Lead-Lag Live

Euan Sinclair on Simplifying Options Trading, Zero DTE Strategies, and Navigating Volatility Risks

• Michael A. Gayed, CFA

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What if options trading isn't as complex as it's made out to be? Join us as we welcome Euan Sinclair, a distinguished expert in the field, who challenges the common perception of options as intricate financial instruments. Discover how the landscape has transformed in the wake of the COVID-19 pandemic, driven by a surge of retail traders who have redefined the market dynamics. Euan shares his insights into the inherent simplicity of options that facilitate effective modeling, and we explore the rise of zero DTE options trading, emphasizing the importance of seasonality and innovative risk management strategies.

Dive into the potential risks lurking within the options trading industry. We unpack the instability linked to volatility products like VIX ETPs and the structural risks emerging from the concentration of market makers. Euan highlights the shift from numerous small players to a few large ones, creating a precarious market environment should a major player falter. Listen as we discuss the notional value traded in options and the cautious optimism surrounding today's more aware market makers, even as we confront past events that serve as cautionary tales.

Forecasting the future of trading has changed, and Euan helps us navigate this new terrain by comparing it to the world of sports gambling. With a plethora of accessible data, the challenge now is modeling it effectively to stay ahead. We delve into the current state of volatility and introduce the concept of "micro alphas"—the small, often overlooked signals that can, when combined, lead to significant trading advantages. Our conversation concludes with a focus on adapting strategies to ever-changing market conditions and leveraging these persistent edges for success.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.

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Speaker 1:

Do you give any credence to the concerns out there around the sheer notion of value that's being traded on the option side?

Speaker 2:

The bears or the negative. People always have better stories right, Because they have a story and they can tell you this time it's different, this time they're going to blow up and eventually they do blow up, right, but the people, the optimists. The problem is they never make the news because they don't have a story. Since COVID, there's been a huge influx of retail traders coming in and treating this literally like gambling.

Speaker 1:

And, with all that said, my name is Michael Guyatt, publisher of the Lead Lag Report. Joining me here is Ewan Sinclair. Ewan, introduce yourself to the audience and to me a little more formally. Who are you? What's your background? What have you done throughout your career? Where are you currently?

Speaker 2:

Well, I'm originally from New Zealand. I did my PhD in theoretical physics in England, in Bristol University, and while I was there I realized I'd always intended to be a physics professor. But while I was there I realized that what physics professors actually do, professor? But while I was there I realized that what physics professors actually do ie teaching physics 101 to a bunch of pre-med students who aren't particularly interested wasn't that appealing. So I started looking around for other stuff.

Speaker 2:

At the time derivatives had become big news in England because courtesy of Nick Leeson blowing up Barron's Bank, because courtesy of Nick Leeson blowing up Barron's Bank, england doesn't have a huge history of retail trading in the way that the US does. A few institutional reasons for that. Primarily, it's very expensive to trade stocks because they're all denominated in pence, so your bid-ask spread's's very wide, and also the way they're taxed per transaction. So everyone was sort of beginning to talk about things then and looking for physics graduates and other stem graduates and so I kind of fell into the options world there, started working as a market maker. I've then moved on to quant stuff, crop trading, and then eventually I ended up at Hull where I run the volatility part of our ETF.

Speaker 1:

I was smiling at you mentioning Lee Sin. I actually had him on a podcast, I want to say a year and a half ago, and his story is absolutely wild. For those who are not familiar with it, I might have to bring him back on at some point. When I think about options, I used to think about them as sophisticated tools that can help hedge and manage risk and maybe do some light speculation. I used to. Now I think of them as going to the casino. Am I wrong in my perception of the way that options are now being used?

