Episode 16: Matt Rowe [Headwaters Volatility]

Headwaters Volatility Matt Rowe

In this episode, we talk with Matt Rowe from Headwaters Volatility.

Headwaters Volatility Matt Rowe

Matt has over two decades of experience trading volatility at multi-billion dollar asset managers. We talk with Matt about why the best portfolios have both long and short volatility and how investors often get the mix wrong. Matt has a particularly great point on the importance of market microstructure and why we’ve seen an increase in volatility selling programs since 2017. We also trace the long history of volatility as an asset class, particularly looking at the convertible bond market in the late 90s/early 2000s and what parallels there are to the present day.

I hope you enjoyed this conversation as much as I did.

 

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Transcript for Episode 16:

Taylor Pearson: 

Hello and welcome. I’m Taylor Pearson, and this the Mutiny Podcast. This podcast is an open-ended exploration of topics related to growing and preserving your wealth, including investing, markets, decision making under opacity, risk, volatility, and complexity.

Taylor Pearson: 

This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, Mutiny Fund their affiliates or companies featured. Due to industry regulations, participants on this podcast are instructed to not make specific trade recommendations nor reference past or potential profits, and listeners are reminded that managed futures, commodity trading, Forex trading, and other alternative investments are complex and carry a risk of substantial losses.

Taylor Pearson:   

As such, they’re not suitable for all investors and you should not rely on any of the information as a substitute for the exercise of your own skill and judgment and making such decision on the appropriateness of such investments. Visit www.rcmam.com/disclaimer for more information.

Taylor Pearson:   

In this episode, we talked with Matt Rowe from Headwaters Volatility. Matt has over two decades of experience trading volatility at multi-billion dollar asset managers. We talked with Matt about why the best portfolios have both long and short volatility, and how investors often get the mix of the two wrong. Matt has particularly great points on the importance of market microstructure and why we’ve seen a big increase in volatility selling programs since 2017 that we dig into. Then we also traced the long history of volatility as an asset class helping better understand the present situation, particularly looking at the convertible bond market in the late ’90s and early 2000s, and what parallels there are to the present day. I hope you enjoy this conversation as much as I did.

Taylor Pearson:   

So, let’s just start a little bit and talk about why vol. Vol is a relatively small, relatively weird space. How did you get into trading vol as an asset class?

Matt Rowe:

Well, I was a physics major for part of my undergraduate, and this is a silly thing to be fascinated with, but I was fascinated with nonlinear functions. Actually, it is the product of a true liberal arts experience. I took a very good business course from a professor that was inspiring and part of the content that we covered was derivatives.

Matt Rowe:

I found that there was something in the financial markets that wasn’t as awful as actuarial work and things along those lines, and I found it to be kind of fascinating. I started digging in a little bit to it and more and more, and I just followed down the rabbit hole. When I graduated from college, I packed up my things and moved to San Francisco to take a job working on Pacific Options Exchange. So, I threw myself into the deep end and found some great mentors there, and that’s where it started for me.

Taylor Pearson:   

Then how? Maybe you want to just give us a background. How did you get into what you’re doing now at Headwaters from Pacific Options Exchange to present?

Matt Rowe:

So, the gap between Pacific Options Exchange and Headwaters was filled with starting and managing three different multi-strategy hedge funds. So, my progression from the options trading floor was starting a convertible arbitrage fund and bringing that volatility training and experience from the floor into working on a convert our book where I learned how to integrate equity vol with corporate credit. Then further on from that, KMV and Merton type analysis of the stochastic credit, and vol versus equity pricing, and non-explicitly convertible structures and things along those lines.

Matt Rowe:

So, I got a pretty fast and thorough education from some very bright people on how to integrate volatility into cap structure analysis and broader risk management. Really, I guess the most important thing that I learned early on was that volatility can be many things. It can be a risk management tool. It can be an alpha generation source. The same trade can mean different things to different end users just the way you trade it and the way you set up and the way you hedge it. That’s really important today.

Taylor Pearson:   

So, I guess maybe going into vol a little bit more, we talk a lot about all assets. You can think of them as short volatility or long volatility. I think with some assets, in the case of options, specifically, if you’re selling a put option, if you’re selling an insurance policy, if you’re selling an earthquake insurance policy, it makes some intuitive sense, right? Your short volatility, and volatility is bad for you if an earthquake happens. You have to pay out a bunch of those policies and vice versa. If you’re buying a put option, it’s intuitive long volatility. I mean, you spoken about some of indirect short volatility. That’s already mentioned. Talk about bonds or real estate, but for assets that people normally wouldn’t think of as long or short volatility, how do you think about that?

Matt Rowe:

Yeah. Well, I think you can boil anything down to a long or a short vol trade, and most things are a blend of the two. As one of my investors, Clay Struve, that we were talking about mentioned, a mantra that we routinely refer to is know your risk and get paid for it. When you think about that concept, you can work forward or you can work backwards. Do you know what your risk is and then you’re calculating what you need to get paid to take that risk or do you know what you’re getting paid, and then you need to back into understanding what the risk is to see if it’s worth that rate?

Matt Rowe:

In either case, when thinking about the investment world personally or institutionally, it’s an important thing to consider. So, most money over time has and will be made by being short volatility. I think that that means that people are taking risks and they’re being compensated for taking those risks. So, the analogies are many and whether it’s buying a building and renting out the space, you’re taking the principal risk on the down payment, and you’re financing the transaction presumably and if the economy goes humming along swimmingly, you likely will reap a pretty good income stream, which can be analogous to a dividend stream or a coupon on a corporate bond.

Matt Rowe:

In either case, if you’re taking principal risk, you’re effectively short of put on the underlying asset or the conditions that impact that underlying asset. So, I think, for me, it’s easy and for people who are neck deep in the vol world, it’s easy to break things down into long or short volatility, but I would encourage the investors and Mutiny and the investors in the broader retail world to think about things and then know your risk and get paid for it framework because it’s really the top line, most important thing to making decisions on what do you buy, what do you sell, are you really being compensated. That, right now, is why I think it’s so concerning with the five-year treasury with a yield sub 30 basis points.

Matt Rowe:

The fed is telling retail investors, “You know what the risk is and you’re not getting paid for it. So, go do something else with your money.”

Taylor Pearson:   

Right, and it seems like there’s a sense of people. You have to be investing. You have to be doing something. In practice, people, they don’t actually get paid for the risk they’re taking or they don’t know the risk they’re taking because they feel like they have to do something.

