REAL OPTION TRADERS DON’T GO TO DINNER PARTIES (Guest: Bohan Jiang)

Kevin Muir introduces Bohan Jiang, a Senior Derivatives Trader at VulcanX, who shares his journey from China to Canada and his background in currency option market making. Bohan's interest in finance developed unexpectedly while studying computer science and business at Western University, leading him to Goldman Sachs, where he worked on the Delta One equities desk and later transitioned to FX options. He finds the FX options market intellectually stimulating and broker-driven, primarily operating over-the-counter (OTC).

Bohan clarifies the roles of brokers and sell-side dealers, noting that most trading occurs in chat rooms, particularly on Bloomberg. He emphasizes that trading at the broker level focuses on Delta hedging rather than taking directional risks, with a strong emphasis on volatility. Clients, often hedge funds, may request Delta hedged options, and negotiations in large trades center around volatility levels rather than Delta.

He observes that options trading has gained popularity among retail investors but warns of prevalent misinformation and the need for a deeper understanding of associated risks. Bohan advocates for viewing options as tools rather than mere strategies, discussing key concepts like the Greeks and scenario analysis. He highlights "theta decay" in options trading, emphasizing the importance of understanding the interplay between theta and gamma for effective trading.

Bohan's education in options trading stemmed from both literature and practical experience at Goldman Sachs, where he learned to approach options with a different mindset. He discusses various trading structures, such as straddles and strangles, as tools for expressing market views. He also reflects on the characteristics that differentiate successful option traders from less successful ones, particularly at Goldman Sachs.

The conversation transitions to Bohan's experience in crypto trading, where he notes discrepancies between CME options and those on Deribit, identifying opportunities for relative value trades. He explains "skew" as the premium for options trading at higher volatility, noting that in traditional markets, puts often trade at richer volatility than calls. The dynamics of the market are highlighted, particularly the behavior of the S&P when there is widespread long positioning, which creates a demand for hedges.

Bohan discusses the Ethereum options market, noting a shift in skew favoring downside, with higher implied volatilities for ETH puts and dollar calls. Speculation around an Ethereum ETF suggests a high chance of delay or non-approval by the SEC, which has likely been priced into the market. He also covers a risk reversal strategy involving selling ETH puts and buying ETH calls, betting on mispricing in outcome distributions.

The conversation touches on pricing options in a fast-moving market, particularly zero days to expiry (DTE), emphasizing the importance of gamma and strike exposure for managing risk. Bohan describes Delta hedging as a blend of art and science, influenced by asset class and market dynamics. They discuss the use of statistical signals to guide trading decisions and the importance of individual realized volatility in data gamma hedging.

The discussion shifts to macroeconomic conditions, with observations on the S&P's recent price action and the challenges it presents. They debate whether significant upward movements indicate market strength or a manic state, referencing a "J.P. Morgan whale" event that influenced market flows. The role of retail investors in the current market rally is examined, acknowledging their importance in price discovery.

The conversation highlights anticipated economic disruption and its potential effects on the stock market, particularly focusing on major tech stocks known as the "MAG Seven." They discuss international markets, particularly the Nikkei and Kospi, and the paradox of countries affected by military conflict performing well due to their semiconductor industries.

The discussion also touches on energy stocks, asserting that a bull market in energy stocks is just beginning, and the potential for stagnation in the market is noted. They highlight the recent decoupling of copper from gold prices, attributing its strong performance to demand from the semiconductor industry.

In the currency markets, the dollar remains stagnant, and the speakers express confusion over the lack of expected volatility in the FX market. They discuss the eurozone, anticipating potential rate increases by the ECB due to inflation. Regarding Bitcoin, Bohan acknowledges its recent breakout but emphasizes its status as a risk-on/risk-off asset rather than a safe haven.

The podcast concludes with reflections on the bond market's return to normal volatility and the overall health of the stock market, with participants expressing skepticism about current market conditions.