In 1998, Scott Ladner hit the derivatives scene at First Union, just as LTCM was imploding and equity volatility was rocketing higher. No sooner would the Fed help contain that risk episode, then the tech bubble would be set in motion. An intense period of “stocks up, vol up” during which valuations expanded to unheard of levels, followed by an equally intense, “stocks down, vol up” characterized the period of 1999 through 2001 and provided hands on, sometimes painful experiences for Scott in managing convexity risk. Short airline volatility during the September 11th terrorist attack, Scott quickly came to appreciate the potential for significant gap risk and discontinuity in markets, a reality not contemplated in the textbook version of Black Scholes.
My conversation with Scott considers insights gathered over a career managing volatility exposure across asset classes and how he came to his role as CIO of Horizon Investments. Scott shares his views on how volatility can come and go, how many factors can come to impact the price of options and how important it is to have a number of little bets on versus being overly concentrated in a singular exposure. He points to the value, but also the dangers of option models, learning along the way not to take the output too seriously and to constantly re-examine the assumptions being made. Today, Scott’s dashboard consists of credit, liquidity and risk metrics with the goal of identifying incongruities that help him focus his research to better understand market dynamics. In this context, we discuss the early and late year vol events of 2018.
Lastly, we discuss Horizon’s efforts on behalf of its clients to manage wealth and reach retirement goals within the constraints of the low growth and low interest rate environment. His team is seeking to build risk management techniques that work specifically in today’s unique economic and financial climate. Noting that there is now “an ETF for everything”, he sees the last 10 years as the age of product. The next 10, in contrast, he views as the age of planning, where the focus should be on how to best utilize these new products to maximize the wealth and overall experience of retirement for individuals. Please enjoy this episode of the Alpha Exchange, my conversation with Scott Ladner.