Matt Rowe:

Yeah. I think in an artificially suppressed interest rate world, the pressure or the water flowing in the path of least resistance, to use an extreme example like in Europe, if you’re getting charged money to keep balances and bank accounts, if you have negative interest rates on balances, they’re basically saying, “You can go do anything else even if you just break even. That’s better than then losing 25 to 30 basis points keeping your money on your bank account.”

Matt Rowe:

So, really, just pushing people out on the spectrum of taking risk to support the economies around the world and it’s by design, but it does flow into that whole concept of what’s a long vol trade and a short vol trade.

Matt Rowe:

I think to your initial question, most money-making trades in the longterm are in aggregate shortfall, long risk shortfall. I think that the trick is knowing how to blend in a vol mitigation or a vol dampener that’s intelligently put together to soften the blow and to offset some of those drawdowns that invariably will occur over time because most people are short vol, and that’s just the way the world works.

Matt Rowe:

So, a better approach to giving people another Lego, whether you view it as a cash substitute or something that allows you to stay in the game longer or in bigger size, right? If you’re looking at $100,000 worth of equity beta and you’re like, “Ah, I just don’t feel that great about the equity markets right now, but I don’t feel like I can be uninvested,” that’s really the question that a lot of people are asking.

Matt Rowe:

So, I think a vol allocation can be a good interim allocation between going to cash and having fams or remaining unprotected and fully invested. It’s a good middle ground for that.

Taylor Pearson:   

Going back, I guess there’s a lot of different ways to think about trading volatility. What do you feel is unique about your approach or how do you think about trading volatility that’s maybe different from other traders? The other way I was going to ask this is if we ask the five people who know your trading style best, what would they say about how they describe it?

Matt Rowe:

So, the way I think about it, and the way I think people would describe it is that volatility is a characteristic that’s associated with every asset class, and figuring out how these things are connected is it’s true. It’s like creating a perpetual motion machine. Everybody would like to do it, but it’s physically impossible. So, it’s just a matter of understanding the relationships, when are they more important, when are they less important.

Matt Rowe:

I take a very cross asset perspective on vol because I know that the market movers and the important market participants in the volatility markets come from very specific subsets of the world. So, for instance, put skew is driven enormously by institutional investors when they panic. They will go and buy index puts as opposed to buying single name puts because it’s more liquid. The bid ask is cheaper and you can move around and it would less damage, and it’s also easier to understand and easier to mark.

Matt Rowe:

So, two things along those lines that I look to, for example, are if I’m looking for evidence of real panic in the institutional hedge fund world and the broader institutional investment world, when you see implied correlation spiking and put skew steepening, and put skew, just for clarification, is the relative cheapness or expensiveness of an out of the money put as compared to an at the money option and so on, so how relatively aggressive is downside protection being bought.

Matt Rowe:

So, I look thoroughly across asset classes and I look for evidence of why anomalies are happening, not just what the anomaly is to support an understanding of what is it, why is it happening, does it make sense, is it a temporary situation, is it likely to persist, who is it that’s driving this, why are they driving it. I try to get my hands around what’s causing the opportunity before I jump on it.

Taylor Pearson:   

Yeah. I guess you hinted as you’re speaking to it, but this idea of I’m gonna call market microstructure as you’re talking about the institutional puts. I think most people, particularly as I called the age of passive investment, it’s like, “Well, the market is pretty efficient. So, whatever you do, it doesn’t really matter.” I guess there’s just the way you look at the market, the [inaudible 00:13:31] you forget those people on the other side that are making decisions or institutions that are making decisions or algorithms or whatever it is.

Taylor Pearson:   

Yeah, I’m curious just how you think about just market microstructure. Do you think that’s what you do? You’re looking to see, “Well, this doesn’t really quite make sense.” Is there someone somewhere, as you said, particular institutions that maybe because of their mandate, they want to do this? Yeah. Just how do you think about that?

Matt Rowe:

Yeah. Yes, that’s a big focus for me. The reason why is I’m always concerned about being … I think that the market, generally speaking, is efficient. So, if I see an opportunity, I want to understand why that opportunity exists because more often than not, I’m missing something. It’s not that I’ve discovered something that nobody else has seen. It’s reasonable to assume these days with technology capabilities being what they are that anything that I see someone else has already seen it and with greater depth.

Matt Rowe:

So, the reason why I think it’s really important is because, and where we can add value, is that we do have experience dealing with institutional investors and dealing with cross asset selling and knowing where these flows are coming from. It’s a little bit like standing on the trading floor in the old days, right? You would get to know which brokers are bringing in the big orders, which traders have tells that they’re going to be buying this or selling that. You can kind of read the flow of the interaction of different people based on their personalities and their characteristics and a little bit of market psychology.

Matt Rowe:

So, a good example, I guess, would be let’s start off with just a couple of facts that most state retirement funds have a return threshold that is north of 7%, right? When you’re looking at a world where the five years yielding 26 basis points and the high yield index is half of that yield target, you start to think,
“Well, how are you actually going to achieve 7% returns?”

Matt Rowe:

You need to take more risk. You need to go further out in the spectrum and illiquid securities. You need to apply leverage. You need to include beta and part of your market risk and part of your return estimate to some degree. When you when you look through to the volatility markets, what that means is if you have big institutions, whether it’s a teachers retirement fund or an endowment or an insurance company, if they need to make that return hurdle, there’s a pretty limited subset of things that they can do to actually generate that return.

Matt Rowe:

If taking equity market risk is acceptable, which it almost universally is, selling volatility is invariably part of the discussion. So, whether you’re overriding, selling calls against a long position or a more sophisticated approach that a lot of the superannuation funds and sovereign wealth funds are doing around the world, selling volatility is impossible to avoid these days.

Matt Rowe:

I’ll give you a quick example. If we’re talking about, say, an Australian Superfund and they say, “Well, we’re going to be 70% allocated to equities, and we’re going to rebalance quarterly, and we know that if the equity markets up 10%, our equity exposure is going to go from 70% to 77%. We’re going to be over allocated and we’re going to be sellers. Conversely, if the market drops 10%, we’re going to go from 70% exposed to 63% exposed. Then we’re going to be under allocated.”

Matt Rowe:

So, they’re a natural seller of calls and puts because they can generate yield. If nothing happens, they can gather that premium of options that they’ve sold, if the market stays still. If the market rallies, they’re just getting closer to a reallocation that they would be doing otherwise and they get to keep the put premium. If the market sells off, they get closer to the allocation that they would need otherwise, keep the call premium.

