"Volatility" Posts
Volmageddon, miscalculation, new regulation?

Volmageddon, miscalculation, new regulation?

On February 5th, 2018 (Volmageddon) the volatility reverse ETF XIV lost 96% of its value in the space of a few hours. Its iNAV was also miscalculated for an hour.
We have now discovered why: S&P Dow Jones was understaffed and did not release an ‘auto hold’ safety.
This human error contributes to current debate on the need to regulate index providers as investment advisors.

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Are the Robinhood traders going after the VIX?

Are the Robinhood traders going after the VIX?

‘When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett

Three good notes from the derivatives research teams of Morgan Stanley, Société Générale, and Nomura point to a potential squeeze in the VIX, as a result of the increasing retail activism. This technical post explains the contents of the research papers. Spoiler alert, yes, the VIX is prone to a squeeze.

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The revenge of the retail trader

The revenge of the retail trader

GameStop’s rally and its short squeeze are more than just market exuberance. Thanks to low-cost trading, employees working from home, and a Fed-induced market rally, retail traders are pushing the market to new highs and enjoying the excitement of the rally. Worse, social media allow them to focus on a few instruments, with wild rallies.
It is only a matter of time before this party is over, for this stock or the market. We should start thinking of the aftermath.

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The Sharpe Ratio Broke Investors’ Brains

The Sharpe Ratio Broke Investors’ Brains

Goodhart’s Law: When a measure becomes a target, it ceases to be a good measure.
The Sharpe ratio has changed investor behavior. We chase the metric rather than the underlying quality it is trying to assess, and there are plenty of situations where the Sharpe is a poor metric of quality.
And there are unfortunately major losses, which keep on demonstrating the point – LTCM, AIG, Malachite…

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rolls-royce-in-jungle

How about using options for your next insider trades?

Somebody gave you an insider tip and you want to use options? Think again.
The SEC sees you coming. Good luck justifying yourself to a jury. The stick will hurt.

Stefan He Qin

Cryptocrook: 7½ years of jail. More like him to come.

You remember our cryptocrook? Quant WizKid, market-neutral hedge fund, Cryptocurrency arbitrage great returns, $90m AUM… Except that it was a Ponzi.
His sentence just came out: 7½ years of jail. Here are the explanation & the context.

Richard-branson-drinking-Champagne

Insider trading, Mr. Branson?

Virgin Galactic’s successful flight may have brought joy to Mr. Branson, but it will also bring some after-party headaches.
The entrepreneur and space explorer is accused of basic earthly financial misgivings for this same flight – a pretty serious insider trading issue.

UBS-Logo-upside-down

The long term expected value of your ETNs is zero

UBS got flack for recommending VIX ETFs to its clients. This suitability case has in fact deep roots in a significant ETF classification challenge: many product databases are mishandling the wide diversity of ETNs. Significant litigation is to be expected as a result.

Golden Clink – Spoofing doesn’t pay

When you are spoofing gold futures, don’t brag about it in chat rooms.
A few gold futures traders got one year in the clink for market manipulation.

usinesspeople grabbing money

Cum/Ex is officially a money grab

The German Supreme Court has made it official; the Cum/Ex was not a loophole but a blatant money grab.
The two Warburg executives can expect jail time, and their firm a bankruptcy.
Many others will follow.

tunnel-in-space

SOFR has a term structure now.

The ARRC has recommended the CME’s methodology to calculate a term structure for SOFR. This is big news.
This article explains SOFR’s weaknesses, what a term structure is, why we need one and how the CME calculates its own.

Transfer pricing, hedge fund edition

In a new version of the transfer pricing strategy, Tom Sandell virtually relocated his hedge fund from New York to Florida to avoid NY tax liabilities on his deferred comp.
The story didn’t finish well. A whistleblower and the NY AG forced him to cough up $105m.

Libor-going-down

LIBOR: the most important number in the world is going away

LIBOR, the most important number in the world, had a good run for the last 50 years, but it is going away.
SOFR, its replacement, is not subject to manipulations but has a host of problems.
The transition is difficult.

Pop-the-balloon

Bye-bye, bitcoin: It’s time to ban cryptocurrencies

Not all central bankers and diplomats have a good opinion of cryptocurrencies.
They are assessing their costs & benefits through articles in prime newspapers.
One diplomat/economist just called for their outright ban.

biggest-ponzi-schemes-in-modern-history-Title

Visualized: The Biggest Ponzi Schemes in Modern History

A summary of the largest Ponzi schemes in history, with a visualization that is a pleasure to the eyes.

Jules-Verne-Rocket-To-The-Moon

The SEC’s specious space SPAC

The Momentus / Stable Road merger is the epitome of what can go wrong with SPACs. It is a story of dreams, greed, and lies.
The SEC made an example out of it. The plaintiff law firms are jumping on the bandwagon too.

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