In A Short Volatility World The Emperor Has No Clothes When Un-Hedged

Chris Cole has that odd, angular perspective on the world that is often correlated with derivatives traders. Such a perspective tends to look beyond the obvious direction of the underlying asset but rather considers how quickly and expansively that price movement occurs. They look for contract structure mismatches and points when time decay premium is either under or overpriced. Cole, for his part, looks at the short volatility phenomena as the height of financial engineering and has resulted in “the Ouroboros,” a form of alchemy that creates something from nothing and fills believers with delusion, Cole believes. This “dangerous feedback loop” that is currently painting a lovely tranquil picture – much like 1987 – but it ultimately leads...