Volatility Reports 3/3/22
March 3, 2022
March 3, 2022
We are all traders of Volatility
The primary source of performance for capital managers is (1) asset selection and (2) short volatility or short correlation exposure. When the asset groups’ diversification converges on one (1) all that remains is being “short volatility” for the majority. Selection does not matter. In other words, capital managers are long everything! Hence it is not a shock that the majority underperform during a crisis.
The emergence of the components for variance swaps to hedge is just one example of a bull market in fear since 2008-2009 but also it requires the use of “market timing” to be effective.
Without getting into the methods of “short variance swaps” the bottom line is “Regardless of the asset class, the true source of alpha seems to be moving between short and long volatility exposure—the volatility risk process and not the underlying asset.” Artemis Capital Management
In other words, the method that can achieve Alpha the industry commercializes as unfeasible is market timing! If you buy into that propaganda by the industry, you are reading the wrong newsletter.
The first chart featured today reveals a number of important factors. With that in mind, here is some background backing up a number of Contrary Thinker’s assertions.
This work by Jack Cahn is licensed under a Creative Commons Attribution-NonCommercial 4.0 International