00:00Yeah well thanks for having me on Tom. That's the key point really. The market
00:05is obviously rallying but on the surface you'd be forgiven for thinking that yes
00:09it's overbought, there's some relatively high returns but it's really underneath
00:14the surface that you're seeing some pretty unprecedented changes. So you
00:19know you alluded to the gamma there. Gamma is essentially you know option
00:23dealers hedging needs. All you really need to know is that when it's very high
00:27they tend to stabilize the market overall. They tend to you know they don't chase
00:32moves. If the market goes up they sell and if the market goes down they buy.
00:37But what was really unusual is for that move to be so rapid. So we went from like
00:42near negative record negative levels only a few weeks ago to almost a near
00:46positive level this week in the fastest rise we've ever seen. And as you said
00:52that's really been ultimately here what we're talking about is speculation.
00:56Right. In a very few number of semiconductor names and especially in the
01:01option space and I think that's what's led to this very unusual set of risk
01:05measures where they are today. Well there is that dreaded word speculation and for
01:10Global Wall Street listening thank you so much folks for your commitment there. I
01:15want you to take this to Cambridge in pure and applied mathematics in your core work
01:20at the wonderful Imperial College. You know I the derivatives folks the industry
01:25was basically Paul Wilmont at Imperial College years ago which is where it was
01:31founded. Do you see an analog here that we can take back to other crises of the
01:38whiplash the whipsaw that we're seeing day to day in our speculation?
01:45That's good knowledge on Paul Wilmot yeah he was taught by one of my lecturers at
01:49Imperial. But yeah the analog I think is 2021 so really not that long ago of course
01:56but that's the last time we saw things as extreme as they are today except they were
02:02less extreme. So we had this very low correlation we had very high dispersion and we had pretty
02:08high gamma back then but really crucially the rally kept going for like another 68
02:14weeks so I think I think that's the sort of immediately assume that everything's a
02:18bit crazy and speculation is very feverish that doesn't necessarily mean that the
02:22bell is about to toll right away for the rally it could it could go on a little bit longer.
02:27Simon I was going back and forth yesterday with our editor-in-chief John
02:30Micklethwaite and you know John Micklethwaite he knows his alpha his beta his gamma his delta
02:36all the Greek letters. I mean John has it nailed here on Greek. I want you to explain Simon to
02:42mere mortals where they look at the big short movie or maybe they translate Nassim Taleb and
02:49fooled by randomness they look at it like it's a derivative shell game. What's the underlying
02:56value of the gamma the correlation and the dispersion where you stopped the world
03:02yesterday? What's the underlying value of all this? I mean if in terms of if it's a value for
03:09you know societal value obviously that's a very different question but it really ultimately comes
03:15down to you know I guess highly efficient markets and people have very niche risks that they need to
03:20hedge away but as usual when you start with a real end user demand you know we've seen it in
03:26commodities
03:26for instance the oldest futures markets are commodities they were originally there for end
03:31user demand but very quickly speculators started to use them in different ways maybe not for how they
03:37were originally intended and I think that's kind of what's happening in markets but there is some
03:42very good things you can do here so for instance if you take a view in correlation means that you
03:47can
03:47then express it in the market right now though the fact that correlation is so low that's really
03:53telling you that the shock risk in the market is high I mean it really correlation cannot actually go
03:58much lower for the market it can really only go one way and what happens when a shock hits something
04:04exogenous things tend to move together and you see that correlation move and then I think everything
04:09will unravel then you'll see the dispersion move the gamma will move and the correlation will move
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