Lots More With Charlie McElligott on the Sharp, Strange Selloff

Summary

Odd Lots Podcast Summary: "Lots More With Charlie McElligott on the Sharp, Strange Selloff"

Release Date: March 21, 2025
Hosts: Joe Weisenthal, Tracy Alloway
Guest: Charlie McElligott, Strategist at Nomura

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1. Introduction and Market Overview

The episode kicks off with Joe and Tracy expressing excitement about the current market dynamics. After a period of relative calm, the markets have become notably more interesting and volatile, setting the stage for an in-depth discussion on recent selloffs and their underlying causes.

Tracy Alloway [02:05]: "It's good. You know, markets are fun and you know. And as we said, spring is here."

2. Understanding Negative Gamma and Its Impact

Charlie McElligott delves into the concept of negative gamma, a critical factor influencing market selloffs. He explains that gamma measures the sensitivity of an option's delta relative to changes in the underlying asset's price. Negative gamma occurs when the delta moves inversely with the asset's price movement, compelling options traders to hedge their positions. This hedging activity can exacerbate market movements, often pushing prices further in one direction.

Charlie McElligott [05:50]: "Gamma is the option sensitivity to the change in Delta and Delta is the option sensitivity to the underlying price. So Gamma is like the change of the change."

3. Key S&P 500 Levels Triggering Acceleration Points

The discussion highlights specific S&P 500 levels where sell-offs could accelerate. McElligott identifies points around 5,006 and 5,565 as critical thresholds. These levels are associated with large short gamma strikes in S&P index options, which, when breached, trigger extensive hedging activity by dealers, further driving the market downward.

Charlie McElligott [07:37]: "There was two large short gamma strikes in the S and P index options diaspora for dealers... It could in fact potentially behave as this acceleration point."

4. Volatility Trends: VIX Analysis

The hosts and McElligott compare current volatility measures to historical levels. While the VIX has risen to 29, it's significantly lower than spikes seen in 2020 (above 80) and 2022 (mid-30s). The subdued volatility, despite recent market turbulence, suggests underlying stability but also raises questions about the potential for future volatility events.

Tracy Alloway [09:24]: "Yeah, August 2024 got nearly to 40 anyway."

5. Political Influences: Donald Trump as a Gamma Agent

A notable portion of the conversation centers on the impact of political figures, specifically Donald Trump, on market dynamics. McElligott characterizes Trump as a "Gamma agent," implying that Trump's policies and unpredictability contribute to elevated market volatility and aggressive trading strategies.

Charlie McElligott [10:22]: "Donald Trump is the personification of a Gamma agent."

6. US Exceptionalism and Market Positioning

The hosts explore the theme of US Exceptionalism, discussing how long-held narratives about the US market's resilience and growth are being challenged. Factors such as fiscal policies, tax cuts, and tech innovation have historically driven US market strength. However, the current environment of crowded trades and leverage is testing this narrative, potentially signaling a shift in global economic dynamics.

Joe Weisenthal [15:27]: "What was the narrative."

7. Tech Innovation and Market Concentration

Tech stocks, particularly those related to AI and innovation, have been a significant driver of the US market. McElligott points out that the concentration of mega-cap tech stocks has led to increased market vulnerability. As these stocks dominate major indices, their performance heavily influences overall market movements, making the market more susceptible to abrupt shifts.

Charlie McElligott [18:30]: "Those trades are really crowded. They're really loaded into."

8. Performance of Multi-Strategy Funds

The episode examines the performance of multi-strategy funds, which aggregate various trading strategies to achieve high risk-adjusted returns. While these funds have enjoyed consistent gains, the current market conditions have led to their first significant losses in years. McElligott attributes this to crowding and shadow leverage from leveraged ETFs, which create synthetic negative gamma, exacerbating market movements during sell-offs.

Tracy Alloway [25:06]: "These were losses, one month losses that people had not experienced."

9. The Role of Volatility and Hedge Funds

McElligott discusses the intricate relationship between volatility, hedge funds, and option sellers. He explains that while volatility is typically mean-reverting, the persistent demand for downside protection has altered market dynamics. This shift has led to a scenario where hedge funds, previously buyers of volatility, are now major sellers, contributing to negative wealth effects and reinforcing the cycle of volatility.

Charlie McElligott [28:12]: "Volume sellers are, I would say, the bigger players now than hedge buyers."