Matt Rowe:

So, you can start to see a driver of motivation and end result that makes it obvious for somebody like that to be a heavy seller of volatility. Now, what’s very important to point out, though, is them selling those options outright is very different than us and other managers buying those options and setting them up in a more vol centric manner. They’re trading it for yield in basis points and dollars and yen. We’re trading it for what would be referred to as vega and gamma or put another way, we’re trading it for implied distribution or dislocation in the market, and a way to set it up so that we can use it as an insurance policy when they’re using it as an income generation tool.

Matt Rowe:

So, back to the original question, I think the market’s efficient. I think that there are specific inefficiencies in the market that everybody knows about, but that can be exploited in interesting ways. They tend to be somewhat sporadic. I think that the current opportunity for long vol is driven by the fed’s policy on zero interest rates and an artificially low interest rate environment.

Matt Rowe:

So, we have people selling volatility at prices that don’t make sense from a vol standpoint because they’re looking at it in basis point terms or in dollar premium terms. So, while the market is efficient, it doesn’t mean that there aren’t opportunities that we can’t fully understand and get a good read on the dynamic.

Taylor Pearson:   

Just to drive that point home a little bit more, as you’re talking about, they’re selling these options, they’re selling volatility for income or yield. So, a lot of times people think a lot of trading is a zero sum game, but now you have these real pension funds or real funds or super funds that are looking for a different kind of dynamic than you’re looking for. So, it’s not necessarily a zero sum game. People just have different preferences.

Taylor Pearson:   

So, if you have these larger funds that are running, let’s just say, $200 billion, and their consultants show them that they should be selling volatility, they go, “Let’s only sell 5%. So, we’ll put 10 billion into a volatility selling, and therefor, we’re not going to affect the market too much,” but then if you have that consultant then go to every pension funds, that starts to add up over time. So, maybe they start and they sell these calls or puts, and they’re making a 10% yield, but as the next pension fund comes in, maybe they’re making an 8% yield, and now 4% and 2%.

  

Taylor Pearson:   

So, then now, they’re all levering up as we call it going out the yield curve, but they’re all, as you point out so well, they’re all doing it just for return. They actually don’t necessarily care about the skew or the implied distribution. They just sell more vol to hit the return target. They don’t have the same dynamics that you have, where you’re looking at running a P&L and what is return distribution.

Matt Rowe:

Yes. That’s very well put, and I think that’s the big difference is that it’s not a zero sum game. As we’ve talked about in the past, it reminds me a little bit of the late ’90s, early 2000s convertible bond market, where an issuing company would come to the convertible market and say, “We want to do a five-year bond deal at 4%, and a call option.” They would refer to it as four is up 30, which would mean 4% coupon, and the strike of the call option is up 30%.

Matt Rowe:

Some people would be looking at this and say, “Well, why would they give away a call option on their company at an implied vol of 32 when we can go out and sell 50 on a quarterly basis over and over and over again?” It’s the exact same thing that the end answer is that if that same company were issuing debt in the high yield market, their cash coupon might be 10%. Whereas they do a convert and they sell a bond and they only have to pay 4%, and the other thing that they’re monetizing is the volatility of their own equity.

Matt Rowe:

So, that’s another great example of the situation where it’s not a zero sum game because the company can do very well by having a lower cost of capital and giving up a little bit of dilution. They have a different utility for the trade than we do. That’s a perfect example of two people meeting in the market, where the seller gets what they want, the buyer gets what they want, both can do well with it, and it’s not a zero sum game.

Matt Rowe:

The same is very true now with the low interest rate environment and vol sellers who are desperate for yield and vol buyers who are trading implied distribution and movement of stocks.

Taylor Pearson:   

Yeah. I think that’s an interesting example. Just for people who aren’t familiar with the convertible bond market, could you give me a hypothetical example but just walk through how that would work?

Matt Rowe:

Yeah. So, a convertible bonds is one where you convert into either the principal amount of the money borrowed or if the conversion value or the ability to convert the security that you own into stock is worth more than the dollar amount of the bond, and you convert into stock, and you do better that way. So, what it’s intending to do is to give companies, specifically companies with pretty good amount of growth, lower cost of capital, but in return, they give up some equity participation or a call option on their stock.

Matt Rowe:

So, for the company, if the stock goes down or stays flat, they just owe the money back with a lower cost of capital. If they do really well, then the bondholders participate like equity investors after a certain point. Very important that you don’t get both. You don’t get your money back and the call option. You have to choose. So, some companies like them because they’re not concerned about dilution. Some companies don’t like them. They tend to be a bond or a corporate offering that’s favored by smaller growth companies, where they’re very sensitive to what their cost of capital is.

Matt Rowe:

So, it’s always fascinated me because if you look at companies, in general, the volatility of a company’s stock is not listed as an asset on their balance sheet, right? If they’re going to capital markets and they issue a convert, they’re actually receiving a material benefit for selling volatility on their own stock, and that lowers their cost of capital. There’s nowhere in the accounting framework that counts from monetizing vega on your own equity, right?

Matt Rowe:

So, that’s a little bit of an inefficiency. That’s always existed. It still does exist to some degree. The example of a convertible bond is just like if you could borrow money at 10% or you could borrow money at 4%, and then get give somebody a call option on your earnings next year. What would you do? It’s that same dynamic.

Taylor Pearson:   

Right. It lets the company manage some. They’re giving away some upside, but they’re also managing some downside exposure, and then the investor has the … They’re getting some extra upside.

Matt Rowe:

Yeah, just like a stock option as a job incentive, right? If somebody says, “Yeah, we’ll pay you $10,000 less than the competitor, but we’ll give you some options on stock that are struck above the market. So, if you contribute to doing well at the company level, and the stock performs accordingly, you’ll participate and get compensated that way even more.”

Taylor Pearson:   

So, going back. I’m trying to connect the dots in my head, but back to the example of the Australian superannuation fund or institutional venture, if they’re saying, “We’re going to be 70% in equities,” they know that I think, yeah, as you said, if it goes down 10% they’re going to be a buyer because their allocations are going to be at 60%. So, why don’t we just sell some puts there? If the market goes up, then we just made money on the premium and that’s great. If it goes down, we were going to buy anyway because that’s what we’ve determined is the best way to meet our mandate kind of thing.