Speaker 2:

Um, I don't want to start with saying you're wrong about everything in that statement, but I'm going to push back against a few things. The idea that options are very complicated is not really true. Um, like Warren Buffett, for example, was very down on derivatives, saying that they're too complicated for your average investor to use Ironic, I think, given he's probably the biggest derivatives investor in the world. But if you look at the contract specs of options, pretty much everything that you need to know is written down in two pages. And if you compare that to a stock, a stock is really a collection of very complicated interlinked contracts and even the S1, which is the document you file before you're going to file the documents to go public that can run to hundreds of pages. So I think if you really drill down into it, options are actually not that complicated and that's the reason that we have these complicated models. For them, it's because they're simple enough to model. So it's the same in physics. People think physics is very difficult, but it's difficult because the models are modeling something simple. Like you can have a model for an atom, you can't have a model for an elephant. So it's the same with options and the complexity.

Speaker 2:

But I would say you're right that since COVID, there's been a huge influx of retail traders coming in and treating this literally like gambling. A lot of these people moved into this during COVID because there was no sports to bet on, so a lot of people who were doing fantasy sports had to do something else, and so we got the crypto boom, we got meme stocks and we got a big boom in particularly short-dated and zero DTE options, and so I think there's a lot of commonality in those things and I don't think that's a bad thing. I think the growth of retail trading is probably the most important thing for the options industry ever, and I don't even think it's particularly close, although I did get into trouble with the CBOE when I mentioned options and gambling in the same sentence at one of their conferences. But yeah, I think you're right in that regard.

Speaker 1:

Since you mentioned the zero DTE and the explosion of volume that's come to that space and the idea that modeling is an important part of how to think about options trading, has it been harder to model things because things have just shortened in terms of time frame because of the zero DT explosion? Has that thrown off more traditional options analysis?

Speaker 2:

It's definitely caused a few changes that had to be brought into it. Um, the big one would be some seasonality and the fact you, if you've got a two-month option, the fact that different things happen on monday to tuesday isn't that important, because all those effects get averaged over, whereas a very, very short-dated option zero. I mean it's important to keep those things in your model. So a standard time series model like GARCH or whatever, doesn't have a factor in there that says today it's Tuesday. So you have to sort of overlay that model with another model that brings those calendar effects into play.

Speaker 2:

But in terms of the risk management, I think it's more of a difference in degree than a difference in kind. It's like driving a car at 100 miles an hour is different than driving it at 10 miles an hour, but all the controls are the same. It's just things will happen a lot more quickly and because of that you can certainly get happen a lot more quickly and because of that you can certainly get yourself into trouble more quickly. But from my point of view, I think they're definitely part of the same family, they're definitely part of the same species. It's like they're not a different animal, it's like a big cat and a little cat. I've never used that analogy before.

Speaker 1:

First thing, that works is the um okay. So I think it's interesting because this gets into, as you've alluded to, the idea that post-COVID there were no sports, so people just were gambling, and I'm always struck by how many people I see around me that are using DraftKings and other types of online apps to bet and do these parlays, and it's more than a pastime it becomes like a profession and almost an obsession. Is it fair to say that zero DTE options trading is essentially gambling? Because there's less signal in the noise of daily. There's more signal in longer intervals. So if you're playing with the day trading aspect of zero DTE, it seems like that's just pure randomness.

Speaker 2:

Okay. So I think predicting the average volatility for a short-term option is easier. I think the difference is that your error bar around that average is much greater. So if you do zero DTEs long enough, like if you do them for three or four years, I think you'll find your P&L stream is probably smoother than if you're doing longer dated options. It's basically you get to make the bets much more often. So it's like going to a blackjack table playing 500 hands an hour is much, much better than playing one hand every hour. Your variance just goes down enormously.

Speaker 2:

I also want to mention here I don't think there's any difference between gambling, investing and trading. I think they all came from different places, but if you look up the definitions in the dictionary, they're very similar. Up the definitions in the dictionary, they're very similar. It's all about putting money at risk in an uncertain situation. Now gambling's got. I mean, for social and religious reasons, gambling has a certain negative connotation to it. Like you probably want to tell your mother you're an investor and not a gambler. But in terms of the things you do and in terms of the things you need, a professional gambler and a professional options trader are doing very, very similar things. I've got a friend who came in to options trading and he started as a professional sports gambler and I think this is great because he's taught me a lot. I think this is great because he's taught me a lot, because having someone with a real quantitative background and a history of putting money at risk coming in he's got a very different way of thinking about things. And once you've been in the industry a long time, everyone sort of starts doing the same thing and getting new ideas is really difficult and I've found some of these retail people really genuinely have new ideas and I don't think we should look down at them. I hate gatekeepers in any industry, but for us this is great. It brings more volume, it brings more liquidity. Anyone who's interested in you've got more customers coming into the store. I really can't see how this can be a bad thing.

