A New Form of Evil? How the Wrappers on “Boomer Candy” May Be Hiding the True Ingredients
July 2024
In this note, we examine the rise of structured equity products commonly referred to as “Boomer Candy”, a growing category that includes buffered ETFs, hedged equity, and defined outcome wrappers. These strategies promise equity participation with downside protection, appealing to investors wary of market highs or seeking “safe” growth. But beneath the marketing, many of these products are simply high-cost, low-beta repackaging of basic components like T-Bills and S&P 500 call spreads. We explore how these structures work, what investors are truly getting (and paying), and why the long-term results may fall far short of expectations. We also consider the behavioral traps that keep investors locked into these products longer than intended, and whether these wrappers meaningfully improve portfolio outcomes—or just mask inefficiencies with complexity.
The Rise in Popularity of Zero-Days-To-Expiration Options and the “Broken VIX”
February 2023
Recently, some people have theorized that the rise in popularity of zero-days-to-expiration (“0DTE”) and other extremely short-dated options has had a significant effect on markets, especially the VIX. More specifically, the two main ways in which the rise of 0DTE options is theorized to affect markets are: 1. These options are not included in the calculation of the VIX Index, so the increased customer purchases of them are not reflected in the value of the VIX, thereby artificially suppressing it. 2. These options create a need for significant dealer gamma hedging, which increases the volatility of the S&P 500.
Is the VIX Index broken?
February 2023
In this note, we provide background context on the recent claims that the VIX is broken and then rebut the two general forms that this claim usually takes. The third section addresses some of the more specific, recent explanations for what might be breaking the VIX, including a lengthier section on the recent hype around the rising popularity of zero-days-to-expiration (“0DTE”) options. The fourth section notes what was actually unusual about volatility in the first half of 2022 and some of the consequences of the outlier behavior for some volatility strategies. In the final, fifth section, we attempt to partially answer the most difficult question: why.
ABR Inflation Q&A
May 2021
Is an extended period of major inflation coming? We don’t know. Ask us something about the past that we can attempt to answer with data. Based on historical data, has inflation been bad for equity allocations? Inflation hasn’t been as bad as the gold bugs in the financial media would have us believe, for the S&P 500 on the whole. We used four possible measures of inflation, although the first one is more about changes to inflation than persisting environments. None of them is perfect. We have heard the criticisms leveled at them, some of which have merit. However, there are several reasons to include these four measures. They are simple, not prone to data mining or overfitting when simply sorted into quartiles, and they have data going back to 1970. Further, by using four, we have a somewhat more robust picture of inflation that may mitigate some of the criticisms of any one of them.
The Case for an Increased Alternative Investment Allocation
July 2019
We know some readers have been burned by alternative investments in the past. However, readers will also remember times in which they’ve been burned by equity investments as well. The fact that losing periods in core investments and alternative investments have generally occurred at different times is a good thing…etc…etc…etc. You’ve heard all this before, and, although it’s all true, it’s not the point of this note. Believe it or not, this note will argue that the proper response to a recent comparison of core returns to alternative returns is to increase alternative allocations, even at the expense of fantastically performing core allocations.