Matt Rowe:

Yeah. It’s the Warren Buffett attitude that everybody wishes they were wealthy enough to be able to follow through on, right? Quite frankly, I find to be a little bit annoying because it’s great to hear him talk about, “Well, cheeseburgers cost $5 today, and I’m going to be a buyer of cheeseburgers tomorrow. I should be thrilled if they cost $4,” right? That doesn’t really account for the mark-to-market pain that happens in between to everybody who actually cares how much their net worth is moving around.

Matt Rowe:

So, yeah, and, Taylor, to your point there, the super funds are like the Warren Buffett approach, right? They know what their pool of capital is. They know that they’re going to be around next quarter, next year. They’ve got pretty good visibility on the inbound stream of income because, particularly in Australia and New Zealand, it’s a paycheck withholding item that just goes directly into a super fund.

Matt Rowe:

So, they’re a good, very efficient example of how this works, but the same thing is true with US pension and endowment and insurance companies and Canadians and European pension schemes. Anybody who has relatively long range of vision on their asset base is considering the same thing.

Taylor Pearson:   

It’s weird, too, to be like, “I’m a buyer at this lower price but in between then and now, I’ll lose a bunch of money until I’m a buyer.” I’ll lose and convex some amount of money there. You could just wait to buy there would be another way of doing it.

Matt Rowe:

Yeah. That’s absolutely or you could have mark-to-market, right? This is where the whole mystery of volatility comes in of, and I’ve seen this happen for better and worse a couple of times. If you own an option and the implied volatility on that option rises or falls, you will make or lose money with nothing else moving. That can be a little bit disheartening to some and there have been some very large institutional investors that have learned that the hard way. There have also been a lot of people who have made money by accident.

Matt Rowe:

So, I have to say, I feel obligated to say that anybody who celebrates making money through an error should be put in penalty box for a little while, but it happens every day.

Taylor Pearson:   

So, part of this stuff, though, recently with pensions are in the zeitgeist, especially some of the Canadian province pensions. I’m curious to your take on this. You’re saying, especially if we think about it not as a zero sum game, that everybody has different utility or time preferences, if a fund loses $2 billion on shorting variant swaps, but it’s a 200 or $400 billion fund, is it really that important? I mean, everybody likes to say, “This fund was so stupid and everything,” and they lost on taking cap versus uncap variants or shorting puts or whatever it is, but if they lost 1% of AUM, then the gross number looks enormous and that catches the headlines, but it’s part of an overall portfolio. They have different preferences than than we have. So, it’s just another part of it’s not a zero sum preference or do you think about that differently?

Matt Rowe:

Yeah. No. I think that that’s well said. It’s all relative, right? If that sale of two billion of variants or the if the loss on a variance swap sale resulted in a $2 billion loss, but it allowed them to make $10 billion by taking more market risk, you have to look at those two things together. You’re right. Most oftentimes, the fascinating news story doesn’t include the other leg of the trades.

Matt Rowe:

So, one thing that was beaten into my head early in my career is that nobody has cornered the market on IQ. Most of the people in our business are relatively smart people. So, a lot of times, it has to do with what the utility for the trade is. Now, sometimes there are just pure bats that have gone wrong. I will say that one big inefficiency in the market or maybe it’s not an inefficiency, maybe it’s an important characteristic, is that there’s there’s an agency problem between career risk and longterm return streams.

Matt Rowe:

Most people who are pulling the trigger on larger institutional portfolios are measured on a one year rolling personal compensation basis. So, they largely make decisions based on one year outcomes. That can present opportunities and problems in the market. So, sometimes you may be looking at something and say, “Well, that doesn’t make a whole lot of sense. Why would that happen or why would they be doing that?”

Matt Rowe:

Well, the person is not stupid intrinsically because they may have a different timeframe. They might have a different utility for the trade. They might be setting it up differently, but to your point, I think one of the biggest inefficiencies or the thing that people should understand is that people do make short term decisions even on longterm asset basis because of personal greed, especially at the institutional level.

Taylor Pearson:   

Yeah, I guess just institutional incentives. I guess, did you see these articles about Warren Buffett or Seth Klarman sitting on 40% cash or something like that? It’s like you can do that if you’re Warren Buffett or Seth Klarman, and everyone knows who you are, and you have some famous track record, but most people managing money can’t say, “I’m just gonna sit on 40% cash for the next two years because I think things were overheated.”

Matt Rowe: Right. Yes.

Taylor Pearson: 
Maybe you should be able to say that. Maybe that doesn’t make sense, but in practice, yeah.

Matt Rowe:

I think you’re right. I mean, I think you should be able to say that but there are many … The hedge fund graveyard is littered with headstones that include something along the lines of if you’re open and honest about the opportunity set of your particular asset class, you’re probably not going to last very long. So, number one, the yield on the five-year sub 30 basis points. So, nobody is going to get paid 100 basis points to manage cash or they shouldn’t, unless you’re Warren Buffett or Seth Klarman, right?

Matt Rowe:

I’ve looked long and hard for somebody who’s done a business school case study or research piece on what the implied management fee at Berkshire Hathaway is, and I haven’t found a good one, but suffice to say that Berkshire Hathaway is a large asset manager. Whether it’s more of a hedge fund or more of a private equity firm, it’s debatable, probably more like a private equity or VC type firm, but not many people have the luxury of managing cash and getting paid a lot of money to do it.

Matt Rowe:

So, if you get the opportunity to do it, I would highly recommend it. Otherwise, you need to be doing something with it and the user lose it type of an attitude. Not many people want to pay 100 basis points to do nothing.

Jason Buck:

I think that, though, that Taylor opening up that question about the cash position gives us an interesting way to maybe talk about long volatility in a portfolio in that I think the way that all of us look at it is if I can put long volatility in a portfolio and combine it with implicit short volatility assets, that long volatility is almost like giving me that ballast that cash would. It gives me like a convex cash position. So, I can use options to take, if I wouldn’t wanted to hold 40% cash, I can use a much more cash efficient options position to ballast my portfolio of equity beta or short volatility assets by having these convex long volatility positions instead of just sitting on inner cash.

Matt Rowe:

Yeah, that’s absolutely the case, and that’s the nirvana of relative value trading is if you can blend a short vol trade, whether it’s long equities, long corporate credit, long real estate, if you can blend that long exposure or short vol exposure with an intelligent allocation to long volatility, if the long vol trade carries flat or costs you a small amount of money while the rest of your book is outperforming and you feel more comfortable about being more aggressive on the long side, that’s serving its purpose. Actually, that’s a great point because in those examples, as long as you’re not getting killed on the long vol allocation, it’s allowing you to take more risk. So, the net result should be better.

