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Gordy Lawrence, Director of Global Derivatives at Wellington Management, spends his days searching for value in optionality. With a framework geared toward assessing option prices on both an absolute and relative basis, Gordy and his team support portfolio managers throughout the organization with the aim of utilizing derivatives to improve the up versus down capture profiles in portfolios. My conversation with Gordy explores this process – how proxy hedges are evaluated based on historical performance through stress periods and how circumstances unique to a specific period might be given special consideration. In this context, Gordy details his firm’s purchase of puts on the Euro Swiss cross in late 2014 at a remarkably low level of implied volatility, based not simply on option carry considerations but based on fundamental work and a view on the wherewithal of the SNB. Sharing perspective on the current low level of US interest rate volatility and its divergence from the VIX, Gordy notes that with respect to rate risk, the Fed “has its thumb on the scale”. Continuing to explore this, our discussion moves to equity volatility. In significant contrast to a few years earlier when VIX ETP product growth was rampant and vol markets were well supplied, today’s equity volatility environment is impacted by the combination of a supply shortage along with strong demand for options from retail. There may be another factor at work contributing to a high VIX and that, in Gordy’s view, is skepticism that market liquidity will be there when it is most needed. All of this will make for a fascinating year in markets in 2021. I hope you enjoy this episode of the Alpha Exchange, my conversation with Gordy Lawrence.