Speaker 2:

And gambling's also sometimes said where you know you're not investing, you're just gambling. Well, like, I know plenty of gamblers who make money, there's my friend who's a sports gambler. Our founder started with blackjack. Like he started as a professional card counter in the 70s. He's in the hall of fame for Blackjack and he ran. If you want to start with that point. He ran $500 up into a lot more than that, multiple hundreds of millions. And if you look at a lot of the professional options trading firms, they were also started by gamblers, whether it's poker, uh, sports gambling, blackjack or backgammon, um. So they're gambling doesn't mean you're just throwing money around randomly.

Speaker 2:

And there's also plenty of people who are investors who really have no edge and we don't look down on them to the same degree as even a sports gambler who does have edge. It's considered sort of a sleazy profession and I think that's really unfair. I think, apart from the fact that I'm in the financial markets, a lot of the analysis we do is very similar to how you would analyze a sports game. You look at statistics, you come up with the model, you test the model and you bet according to the edge and the variance that your model gives you. So I don't think there's any difference and I think the difference between retail the opposite of retail is not professional. The opposite of retail is institutional, and you can be a professional retail investor and do very well for yourself and as far as I'm concerned, the more people who play this game, the better. I think it really helps everyone. It improves the health of the ecosystem. Having lots of divergent opinions is what any healthy market needs.

Speaker 1:

So I'm curious, just for the sake of pushing back though the divergence of opinions in a healthy market? I agreed on that conceptually, agreed on that conceptually. I question whether that actually happens, though, because it seems that increasingly there's this sort of hive mind that happens in terms of certain directions or certain narratives, confirmation biases that social media results in us gravitating towards.

Speaker 2:

It seems to me that there's more concentration than diversity and that options lever, that I can see what you mean in terms of zero DTEs. There's definitely a big customer group that just comes in and sells them every day. Um, it's, they think the problem is they've heard of this greek theta, you know, and theta is called decay. But that only is half of the picture. If you look at the black shoals equation, it literally says that the option decay over time is balanced by the expected move of the stock changing the value of the option, and that gets lost in translation. So you do have a lot of retail people just thinking these options are going to expire, worthless, so hence I will sell them, and I think a lot of people would have done much better had they never heard of Theta. So there are a lot of people. I think there's a group called the Theta Gang and you know, generally speaking, people in gangs. It doesn't end up well for them, right? They end up dead, they end up in prison, and I think anyone who is indiscriminately selling options, that's a problem. I don't know of another business where you can sell something irrespective of the price. So there's always a fair value for an option, and the idea is you sell stuff above that fair value and you buy stuff below that fair value. So if you're doing the same thing every day, you probably have missed a big point.

Speaker 2:

One of the reasons options are good to trade is you can value them, but you still have to make the effort to do so. You can't just blast zero DTEs every day and expect that to work. However, on the other side of that coin, that means the people who are buying the zero DTEs tend to be market makers, and market makers are the ones who will dynamically hedge those zero DTEs because they're long. That means they're going to buy futures as the market drops. They're going to sell futures as the market rallies. That actually has a stabilizing effect on the market. So the people who are indiscriminately selling over time, they're probably going to lose all their money, but on any given day, you could make an argument that the market makers, being long, are a stabilizing factor in the market, and there are people who've been studying that academics and that seems to be the case.

