and we are forthright we're very clear that hey selling options carries risk we got that but here's what here's all the things we do to mitigate that and hope to just you know avoid those pitfalls you know one it's easy to point back at our tracker i can say look here's what we've done you know but that said there's no

guarantee of that's happening tomorrow of course not even a cya but it's just a it is true but you know i think what our process does it allows us to kind of say we're identifying these potential issues and we're preemptively acting accordingly. So getting back to the kind of the elevator pitch for strategic is that it's essentially it's a one, it's a mid-range volatility program. But what we're trying to do, the elevator pitch is say we're trying to capture range in the market. It's all we're trying to do. We construct option strategies to say, hey, here's our market opinion and we want to capture that range by doing so. We're going to spend a little money to do that and win, lose, or draw. We're going to go back to the drawing board next week and do the same thing, but based on a different market outlook. Because as we've seen, our market opinion today is going to be very different than it is a week from tomorrow, perhaps.

You tell me what that election looks like, et cetera, et cetera. These type of things happen. It's usually not as stark, but our market opinion does evolve over time. And we just kind of wash, rinse, repeat. We start with the technicals do the fundamentals express it using options and would most people put you like as equity replacement i we get bucketed in that sometimes only because we're trading the s&p i tend to say don't look at us there look at your your non-correlated your alts and and say, what am I doing there? Pair us with some trend followers,

some other alts. And we would argue that that alts bucket needs to be 35% to 40%. It needs to be higher than most people anticipate because bonds have done pretty well for you this year. Will they do this well every year? Especially coming from here. Exactly. It's like, yeah, they've, if we had this conversation coming from here, exactly. You know, it's like, yeah, they've had a great run unless rates go negative.

You know, that may not, you may not want to expect that in the future. Same thing. If we have this conversation, you know, six months ago, you were telling me how your stocks are the worst thing in the world.

And you never want to own Apple again or whatever, but that's, you know, obviously they've had quite a run, but I do think, you know, depending on your outlook, you shave your bonds, maybe put more toward alts, not just in the Warrington, but like we say, other trend followers, some long gamma, things like that. You diversify that bucket because our correlation to anything out there is just almost non-existent.

I mean, it's strategic correlation to stocks, bonds, other alts is almost zero tactical same thing and tactical to strategic is almost zero as well and that's a big theoretical thing right can you have long gamma and short gamma at the same time i would say you're buying and selling the same thing eventually so there's someone smarter than me we'll have to figure out like mathematically you can't be in that position or like it could get arbed away or something but exactly like for us because we're not just a short gamma shop i think that's why you can do that because there are months february of 18 march of 2020 where we're going to where we should lose a lot of money if you call us a short gamma shop

right that's you know obviously not the case. Or the first Trump election, right? That was the mother of all gamma melt-ups that took some people out. Oh, yeah. Especially if you're short a lot of calls. Even that January, February after that and early 17 was kind of a mess for a number of funds. Yeah. You caught my eye when you said my ear.

You're trying to capture the range do you feel like the fed put and everyone's trying to basically clamp down on volatility feeds into that i was like hey we're trading this thing and per the tea leaves that's exactly what the you know the handlers of the market are trying to create with their monetary policy and telegraphing what they're going to do way ahead and things like that. So you're asking, do I think that they're going to or how does that impact us? Yeah, just basically,

do you think it meshes well with the world we live in of like the Fed's going to keep the lid on volatility for as long as they can? Maybe they're out of bullets. There's all those arguments, but... They're sure trying to pass that baton and I don't know if they're going to be able to. But how it dovetails with us but they are, they're sure trying to pass that baton. And I don't know if they're going to be able to, but I,

how it dovetails with us is that we can make money in low volatility environments or high volatility environments. We don't need a specific, I mean, ideally, if you said, Mark, I'm going to give you a VIX of 17 to 25 for the rest of your life. And it's a great, that's wonderful. But you know, who knows what that will bring in the fed would like that too. I have a feeling, but as wonderful. But you know, who knows what that will bring? And the Fed would like that too, I have a feeling. But as we've kind of seen, even in this year, the Fed was trying to keep a lid on volatility and look what happened. So, you know, I think they have, they are not the, you know, Wizard of Oz wizard behind the curtain that can control everything.

