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00:00SO GLAD YOU'RE JOINING US, BECAUSE THERE'S NEVER A GREATER TIME TO TALK ABOUT VOLATILITY. THE SAYING IS, DESPITE ALL THE CONVERSATION ABOUT TRUMP AND UNCERTAINTY SURROUNDING IT, VOLATILITY IS LOW. DO WE NEED TO RETHINK HOW WE THINK ABOUT VOLATILITY? AMY: I THINK THERE'S A GREAT DISTINCTION THERE. VOLATILITY IS REALLY AT MULTILOW YEARS, BUT UNCERTAINTY IS HIGH. UNFORTUNATELY, UNCERTAINTY DOESN'T ALWAYS TRANSLATE INTO VOLATILITY. SO OBVIOUSLY YOU HAVE PEOPLE WHO LOOK AT HEADLINE THINGS, FOR EXAMPLE, AND WE HAD A TICK UP SINCE THE WEEKEND, BUT STILL IT'S LOW. THE QUESTION IS DOES, THAT MAKE ANY SENSE? WHAT I WILL TELL YOU IS THE SECOND ORDER WE LOOK AT AFFECTS HOW EXPENSIVE PUT OPTIONS ARE, ALL THOSE METRICS ARE STARTING TO PICK UP A LITTLE BIT. OLIVER: THE V.I.X. IS SORT OF THE GO TO FOR VOLATILITY, BUT A LOT OF PEOPLE CALL IT THE FEAR GAUGE. THAT DOESN'T APPLY AT TIMES LIKE THIS, BECAUSE I DON'T THINK IT'S REALLY BAKING IN THE SORT OF DEGREE OF UNCERTAINTY. THE V.I.X. ISN'T GOING TO MOVE UNTIL STOCKS START FALLING. AMY: ABSOLUTELY. OLIVER: WE LOOKED AT THIS PUT POLICY. I KNOW IT'S SOMETHING YOU LOOK AT. WE'VE GOT A REALLY INTERESTING FUNCTION HERE. THIS IS THE BOTTOM PANEL THAT SPEAKS TO WHAT YOU'RE TALKING ABOUT, WHICH IS A TICK UP. THIS IS THE PUT CALL, SO THE LOWER THIS BEGUN GETS, YOU CAN INTERPRET IT AS THE MORE BULLISH PEOPLE ARE. BUT YOU WILLLY, THAT'S BEEN TICKING UP IN THE PAST MONTH. THAT'S ON THE BOTTOM PANEL. WHEN WE LOOK AT THE TOP PANEL, THIS IS PRETTY INTERESTING. I'M LOOKING AT A 50-DAY MOVING AVERAGE OF PUT CALL VOLUME. AND IT'S VERY LOW, BUT LET'S TAKE IT TO 2000. THE ONLY TIMES THAT WE SAW IT OVER THE PAST FEW DAYS GET AS LOW AS IT IS RIGHT NOW WERE ACTUALLY NEAR MARKET BOTTOMS. IT WAS IN 2009 AND 2002. THE QUESTION IS HOW YOU MARRY THESE TWO THINGS, THIS TREND OF LOW VOL. AMY: THE ONE THING I WOULD SAY IS JUST BACK THE V.I.X. FOR A MOMENT. PEOPLE ALWAYS WANT TO USE IT AS A LEADING INDICATOR. THE REALITY IS, IF YOU STUDY IT BACK IN TIME, IT'S A COINCIDENCE. THE SECONDARY THING WE'RE LOOKING AT IS THIS NEW METRIC CAN POSSIBLY BE A LEADING INDICATOR. SO IT GIVES YOU A LITTLE BIT OF SENSE AT LEAST OF WHAT INVESTORS ARE POSITIONING FOR IN THE FUTURE. SO THAT POINT, LOOK, INVESTORS ARE SITTING BACK, AND THEY'RE SAYING TAKE TRUMP OUT OF THE MARKET, RIGHT? VALUATIONS ARE JUST SIMPLY QUITE HIGH, AND A LOT OF WHAT IS BAKED IN, INFRASTRUCTURE SPENDING, CORPORATE TAX REDUCTIONS, I MEAN, IS THAT GOING TO HAPPEN? WHEN IS IT GOING TO HAPPEN? IS IT GOING TO HAPPEN THIS QUARTER? PROBABLY NOT. WE'VE GOT TO GO THROUGH A LEGISLATIVE PROCESS. WE'VE SEEN HOW CONTENTIOUS CONGRESS IS. SO NOW INVESTORS ARE SAYING, MAN, SHOULD I MAYBE PUT ON A SIMPLE ONE-YEAR HEDGE, A SHORT-TERM HEDGE, AND THAT FUTURE POSITIONING GIVES YOU A SENSE. SENTIMENT THAT INVESTORS ARE KIND OF TURNING TO IN THE MARKET RIGHT NOW. OLIVER: THAT'S INTERESTING, BECAUSE YOU ACTUALLY POINTED OUT SOMETHING THAT IS SURPRISING. WHEN YOU LOOK AT VOLATILITY, THIS LOW, WHICH YOU'VE POINTED OUT IS WHAT'S HAPPENING IN TERMS OF SHORT INTEREST AND THE SHORTING OF VOLATILITY. IN FACT, WE'VE GOT ANOTHER FUNCTION. IF YOU BASICALLY WANT TO GET LONG THE V.I.X. OR SHORT THE V.I.X., YOU CAN BASICALLY DO IT THROUGH THIS E.T.F. AND WHAT WE'RE LOOKING AT HERE, THE MIDDLE PANEL, JUST TO SHOW THAT UP. YOU CAN SEE THE SHORT INTEREST HAS BEEN RISING. THIS PRODUCT HAS BECOME MORE POPULAR, SO MAKES SENSE IT TRENDS UPWARDS OVER TIME. WHO IS GOING TO BE GETTING SHORT VOL? HOW DOES THAT MAKE SENSE? AMY: AND YOU KNOW WHAT? PEOPLE ARE DOING IT. THERE'S A SAYING, ARE YOU PICKING UP PENNIES IN FROVENT A TRAIN OR STEAMROLLER, WHAT HAVE YOU? AND THE REALITY IS THAT'S BEEN A TRADE THAT'S WORKED. SO SELLING PREMIUMS, SELLING VOLATILITY HAS WORKED, BECAUSE OUR REALIZED VOLATILITY IS STILL QUITE LOW COMPARED TO WHAT THE FUTURE IS IMPLYING, OR IMPLIED VOLATILITY. NOW, THAT BEING SAID, IT WORKS UNTIL IT DOESN'T, RIGHT? THAT'S THE JOKE. SO SELLING PREMIUM WORKS UNTIL ONE DAY YOU GET TO 2008 AND YOU WATCH PEOPLE OUT OF THE MARKET. THE PROBLEM IS OPTIONS ARE PAST-DEPENDENT, AND IT'S CRINLY HARD TO SAY WHEN THAT'S GOING TO HAPPEN. IF YOU KIND OF LOOK AT THE CATALYST THAT ARE GOING ON, YOU KNOW, WHAT IS THE SPECIFIC THING THAT'S GOING TO BRING IT? I THINK IT'S GOING TO BE SOMETHING THAT WE'RE NOT

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Volatility Low, Uncertainty High: What Gives?

RBC Capital Markets Managing Director and Equity Derivatives Strategist Amy Wu Silverman discusses volatility, political uncertainty, valuations and the VIX. She speaks on “Bloomberg Markets.” (Source: Bloomberg)

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