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The Magnitude of Change


Our professors and partners have come from as far away as Australia to contribute their wisdom and guidance. Throughout the next two days we will be highlighting some of their ideas on managing risk and staying in the game as catalysts for discussion.


- Vicis Capital manages portfolios concentrating in volatility extraction by opportunistically trading options, convertible bonds, and other derivative securities that exhibit gamma and vega profiles.

- We are more concerned with the rate of change, or how fast things move, than in what direction they move, relative to the prices of derivative instruments. We don't particularly care if stock and bond markets go up or down, but care a great deal about to what magnitude prices change.

- The distribution of prices is important to us as well: are prices gapping from day to day within a trading range or are they in trending?

Key themes:

- The degree of compression as a function of a lack of volatility is growing.

- Relative cheap option pricing

- Hedge Fund overcapacity and in particular, convertible bond hedge funds.

- The Federal Reserve and other central bank's promotion of increased risk as a function of globalization.

- Mostly what I try to do is provide an offset to the constant barrage of bullish insights coming from the great sales machine called Wall Street so that Minyans can gain a perspective.

- Psychology/complexity is the variable that drives markets into inefficiency.

Outlook for the financial markets:

- I believe options are cheaper than they deserve to be and that compression is therefore quite significant. Unlike most gamma traders, I am actually under trading our gamma.

- As long as the market/stocks do not break one way or another, the selling of options will be a reinforcing strategy. However, once the market/stocks do break, the break will be more violent than it otherwise would be (if options were less cheap.) This is a result of the long gamma traders who have already re-hedged but the short gamma traders who will find themselves very exposed and ultimately have to re-hedge with a gun to their head.

Thoughts on controlling risk and staying in the game:

- Sector diversification/concentration

- Proper use of leverage

- Opportunistic approach

Outside reading:

"When Genius Failed." ~ Roger Lowenstein
• "Conventional Wisdom Not Always Right" ~ Floyd Norris NYT article from 7/1/05 column.

If I could give one piece of advice to attendees...

• The enemy is all around us and the weapon is apathy. The best defensive tools against it are knowledge and perspective
No positions in stocks mentioned.

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