I think they're going to try to. But I'm afraid that, like you said, I don't know if they're out of bullets, but I think sometimes their bullets aren't, they can't work for the problems they've created. Yeah. But some would argue that they did it, right? It was like a quick one month down move and right back. That's true. It's a very good point. There's tens of millions of people without jobs and whatnot, but the market came right back. are you hearing all this talk about dealer gamma and the vex and vanna and all these second order greeks and basically where the market makers are hedging do you guys give any uh what are your views on that are you using those as indicators don't use them as much i use the the gamma exposure a little bit but because we're so short term we're not going out very far at all. And I think some of those are good tools, especially as you approach an expiration.

I think that's one thing. We'll look at the open interest across a number of different markets and see, like we've seen, oh, there's X many billion of Notional and Apple. Yeah, well, that's fine. But if it's $20 out of the money, that's not going to have any real effect. So that won't do anything. But if I see a lot of close to the money S&Ps specifically, or NAS options, those are ones that will catch our attention. And that's where we'll kind of pull in that research and say, all right, the bias may be this, but here's where gamma is going to have a potential issue.

And we, you know, short term, we don't necessarily trade around it, but we will use that to influence our, you know, how we unwind. That discretionary piece. Exactly. So if you're like, hey, we love this trade. Let's put it on. System says it. But look at right at that first strike, there's tons of gamma there. Exactly.

Precisely. And that's going to go off the books. Precisely. That'll act as an accelerator. So, yeah, very, very, very good point. And then you mentioned Apple. Do you have any fears or concerns or thoughts on those FANG plus becoming bigger and bigger part of the index? Oh, sure.

Like at some point you're trading Apple instead of S&P, right? You know, that's one of the reasons why we don't like the NASDAQ. And we can take our strategies and apply it to other indexes, but we don't because the S&P is still broad enough that, yeah, Apple and Microsoft are 5%, 6% of the index, not 25%. So that helps. I do think just for the health of the market, companies getting that large is not great because if XYZ

happens then you get that headline risk we talk about this phrase headline roulette a lot where maybe doing some research working on a project giving a presentation and then you check your Bloomberg alerts and oh wait we just banned WeChat and therefore, you know, no Apple products to be sold in China for 10 years.

You know, that kind of thing. You know, those are disconcerting. But again, because we are focused on the S&P, it's less of an issue than it is in the Nasdaq. The Nasdaq is so concentrated that I that you're trading, like you say, five stocks. Yeah, you have to become expert in, right? Your indicators have to shift to what affects those five stocks. But it seems like that's into the S&P too,

because it's 5%, but of each of those, right? Right, right, exactly. So it's not 70% of your index, but it is 25. So that's enough. But yeah, it's's they're heavier weighted than i'd like to see admittedly i definitely would like to see a little more broad you still had right like in march boeing falling through the exactly causing s&p losses so exactly and in that case like boeing just absolutely killing the dow because it's silly price weighted index

instead of market cap um exactly right but nobody trades dow options yeah i know i used to when i first joined we we did trade dow options in the gosh early 2000s and as we kind of looked at the open interest we realized we looked around and we were the last one in the room so it's like hey we can't do that one anymore uh and what are your i had some ones I can read here, but also what are your thoughts on just what some of the biggest mistakes retail or even professionals make when they're selling options? Oh, sure. The most common one is falling in love with just the premium price, you know, completely forgetting what risk is, you know, the, you you know the slippery slope of like in our case we're selling something for a dollar like well hell if i just move 20 strikes closer i can

sell it for two dollars well if i go a little closer i can sell it for three or four or five and all of a sudden you've got a you know 7 10 20 delta option that you yeah yeah i sold i took five dollars in and that's great but it's going to be 25 when trump tweets something or things like that happen that he sold it for the same dollar amount but it's 10 times riskier precisely precisely you bring in too much you know too too high of a delta not appreciating preemptive risk management i think is the other big sign of it you know knowing that the market starts barreling toward your position, extend and pretend doesn't work. If you go out there and you just push it out in time because, yeah, you don't realize that loss immediately, but you took on a lot of that time risk. I mean, properly valuing time risk.