Matt Rowe:

We’ve seen it throughout time, where that that can be the case. So, yeah, I think it’s everybody’s job to think about this in a relative value framework. If you want to go and you want to go skiing for the day with your family, you’re not going to go skiing if health insurance has just lapsed, right? You’re going to go and enjoy the day, but you’re going to make sure that you’re appropriately covered, hopefully wearing a helmet and decent gloves so your fingers don’t freeze off, but things like skiing I find to be a good example of a short vol trade. It’s something that people like to do. It’s something that’s enjoyable. It’s fun, but it’s not without its risks, and people take appropriate measures or not to mitigate those risks and still be able to have fun.

Matt Rowe:

So, it’s like make sure you have your exposure and alongside situated the way you want it. When you’re given the opportunity to layer in long volatility in a way that can be defensive and not eat up all of your positive return, that’s definitely something people should consider, and that’s why we’re excited about being part of the Mutiny Fund is to be able to provide that allocatable component to investors to be able to feel better about the long exposure they’re taking and create that relative value trade because I think especially in a low interest rate environment, it’s crucial.

Taylor Pearson:   

You talked a little bit ’90s, 2000s curl bond market. Just when you sort of look back at the history of volatility as an asset class to how the market has changed over time, what are the major turning points in your mind? What are the big moments?

Matt Rowe:

Well, let’s see. So, from my education in trading and managing vol portfolios, there are all these stories about [inaudible 00:36:49] in the early days before people figured out how to trade puts and calls against each other. There was a big arbitrage window where you could trade what was called conversions and reversals or put call parity and be able to effectively make money in thin air just because people didn’t understand the mechanics of these.

Matt Rowe:

That that was when I was in school. So, I wasn’t part of that. I just did a lot of reading and heard a lot of stories about that, but it really set the stage for me understanding where do opportunities come from. Largely, opportunities come from different people with different utilities trading the same securities.

Matt Rowe:

So, I think about the dot com era, the late ’90s, early 2000s, when there was irrational exuberance or any of the other things that were important terms at the time, where there was a relatively fast inflation of risky assets, and then a quick deflation of those same risky assets where they were forced to prove their worth. That was an important point in time because volatility, in general, was mispriced. The implied distribution of stocks, even though it looked high, it was still too low.

Matt Rowe:

That was important for the market because it proved what growth companies, what speculative business models can do as far as attracting capital when there’s euphoria, and then also what they can do when the market demands results, and those that don’t produce get put out of business, and that cycle was was very important.

Matt Rowe:

Then thinking forward from 2003 to 2006, there was another pile into credit where volatility was getting squeezed. Stocks were generally drifting higher. Credit spreads were going tighter. It was a similar condition to where we are now, where you had people being forced to be invested in ways that were uncomfortable, but guess what? If you didn’t go outside your comfort zone, you’re probably not going to get paid this year.

Matt Rowe:

So, it was a forced march off plank leading into ’08. In 2008, of course, was also a very important event and probably, in my opinion, the most important confluence of equity volatility and corporate credit and equity because, again, as high as you thought volatility was, it still was too tight or too cheap as far as what actually happened in the market.

Matt Rowe:

So, the implied default rates of companies was too low. The implied distributions of stocks, especially financial stocks and rates, was far too low. These are the times where as somebody who spent most of their career in the hedge fund world, the running joke in the hedge funds are, “What’s the difference between a position and a hedge? The answer is a position makes money in a hedge loses money, and I’ll tell you which is which afterwards.”

Matt Rowe:

So, in a lot of cases, multi-strat hedge funds in the ’08-’09 period, they made money being long volatility, but they lost more being long beta and long credit. So, that was a big relative value learning experience. Then I guess we go to 2011 after we rebounded from there when the front edge of the European crisis, and when Greece in austerity was being considered and the potential fragmentation of the Euro zone was at play. We saw implied correlation shoot up, and we saw gold rip like it’s doing today.

Matt Rowe:

The concern was that, well, we don’t really know what’s going to happen. This is we’re contemplating something that may occur in the market that we just don’t understand. It created a pretty interesting set of opportunities in the market. Then there was a big gap from 2011 to the summer of 2015, I guess, where we got a little bit of a quick blip of a risk off that quickly corrected itself. Then you move forward to 2017 where the Sharpe ratio on the S&P was better than any other asset class.

Matt Rowe:

So, in retrospect, you should have done nothing other than buy levered SMP exposure and you would have outperformed everything else. Volatility almost universally did not perform in 2017. So, that was an interesting lesson on the negative side of things for long vol strategies. I guess, now, then going into 2018, the February VIX event was a contained explosion of a single subset of the market in the VIX and levered VIX products. Then Q4 of 2018 was more of a system wide risk off. Then, of course, February 25th of this year, when the market woke up to the reality of coronavirus and asking all of questions about what that’s going to mean to the economies of the world going forward and which companies will thrive, which ones won’t survive, what does it take, and what are the path of equities going to look like.

Matt Rowe:

So, now, we’re in the midst of trying to understand where we are from a valuation standpoint, what’s going to drive pricing going forward. I think it’s crucial right now to think about corporate insolvency and bankruptcies and reorganizations, and what that means for portfolios, for single name investments, for the market in general, but we’re back into the midst of something that’s every bit as important as 2008. It just feels different.

Matt Rowe:

So, there have been upside vol, stories and paths in the market. There have been downside events. I think it’s important for all the viewers and investors that are listening to this to remember that volatility is not just a put. It’s not just a one directional trade. There are two sides to any distribution, and volatility is a way of predicting the distribution left and right tails of underlying. So, you don’t always have to think of a long vol trade as being purely a downside position. If you get a blow out to the upside, a long vol trade should do pretty well there, too.

Jason Buck:
Can you briefly describe put call parity with the audience?

Matt Rowe:

Sure. So, put call parity is the rough formula that gives you, and I say rough, I think it won a Nobel Prize, right? So, it’s not necessarily rough, but it’s the older formula that basically gives you what’s the fair value of a put and a call. So, you can compare buying a stock to buying a call and selling a put, and then you can compare the relative performance of the long stock position versus what they would refer to as a synthetic by putting on the trade differently. So, you can effectively create long and short positions by trading packages of options and then you can arbitrage them against the underlying if there is an inefficiency.

