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VIX | MBA
The Wall Street Skinny
February 27, 2025
This Week on The Floor
We polled our community of 285,000 followers on Instagram and asked:
“What topics do you want us to address in the newsletter?”
So for the next few weeks, we’ll be answering YOUR questions here!
Short gamma squeeze? What’s going on with the VIX?
Should I get an MBA to work on Wall Street?
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Markets Recap / Deal News
Interviewing this week? Here’s some content for your conversation.
This week, we’re looking at potentially risky positioning in the VIX options market.
Before we get into it, the basics:
The VIX (Volatility Index) is a measure of the expected volatility in the S&P500 over the next 30 days.
A higher value means higher expected volatility; a lower value points to calmer markets.
In essence, the VIX is a way to gauge market sentiment, risk appetite, and magnitude of price swings.
Investors can buy or sell the VIX outright. They can also trade options where the VIX is the underlying — essentially trading the volatility of volatility ("vol of vol”).
Options like puts and calls can be a levered, limited downside way to express a view on the directionality of the VIX (or any other underlying asset as well as its expected volatility.
Despite whiplash from headlines in the news, the VIX has remained relatively low and stable year to date…
Source: CNBC.com
…And investors have been expressing the view that it may rise and become more volatile. Last week, according to Bloomberg,
“more than 1 million call options on the CBOE Volatility Index changed hands….the sixth time this year that volume was this high. The most traded were contracts with strikes of 24 and 25 points expiring in March” (after the next Fed rate decision and debt ceiling resolution expiry).
What is a call option? It’s the right (but not the obligation) to buy something at a specific date and price in the future.
So investors are buying call options, concentrated around a specific date and specific strikes, betting that the VIX will rise. If it doesn’t, those options expire worthless; if it does, they stand to benefit.
But the real news here is that this is creating a massive short gamma position for the dealers who are writing (selling) these options.
Remember, dealers don’t just sell options to investors who want to buy them and hope for the best.
They hedge their risk.
There may be a massive buying need for dealers to hedge their short gamma exposure. If the VIX rises, market makers who are short need to buy more to hedge their exposure. That buying pressure drives the price up further, creating a feedback loop that can dramatically increase the magnitude of the move.
Nomura’s cross-asset strategist Charlie McElligott reportedly said that “dealers have to buy vega, or volatility, of about $150mm for every 10-point rise…the highest reading in Nomura data going back six years” (Bloomberg).
When options positioning is so lopsided, it creates the risk of a volatility shock to the markets with potentially disastrous consequences.
We talked about short squeezes and gamma squeezes on our latest episode of our Industry podcast if you want to learn more!
Should I Get an MBA to Work on Wall Street?
Answering the first of your questions from Instagram:
You asked us whether an MBA is “required” or “recommended” as a qualification for working at an Investment Bank or Private Equity firm.
Here’s the skinny, at least when it comes to US-based firms.
How it was:
10-15 years ago, the MBA was a fairly standard component of many high finance careers.
On the corporate advisory side of an investment bank (aka, “IBD”), it was very typical to do a 2-year stint as an analyst straight out of undergrad, then go back to business school before heading into the next part of your career.
Many Private Equity firms and Hedge Funds that recruit directly of IBD would also mandate an MBA as part of their talent development process after 2 years.
For those who utilized an MBA to switch from a different industry, banks used to recruit for both IBD and Sales & Trading roles at the Associate level from business schools.
And just broadly speaking, an MBA was seen as a rite of passage for leveling up within the industry and building a network.
Times have changed.
This online MBA will do the trick, right?
First of all, Sales & Trading recruiting out of business school has effectively dropped to zero.
Investment Banking Associate recruiting has shrunk to a fraction of its former scale as well.
Secondly, many buy side firms are now cultivating talent as early as sophomore year in college, and have dropped the MBA as part of their talent development process.
Since so many firms are cultivating talent directly from the undergrad pool and training them on the job, spending $150k+ on an MBA (and that’s BEFORE the opportunity cost of foregone salary) seems pointless to many.
There is still a strong argument to be made for career switchers, who can leverage the MBA to insert themselves into a recruiting cycle.
It’s also hard to put a price tag on building a lifelong network of people who are likely to go on to do great things.
However, the value of an MBA for a high finance hopeful from any institution other than one of the top 3-7 business schools has dropped precipitously.
The bleak reality? Most elite financial institutions are not looking far beyond the Whartons, Stanfords, and Harvards of the world for talent.
Sure, there are exceptions. A few select “non-target” schools happen to be feeders into specific institutions thanks to passionate, successful alumni.
But when weighing the pros/cons of an MBA, schools outside the top 15 business schools may not help much on your path to Wall Street.
We spoke frankly with an MD at a bulge bracket investment bank, who recalled his experience applying to business school. He applied to Wharton, Harvard, and Dartmouth alone.
When a friend asked him, “where are you applying for a safety school?” he simply replied: “Nowhere.”