If you have an option that's going to expire in two days and you make it at one that expires in 12 days all of a sudden you know that's a very different trade it's a very different trade so i think not you know avoiding that um you know just being a good risk manager i think is a is the biggest thing people can learn and usually it's really expensive uh yeah the um right what's the uh patrick malady do you know him he does uh he runs a fund but his he always brings it back to a pilot and like you could fly 10 000 flights in your life never have an issue if you crash on the last one and kill all the people right like it didn't matter those other 10 000 were didn't matter at all that's why I pilot every time they get in the cockpit checks, goes through the checklist. That's all.

Treat it like that. And so we mentioned rolling out the positions. That's a famous one. What about like treating calls and puts the same? In what way, as far as balancing them in how you trade or how you execute them? No, like more of like just selling options. I'm going to sell

them an equal amount out or selling both sides. Right. Yeah. Calls are very, calls are very, very different than puts, you know, because generally when, now this is interesting, what we've seen a couple of times this year, we had that meltdown. Counter to what you're about to say. Exactly. You, all of a sudden you saw the market scream higher and volatility go. And those type of situations are usually triggers for us to, again, manage that risk, go to the sidelines. Because if volatility is increasing, generally volatility is decreasing as the market goes up. That's the general rule of thumb.

That's why when puts get really expensive as the market's cratering, but as the market's climbing, a lot of times calls don't price up. They kind of flat, flat, flat, and then kind of accelerate. So hedging that before that. What we've seen a couple times this year is that volatility increasing when the market goes up. That's a different situation. That's more akin to how puts price. So we'll treat those as puts, hedge them very preemptively, whereas sometimes we'll give calls a little more room to work intraday, not overnight. We don't like to do that overnight because you do

have gaps. That's part of the problem that we're seeing. A lot of new slow overnight, gap up 30, points you know then all of a sudden you can be in trouble so we want to avoid that type of situation again that means we're hedging options unnecessarily if you will if you say in the rear view we want to hedge that prior to it becoming a very real issue so so i think they are different in that sense. But you have to treat them, you know, with kid gloves both ways. I think you said this is one of your thing, but another retail possible mistake, like selling it right before earnings, a single stock name or right before, say, an election or a Fed announcement. Right. Because we we know one thing we like to say, we know we don't have an edge. We you know, this this election specifically is I want to call it a coin flip. But there's enough factors where we as a small shop don't have our we're not doing exit polls.

We're not doing this. We're not conducting our own surveys. So we don't have an edge there. So you're not going to see us take a massive position if we may not have any position, depending on how this thing trades before then. That may be a three days of being in cash and then we reevaluate but that's one thing we've we've learned over the years to know we don't have that edge and then stand aside if need be i'd argue some of those big firms that are like have their own polls and everything can that creates a little like bias towards your own information. Oh, sure. Way more hurt than you would. Yeah, exactly. Another one, holding your options

when they're not worth anything. Like if you're short and you're holding cabinet bids, what are your thoughts on that? Depends. If it's a day or day of, sure, fine. If it's that far out, a lot of times that money is just sitting fallow and you should either roll that closer if you're committed to that position or clean up your books. Having an almost worthless option sitting on your books for too long is not a good take if you don't have a position that you need to take its place.

Because in this world now, margin is a very real issue. FCMs keep raising margin into the election. So that little tiny option that, like you say, maybe cab, that it's sitting there taking up $15,000, $20,000 worth of margin, and that's a waste so you know you don't don't need to put that up if you don't have to what are your thoughts on some long ball people would say like that most of this you know one by three spreads or outright selling is like a terminal break even, right? Like eventually it's going to lose money. It just hasn't yet. So, I mean, since 97 and you're kind of, right. You're, you're solving that by like,

we're not always doing the same trade day in and day out that would make it more terminal break even. But I could argue like, well, it's still terminal break even. You're just have skillfully picked when you're getting into those trades. And if you had a long enough time horizon, right, eventually it would hit you on one. I don't know. What are your thoughts on that? I think I'd say my general thought is that that's kind of where, you know, as discretionary managers, we're saying we are market timers. We are making market timing decisions. And some would say, oh, you can't do that. That's impossible.

Well, I would disagree in that sometimes we are saying we are agnostic on the market. And other times we are taking a position. I think that difference, if we are, like you said, always had a position on, I would agree with that statement that we are terminally doing a breakeven, you know, proposition if we always have this on, but because we are going in and out or hedging quickly or being aggressive, you know, it's that manager skill I think you're paying for and being able to, you know, time the market, being able to look for positions that are look for opportunities that, uh, just a standard index won't. I think that's what differentiates it.