10. Future Outlook and Fed Meeting Implications

Looking ahead, the hosts and McElligott contemplate the potential regime shifts that could arise from ongoing volatility and political influences. They ponder whether the traditional mean-reversion in volatility will persist or if new dynamics will sustain higher volatility levels. The upcoming Federal Reserve meeting is seen as a critical juncture that could either stabilize the market or introduce further uncertainties.

Joe Weisenthal [31:40]: "If there's like a big regime shift because it's eventually right. Maybe something will change."

Conclusion

The episode concludes with reflections on the current market's complexity, driven by negative gamma, crowded trades, and shifting economic narratives. McElligott emphasizes the importance of understanding these underlying factors to navigate the evolving financial landscape effectively.

Charlie McElligott [30:14]: "It's a tribute to the model however that there's no blow ups, there's no LTCMs here."

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Notable Quotes:

• Charlie McElligott [05:50]: "Gamma is the option sensitivity to the change in Delta and Delta is the option sensitivity to the underlying price."

• Tracy Alloway [09:24]: "August 2024 got nearly to 40 anyway."

• Charlie McElligott [10:22]: "Donald Trump is the personification of a Gamma agent."

• Tracy Alloway [25:06]: "These were losses, one month losses that people had not experienced."

• Charlie McElligott [28:12]: "Volume sellers are, I would say, the bigger players now than hedge buyers."

• Charlie McElligott [30:14]: "It's a tribute to the model however that there's no blow ups, there's no LTCMs here."

---

This comprehensive discussion with Charlie McElligott provides listeners with a nuanced understanding of the current market selloff, the critical role of negative gamma, and the intricate interplay of political and economic factors shaping today's financial environment.

Transcript

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[Host 1]

Please hold.

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Bloomberg Audio Studios Podcasts Radio News it's good.

[Host 2]

It's good. You know, markets are fun and you know. And as we said, spring is here.

[Host 1]

Yeah, markets finally got interesting.

[Host 2]

Oh man. I mean, I have so many thoughts.

[Host 3]

Oh good.

[Host 2]

All right. If you can't tell from my normal stream of consciousness operation, you know how.

[Host 1]

I know it was bad?

[Host 3]

Joe, go on.

[Host 1]

It was one of those weeks where we talked about negative gamma quite a lot.

[Host 3]

What's the gamma again?

[Host 1]

Interestingly, we didn't talk that much about standard deviations, which is kind of funny. Normally those two kind of go hand in hand, but not last week. It was weird.

[Host 3]

What's Gamma again? I feel so dumb because I know we've talked about gamma and it's just one of those things like. What is it again?

[Host 1]

Should we get you a refresher?

[Host 3]

Yeah, I need one of those Guide to the Greeks books or something. Or like a little laminated that I can like.

[Host 1]

Someone should do a coffee table book. Yeah, yeah.

[Host 3]

Guide to the Greeks. I like Greek stuff these days, you know? Cause I'm into like ancient history and everything like that. I know what Alpha is. I know what Beta is. After that, I started to get a little dicey. I did a deadlift.

[Host 1]

I am both the most popular trader and most successful trader at Citadel. Feta's going viral Barges.

[Host 3]

This is an after school special, except.

[Host 1]

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. these are the important questions. Is it robots taking over the world?

[Host 3]

No. I think that, like in a couple years, the AI will do a really good job of making the Odd Lots podcast. One day that person will have the mandate of heaven.

[Host 1]

How do I get more popular and successful?

[Host 3]

We do have the perfect guest.

[Host 1]

You're listening to lots more where we catch up with friends about what's going on right now.

[Host 3]

Because even when the Odd lots is over, there's always lots more and we.

[Host 1]

Really do have the perfect guest. Oh, the definition. I feel like I've done this before, but gamma, Gamma is the option sensitivity to the change in Delta and Delta is the option sensitivity to the underlying price. So Gamma is like the change of the change. It's a function of the underlying price, but it's second order and I guess negative Gamma. That's when Delta is in the opposite direction to the stock price movement. So Delta goes down if the underlying asset price is going up and then it becomes less negative if the underlying asset price is falling. And we usually see people talk about this during market sell offs because all the options traders have to basically sell or buy stuff to hedge all that changing exposure. And the suspicion is always that. That hedging activity are pushing the market in one way or the other. I think that's it. Okay, I did it. Charlie, you should write a book, a coffee table book on the Greek letters.

[Host 2]

I'm liking this, like Spartans versus Romans history vibe.

[Host 3]

We're going with. Yeah, that's very you. I feel that's very.

