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The price of vol, in single stocks, in equity sectors and across asset classes is on the mind of Stuart Kaiser. Now the head of equity derivatives research at UBS, Stuart spends his time helping the firm’s institutional clients find value on both the long and short side of the derivatives market. Landing at Goldman Sachs a stone's throw away from the global financial crisis, Stuart developed his skill set by looking for opportunities in the single stock options market at a time of massive transition in implied volatility. During our conversation, we revisit the surge in option premia in US financials, from extremely low to unrecognizably high levels in a matter of a year. In this context, Stuart shares his views on the vol risk premia, noting that it can sometimes be compelling to sell vol at low levels, especially when markets are trending in muted fashion as they did in 2017.
As part of his process for supporting clients, Stuart continuously evaluates volatility surfaces. He shares the process he uses, describing how he utilizes back-tests and how he arrives at points on the curve that carry best and are optimal in the context of the risks being hedged. We also discuss 2018, a year book-ended by market disruption events of very different character that required unique trade construction in hedging. Lastly, Stuart shares his framework for evaluating cross-asset risk factors and how he looks for warning signs that sister asset classes like FX and rates may send to equity investors. Today, amidst a challenging environment for carrying options, he sees value in gold volatility. Please enjoy this episode of the Alpha Exchange, my discussion with Stuart Kaiser.