November 5, 2025
Volatility remains one of the most misunderstood forces in modern markets. As realized volatility compresses and correlations tighten, traders often mistake short-term calm for long-term stability. This illusion invites leverage, complacency, and the systematic erosion of convexity — the ability to benefit from nonlinear payoffs.
In reality, the compression of volatility frequently precedes large asymmetric moves. When optionality is cheap, true risk managers allocate toward convex exposures — trades that can pay off disproportionately when the unexpected happens. Understanding asymmetry means recognizing that risk and reward are never symmetrical across the cycle. One unit of potential loss rarely equals one unit of potential gain.
As we navigate shifting global liquidity and policy dynamics, the investors who survive will be those who think in distributions, not averages. Markets reward those who structure portfolios around tails, rather than the mean. That remains the essence of intelligent risk-taking — owning exposure to uncertainty when others are desperate to price it away.