[Host 2]

You're comfortable. It resonates. It resonates. Could have something to do with the beard. Well, if you just think about it with regards to who is long and who is short an option at a certain level, and that's so much of what we're asked to do and our job is to get a sense for where these potential acceleration points or potential gravity points are. And you're looking at the whole spectrum of strikes across the S and P index options. And you're then doing your kind of risk calculations and your Greeks calculations and you net out all of those strikes. You have to identify calls, sold calls, bought put, sold puts, bought multi leg trigs. It's quite complex. I think in the past there is a lot of false narrative because people made kind of two core assumptions on dealer positioning before you had the actual exchange tagged data which now gives you the actuals. Those two prior assumptions are the dealers are short puts to hedgers and long calls from overriders. These VRP vault sellers that you hear so much about these days that create dynamics where the market is trapped in long gamma. Right. Because we're constantly, dealers are constantly getting stuffed from these premium collectors.

[Host 3]

Yeah.

[Host 2]

But short gamma matters because that's where you get these potential jump off points where you, you know, blow through a level or a dealer is short a strike and then you get that prevailing market move is fed into. So that matters.

[Host 1]

In case you can't tell, we are here with Charlie McElligott. He is of course a strategist over at Nomura, the person to talk to when it comes to this kind of market technicality. And we are recording this on March 19th. We're either stupid or brave for doing this like right before a Fed decision. I'm going to choose brave because the bar is fairly low now.

[Host 3]

Well, and like, so my view is like there's been so much volatility lately, Tracy, regardless of what happens in the 48 hours between now and then, there's enough to talk about.

[Host 1]

Yeah, for sure. Okay, so speaking of what happened last week, you mentioned specific points at which the sell off can accelerate. And I think in your notes you had like 5,006 50 and 5,005, 560, something like that as your points on the s and P500 at which point the sell off could accelerate. We did get to a low of like 5,500 on the Thursday, but we saw stocks recover. Why did that happen?

[Host 2]

So there was two large short gamma strikes in the S and P index options diaspora for dealers. And I think it was, I think it was 5600 and then 5565 particular level which is part of this large listed trade in the market that is well socialized out there that at the end of this month, so not this week's Options expiration. But the end of this month, the March quarterly exists and is part of something called a put spread collar where a call is sold out of the money to then help finance this put spread in the market. And that 55, 65 is a short strike, which means that in this case it looks like short Gamma. I think the fact is about that, however, and thus this idea of at this point in the month where it's still a few weeks out from happening, it could in fact potentially behave as you would think as this acceleration point through it. Once you did, you kind of bounced around, it held three or four times and it kind of cracked through it. The thing is that the market knows that this trade gets rolled and rebalanced, I should say, into the next quarter's trade at the end of this month. And you know that there is going to be a ton of Vega for sale as part of this. And so then this strike in some ways actually ends up looking quite dissimilar from your typical idea of short game as this acceleration point depending on where the market is at the time of expiration, which will affect what the client does with those strikes and sets the new put spread collar. But I think the larger conversation that I want to have about volume is that much of the incoming has been a about why is Vol actually seemingly unresponsive.

[Host 1]

Yeah, so the vix, like I know the VIX went up, but I think it went to like 29 and you compare that to like it was above 80 in 2020 and even in 2022 it was like 36 or in the 30s. Vol was really quiet even in 24.

[Host 3]

Yeah, August 2024 got nearly to 40 anyway.

[Host 2]

Yeah, so the last time I was in here was after that August shock. And that was a proper. As I as I kind of framed it at the time and still will the world was aggregated around this soft landing viewpoint and all of a sudden in the span of one day's worth of data, but it was really even a week of data of Labor Day 65. Yeah, and that was because we repriced the left tail. All of a sudden there was a hard landing risk because the labor data shocked us. You know that U rate jump and then the NFP miss. The difference this time around is that since the election, right. Donald Trump is the personification of a Gamma agent.

[Host 1]

You are the only person I know describes Trump as a Gamma agent.

[Host 3]

Everyone has their terms, right, But I mean it's not a living personification of Gamma.

[Host 2]

And I think, look, his mandate is to break status quo.

[Host 3]

Right.

[Host 2]

And we talked that last August shock about the idea that the concept of a carry trade because we were being asked about, oh, the carry on wine, which is kind of like this false narrative. But the idea of any sort of carry trade or positioning, high sharp ratio trade, right. High risk adjusted return, is that you need a period of low volatility to kind of aggregate that position to build that leverage into the trade because it keeps working, the volume is low, the price keeps working higher. That builds the leverage in the system, that hence builds the risk. Right. Stability breeds instability. In this case Donald Trump, even if the market was misidentifying the macro of his policies at the time, which we should talk about.

