Thread by @AttainCap2

Looks like the good folks at JP Morgan didn't take the time to listen to my pod with @bennpeifert where we dissected this particular market "claim"

a quick thread:

https://twitter.com/carlquintanilla/status/1364553906970365953

As noted in the JP Morgan note - and by anyone/everyone trading volatility since Q3 last year - implied (essentially what you pay for vol via options) has been higher than realized (the vol you actually get in the market's ups/downs) for a persistently long amount of time.

Here's Goldman with a nifty chart showing their calculation of the "vol risk premium" , which is essentially the implied minus realized measurement.

And our friend @vixologist was on this back at the end of last year, saying

"keep an eye on the spread between implied and realized vol. It won't stay like this forever."

I've put this to every vol expert we've had on the pod, and the TLDR summary is that - it's not that easy to just say implied is higher than realized, so VIX is expensive (or a bubble @MarkoKolanovic4 )

When on with @bennpeifert, he had this to say:

"VIX is not really a reflection of the level of the S&P...it's the volatility regime you're in... if markets are moving, gapping, trending. People are buying options, then you know, implied volatility will be will be elevated."

"think about, in a world where people are piling into crypto like crazy. There's a huge SPAC mania where pop stars are launching SPACs, you've got, stocks going parabolic, you've got Wall Street bets, crazy amounts of short, dated call options. That's not a VIX 14 world. Right?"

Me:

"Still, the realized is much less than the implied right so we can say all that stuff's happening and causing the implied to be higher. But the realized for three, four months has been much lower. I think it was a record spread in there in December"

And @bennpeifert again:

"December, we had close to close realized vol of 9. But if you look at like intra day measures of realized, it was much higher than that... intraday sell offs bought hard...lots of days down -1.5% or -2% and came back to only down 50bps or something"

"that's not necessarily a reflection of a low level of volatility, that's, you know, a small sample effect, right... realized volatility wasn't 9 on a close to close basis, and realized correlation was extraordinarily low"

"we had huge moves under the surface in individual companies and sectors and in factors. And it happened to kind of average out, right, we got some some days where the index didn't really move, but, you know, energy was up 7% and tech was down"

Me (abridged): So implied vs realized as a signal?

Benn: Everybody kind of thinks that right? [but] realized versus implied... look at whether that's a good signal for selling volatility or buying volatility over the last five years is absolutely zero signal.

Listen/watch for yourself here:

Apple: podcasts.apple.com/us/podcast/flo…
YouTube:
Spotify: open.spotify.com/episode/3JtCsk…