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Benn Eifert 🥷🏴‍☠️ Profile picture
Benn Eifert 🥷🏴‍☠️
@bennpeifert
Hedge fund manager (volatility/derivatives), Oathbreaker paladin and Nightreign princess bodyguard. Anti-fascist.
89 subscribers
Aug 27 • 6 tweets • 2 min read
Good morning. I'm on a posting break but everyone is sending me this so just a brief explanation. 🖤

The headline is correct, but the implications are not. The VIX complex is very expensive on a relative basis right now and hedge funds are short it against other vol exposures. VIX basis to at the money forward S&P volatility is very high, so volatility hedge funds are short VIX futures and long S&P forward volatility and variance against it
Aug 19 • 11 tweets • 2 min read
Okay. I promised a quick thread on put/call parity after that poll yesterday, even though typically I like to stick to topics that aren't well covered in the public domain.

We'll start with the basic idea and then talk about nuances that make it not quite true (esp. for retail). Put/call parity describes the fact that, if you can go long or short the underlying, whether an option is a call or a put doesn't really matter, it just affects its delta, or sensitivity to the underlying (which can be adjusted by holding a position in the underlying!)
Aug 14 • 29 tweets • 7 min read
The people wanted a covered calls / option selling mega-thread, a one-click response to all the charlatans out there trying to farm retail investors.

Systematically, blindly selling options is a BAD IDEA. Underperforms owning equities by a lot. Let's go through why and how. Okay. The starting point here is flows. Before 2010 or so, options markets were sort of a backwater. Risk premium was relatively high, so if you backtested simple option selling strategies like covered calls or cash-secured puts, they looked pretty good (see PUT INDEX, BXM INDEX)
Aug 9 • 8 tweets • 2 min read
Funny (?) health care story. Stomach had been hurting for a few weeks. Got on a plane from LA to SF and all the sudden got way worse, like 9/10. Went straight to the ER after landing, threw up all over the place. Got blood tests and CT scan, morphine got pain to 7/10. Doctor came by, said the scan showed nothing and he was discharging me, I should work on my diet. I said whoa hold on, like can you talk me through what could be going on here, this is the worst pain I've ever had, what can you rule out?
Jun 18 • 4 tweets • 1 min read
Worth noting that the vix basis (spread of vix futures over S&P at the money forward vol) is at the high of its ranges of the last few years (barring the brief weird day last August) Image In the pandemic it went as high as 15 but that was because there were insane massive short VIX call positions (Allianz Structured Alpha, etc) that got liquidated in the middle of a massive selloff
Jun 12 • 7 tweets • 2 min read
A few people have asked for this so I'm creating a thread-of-threads about hedge fund blowups to make those stories easier to find. Please if there are any I forgot go ahead and link them for me. First one is a general thread about 2020 pandemic blowups:
Next up we have InfinityQ, an epic fraud in exotic derivatives:
May 27 • 10 tweets • 2 min read
1. Lehman. Wells Fargo prop lost hundreds of millions of dollars on converts, bond basis and levered loans. Head of the desk went to the board and asked for $4 billion in balance sheet to buy everything in sight, got it, because Wells was in good shape. Better lucky than good. 2. August 2011. Had nice EURUSD and USDJPY volatility positions that helped the fund put up a good month. We added to bond basis, converts and levered loans. I sold CDS IG versus buying S&P volatility, that was choppy and the CIO covered it before it converged. But...
Apr 12 • 5 tweets • 2 min read
1) game theory is a real thing. for example, it revolutionized the auction mechanisms used to sell ads on search engines, creating massive revenue