[Host 3]

Oh, you're just never going to get that risk buildup.

[Host 2]

Well, in this case starting November when it really took shape. And I think the market had been sensing certainly since kind of the summer skew was steepening. Skew matters, right. Just as a relative measure of kind of demand for downside versus demand for upside put skew, which is like deep out of the money downside relative to an at the money put was jacked 90 something percentile because of all of the potential chaos agents.

[Host 1]

So volume is getting more expensive.

[Host 2]

So volume was already quite expensive going into this scenario. Even if maybe the macro catalyst went wrong way. And I think there's two big things that happened. So let's talk about this past week, or really was past three weeks. Yeah, you had crowded narratives and crowded thematic positioning with a lot of leverage. Right. That is what the prime brokerage data shows and frankly still shows like gross exposure, your longs and your shorts in aggregate, still kind of 90 something percentile was 100 percentile coming into the year though we also had high nets, so you had a lot more long than short. Either way, a lot of leverage in the system.

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[Host 3]

Give us like a little zoom out. Basically from mid November to as you said about three weeks ago, it started turning. I think the peak on the S and P was February 19th or something like that. Yes, but talk to us just about that sort of kind of an up crash in the wake of the election, people loading into everything risky from crypto to Tesla and everything.

[Host 1]

What was narrative.

[Host 3]

Yeah. What was going on there? And then how extreme did that get?

[Host 2]

Yeah, I mean that's the perfect segue here because like in the sense that the post election narrative and remember the rate sell off beginning in September when the market really got their arms around seemingly some of this polling that was showing much more credible kind of Trump lead. The rate sell off, meaning yields going higher was about this idea that regardless of who won, but particularly if Trump won, that we had become both sides become economic populace and that fiscal dominance was this overriding theme where like we don't have a tolerance for pain as a society. We saw the kind of the steroidal impact of fiscal stimulus in the post Covid world which kind of was the tiebreaker for finally getting an inflation shock as we all experienced so this idea that he was going to take an already strong economy and overheat it with drag with tax cuts and these other stimulative measures completely had the market thinking about further extension of U.S. exceptionalism. Right. This ability to outperform rest of the world for a whole number of reasons, which is a separate podcast. But like positioning was like long US assets. Europe was going to be cutting sooner because they were feeling the brunt of the slowdown force more so there. China had all sorts of issues. Right. Rest of world struggling US Exceptionalism. And part of US exceptionalism not just kind of like global hegemon strongest economy deregulation. And all these stimulative measures in the pipes was also too this idea of tech innovation. And tech innovation was the story of last year. And the last two years with regards to 10 years was with regards to AI, right? Yeah, it used to be fang back in the teens. Right. So this idea of mega cap tech, all those things that made people that completely dictated stock market last year, Mag 7, Mag 8, 35% of the S&P 550, some percent of the NASDAQ concentration of all of these kind of tech and disruption themes in the market, that was a big part of the US Exceptionalism trade. Well, guess what, those trades are really crowded. They're really loaded into. And two shocks happened. The first shock was the market. And this is why I started going out and talking about hedging for downside in February was this idea that the market I think was misunderstanding the phasing or the sequencing of a Trump economic plan, which was you've got to do the painful stuff first in order to get to the stimulative stuff later. And that spread, that time spread, you had to kind of try to engineer a slowdown to then be able to get the rate cuts via the disinflation that he is trying to create, which ultimately this idea of like fiscal contraction to potentially then fiscally expand. You can even say the other shock that's lost in the wash here. And this wasn't just a Trump growth scare, right. We already GROSS Scare every Q1 into Q2. That's an artifact of the post Covid economic.

[Host 3]

That's right. We had a good piece from Neil about Neil Dutt about that. Anyway, keep going.

[Host 2]

Yeah, so that matters, right? You know, that was part of my thesis. Like look and see the trajectory, these overheated animal spirits Q1 numbers and then the seasonal adjustments kick in and we have a growth scare in Q2 or into Q3. But the other Element here was the deep SEQ story and tech innovation and that market concentration. And guess what? There's all sorts. Those names aren't just massive parts of index and massive thematic parts, retail investors and hedge fund loans and things like that. Think about their impact in the leveraged ETF space, which has just absolutely grown massively. That's a source of synthetic negative gamut in the market which on their end of day rebalancing into an update. They've got a ton to buy at the end of the day of those assets happen to be concentrated in kind of like concentric tech disruption circles. So you add in this massive rethink on what had been the perpetual motion machine of AI Capex and that deep SEQ shock and Nvidia trades down 17% kind of after that realization that weekend of what we were looking at all of a sudden a massive valuation shock in an earnings repricing effectively.

