NEW ODD LOTS
THE SHORT VOL TRADE IS BACK AND BIGGER THAN EVER
Kris Sidial walks us through the recent explosion in options trading and what it means for the broader market. Lots of interesting stuff to pick out here, but Kris's comments on the incentive structure and what changed post-2020 really struck me:
"2020 was a year that option trading did very well on both sides. Hedging programs did very well. And then also when the market rebounded, certain stock replacement programs did extremely well. When 2021 came, Q1, and the meme stock craze hit, that was almost like the nail in the coffin where you had certain investors and boards that started pounding on the door and saying ‘Why are we not exposed to options? Because look, everybody's making money,’ — not in the sense that they want exposure to meme stocks, but they're saying ‘Hey, we should have long call tech exposure, or we should have volatility risk premium harvesting programs.’
And ultimately that put a lot of pressure on certain consultants. It put a lot of pressure on certain teams. But as I said, simultaneously, when the exchanges began listing more and more tenors, people started realizing that ‘Well, ideally we probably want to engage in these volatility risk premium harvesting programs because look, if this is what the S&P's doing, look how much more we can make by selling vol.’ And now the path dependency has completely changed. So ideally this becomes an easier trade for everybody."
https://lnkd.in/e5mJ3BC9
I listen to every episode, and each one is fantastic. Thank you so much to you and your team for the fabulous work!