Subduing the enemy: The Ins and Outs of Volatility Trading

20 years of Derivatives Trading. Specialized in Volatility (Vol). Maple Leaf's Evolution: - 2002: Trading VIX before the index was created. - 2004-09: Expansion to multi-asset, multi strat long/short vol trading. From $4m to over $1bn with strong returns. - 2010: Focusing on liquid, exchange traded instruments as the "plumbing" of OTC is broken. Volatility Trading 101: - What is volatility trading? - How does it work? - What are the return drivers? 1% vs. the 99%: Why Vol trading isn't crowded. The Structural Alpha in Volatility Trading: Typical insurance contracts are nothing other than a put. While insurance products (put protections) are always overpriced, puts and calls in financial markets are generally overpriced = structural alpha. Volatility Trading Strategies and Funds: - How do they differ? - Shortcomings of long vol and short vol funds How Maple Leaf is different: - Multi asset / diversified in order to survive. - The hidden risk in pure equity vol funds. - Short vol bias with long vol hedge. - Focus on liquidity and adaptability. Inside the Maple Leaf performance machine: - Trading volatility of the 50 most liquid global assets. - 1 month straddles. - purely quantitative long/short. - What "quantitative" means for vol funds: From "feel" to a clear decision tree. - The power of disassociation. Competitive Advantage: - Maple Leaf built and owns probably the best implied vol database globally with 6000 assets, capturing 30 million datapoints / day: - Allows rigorous backtesting: Do I really have good (trading) ideas? - implementing statistically significant, objective & data-driven strategies. Risk Management: How to manage short vol. Maple Leaf's risk rules. Corporate set up & team of Maple Leaf. Research & Idea Generation: - Rigorous testing shows: almost all new trading ideas don't work. - Each year, only one new strategy gets implemented. Volatile markets mean high interest from investors. Investors also realize they need greater diversification & higher returns. New investor base: High net-worth, smaller family offices.

Channel: OpalesqueTV

Views: 35,824

Keywords: Volatility Trading, Maple Leaf Capital, Michael Wexler

Id: oKtPUAmaBJs

Length: 45min 55sec (2755 seconds)

Published: Tue Aug 14 2012