Speaker 2:

We probably don't have enough data or a long enough time period yet to be sure, and things always change right. Any academic, any finance study is different than studying well science, because markets change, markets are continually adapting and you have an influence on the market because of what you do. But having said all that, you can still do statistics your influence on the market. You have an influence on the market because of what you do, but having said all that, you can still do statistics and it looks like zero DTEs don't cause the enormous instability that you might expect.

Speaker 2:

For example, if everyone's getting excited about a meme stock, everyone's buying it. You do get bubbles and bubbles burst. Everyone's buying it. You do get bubbles and bubbles burst, and that's a destabilizing equilibrium. Whereas I think retail selling options not saying it's a good idea, but I think it's a stable equilibrium in the market I'd be much more worried about people selling well direct volatility products like VIX ETPps or something like that, because we've seen in the past those go absolutely, you know, ballistic to the upside. So I know everyone's sort of a bit worried about the possible effects of zero dtes and I I am too, but as a professional you know part of your job is to be worried about everything and this isn't at the top of the list of things that I'm particularly concerned about.

Speaker 1:

You just teed me up there. So what are at the top of that list?

Speaker 2:

Well, I think again the indiscriminate selling of VIX ETPs. It looks very much like if you look at the picture of them. You look back when they were listed, like you look, and it was listed at like I don't know a split adjusted price of six million and now it's trading at like 50. Clearly, in the long run, selling those is a good play. Unfortunately, we don't live in the long run right and you go back to February of 2018 and you saw the sort of moves against the shorts that could happen, and part of that is just because volatility will spike on the upside, but part of it's also due to the process that leveraged ETPs have to follow to rebalance every day. So they are a short gamma product. They are like a really a power option with a zero strike. So by shorting those, you are essentially short optionality, but it's not clear that that's the case to a lot of people. So as those things go up, part of their rebalancing is they have to buy more futures. If you're an ETN, you've got a bit more leeway about the instruments you can buy to meet that obligation. On the other hand, you buy a swap someone's going to go out and then hedge it in the futures market. You buy a swap, someone's going to go out and then hedge it in the futures market. So that's that sort of positive, destabilizing feedback that definitely is dangerous. We saw that in 2018. We see it with meme stocks all the time. If something's going up and volatility is going up, that's just almost by definition, an unstable equilibrium. That cannot continue. So it's that kind of thing that would worry me more. So if that got to the point where leveraged ETFs in the stock market became a really big play, like the leveraged ETFs on SPYs, that would be more worrying to me. And the other thing is a completely different situation. When you're investing, you're not just exposed to market risk. You're exposed to risks at a level outside the market, which is very different. Like if you're playing blackjack, you don't have to worry. You don't have a risk that they go to change the rules of the game halfway through a hand, whereas that often happens in finance.

Speaker 2:

And one of the things that really worries me about the option space is there are very few market makers now that are warehousing most of this risk Now. 30 years ago, there were thousands of market makers Now. Each of them was small, but there were lots of them. So liquidity back then was like a wide but shallow pond, whereas now we have very deep liquidity. You can trade enormous size against one of these market makers, but there are very few of them.

Speaker 2:

It's much more like a very deep well, it's a different situation, and if a couple of these market makers blew up and if one blows up it's very likely another one will, because they tend to have very correlated positions that's going to really wreck the market system for options and that's the thing I'm most worried about. I don't know how you could stop that problem. It's not illegal for a small firm to be a market maker now. It's just that the way the bid-ask spread has developed and the fact that now you have to trade on lots of electronic exchanges, so your infrastructure costs are so much greater, it really is a lot easier for the big firms to proliferate, to dominate. Trouble is they haven't proliferated, so that in terms of sort of a meta risk, that would be the thing that I think would be most dangerous to the entire option ecosystem.

Speaker 1:

Do you have any credence to the concerns out there around the sheer notion of value that's being traded on the option side? I mean, you hear these absurd numbers right that that's sort of a ticking time bomb, or is that just fear-mongering?