And that's why I do think, I would disagree with the notion that it is a breakeven analysis or breakeven proposition long-term because of that. Yeah, and it assumes you hold it till expiration, a lot of things, right? And that's the thing I love about options. It's like, it's some cliche 3D chess, 4D chess,

but there's so many different iterations. Is it this exploration versus that? How far out of the money? How many of them? Long versus short? Spread versus outright? I love options for the creativity. With a stock, you're either buying it or selling it.

Okay. It's a little different. So I love the flexibility. I call it 3D chess on the water with sharks with lasers on their head. Which could be. There's risk out there without a doubt. You mentioned you've tried it on other indices. Have you tried it on like bonds and currencies and whatnot?

We've never tried it on there. We've tried it on like bonds and currencies and whatnot we've never tried it on there we've papered we've looked at it like this is yeah there were so there were some that we looked at yeah was it gold silver uh nat gas crude uh euro and yen we looked at years ago and there's certain aspects for what we do especially in the strategic side tactical i think could be in a lot of different, you know, it's just premium collection and risk management is what tactical really boils down to. Strategic, though, needs a number of things, you know, liquidity, option granularity,

a one delta hedging instrument, you know, getting that, you know, that underlying, you know, that's why we prefer the futures options over SPX. You know, there's your basis risk if you all of a sudden are using SPX and then you have the ridiculous expirations every month as opposed to quarterly. So using we looked at those again, it kind of boiled down to where's your expertise? You know, we like we like the S&P because you are kind of a macro mentality. Everything is impacting the S&P, you know, currencies's kind of a macro mentality. Everything is impacting the S&P,

you know, currencies, energy, financials, technology, momentum, everything is kind of building into the S&P. And so therefore we can, you know, be, you know, I guess more macro generalists as opposed to crude oil experts. You know, that would be, that's a, I think fast forward, you know, five, 12, 10 years, whatever that number is that I would like to see us expand to those. But I think that's a bring on a research team that is a, these people are focused in blank is a crude oil or whatever that is. But those are very different markets. I mean, right now there's so much more capacity in the S&P to do what we do that we don't

really have a desire to really expand that way. I see it from the flip side, from the long vol side of these managers of like, hey, S&P vol is too expensive. So I'm going to go into proxies and gold or bonds. So you could flip that on its head, right? Exactly. That would be find the market where the best risk reward is like, oh, exactly. And that that was really what started to say all right you know what snp may not always have the best risk reward based on what we need but that's where i think strategic has it's really it's good it's you know flexibility to kind of tweak those positions and uh and kind of fit them to the volatility and it's interesting you're saying like all the which i agree with snp's got all those factors coming into it. Like most people would say that makes it almost impossible to trade, right? Because there's so many factors coming into it. You don't know which way Oh, a lot of capacity. Okay, market goes down, et cetera, et cetera. There's a lot of cross currents.

There's a lot of things that are impacting trade deals, everything. I don't need to list them all. You know there's so many things that are pushing the S&P on a daily basis that I think it's a really good representation of the world economy. It just is what it is. Yeah, and where the world comes to head has been kind of shown in march and everything if you're worried about the virus you're coming to buy puts in the u.s you're not

buying them on the italian exchange or whatever precisely because you need you want to make sure that exchange is going to be on the other side of it or somebody you know exactly finish every pod going through a few of your favorites so we'll start with uh you we already talked cowboys i was gonna say texans or cowboys but you're already oh definitely cowboys but i'll put mavericks over the cowboys any day of the weeks any day of the week we got it you know mark cuban we want to get him on the pond oh i i i don't know him, know him, but I've run into him a number of times. He, in our, our building down at the, in the Crescent,

