Vol twitter is fantastic because there is so much drama and noise and fury over which pet theory is right, and then you look up the 10y returns of the biggest, noisiest accounts and the only appropriate response is “....eh”
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The entire premise of long vol funds is that they improve geometric return of a stock portfolio, but I took the returns of two of the big vol accounts, computed the optimal allocation to them to maximise long term geometric return, and the answer in both cases was 0%
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There should be 4-5 accounts max on voltwit and they should all be
@bennpeifert (stolen from the dms!)Show this threadThanks. Twitter will use this to make your timeline better. UndoUndo
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Meanwhile Ernie just grinding out 50% returns in a good year and risk premia in a bad year and totally supportive of anyone with an idea and some energy
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Who's Ernie?
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One problem is not enough leverage/wrong fee model. If you need to invest 20% of your portfolio in a long vol fund to see a meaningful impact, the drag on returns is going to be too big to bear.
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So for an individual trader like myself, are you saying I’m wasting my time following vol twit and trying to figure out vol trading? What’s the takeaway for most of us who are not Benn E.?
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I guess I'd say two things, 1. There is a huge amount of bullshit and marketing to pick through to get the good stuff 2. On net it's probably better for retail traders to just stay away from options unless you plan to be semi-professional
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If you compute the allocation from a major market top to a recent market low (e.g. mid 2000 to March 2020)… would that change the result?
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Not many long vol funds founded before 2000 who are still around! Even Capula was 2005.
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You think you're generally better off doing some tail hedging yourself then? Either tail SPX puts, long vix futures (when contango isn't too bad), or long vix calls
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