[Host 3]

Tracy, did you see this from Eric Balconis yesterday? Vista shares filing for an Animal Spirits ETF, a N I M and a 2x Animal Spirits ETF Wild, which will hold the five fastest growing 2x single stock ETFs at any given time.

[Host 1]

Isn't that just called momentum?

[Host 3]

Yeah, but that's not that momentum isn't enough.

[Host 2]

It's momentum with leverage. And guess what? There will be options on it too. So there's synthetic negative gamma and actual real negative gamma. So the final point here is you had these two shocks to what consensus was, consensus positioning, consensus narrative. Now all of a sudden, this realization that phase one is going to have to engineer a slowdown to get the stimulative stuff that Trump wants.

[Host 1]

Yeah. Isn't that weird? Why are we crashing economic growth to boost economic growth?

[Host 2]

Well, because I think in this case there is something credible to the idea that the deficit spending was a market concern. Right. I mean, think about what rates were doing last year when we were talking about fiscal dominance. What's ironic here is that you then get punished for trying to address it. So look at Europe for instance, and this is like a big trade in the market right now. It's like very simplistic. But this is the way that asset allocators think and move, right? Who's fiscally contracting and tightening and who's fiscally expanding and stimulating Europe, right? Trump said, look, we might be talking about the end of Bretton woods, post World War II Pax Americana here, right? We're no longer going to protect you for you to buy US Dollar assets and use our currency. So guess what? Europe has to go out, create this financing and with that, all of a sudden now they are a fiscal expander after years of being the total.

[Host 3]

It's a real regime shift.

[Host 2]

It's a real potential regime shift. Even though I think this ultimately creates the conditions where if you do kind of crash the economy and you can't stick the landing on this engineered recession, then you inevitably have to fiscally expand. And that's why I think a lot of these like long Europe, long China trades will be quick to move their feet. I can't say this is a tectonic, permanent structural shift yet because the worse it gets for us and we get punished and you have fiscal tightening and markets sell off and all those bad things that create a negative wealth effect which in the short term help get the disinflation to get the Fed cuts, to get the stimulus through. This is all part of this kind of second order thinking that you need to be looking into.

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[Host 2]

With.

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[Host 1]

Okay, so we had a wild but not disorderly sell off. Sounds like my high school report card, but I imagine it was still painful for certain investors. So we just mentioned momentum. That must have been painful. Multistrats must have had a hard time because we saw a lot of the over performers underperforming and the underperformers suddenly overperforming. How was it give us some market color?

[Host 2]

Well, in some of those, I mean you look at the biggest multi strats that have been 100% of the net alternative investment or hedge fund inflow over the past X number of years. So long short isn't where it's at anymore. It's about the market neutrals and that's just speaking to their equities components. But of course they have these other risk diversifying strategies with incredibly tight risk management tight stops. And that's how when you apply a lot of leverage to these small controlled market neutral gains, you then get these incredible annual returns that those biggest shops have been posting. But the fact of the matter is crowding happens and leverage on top of crowding happens and then shadow leverage happens with leveraged ETFs, leverage on leverage and vault control, target volatility and CTAs and all that stuff is synthetic negative gamma in the market. So and even where you know there's a very well publicized loss with regards to index ARB at one of these funds or whatever, I think that was probably negatively impacted. They have to model out the flows across the diaspora of things out there at the end of the day to do their index ads and deletes. Well they're probably getting screwed with by a lot of the leveraged ETF flows at the end of the day that are completely nuking and creating these big overshoots and these big negative gamma type moves. So the long story short is that for the month of February, let's say talking with people deep in the inside, senior traders and whatnot, these were losses, one month losses that people had not experienced that have been there, you know, four or five type years in places that just don't lose money, they just stop you. So effectively now it is a tribute to the model however that there's no blow ups, there's no ltcms here. I mean yeah, they didn't make money. They might have had worst month or in the start of March was also going the wrong way too. But you're not going existential here. So that actually speaks to the model working. The bigger issue and I think the bigger thought process takeaway here is that when you have trades over a period of time are built on the status quo of US exceptionalism, right? That is effectively a carry trade. And we had leverage built into the system for 15 years of QE we had leverage built into the system from modern monetary theory and the outright money drops that we've done over the past.