2) almost everyone who tries to explain something substantive on the internet with reference to game theory is a charlatan the game theory Chamath knows Image
Mar 23 • 15 tweets • 3 min read
Okay this is a good thread topic and really is all about understanding positioning in tails and being in the flow of information as crises start to unfold. I'll tell some stories to illustrate. Remember that all volatility selling is not the same. Some kinds of volatility selling are inherently stabilizing to markets. For example, the large institutional flows in call overwriting and cash-secured put selling for equity replacement are very stabilizing...
Mar 16 • 11 tweets • 3 min read
This is a nice prompt actually. I'm going to use the word thread here because it was just so annoying trying to find all my old threads to link together :) 1) Realized vol dynamics Image
Mar 15 • 18 tweets • 4 min read
Putting together a thread-of-threads on options and derivatives. It's kind of hard because I never tag them with the stupid thread symbol (i hate it). If you have others of mine you like can you append them to the end please? Borrow cost
Mar 3 • 14 tweets • 3 min read
Okay this is a fun one. Catalyst Hedged Futures Strategy (CWXIX) managed around $2 billion at its peak, doing "smart, low-risk, income-oriented" option selling. :) Image In practice, what the fund was doing was selling upside call ratios on the S&P futures. First of all, if you read my stuff you should know the answer to this: what is the one reason to trade the futures options and not SPX options? Yes: less margin required!
Mar 2 • 4 tweets • 1 min read
Oh this is an awesome thread of tech oopsies in finance. I'll add one of mine. MS had an equity options execution algo that we were heavy users of in 2013. They released a new version of it one day. We started getting really good fills on some EWZ calls... ... I was loving it, figured we'd found a big seller and was waving them in. My battle-hardened trader Chris Hauck stopped buying and said Benn something feels off to me. He called MS to check everything.
Mar 2 • 5 tweets • 1 min read
Okay you voted for a tail risk discussion. Let me start by boosting a couple old threads. First, some background Second, a bit more detail
Feb 26 • 14 tweets • 3 min read
Quick thread on leveraged ETFs and volatility drag. This is an important source of confusion I see constantly.

1) Levered ETFs experience volatility drag, their rate of compounding scales less than their leverage multiplier

2) Rebalancing does not inherently reduce returns On the first point, this is just a simple math thing. If this is the stock prices process (average rate of return mu, volatility sigma): Image
Feb 25 • 10 tweets • 2 min read
All right, let's talk about borrow cost in options. If you want to short a stock, you're going to need to borrow it from your broker, and they're going to charge you a rate. Hard-to-borrow stocks that have a lot of demand for shorting command a premium. When you buy a put or sell a call on a stock, you're getting short exposure to the stock. Did you just find a cheat code to get around the borrow cost? No, obviously not, there are no cheat codes for anything in finance, sorry.
Feb 24 • 8 tweets • 2 min read
FVA explainer now that you know the important things. An FVA (Forward Volatility Agreement) is a forward-starting option. It's strike is not set yet, it will be set at a future date based on some rule (at the money, 25 delta, etc). For example, if I buy the SPX Mar25-Jun25 atm straddle FVA, on March expiration we'll take the settle price of the S&P 500 and that will be the strike price of my Jun25 straddle. Before March expiration, I don't have a strike, so the straddle "floats" with spot
Feb 23 • 6 tweets • 2 min read
All right you can have the skew lock explainer too. A skew lock is a package trade combining a short position in a conditional down-variance swap and a long position in a conditional up-variance swap. So for example, the down-var might have a threshold at 90% of current spot and the up-var at 110% of spot. Below 90% of current spot, the client is short variance; above 110% of current spot; the client is long variance.
Feb 21 • 11 tweets • 3 min read
My guy ⁦@bigblackjacobin⁩ pushing back against AI hype. The idea of a "subprime AI crisis" driven by massive speculative overinvestment in data centers and training models that are unable to deliver on their wild promises is a risk scenario we should be considering Image one scenario is we get AGI or whatever, good luck with that

another scenario is we get substantial productivity benefits as AI takes over a lot of lower skill tasks in engineering

a third scenario is AI keeps hallucinating and making overconfident mistakes and remains a toy Image
Feb 21 • 10 tweets • 2 min read
Beta-adjusted gamma. This is a pretty simple thing but worth discussing.

So ordinarily you think about dollar gamma on your positions - if the underlying goes up by 1%, how much more dollar delta do you pick up? If you were to add up your dollar gamma across all your positions, the thought experiment would be if every underlying goes up by 1%, how much total dollar delta do you pick up. Maybe this is kind of interesting? But probably not.
Feb 20 • 10 tweets • 3 min read
Carry and rollup/rolldown is what the crowd wants.

Most people think of the theta (rate of decay) of options as the "carry" of an options portfolio, or its change in value over time if everything else remains the same. If volatility surfaces were flat that would be true. Of course, they're not. So we need an extra component. If one day passes and everything stationary remains the same, the implied volatility of an option "rolls up" or "rolls down" the volatility surface along the time to maturity axis Image