Speaker 2:

The bears or the negative people always have better stories right Because they have a story and they can tell you this time it's different, this time they're going to blow up and eventually they do blow up, right. But the people, the optimists the problem is they never make the news because they don't have a story. Their story is things will continue the way they always have, which is fine. Eventually we'll be fine. You do get problems with notional value when the derivative market is bigger than the underlying market itself, and that's what happened in the credit default swaps and that created a very big leveraged market, whereas the stock market's not like that. Options are still a relative backwater, so I'm not too concerned about that. It could be a problem. I'm not saying it couldn't be. Like I said, everything could be a problem, and at that point someone will point back to this podcast and say I was an idiot. That's the risk you take for being an optimist. I guess I was an idiot. That's the risk you take for being an optimist, I guess, but right now I don't think that's a terrific thing.

Speaker 2:

Notional value always makes risk sound bigger, and the best risk management firms are probably also those market-making firms, are probably also those market-making firms, so they know about this potential problem. It's not like they haven't thought about it. They know what they're doing in a way that the banks who blew up didn't, and some of those banks they knew their risk management departments were good, and some of those banks they knew their risk management departments were good, so they put these mortgage obligations into a separate entity that didn't have to answer to them, which is, you know, that's an Ecclesian thing right there. You don't want your trader and your risk manager to be the same person. There's clear moral hazard agency problems in there. So I guess, coming back to what you said, no, I'm bothered about that. Could it be a problem?

Speaker 1:

sure, but you know it's again slightly down my list of things that are going to keep me awake at night let's take a step back and, um, since you mentioned the point about edge, having an edge, um, I remember, as nasim tal Taleb, author of the Black Swan, was getting more and more press in the midst of the GFC, that he made it a point that it's a lot harder to forecast than it used to be. This is back then, right, but there were obvious things that he was seeing, patrick Higgs, in terms of the housing crisis and financial crisis that then obviously ensued. Let's talk about sort of the state of forecasting, because it does seem to me that nobody seems to forecast anything. Everybody's got an opinion, everybody's reacting, including the Federal Reserve, and if nobody can predict what tomorrow is going to bring, what's the point of anything?

Speaker 2:

I'm for one of the few times I'm going to agree with Nassim here, and I was having a similar conversation with my sports gambling friend recently. If you look back I don't know 40 years ago, the problems people had in forecasting were very different. I once shared an office with a trader whose first job on the trading floor was writing down the futures price every 15 minutes. That was what you had to do to get data, to do forecasting. And so back then your problem wasn't the model, your problem was finding data, whereas now you know you can pull up free data. You can get infinitely high frequency data for you know what, $300 or $400 a month. Data isn't the problem anymore, and as a result of that you can get the sort of model like a GARCH 1.1 or something you know. Hundreds of websites publish those models, so there's not any edge in those in that basic form anymore. And the analogy we had in sports gambling was, if you were going to bet on soccer 20 years ago, the way to do that was to become an absolute expert in some small random league. So you know you, you would know most in the world about Greek second division soccer and the bookmakers didn't Um, so you wouldn't make a huge amount of money, but you could literally outpredict those markets, and that's not the case there anymore either. Um, now the statistics for the Greek second division are as available as statistics for the English Premier League. So you can't out-forecast the bookmakers there either, because everything's automated, everything's pulled up. It's a different process. But going back to opinion, what you said, that's now the basis of a lot of your forecasting. So, soccer analogy you've probably got a better chance now of forecasting the result of Liverpool versus Arsenal, one of the biggest games in the world, because there's a huge amount of retail interest on that and you'd need a model. Your model would give you the statistically fair value for that game, but because of public money, the actual spread at the bookmaker will be pushed away from that fair value. That doesn't happen in Greek second division soccer because no one's betting on it. So I think similar effects now are working in finance. It's not that you can't predict, but the models you use now can't be the same models you used even pre-COVID.

Speaker 2:

Volatility is still predictable to a degree. I would argue it's more predictable than anything else you can trade and finance certainly more predictable in the stock market or the bond market or whatever. But you have to do the work and you have to continually update those models. But I've got a friend who says well, I'll reference him. He wrote a very good book, augustin LeBron. One of the things he brought up was there's a conservation of difficulty law in trading and it used to be. The difficulty was getting data. Then the difficulty was coming up with a model to use that data. And now the difficulty is staying ahead of the modeling game.

