In this episode of The Derivative, Vineer Bhansali of Long Tail Alpha discusses the current state of the market, focusing on volatility, liquidity, and tail hedging strategies. He notes the evaporation of liquidity in the e-mini futures contract and the treasury bond market, attributing it to the retreat of electronic market makers and risk-averse human traders. Bhansali also addresses the impact of retail participation, zero DTE options, and the subdued longer-dated volatility, and explores alternative hedging instruments like credit default swaps, duration, and trend following. He emphasizes the importance of understanding one's pain threshold and the trade-offs between reliability and cost when implementing hedging strategies, and he shares his perspective on the current market environment, drawing from his experiences during past crises.
