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I mean aren"t we all just a little bit more excited about equity markets now that strange concept of a "two-way market" has been reintroduced for the first time since the market carnage in early 2016?
Isn"t it great to finally see some of the most stupid and greediest among the investment community get a bloody nose?
Of course this is the point where some "long-only" fool turns into a social media keyboard warrior and berates me for wanting people to lose money. And to him and his ilk I say you"re absolutely right, I am glad ... Well, in part that is.
For in truth the ones I"m more than happy to see lose their money are the ones who throw it into products where they clearly have no understanding whatsoever.
The truth is most of us are "tourists" to a certain extent in most of the financial products we buy and sell. Very few so-called investors have anywhere near the expertise to invest in half the stuff we put in our portfolios.
Who really has bought a bank stock knowing its full balance sheet? Which emerging market exchange-traded fund buyers have really looked into the current account dynamics of the constituents of the basket? Not too many, but at least we know what a bank is and roughly what they do. At least we can point on a map to where Malaysia and Indonesia are, can"t we?
So, how great it was to see the buyers of inverse, leveraged volatility products absolutely getting wiped out on the market. This trade was the ultimate definition, for me, of the dumb tourist blindly putting money on a greed trade.
How many buyers of these short volatility products actually know what the parameters such as breakeven and maximum loss and profit looks like on a graph? How many know their Greeks i.e. deltas, gamma, vega and theta? How many ever looked at how the VIX is actually priced?
The answer is virtually none and they know it. All they saw was the income generated in a low volatility market.
Don"t get me wrong, I would love more people to be playing in the derivatives market. I think a well-constructed portfolio of option positions really can add huge amounts to a portfolio. What really gets my goat is that money-for-nothing, supposedly low risk income generators have been constructed by snake oil salesman to sell to gullible and greedy investors without any real effort to educate as to what can go wrong in an anywhere near two-way market. Shame on both the buyers and the sellers of these instruments and let"s not even go there on where the regulators were to protect the stupid yet again.
As I said, we are all tourists in most investments, it would be nice if just occasionally someone read the guide book first before stepping off the plane.
Steve Sedgwick, CNBC anchor for SquawkBox Europe and a former option market maker.
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