Michael Green
speaker
318 appearances
3 recordings
1 series
first heard Dec 2025
last heard today
Michael Green’s voice in public audio — every appearance, attributed to the second.
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recordings per month · last 12 monthsRecordings per month over the last 12 months — 3 in all, peaking in Sep 2026 with 1.
Appearances
you actually end up with a two to the fourth power impact on that volatility drag.
Instead of investing $1, I've now invested $1 of equity and $3 of borrowing.
I'm up 10%, therefore I suddenly have 440, meaning my equity has risen, because I only owe $300, my equity has risen to 140.
That is a 40% gain on a 10% change in the underlier, exactly as you would anticipate.
But if you do the exact same math for what happens now if I fall 10%, the compounding effect of that leverage and the need to rebalance it creates the conditions that cause these sorts of catastrophic losses.
If you then add the additional layers you do with the ETFs that they need to rebalance every single day, it's not like they went from 140 equity with 300 of borrowing to
they actually have to lever up that 140 Forex.
So four times 140 is going to be, you know, 660, right?
So that actually means you were at 440 in terms of your exposure the day before.
Now I have to increase my position sizes by nearly 50% to maintain the leverage that I've promised my investors.
That means that it creates what's called endogenous flow.
It actually forces buying even without new investors adding money into the system and contributes to the sort of run-up that we have seen unless investors harvest those gains.
So the piece that I wrote about is called a semi-theory of everything.
In explaining how this phenomenon plays out, when you have large series of complexes that have historically run on this, most professional investors would run them the way I described, as a volatility harvesting strategy, taking advantage of the fact that that compounding creates a loss.
You actually short both sides of the trade and harvest the volatility loss associated with the volatility drag.
It creates a very stable return profile
as long as your volatility characteristics are maintained.
Unfortunately, in the excitement of the post-March recovery in markets, early April to be more precise, we actually saw retail investors step into these types of products because they were seeking out a Leopold-like experience.
They were actually buying these 3x levered ETFs or 2x levered single stock ETFs
and then holding rather than harvesting their positions, we actually saw a behavior that suggested people were trying to dollar cost average into these strategies.
Showing 141–160 of 318 · page 8 of 16
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