Episode summary
Understanding Volatility in a Structurally Shifting Market
Dakota Live!
· · Hosts: Robert Morier · Guests: Kris Gilboy, Gary Selz
Summary
The guests argue that volatility should be viewed as a specialized, process-driven asset class rather than just a hedge or a proxy for market fear. Their firm, Zero Delta Funds, looks for capacity-constrained managers with professional trading backgrounds, typically from top prop shops, who trade single-name or index options and stay small, nimble, and price sensitive. They prefer managers who launch to compound their own capital and family money, not to gather assets.
A major theme is that market structure has changed. The host and guests discuss how electronic markets, dealer positioning, retail participation, and large ETF option-writing programs can suppress implied volatility in some periods while creating sharper dislocations in others. The guests say those distortions create opportunity for relative-value volatility traders who can move in and out quickly and exploit mispricings across names, strikes, and maturities.
They also emphasize risk control and operational discipline. The guests say they avoid managers without independent auditors, independent tax, and strong cash controls, and they care as much about the person as the strategy. Their broader view is that volatility strategies can be a useful institutional diversifier, but allocators need to understand the return profile, the tail risks, and the fact that these managers are not simply running a tail-hedge book or selling volatility blindly.
Key takeaways
- The guests say Zero Delta targets capacity-constrained volatility managers who usually run small books and trade single-name or index options.
- Chris says the firm prefers managers with independent auditors, independent tax, and tight cash controls because operational risk matters as much as trading skill.
- Gary argues that passive flows and ETF option-writing programs can suppress implied volatility and create pricing inefficiencies for price-sensitive traders.
- The guests say they favor long-volatility-tilted relative-value strategies over steady short-volatility return streams.
- Chris says volatility belongs in institutional portfolios, but allocators need to understand that it is not a pure tail hedge and not a simple VIX bet.
Notable quotes
“We want to protect the capital first and foremost. And usually you're having modest returns most of the time, but when there's volatility, we expect to do well”
“The personality of the manager”
How the episode opens
Welcome to the Dakota Live podcast. I'm your host, Robert Morier. The goal of this podcast is to help you better know the people behind investment decisions.
We introduce you to chief investment officers, manager research professionals, investment consultants, and other important players in the industry who will help you sell in between the lines and better understand the investment sales ecosystem. If you're not familiar with Dakota and our Dakota Live content, please check out dakota.com to learn more about our services. Uh before we get started, I need to read a brief disclosure.
This content is provided forformational purposes and should not be relied upon as recommendations or advice about investing in securities. All investments involve risk and may lose money. Dakota does not guarantee the accuracy of any of the information provided by the speaker who is not affiliated with Dakota.
Not a solicitation, testimonial, or an endorsement by Dakota or its affiliates. Nothing herein is intended to indicate approval, support, or recommendation of the investment adviser or its supervised persons by Dakota. Today's episode is brought to you by Dakota Marketplace.
Are you tired of constantly jumping between multiple databases and channels to find the right investment opportunities? Introducing Dakota Marketplace, the comprehensive institutional and intermediary database built by fundraisers for fundraisers. With the KOD marketplace, you'll have access to all channels and asset classes in one place, saving you time and streamlining your fundraising process.
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Well, this is an exciting episode. Today we are diving into a corner of the market that is often misunderstood but increasingly vital and that's volatility.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- volatility trading mechanics
- options market structure
- skew and term structure
- liquidity and dealer positioning
- fund of funds allocation
Companies and tickers mentioned
- Zero Delta Funds
Watch the episode
Watch “Understanding Volatility in a Structurally Shifting Market” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Dakota Live!, this episode and its artwork belong to Robert Morier. Octagon is not affiliated with the show; this page is an independent summary.
