East - West Parity, relativity in global equity index volatility arbitrage

During the well-attended Global Volatility Summit of March 16^th 2016, Mr Govert Heijboer of True Partner Capital gave insight to the True Partner's trading vision. During an 8-minute presentation, he explained the correlation between Einstein's Theory of Relativity and the global star system.

A reflection on the vision

In the late 20th century, the world was about the West and the Rest. It was like a binary star system with economies of other countries revolving as planets around two ‘suns’: the US and the EU. Not anymore. This century the system has become trinary with China as the third sun. The West has become a relative term as capitalism is now global; it is just as much present in Asia, even in China. Hence, East and West have become equivalent, in the same way calls and puts are equivalent (call-put parity).

Since Einstein we know that the speed of light is the same from each viewpoint. Similarly, the state of this globally connected world and its overall economy and resources are the same for everyone. However, relativity also states that any mass, sun or planet, affects the trajectory of light. Just like each individual economy affects the direction in which the world economy is going.

Movements in equity indices globally reflect this star system of three large economies with many planets. Markets move individually, but also continuously affect each other. True Partner returns alpha by actively trading the discrepancies of these relative movements (volatilities) between equity indices across the world and their respective implied volatilities. Just like stars and planets, occasionally markets can be on collision course. This creates relatively short-lived, outsized ripples and therefore larger opportunities (like August 24th last year) which resulted in a 17%+ return for 2015.

––––––––––––––––––––––––––––

Download the world map with global star system:
Get world map (jpg)

For more information on the Global Volatility Summit:
www.globalvolatilitysummit.com

–––––––––––––––––––––––––––––––