00:45:24 · Joe Weisenthal, Alex Micalizzi, Tracy Alloway
[00:45:24] S1: As the clients get richer and richer, the last question for me, as clients get richer and richer, does the creativity with which they can purchase an instrument multiply as in, all right, you know what? Here's this guy's worth $ 100 million. Here's a few items you can pick from the shelf. Here's a billion dollars. You know what? We're going to bring out the best chef for him. And we're going to chop the mushrooms and everything. And we're going to come up with something really creative for him. Just in the nature of the business, there's other sort of more and more exotic versions that you can get depending on how much money you bring to the table. [00:46:01] S2: You can get more and more exotic. I would say that liquidity is a factor. And generally, what provokes or what creates these sort of structures is what created pain. So we had examples in 2018 of dealers getting into trouble and what created pain was that drift down. So a whole new product was created, not knock in, knock out, where if we drift down, but we haven't drifted too far and we stay in a certain area, we knock out as well. So I would say it's, and that the level of all of all that creates and, oh, this is a simple way to solve it. creates secondary issues. But to your point, I would say as it gets more sophisticated or you get large institutional clients, the amount of structuring that can happen, it's possible, but it's more about size and handling liquidity. Got it. [00:46:49] S0: All right.
00:46:49 · Tracy Alloway, Tracy Alloway, Alex Micalizzi, Joe Weisenthal
[00:46:49] S0: All right. [00:46:49] S3: Alex, truly the perfect guest to talk about structured products. Really appreciate you coming on Odd Lots. [00:46:54] S2: Thank you for having me, guys. [00:47:02] S3: Thank you. Joe, I thought that was fascinating. There are indeed a lot of Greek letters involved, but I got to say, I feel kind of bad for, for the market makers who are basically like the buyers of last resort or a lot of that Vega. And like, as the market does what it's been doing recently, they basically just have more and more that they have to absorb and then they have to hedge more and more and more. [00:47:28] S0: It seems hard. [00:47:30] S1: I guess I don't feel sorry for them. [00:47:32] S0: I mean, I guess they're paid to do it, but still it's hard. [00:47:35] S1: But that's what the money is for. You know, it's like, that's why they get paid well, because it's actually, it's very complicated to figure out where all these different like balancing prices are and how exactly, what exactly is the value of some of these things. But I don't feel bad for them at all because it seems like a job where not many people would have that skill. And if you do have that skill, you're probably getting paid very well. I really enjoyed that conversation overall. Helped me sort of understand what these products are there, what problems they solve for the clients. why the client is getting compensated for them, why the banks like to sell them. It clarified a number of things.
00:47:35 · Joe Weisenthal, Tracy Alloway, Tracy Alloway
[00:47:35] S1: But that's what the money is for. You know, it's like, that's why they get paid well, because it's actually, it's very complicated to figure out where all these different like balancing prices are and how exactly, what exactly is the value of some of these things. But I don't feel bad for them at all because it seems like a job where not many people would have that skill. And if you do have that skill, you're probably getting paid very well. I really enjoyed that conversation overall. Helped me sort of understand what these products are there, what problems they solve for the clients. why the client is getting compensated for them, why the banks like to sell them. It clarified a number of things. [00:48:11] S3: Yeah, and I do also think it definitely underscored that sometimes the most painful environment isn't the big sharp move down or the sharp move up. [00:48:19] S0: It's that slow grind. [00:48:21] S3: Which kind of is what we've been seeing recently.
00:48:21 · Tracy Alloway, Joe Weisenthal
[00:48:21] S3: Which kind of is what we've been seeing recently. [00:48:25] S1: It's interesting. U.S. stocks have just done so well for so long. I mean, that is the big story. And I think about this all the time in many cases. flavors of this conversation where we talk about hedge funds and options and trading and stuff like that. It's like, man, you got paid in retrospect, sitting here in 2026 for basically the last 45 years, you got paid a lot of money to just invest in the market and do nothing, right? To buy the index or whatever. And with very rare exceptions, that's all you had to do to make a ton of money is buy the index and go swimming. But it's interesting to think about how, for example, in other countries, Problems are a little trickier. It's like, how does someone in Japan get yield during all those Zerp years and stuff? So you have to get a little bit exotic and stuff like that. Now I can understand why, you know, people sitting on some huge gains, they don't want to miss out on future gains, but maybe they want to like take off some risk. Now there's yield again in the United States. over the last few years. That could be interesting and stuff like that. So I understand a little bit more about like inherently why these products have gotten more lucrative or Desirable for high net worth American investors in recent years. Sure.
00:48:25 · Joe Weisenthal, Tracy Alloway
[00:48:25] S1: It's interesting. U.S. stocks have just done so well for so long. I mean, that is the big story. And I think about this all the time in many cases. flavors of this conversation where we talk about hedge funds and options and trading and stuff like that. It's like, man, you got paid in retrospect, sitting here in 2026 for basically the last 45 years, you got paid a lot of money to just invest in the market and do nothing, right? To buy the index or whatever. And with very rare exceptions, that's all you had to do to make a ton of money is buy the index and go swimming. But it's interesting to think about how, for example, in other countries, Problems are a little trickier. It's like, how does someone in Japan get yield during all those Zerp years and stuff? So you have to get a little bit exotic and stuff like that. Now I can understand why, you know, people sitting on some huge gains, they don't want to miss out on future gains, but maybe they want to like take off some risk. Now there's yield again in the United States. over the last few years. That could be interesting and stuff like that. So I understand a little bit more about like inherently why these products have gotten more lucrative or Desirable for high net worth American investors in recent years. Sure. [00:49:33] S3: But I guess the issue is when the market becomes so big that it actually ends up impacting everything and you get these sort of weird like negative gamma instances where people have to sell into a down market and things like that.
00:49:33 · Tracy Alloway, Tracy Alloway, Joe Weisenthal, Alex Micalizzi
[00:49:33] S3: But I guess the issue is when the market becomes so big that it actually ends up impacting everything and you get these sort of weird like negative gamma instances where people have to sell into a down market and things like that. [00:49:46] S0: And it just sort of. starts wagging the tail. [00:49:49] S1: Totally. And look, the market has gotten a little more turbulent. Like, again, I'd like to point out that it's not like we've had some huge crash or something. [00:49:56] S0: No, we haven't. [00:49:56] S1: But it is, it has not been straight up. People are starting to look for the weak players and the links and so forth. People getting a little bit of anxious. And so it's sort of important to get a better grasp on like, what are some of the ramifications if we were to see longer sideways market or God forbid, something resembling a bear market. [00:50:17] S0: Learn your Greeks. [00:50:18] S1: Learn your Greeks. [00:50:18] S0: Shall we leave it there? [00:50:19] S1: Let's leave it there. [00:50:20] S2: All right. [00:50:20] S3: This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. [00:50:25] S1: And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Arman, Dashiell Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash oddlots. And for more Odd Laws content, check out our daily newsletter, which you can find at Bloomberg.com slash Odd Laws.