We are seeing the beginning of the chase in positioning. The market is experiencing spot-up volatility-up, which is opposite of expectations. There is still continuation to momentum due to potential gamma squeeze mechanics, not short squeeze.
What are your clients doing today? Are they buying risk or buying protection?
Host (Tom)
Amy Wu Silverman
Cost of protection has come down significantly. Clients are deploying longer-term hedges due to uncertainties around ceasefire talks and inflation mechanism from energy shock.
Few weeks ago everyone complained about expensive protection - now we're in the bargain basement for put options.
VIX spiked to north of 30 but now below 20 - what does that tell you?
Host (Tom)
Amy Wu Silverman
Investors have learned to look through geopolitics using the 2022 playbook and others. The VIX indicates market is looking through current events and moving on.
Few weeks ago when things were gloomy and VIX was spiking, many investors were still constructive. Roadshow with Lori Calvacina showed optimistic outlook.
How big is your market compared to retail ETF investors? How significant are CTAs, hedge funds like Dan Loeb or Ackman?
Host (Speaker3)
Amy Wu Silverman
Retail crowd is now pushing markets through options and prediction markets. Robinhood is 100% pushing this. Since meme craze, retail knows about gamma squeeze - not just institutional investors anymore.
Important for long-term ETF investors to understand mechanics pushing things around short-term.
Your notes show spot-up vol-up dynamic - as market rises, volatility rises too. I thought it was supposed to be opposite.
Host (Tom)
Amy Wu Silverman
It is 100% supposed to be opposite but happening so much it's becoming normal. Spot can go up while vol is going up, leading to higher VIX during rallies.
Goes back to demand for call options.
How would you use derivative strategies in a boring college endowment? Do you buy the Mag 7 here?
Princeton came in last with single-digit returns in endowments.
Host (Speaker3)
Amy Wu Silverman
I actually think you do buy the Mag 7. QQQ volatility looks relatively inexpensive too. Future IPOs like Anthropic and SpaceX will create FOMO and momentum, feeding into spot-up vol-up dynamic.
Many endowments had money on private side which is less transparent. Public equities shift has been making the difference.
On RBC Capital Markets derivatives desk, what's a typical client? Hedge fund or long-only?
Host (Tom)
Amy Wu Silverman
Institutional client mix: hedge funds, asset managers, pensions. Get to see how different speed investors think about market.
Few weeks ago saw good mix with amount of constructive, very optimistic outlook that was shocking.