I've bumped into him a half dozen times. He doesn't know me. Of course. I gave him a business card way long ago. I used to have bull season tickets and he was there with the Mavs. I was like, Mark. And he just turned around and I gave him my card. I think he dropped it or threw it away. Or he's going to call you tomorrow. You never know. Yeah, tomorrow. What about college football down there? You know, I don't have a horse in that race. I went to Wash U, you know, SMU for grad school. But, you know, as an NBA, it's, you know,

it's not the same experience. Wash U is a division three school. So it just, the football was, there were more, I went to a public high school here in Texas. So the football, I was not on the football team, but our football team was, was pretty good. Go, go owls. They, there was a, you know, probably in the playoff games, 15 to 20,000 people there, those type of things, Friday night lights, Friday night lights kind of stuff so do you go to that go to see that at washington where there's 200 people there for d3 you know mostly girlfriends and i played d3 and it was yeah and i grew up in florida so yeah way less people in attendance in college than i exactly precisely so but yeah no no college

you know i'd rather the longhorns win than A&M, but that's, you know. All right, no horse tires. How about favorite Dallas barbecue spot? Probably Lockhart's. They use this, what's the wood they use? Post Oak. use this um uh god what's the wood they use post oak that has such a different flavor than the hickory mesquite kind of thing oh it's phenomenal it's great uh and how about dallas first austin everyone loves austin no one talks about dallas dallas austin is cool and it's great you can go

out partying and stuff but uh i want to raise a family you know that's the thing i've got i've got kids and i don't need them to be wandering down to sixth street and partying a little too much you know college they'll go to college that's fine but dallas i love dallas dallas does not have a great reputation nationally that way houston has its country in oil and dallas is you know a little finance and yuppiness if you want to call it that but uh but I love it. It's a great town. Great town.

I mean, that's every dinner, every time you see friends here, everyone's complaining taxes and pension. And they're like, Nashville or Austin? Nashville or Austin? Yeah. I mean, Dallas is right there. You drive around, there's probably more California plates than Texas plates all of a sudden. It is very common to see a lot of transplants because you know frankly

compared to even probably parts of chicago i'm sure our real estate is cheap compared to you guys just because you know we got no no land borders there's no there's not a lake michigan kind of boxing us in so right you can just go further northeast south or what exactly um favorite texas is so big favorite vacation spot inside of texas oh inside of texas yeah it's not my favorite i'm a beach guy i love the big ben national park you ever been down i've never been can't say i've ever been um i want to go do that rough creek launch it's kind of a really nice little place about an hour and a half out of here. It's kind of an outdoorsy, but nice enough place. You know, that one's pretty good.

All right. I'll take outside of Texas. Outside of Texas. Easy. It's a place called Inlet Beach in, in just east of Destin in between Destin and Panama city. You know, in that area, Rose, right next to Rosemary beach. That's my happy place.

Where Hurricane Zeta is going to go take that. Oh, yeah, again. I don't want to own property there, but I love to visit there. Yeah. And finally, favorite Star Wars character? Got to go Han Solo. I'm a Han Solo guy. You got to love Han Solo a little.

And he always had the coolest gun. Sure. I love his little blaster actually i just have sat my kids down and watched episode four with them uh two weeks ago and it it stuck you know my seven-year-old was a little hesitant when i told him space samurai with laser swords he's like i'm in i'm in i'm in So it worked. Are they Mandalorian fans? Not yet, not yet. I did a little research on how to progress.

And it was like, there's some, it's a couple of machete version where you start at four, five, six, you skip one. But it's some weird thing where it's going to take us. That's, you know, they're doing school from home. So I'm like, all right, let's, you know, every so often we'll do a fun thing on the weekends for you guys watch one show. So we're a long way away from the Mandalorian, I'm afraid. It's coming back Friday.

As they say, it's coming out soon. Great. Any other comments on the, so where can they, they can go to the Catalyst website and go to the Rational Funds website. Yep. Yep, yep. Go there. Where else can they learn more good stuff about you guys? You can go to our website, warringtonasset.com. I think the Catalyst and Rational websites are really good.

I think some of the materials they've made are phenomenal. I think they have a really great team that has put together some stuff that really highlights. So here's what we've done in certain situations. Here's the history of the fund, you know, and I can't go through your RA and they'll be able to get through the sales rep, the proper materials for you. But I think there's a number of things that they've put together that really kind of highlight that in a, you know, three, four pages, you know, versus listening to me chit chat about it for an hour and a half. But that's a nice, you know, for, you know, succinct way of, of capturing our returns and understand what we do.

And they've got some good little video of Scott on there as well. Oh yeah. Oh yeah. All right, Mark. It's been fun. We'll post all the links and everything in the show notes thanks appreciate it have a good one you've been listening to the derivative links from this episode will be in the episode description of this channel.

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