Matt Rowe:

So, important factors that go into put call parity are dividends, borrowing rates on the stocks from a securities lending perspective, and events to some degree. So, times when you’ll find opportunities, and you might look at a put call parity trade and say, “Wow! It looks like it’s mispriced.” I think the first thing to do is say, “Okay. Is it implying that the dividend is going to rise or fall?” because that’s a favorite playground for people who are forecasting dividends. “Is it implying that there may be a takeover imminent?” because if you’re trading a nine-month option and a takeover is announced in one month, you’re losing the back end of the trade.

Matt Rowe:

So, more often than not, if a put call parity trade shows up these days, it’s because it’s implying some sort of an event as opposed to truly being an arbitrage event, but in the euphoria of put call parity, you would buy a call, sell the put, now you have a long position on, and then you would short the underlying stock against it, and you would lock up say 25 cent profit so that you really have no directional risk, and you have the position sewn up, and you’re going to make a quarter, make 25 cents no matter what happens. It’s relatively infrequent these days. It’s usually implying some sort of event risk, but it’s worth being aware of.

Jason Buck:

I think what’s interesting that you pointed out, too, with puts and the factors that go into that pricing is especially the borrow rate of what the underlying would be. So, a lot of times people buy a put on a stock and it moves down. They’re like, “Why didn’t I make any money?” Well, you learn things like borrow rates, implied volatility, expanding or contracting. When people are used to trading linear positions, you’re just worried about up or down, and then when you start dealing in options, you start worrying about other dimensions of time, implied volatility, and put call parity.

Jason Buck:

One of the things you hinted at while you were talking about in a 2020-like environment, there’s a lot of left tail and right tail, and volatility is not just left tail, it’s also right tail. Something that might be very counterintuitive for the audience that I find fascinating that you and I have talked about before is that in February, as we’re moving from this low vol environment for the most part, for the better part of a decade, and we move from a low vol environment to spiking into a high vol environment, sometimes that trade of an expansion of that implied volatility or fear can be expressed in buying calls on the S&P.

Jason Buck:

Now, that would seem incredibly counterintuitive to people. If the market is moving down, why would I make money on calls, but it’s the expansion of implied volatility or that what we look at colloquially as the fear index. Can you talk about that trade where it would be surprising to people in a way?

Matt Rowe: Yeah.

Taylor Pearson: 
Maybe let’s just define left tail and right tail to some definitions. What is a left tail and a right tail?

Matt Rowe:

So, if we’re looking at this graph over my shoulder even, a left tail event, traditionally speaking, would be a drawdown or a move down in the equity market, and a right tail event would be if you’re looking to the positive side of a distribution or a performance chart, the upside. So, generically speaking, people will refer to a left tail event as market selling off like it did in February, March, and a right tail event as being what has happened since May 15th, and when the fed made their first purchase of a corporate credit instrument. We’ve had a blow out from there.

Matt Rowe:

So, Jason, to your question about how to trade a call and why that’s counterintuitive as a way to make money, so if we want to be long volatility and the cheapest way to create that long volatility position or to build that long volatility position is by buying a call, the directional exposure of the call is that it will make money if the market rallies, right, whatever the underlying is, whether it’s a call on gold or call on the S&P or a call on IBM. If the underlying security goes up, that call will be worth more money.

Matt Rowe:

The way to hedge that and to turn that call option into a volatility trade, primarily a volatility trade, would be to buy the call, and then to create a delta neutral position as we would say or an offsetting position to isolate the variable of volatility or close to isolating the variable of volatility.

Matt Rowe:

So, if we buy a call, we would then short certain percentages of the underlying so that we are what we refer to as market neutral or delta neutral. What that then does is if the market moves up, we’re making money on the call, but we’re losing money on the short stock position. If the market moves down, we’re making money on the short stock position, but we’re losing money on the call.

Matt Rowe:

The reasonable question might be, “Well, that sounds terrible. You’re taking the risk and you’re not making any money.” The curvature of the left and the right tail is what we’re after. Is the implied curvature too flat? Is it too steep? What potential benefit do we have? If implied volatility rises, that package of trades will be worth more money no matter where the underlying is trading.

Matt Rowe:

So, we try to identify and isolate the variables that we think are opportunistically cheap, setup the positions accordingly, and then manage the position to be able to keep that exposure within an acceptable range. That’s the way that we could use buying a call as a volatility trade, not just a directional trade.

Taylor Pearson:   

Then, yeah, I guess I’m going to touch on driven the history point. Yeah, I’ve heard you talk a little about there’s been an increase. You talked about the institutional investors, but increased in volatility selling, maybe linked to yields. What’s the history of that? How do you look at that or what’s going on there in general?

Matt Rowe:

So, the history of it is relatively short, I would say. It’s one of the reasons why I think there are opportunities that get created in this type of environment. So, it’s always been the case that people have thought that overriding stock, selling calls against long stock positions is potentially interesting because you can gather some premium, it’s relatively riskless, and as long as you do it in a ratio where you’re not selling more than you own, you’re basically pre-committing to selling at a price that’s higher than where it currently is, and all you would do is lose out on more upside if you sold the strike that was too low, right?

Matt Rowe:

So, from a funding perspective, it’s relatively friendly. If you go to Schwab or anyone and say, “Hey, I want to sell calls against long stock positions,” they’ll say, “That’s great.” You don’t need to know anything about trading options other than don’t sell more contracts than you have long stock because if you do, then the margin requirement is going to explode on you. The risk is unconstrained. All kinds of bells start going off in risk departments and such.

Matt Rowe:

So, the story of selling volatility is rather long when it comes to the call overriding, but I’d say it’s shorter in the institutional, in the heavyweight institutional space because as rates have come down … 2017 was was when I saw a real explosion in vol selling, and it came in different forms. It was variance swaps, which are over the counter, customized traded contracts or alternative risk premia strategies that are attempting to compare the risk premia, as they would say, of owning stocks versus the risk premia of being long corporate credit, and give you some framework for deciding which is cheaper.

Matt Rowe:

In 2017, the rubber really hit the road on vol selling looking like a much better risk premia than being long equities even. So, there was a big explosion of that. There’s also just been a lot of explicit vol selling for the yield purposes that we talked about before. So, again, you come down to it, I mean, I’m guessing right here, but I think the dividend yield on the S&P right now is 1.8%, something like that, roughly.

Matt Rowe:

So, if you’re buying the S&P for the dividend yield, you could lose that in a day, right? You could use a year’s worth of yield in one day. If you were going to do a rolling series of selling volatility against your S&P exposure, you have a larger steady stream of income that keeps you invested. It’s a little bit more customizable and a little bit more interesting.

