Episode 5
Featuring Christopher Cole
Demetri Kofinas speaks with fund manager Christopher Cole about the unprecedented levels of mean reversion of financial volatility seen in recent years. This episode is about learning how to embrace and profit from the uncertainty in financial markets.

In this week’s episode of Hidden Forces, host Demetri Kofinas speaks with Christopher Cole about political and financial volatility. Chris is the founder of Artemis Capital and the portfolio manager of the Artemis Vega Fund, which seeks to profit from periods of financial volatility, dislocation, and systemic crisis in financial markets. His core focus is systematic, quantitative, and behavioral based trading of financial volatility derivatives.

What is volatility? What accounts for the unprecedented levels of mean reversion in implied volatility that we have seen in financial markets? What accounts for volatility persistence? Demetri and Chris compare spot (historic) volatility to implied (forward) volatility. They look at volatility-of-volatility (vol-of-vol). Christopher Cole presents his opinion that modern portfolio and system rebalancing strategies actually dampen financial volatility. Demetri sees these strategies as increasing volatility in the long-term, which Chris agrees with. Christopher also makes the further point that stocks are overvalued when looked at from enterprise value to EBITDA, Case Schiller PE, Price to Book, Price to Sales, etc. He also believes that financial volatility could come from either the left or right tail of the distribution. We could have inflation or deflation, according to Christopher. His objective is to profit regardless of whether we get a move upwards or downwards in prices. What is the best way to carry volatility and go long uncertainty?

The concepts discussed in this episode may appear complicated, but they are really rather simple. What listeners need to remember is that volatility is just change. Volatility reflects uncertainty, and we live in uncertain times. This episode is about learning how to embrace this uncertainty. It is about learning how to embrace change. It is an episode about learning how to profit from risk by capitalizing on the unknown.

Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

Join the conversation at @hiddenforcespod

Christopher R. Cole, CFA is the founder of Artemis Capital Management LP and the CIO of the Artemis Vega Fund LP. Mr. Cole’s core focus is systematic, quantitative, and behavioral based trading of volatility and derivatives. His objective is to profit from turbulence in markets and regime shifts in volatility without the substantial negative bleed associated with traditional hedging products. His decision to form a fund came after achieving significant proprietary returns during the 2008 financial crash trading volatility futures and options (verified by independent auditor).

Mr. Cole's volatility research was deemed influential in derivatives circles and thereafter widely quoted by the mainstream financial press. His 2012 research paper entitled, “Volatility at World’s End” argued the equity options market was mis-pricing and hedging the wrong tail (left as opposed to right). The paper was credited with re-pricing long-dated volatility, and is considered one of the best macro-economic thought pieces of the last decade. His 2017 paper "Volatility and the Alchemy of Risk" warns about self-reflexivity in the $2 trillion global short volatility trade.

Mr. Cole is a frequent speaker at industry conferences and in the media including Grant's Rate Observer, WSJ, Financial Times, and RealVision. He previously worked in capital markets at Merrill Lynch and structured over $10 billion in derivatives and debt transactions.

Mr. Cole is a self-taught investor, with no formal schooling, instead relying on independent study, empirical and quantitative research, programming, and experimentation with proprietary capital. Mr. Cole holds the CFA designation and graduated Magna Cum Laude from the University of Southern California with a focus in cinematography. He is a member of E.O. and a 2018 inductee into the Volatility Investing Hall of Fame.


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