In this episode of Excess Returns, we’re joined by Noel Smith, co-founder and CIO of Convex Asset Management. Noel shares his unique journey from biochemistry and the military to market making, high-frequency trading, and running a volatility-focused hedge fund. We dig deep into volatility, regime models, income strategies, dispersion, tail hedging, and more, offering a rare look inside the world of professional options and volatility trading.

Topics covered:

• Noel’s background: biochemistry, military, market making, HFT, hedge fund launch

• How markets have evolved since the 1990s

• Why volatility is the best source of market information

• Regime shift modeling and its role in strategy selection

• Using options for income and the trade-offs investors should understand

• Volatility harvesting and risk-defined short vol strategies

• The impact of zero DTE options on markets

• Dispersion trading and correlation dynamics

• Bond vol arbitrage and volatility surfaces

• Opportunistic trades like GameStop and meme stocks

• Tail hedging, its costs, and how to monetize hedges

• Lessons on flexibility, risk, and never being married to positions

Timestamps:
00:00 Intro and Noel’s unique background
06:00 How markets have changed behind the scenes
07:00 Why volatility is the best information source
09:00 Regime shift model explained
19:00 Using options for income – benefits and risks
24:30 Volatility harvesting strategies
29:10 What the VIX does (and doesn’t) tell you
30:30 Zero DTE options and systemic risk
33:20 Dispersion trading explained
42:00 Bond vol arbitrage
45:00 Opportunistic trades: GameStop and beyond
51:30 Tail hedging and rebalancing
54:30 Lessons on flexibility and risk management