Matt Rowe:

So, I think the modern story of all selling to me really became prominent and front and center in 2017. There was a little bit of a bludgeoning that occurred in the beginning of this year from those strategies, but they’re back with a vengeance, which, I mean, I’m happy to see it, but it’s back and until the yield on the five-year is no longer below 1%, I think that vol selling is going to be a legitimate yield generative strategy that we’re just going to have to figure out how to price.

Jason Buck:

That’s an interesting point. When the market first started selling off in March, you had to be a little scared that, “Oh, there goes all that vol selling premium that we’ve been experiencing since 2017.” Then we get this so-called V-shape recovery and rates come down. It’s like now the casinos back open. You would have to maybe look for more opportunistic trades, but everything, you would think it would have scared people away, but people are, like you’re saying, are just re-upping those back. Everything’s back to normal as far as the vol selling complex.

Matt Rowe:

Yeah. It’s certainly more popular in the country club environment to tell people you’re selling volatility than buying puts, right? Because taking risk is cool, and if you get rewarded for taking risk, you had guts, and it paid off and you’re still here with a couple of scars to talk about it.

Matt Rowe:

I think one of the reasons why long volatility has long had a bad name is because you’re betting against what everybody else wants to happen, right? If you’re the person in the neighborhood who has a bunker in their backyard and is doing drills and stuff with your family on how to deal with this stuff, you might not get invited to every party at holiday time, right? Because they might see you as being pessimistic or whatever. So, there’s certainly a bit of tail hedging and long volatility stigma to being a prepper, I guess.

Matt Rowe:

Now, I think in a more intelligent framework, if you think about things, it’s just a relative value trade, right? If you can think about, especially now with equity pricing, being as lofty as it is, it’s concerning. I actually had a conversation and was able to ask a couple questions today of Bill Dudley, and one of them was, “What do you think about what monetary policy has done to date and how the market has responded to it?”

Matt Rowe:

His response was, “Well, they’ve pretty much done all that they can and then some. So, the market should feel comfortable with that, but they should also be aware of the fact that there’s not much more that they can do.”

Matt Rowe:

So, then my follow up question was, “Well, then how do you get comfortable with the relative separation of equity performance from economic outlook? If the fed is supporting the economy and equity prices should be representative of economic prospects of the companies and, in general, what fits in the wedge? What’s the wedge that goes between where the economic outlook is flattened and equity prices have taken off?”

Matt Rowe:

The answer is fiscal stimulus. So, big bumps in the road going forward, I think, are largely going to be attributable to surprises positive and negative on the fiscal stimulus front. So, it’s an interesting dynamic when you have somebody like Bill Dudley who’s willing to say, “I don’t know. I’m not really sure. Equities look high to me.” So, it’s going to be an interesting couple years, I think.

Taylor Pearson:   

Matt, what did you mean? I’ve heard you say sell what you don’t need to fund paying to protect what you can’t live with. I guess this gets to your point about relative value, but, yeah, I’d love for you to just expand on what do you mean by that. What would that look like? How would investors behave differently if they actually took your advice on that?

Matt Rowe:

So, that would be one statement that I think is particularly true and a mantra of the pension world is the enemy of longterm compounding success is participating one for one and a big drawdown, right? For whether you’re a retail investor or you are managing a pension fund or an endowment, you know what the end game looks like, right? If you’re running the pension for Verizon Wireless, we’re talking about multi-generational longterm, there isn’t much of an end game. It’s just a series of milestones that you need to meet.

Matt Rowe:

If you’re managing your own retirement or you’re managing a pension fund with an end goal or something along those lines, you might need to be navigating a 10 to 20-year path. As you get closer to the end of the path, you should have less tolerance because you need more certainty for the end product, particularly for retail investors.

Matt Rowe:

So, when I say sell what you don’t need to fund what you can’t live without or what you can’t afford, it’s party of another framework to get people to think about, “Well, how much should I hedge?” Right? Let’s say that you’re 55 years old, and you want to retire when you’re 70, and you’ve got 15 years to go. It’s easy to say that you shouldn’t be 100% in stocks, but how aggressive should you be? Part of the intention of low interest rates is to get you to take more risk, right? Push you further out on the spectrum to taking more risk than you would otherwise take because if you could earn 5% by buying a five-year treasury, you should do part of that and still owns some stocks and some other things, but that’s just not available right now.

Matt Rowe:

So, the intended outcome is, “Well, I might as well just buy a stock because I can’t earn any money anywhere else.” So, if you’re forced into a situation where you need to be overly exposed to equity risk, you could think about that statement of sell what you don’t need to fund what you can’t tolerate. You can think about that as, well, maybe you should layer in some long volatility to your portfolio because you’re forced to take exposure that you don’t really need, but there’s no other good alternative. So, you need to fund something that you can’t tolerate, which is a dollar for dollar drop in the equity markets.

Matt Rowe:

So, I think that it leads directly to the discussion of, “Well, why would you put a long vol allocation in your portfolio?” It’s particularly important for retail investors to consider this, to include this because most of them don’t have Warren Buffett pockets. Most of them are navigating towards an endgame that’s somewhat insight, whether it’s children going off to college or a retirement or buying a house. You can’t tolerate a dollar for dollar drop of 25% if you’re making financial plans in the future. So, you need some sort of a buffer.

Matt Rowe:

So, I think it’s one of these statements or catchphrases that I hope people remember to think about. If you’re forced to be long equity to a degree that’s almost uncomfortable, one way to get more comfortable is to backfill it with a long vol allocation, which is a way of reducing your aggregate risk while staying invested.

Taylor Pearson:   

There’s I guess you’d call it a recency bias, but it’s interesting to me. I don’t know the data off the top of my head, but in the last 30 years, you don’t have a 10 plus year period from where you like to get back to where you started, maybe. I guess, the NASDAQ probably from ’99 to 2014 or whatever it is, but I want you to establish something like if you picked a random year in the 20th century, there’s a 10% chance you’re not going to get back to where you are in the next decade, right? I don’t know. I think most investors talk to you about it and I’m going to theorized your example, you’re 55 or 60, and you’re going to retire at 70. As a base for a probability, there’s a 10% probability that you’re not going to get back to where you are right now 10 years from now. I think that’s certainly true. When I heard that, it actually changed the way I thought about things.

Matt Rowe:

Yeah. One of the commercials that I don’t remember which financial institution uses it, but it’s obviously targeted at younger people, is the tagline of “Time in the market is more important than timing the market,” right? That’s great if you’re 22, but if you’re 65, your time in the market is constrained. So, you need to be careful about not participating in one of those events, right?