Speaker 2:

You know, it's always tempting to think if I had a time machine, I'd go back, I'd make so much money if I had this model in 1988. Well, sure, you'd have the model, but you wouldn't have the data and you wouldn't have the liquid markets that you could trade that model in. So forecasting is still there. I don't think you can make money in the markets without forecasting. And everyone does forecast to a degree. Right?

Speaker 2:

There's this idea people have I don't forecast, I just follow the market. I don't forecast. I know volatility is always a sale, but when you're making a trade based on that, that is implicitly a forecast, right? No one buys the stock market based on anything unless they think the stock market's going to go up. So implicitly.

Speaker 2:

You've got a forecast that says up, and I think some people have got this idea that forecasting is about coming up with a point estimate of something Like I'm going to say volatility tomorrow is 18%. Well, you can't do that well, but you can say I think the average volatility tomorrow will be 18. And around that I'm going to have a spread of, say, four points. So you have a forecast but you have error around it and, as a result, you can trade. But you have to trade according to the amount of confidence you have and that's the best you can do. But over the long run that's pretty good and you'll do fine. But, like I said earlier, you can't just blast options every day, irrespective of the price, like price insensitivity has to lead to a disaster. You can't sell things cheaper than they're worth.

Speaker 1:

I used to present all across the US and at CFA chapters, and I used to always give the example that yes, you're exactly right, everybody does forecast right. It's like if you set your alarm clock at night, you're making two forecasts You're going to have a job to make it worth to wake up at that early and that you're going to be alive. Otherwise, why would you set the forecast right? So, but I always try to frame things in terms of conditions the conditions that favor a probability.

Speaker 1:

The forecast is not necessarily. At least, I think the proper way to approach forecasting isn't that this is the mile marker you might crash your car, it's just that these are the conditions that favor it. So, to that end, let's talk about the state of volatility right now. I think there is an interesting argument, which I think has some validity, to the idea that there's been a degree of volatility suppression Because, to your point, there's a cohort of people that just constantly are selling options and you've seen this proliferation of cover call type of ETFs and funds that are generating some extra distribution yield, which causes volatility to also be suppressed.

Speaker 2:

Are we due for one of those big vol spikes, you think, since vol tends to be a little bit more predictable, I think what we're definitely seeing is more small vol spikes, more small vol spikes. I think the volatility of volatility and you don't necessarily see this through VVIX, because VVIX is measuring a 30-day volatility of volatility but you definitely see it at the shorter end of the curve, where most of the action is You'll see volatility spike very hard, and that's always been the case. But now you're seeing volatility come off again very hard. So it's almost like the things that would happen on a monthly timescale are now happening on a daily timescale. We're also seeing a different dynamic in the relationship of volatility to the underlying stock movement. To the underlying stock movement.

Speaker 2:

It used to be that that volatility was priced into the options market way too high and that meant you could buy it out of the money calls, you could sell out of the money puts and that was largely a money machine. Again, you've got to manage the risk on that one. Obviously you don't want to be naked short puts, and we never are. But now in the last I'm guessing year and a half, two years, that effect has diminished enormously and we're seeing as the market goes down even a little bit, volatility will spike. You're seeing that to a degree today and we also see on the upside volatility is being much stickier. So I think that's kind of probably the more interesting thing. It's the short end of the curve, driving very quick volatility movements, and that's definitely different, and that's again something that has to be taken into account in your model, because that wasn't the case in the 90s, for example.

Speaker 1:

Let's talk about the fund, the ticker that's behind you. Tell me a little bit about the product. Tell me about the company itself. Give the audience here some context.