[Host 1]

Few years, Joe, that's your fault.

[Host 3]

Yeah, might be, yeah.

[Host 2]

So I mean all of these things created this ugly deleveraging effect even at market neutral shops. The good news is it wasn't a volume feature, it wasn't a volume event because we were already hedged. That's why skew was high, implied volume was high, all the put skew was high. So it didn't become a volume which is where you get some of those accelerant flows to kick in.

[Host 1]

On this note I have a slightly weird question, but could we ever get to the point where the volatility complex is so large and so in demand that you're just never gonna have a volatility event like we saw in 2018? Something along those lines. Because everyone is paying through the nose for downside protection.

[Host 2]

Well, I mean ironically it's when you're well hedged that you then have a condition where you can create the crash. Right? Which means that dealers are short all these puts.

[Host 1]

I think, I guess you have to have sellers on the other side too.

[Host 2]

That's the big thing that we've conditioned the behavior whether it's Fed stepping in that moral hazard dynamic or nowadays politicians fiscal stepping up, whether it's Silicon Valley bank and 70 different new five letter acronym liquidity special features in the market that put out fires. And that's why the back test on volume selling strategies and the AUM involved selling strategies just keeps working like you sell the panics. And that's ultimately what ends up happening when you have this short optionality dynamic in the market. Whether it's dealer short, real downside hedges or it's CTA trend flipping from a long to a short and having to sell more the lower it goes or target volatility funds is like a hedge overlay doing the same thing or leveraged ETFs. You get the point. Now what ends up happening is that it's the option sellers that stop the problem because they come back in, they give dealers back their gamma. They sell option out or they sell rich volume. The market stabilizes, ranges compress, you need to keep feeding volatility. Volatility is mean reverting. And if you can't keep having daily one and a half percent moves, which is a big ask, you need persistent nude bad news. Otherwise realized volatility compresses, ranges compress, volume sellers feel more confident, they fill in, dealers get long gamma, we stabilize, people start covering their, monetizing their hedges, they take those off. That creates delta to buy. The market starts rallying. People buy short dated upside, it squeezes it. That's the cycle that we're on this really short term ecosystem. But volume sellers are, I would say, the bigger players now than hedge buyers. And that's a real footprint of the past 20 years, ever since QE, where the previous buyers of volatility were real asset managers like long onlys and things like that. After QE, a lot of those folks, big pension funds, became sellers of volatility.

[Host 1]

Yeah, this was Bill Gross's thing when he stood up on stage and said everyone sell volatility, that's like the only trade right now because nothing is happening, right?

[Host 3]

Nothing's happening.

[Host 1]

You have to bet on nothing.

[Host 3]

Until now.

[Host 1]

Yeah, maybe.

[Host 3]

Maybe until now, maybe.

[Host 2]

One other point I would make on volatility, the reason that it got so wacky in August for instance, was the fact that condition that says sell the rich volume and remember like the non farm payroll and U rate data was that Friday. And we crashed hard, but everybody was so conditioned that we closed the market that day with anybody in the volume space saying I want to be short volume, short delta, I want to sell this rich volume. But still think the market normalizes here because we can't maintain this richness and volatility. Well then the Nikkei opened down 12% because it was like a kind of a hot leverage trade at that time. And it was the second day that got people stopped out. The other point here too was that that day of Friday, one of the largest volume players in the market, thinking that they were doing themselves a solid and hedging by buying VIX calls, ended up creating their own demise in a sense because that created some of that short VIX convexity that then really went wild over the span of the next day. And a half and created a bigger issue within the volume complex. So this is the idea that that when you have buyers of hedges they actually create the conditions for the crashes, right?

[Host 1]

Well, I guess we'll see what happens with the Fed meeting and we'll see.

[Host 3]

If there's like a big regime shift because it's eventually right. Maybe, maybe something will change. Maybe one day mean reversion will come to an end.

[Host 1]

Volatility is mean reverting normally.

[Host 3]

Maybe. But what if we just keep going.

[Host 1]

Or not normal times. So we'll see.

[Host 3]

Lots More is produced by Carmen Rodriguez and Dashiell Bennett with help from Moses Ondahm and Cale Brooks.

[Host 1]

Our sound engineer is Blake Maples. Sage Bauman is the head of Bloomberg Podcasts.

[Host 3]

Please rate, review and subscribe to odd lots and lots more on your favorite podcast platforms.

[Host 1]

And remember that Bloomberg subscribers can listen to all our podcasts ad free by connecting through Apple Podcasts. Thanks for listening.