Matt Rowe:

So, the whole idea is don’t lose 50% of your money when you’re a month out from retirement, but you can lose 50% of your money when you’re 22 because in theory, you have a longer portion of your earning years where you can make that back or you can stay in the market. I think it becomes more important the more you need to define the outcome. What long volatility can give investors is a lot more control and a very uncertain environment.

Taylor Pearson:   

I think even for younger investors, if you’re 30 but you’re thinking about having a family, buying a house or these sort of things you want to deal with, and if you lose half your assets at 30, it’s great. You have a long time to make that backup, but it does change. It can change your life plans in a meaningful way, right? Maybe those things get delayed.

Matt Rowe:

Yeah. Absolutely. You’re right. I mean, you’re absolutely right and me saying when you’re younger, it’s more of a textbook example. Any material event where you need some sort of visibility on your net worth and whether it’s a down payment on buying your first house or it’s something else, that retirement or something along those lines, there are many things in between. So, yeah, anytime you need to have more certainty around your net worth and your liquid assets, it’s important.

Jason Buck:

Yeah. I think like you said, it’s a textbook example because that one drives me nuts. A 22-year-old can hold it because they don’t have that risk. It’s like, well, if they have a 50% drawdown on 23, and then it could potentially recover, they could still be the same one that has the drawdown a month before retirement. It just doesn’t mean just because you’re in there longer, you’re guaranteed anything. Like you said, I think if we can reduce volatility at the portfolio level, that compounds well better whether you’re 22 or 62 or 82. It really doesn’t matter.

Matt Rowe: Absolutely.

Jason Buck:

I had a question. One of the things when I think about the way you look at markets that I find so interesting is we touched on briefly on a bit of the ways you look at markets before that I think are fascinating, and one is you think about the convexity of the options, and then hedging that out, the underlying or the delta with a linear position, so that way you can create these long volatility structures to your trades.

Jason Buck:

The other interesting thing about that is you take a much more opportunistic or pan-asset class or cross- asset class way of looking at the markets. Historically, when people have done that, when they’re looking at pan-asset classes, they usually use more exotic options, whether that’s longer term or correlation bets on gold versus the dollar or versus the yen.

Jason Buck:

To put on those trades, they’re going to use what we call OTC, over-the-counter, which just means they can’t put those in the cash-settled liquid markets, they have to make those trades with investment banks, which creates a counterparty risk to make sure you get paid off on those trades.

Jason Buck:

What I like is you look at the markets the same way as a cross or pan-asset class trader, except for you believe that you can put those trades on in a long volatility profile in the cash-settled liquid markets, and just looking across the three to five most liquid asset classes that, quite frankly, a lot of those pension funds that we referenced earlier are playing in, and that’s where the liquidity is.

Jason Buck:

So, can you talk a little bit about how you just look at that most trades can manifest themselves in maybe three, four or five different markets and that’s all you really need?

Matt Rowe:

Yeah. Well, yeah, you’re right. I think, I guess it’s almost like a zen or a Buddha approach of I’ve been around the world, and I’ve dealt with exotic OTC derivatives and basis trades and esoteric trading instruments and derivatives. I’ve learned the hard way that there needs to be a consideration for return on complexity and for liquidity. So, you summarized it well. Where we are now is that the largest supply of cheap volatility selling from my perspective is coming in the most liquid and cheapest to transact market.

Matt Rowe:

The reason why the sellers like to traffic in that space is because the bid ask is pretty tight. So, your transaction costs are low. It’s easy to mark because it’s very visible and it’s not some esoteric security that you need to get five marks on and you toss out the high and the low and take the average of the middle three. You don’t have basis trades on gold versus S&P or French sovereign credit versus Alcatel Lucent or something along those lines.

Matt Rowe:

When the cheapest to trade and the tightest bid ask spread and the best liquidity is also the place where you can see the best opportunities, I think that that’s not something that you should be offended by, right? Some people like to make things complicated just because it makes them feel more intelligent. I can appreciate that. I get it. I have an appreciation for creating complex systems and seeing them work out, but I also like to be positioned in things that people are going to be running to when the shit hits the fan, right?

Matt Rowe:

I want to be able to already be standing at the exit when everybody decides that it’s time to run out. If I can be already in those instruments that people are going to be buying hand over fist when things get ugly, and I can have confidence in liquidity in the depths and the visibility in those markets, and I know that they’re relatively easy to fund, all of the things that I’ve seen go wrong in the past, if I can be pre- prepared, it just makes it a more robust trade.

Matt Rowe:

So, I guess it’s like knowing my role in the overall equation. I am focused on absolute return. I am very focused on defending investor capital as a primary focus, but I also know what my role is. My role is to make money and make a lot of money when everybody else is panicking.

Matt Rowe:

So, I look at it in a lot of different ways to make sure that I’m doing my best to be able to deliver on that. So, illiquid trades tend to get worse when the market gets ugly. The margin requirements go up, liquidity dries up, there’s no interest in taking counterparty risk. If you can be an exchange traded super liquid markets that benefit from implied correlation rising, implied volatility rising, markets moving wildly in either direction, that’s where I want to be.

Matt Rowe:

So, it just so happens that it’s the easiest to transact in and that’s all the better because in a zero interest rate world, everybody should be concerned about transaction costs.

Taylor Pearson:   

With that, I think we’ll wrap it up. Thank you for your time. What if someone wants to get in touch with you or reach out, what’s the best way to do that?

Matt Rowe:

Well, they can send me an email directly, and my email is matt, M-A-T-T @ H-W-V-O-L dot com or reach out directly to Mutiny and get in touch that way. We try to be open sources of information to the degree that our schedules allow. So, welcome any questions about process and who we are. We’re regular contributors on Bloomberg Television and other media outlets. So, if anybody wants to hear more about who we are and what we do, there’s plenty of content out there on Google to take a look at as well, but thanks for the discussion today and look forward to a world that hopefully long volatility can break even and everything else will do swimmingly well, but in the case that that doesn’t happen, which is probably the most likely, I think it makes good sense to have a good slice of allocation into a long vol product.

Taylor Pearson:   

Thanks for listening. If you’d like more information about Mutiny Fund, you can go to mutinyfund.com or better yet drop us a message. I am taylor@mutinyfund.com and Jason is jason@mutinyfund.com, and we’ll get back to you. You can find us on Twitter, @MutinyFund, and I am @TaylorPearsonMe.

  

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