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Benn Eifert 🥷🏴‍☠️ Profile picture
Benn Eifert 🥷🏴‍☠️
@bennpeifert
Hedge fund manager, Oathbreaker paladin and Elden Ring princess bodyguard. Anti-fascist. Personal account.
82 subscribers
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
Feb 18 • 19 tweets • 3 min read
OK I promised a thread on volatility term structure behavior, "tenor-adjusted vega" and similar concepts. The key question here is, how do implied volatilities at different maturities tend to move together, how do you think about hedging relationships? Everybody knows intuitively that short-term implied volatility (like VIX) moves around a lot, and longer-term implied volatility moves around less, because volatility markets inherently price in the mean reversion of volatility
Feb 16 • 28 tweets • 6 min read
Thread on variance swaps, the good, the bad, and the ugly. Sorry for the delay on this one, New York was too much fun and I didn't have time. Image Variance swaps are very simple. You buy a certain amount of notional at a specified level of implied variance with a specified maturity; you recieve floating (actual realized variance) and you pay fixed (the price you agreed on).
Feb 10 • 16 tweets • 3 min read
Okay you asked for a heroic hedge fund story, to balance all the blowups I tell you about.

This is sort of in between, like doofy heroism.

We were the Wells Fargo prop desk. Not the most legendary and storied of prop desks. Actually possibly the least legendary. We traded capital structure arbitrage and convertible bond arbitrage. That means, for example, buying senior secured debt and shorting unsecured debt against it, or buying cash bonds and hedging with CDS, or trading credit vs equity, or converts delta neutral.
Feb 9 • 4 tweets • 2 min read
Okay let's talk about this.

1) Only 6% of you said Bill Gross but his firm probably traded more gross notional of derivatives in his career than global GDP. PNL in many tens of billions of dollars. See replies to the poll. 2) Most of you voted Jim Simons. His famous derivatives use was in basket options, which transformed short term capital gains tax obligations into long term capital gains rates. This saved them about $6 billion but was later clawed back by courts and IRS which did not appreciate it.
Feb 9 • 21 tweets • 3 min read
Okay we'll do absurd and disastrous, can't quite get all four into one story.

There was once a very famous hedge fund that would blow up on Jupiter-sized natural gas spreads. That blowup was so wild that none of the other big personalities got talked about. There was an enormous 6'6 300-pound Eastern European derivatives execution trader we'll call Hodor (that rhymes with his actual name). He's still around so we don't need to harass him.

When his boss left he got promoted to PM.
Feb 8 • 34 tweets • 7 min read
GVV (gamma-vanna-volga) modeling. This is a very handy and intuitive approach to thinking about options that links the shape of volatility surfaces to the nature of the key risk factors that an option position represents. First, let's oversimplify and illustrate with a warmup question I'd ask a junior candidate. Suppose you own a call option delta neutral, and you know its Greeks. Tomorrow you come in and the stock has moved X%, volatility and rates and dividends are the same. What's your PNL?
Feb 7 • 25 tweets • 5 min read
Okay this is a really fun one because it's really simple and very few people got it. h/t @Eric714 for the original conversation.

Casually, it looks like the call overwrite strategy is outperforming throughout the sample, but this is a visual artifact of compounding. >> Here is performance before and after 2012. (I'll explain why 2012 in a bit.) The call write strategy sharply outperforms before 2012 and then significantly underperforms after 2012. But why doesn't it look liek that in the chart? Image
Feb 7 • 17 tweets • 3 min read
Okay since blackjack was #1 but was a trick answer, you get investment due diligence, #2. This is where an institutional investor is interested enough in what your hedge fund does after a few preliminary meetings that they want to dig in with the rubber gloves. As always this is going to be our perspective as institutional derivatives absolute return managers, won't be the same in long/short equity etc.
Feb 6 • 13 tweets • 2 min read
All right, I promised you a strategy research thread. Again this is going to be very specific to what we do as quantitatively-oriented institutional derivatives managers, but hopefully it's interesting and maybe has some similarities to what others experience. Our strategy is all about dislocations in derivatives markets. End users of derivatives dwarf arbitrageurs, and their relatively price-insensitive transactions are what create dislocations where relative prices don't quite make sense.
Feb 4 • 9 tweets • 2 min read
All right people had a lot of good ideas here, but it's a diagonal put calendar, short slightly downside near term puts, long a lot more of deeper out of the money long term puts, delta neutral! Let's walk through a bit of the logic here. This is clearly not a single vanilla option, you have multiple reversals of convexity. Notable features:

- delta rising to the upside at an increasing rate to about +4% and then at a decreasing rate above
Feb 4 • 17 tweets • 3 min read
Okay the people asked for a trade sizing discussion. I'll mostly stick to giving my perspective as an institutional derivatives manager, which is different from the thought process of an individual trader but hopefully interesting. Our starting point is that any point in time we have several different strategies or trades active and we need to think about how to size them relative to each other and how big to size the portfolio overall.