Speaker 2:

Okay, the company was founded by Blair Hull, who was sort of one of the original I'm almost going to say legendary options traders. There were like four or five funds back in the nineties or firms back in the nineties who really were driving most of the research, and his firm, hull Trading, was at the leading edge of that. He sold that firm to Goldman in 1999 and was largely on the golf course until 2008. And at that point he thought you know, I'm going to revisit an old idea I had. He thought in the late eight sorry late seventies that the market was to a degree predictable but you couldn't beat the market because costs were so high. To a degree predictable, but you couldn't beat the market because costs were so high, whereas by the mid 2000s costs had collapsed, the amount of computing power had gone up enormously and the amount of data availability was then very different. So he started trying to time the market, and that's what most of our ETF is based on. About 90% of our exposure is in that market timing aspect where we're trying to time on a daily basis the S&P. The volatility stuff is I don't like to say overlay, because it's integrated into that, but it's an extra adjunct. Let's put it that way, but it's an extra adjunct, let's put it that way and our timing?

Speaker 2:

We will literally tell you the signals that go into our model, and a lot of them have been known for a very long time. So things like the variance premium, things like the put-call ratio, new factory orders there have been papers published on these since the 70s and they do predict the market. The problem is none of them predict the market on their own enough to make money. So the trick, if there is a trick, is to find 30 or 40 of these things and then put them together into a model that, on aggregate, does give you an edge. So we call those micro alphas. On their own they just aren't big enough. But if you're smart well, I don't know if you're smart, we work hard you can put them together to get enough predictability to reasonably consistently provide real alpha on top of the stock market's beta. So I don't think we don't make the ingredients. And the ingredients are all sort of out there. We'll tell you about them. Give us a call, we'll tell you what's in our model. What we do is we put them together. We're chefs. We don't grow the raw ingredients together. We're chefs, we don't grow the raw ingredients. So that's sort of what our fund is.

Speaker 2:

We have beaten the market over the last I don't even know if compliance is probably going to yell at me for this. We've done well over the last one year, three year and five year period. Before that it looks bad because we were a 60-40 fund and then we sort of came to the. We had a come to Jesusesus moment where we realized that managing cash and charging for it's a bit you know, it's not entirely honorable. So at that point we went to a beta, one target, and we've done well since then.

Speaker 2:

What we're doing works, uh, and it's largely a matter of, again, details. Um, if anyone tells you there's magic in the market and they've got one signal, I just can't believe that. Um, amateurs think that the pros have a big edge, but and amateurs, as a result, look for that big edge. But almost by definition, they can't exist, because if they did, that'd be too easy to find and that'd be immediately traded away, whereas these small edges they do persist because on their own they're not going to help you. So that's sort of what we do. We're a market timing fund based on a I don't know sort of an ensemble of models Is there anything that we haven't touched on that you think is worth addressing before we wrap up here?

Speaker 2:

I think we've covered most of the things I wanted to rant about. I would emphasize to people that concept of micro alphas because it applies to options as well. You're not going to find that one magic thing. You have to make a forecast. You're not going to find that one magic thing. You have to make a forecast and look realistically. You're not going to find a big edge in a product that a billion people can pull up on their cell phone and can trade if they've got a hundred bucks now, right, looking for that big edge is a fool's errand. But there are edges out there. You can put them together, you do the work, make the forecast and you can still make money. So it's the conservation of difficulty. Again, it's not impossible and the things that are difficult now are not the things that were difficult 30 years ago, and that, I think, is the way that markets evolved.

Speaker 1:

You and for those who want to track more of your thoughts, more of your work where would you point them to?

Speaker 2:

We have a blog that I update each week. So if you go to Google whole tactical blog that'll get you there. It's got I don't know 40 maybe articles in there now. If they're interested, there's a contact information on that website. You feel free to call us, email us. We're always happy to chat. We're never going to get sick of explaining what we do.

Speaker 1:

And, as you know, in this business it's a lot easier to explain what you do when you're performing well than when you're not. And thankfully you guys have Appreciate those that watch this again and I'll see you all in the next episode. I have another one coming up, I think in a few hours here. Thank you and appreciate it. Thank you.

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Michael A. Gayed, CFA

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