It’s simply not possible to predict how the stock market will move 100 percent of the time, or so they say. Even the best investors in history have made costly mistakes, despite their deep understanding of market behavior.
However, some financial wizards are right more often than not because they know how to analyze historical data to determine the most likely future result.
Occasionally, unknown financial professionals advance their reputation by publishing predictions that go against the majority of their peers. They are outliers until it turns out that their forecast is accurate.
For example, Michal Burry became famous after he predicted the collapse of the real estate market in the mid-2000s. His story was chronicled on the big screen in the 2015 film The Big Short. Based on that earlier prediction, Burry’s recent statement that another stock market crash is imminent has some investors alarmed.
Cem Karsan might not be the subject of a Hollywood production, but he has his own record of success. Karsan has accurately predicted market movements on hundreds of occasions, which has impressed his clients and followers. According to Karsan, when the 2020 market crash occurred, it shouldn’t have been a surprise. In fact, Karsan says the stock market broke down right on cue – but why?
Who Is Cem Karsan?
Cem Karsan, net worth $19 Million, is the senior managing partner of Kai Volatility Advisors (formerly known as Aegea Capital). He founded the firm in 2010. However, before going into business for himself, Karsan gained experience through increasingly more responsible positions with leading derivatives firms.
Karsan triple majored in his undergraduate program, earning a Bachelor’s degree in policy studies, economics, and English literature from Rice University.
In 1999, after graduation, Karsan started as a volatility trader with RBC Dominion Securities’ Derivatives Arbitrage Group. It was a difficult economic time marked by the dot com crash, and Karsan displayed mastery of complex financial management skills that allowed him to support the firm in surviving the market downturn.
Karsan left that position in 2002 to work at Bear Wagner Specialists with mentor John Mulheren. There, Karsan was instrumental in building out the emerging derivatives arbitrage business. By the time he moved on a few years later, Bear Wagner was considered a leader in this area of the industry.
During his time with Bear Wagner, Karsan was also back in school – this time for an MBA in Management and Analytical Finance from Northwestern.
Once he completed that degree in 2006, Karsan founded his first company – a market-making firm called Precision Capital Management that specialized in equity index volatility arbitrage.
When the global financial crisis put many financial services companies out of business, Precision Capital thrived. Its clients earned substantial returns from 2007 through 2010, and so did Karsan himself.
In 2010, Karsan sold his stake in Precision Capital so he could launch a new business – Aegea Capital – which is now known as Kai Volatility Advisors. This firm has given Karsan the opportunity to expand on his previous work in equity index volatility arbitrage.
Kai is involved in proprietary analysis on directional flow indicators in the volatility space. The goal is to exploit their informational asymmetry to increase the success of trend-following strategies.
How Does Cem Karsan Predict Stock Market Movements?
Cem Karsan’s interests lie in volatility – particularly as volatility is measured by the so-called “Fear Index.” This term refers to the CBOE Volatility Index (VIX), which essentially measures investor confidence during the relevant period. For Karsan, the best window to measure is 30 days.
When volatility is high, Karsan knows that the market is likely to make large, abrupt moves. When this occurs, options become more expensive.
Karsan gathers and analyzes multiple data points, then uses his results to predict the coming ups and downs. He finds inefficiencies and trades options that exploit those inefficiencies to generate profits. To date, he has been far more accurate than others in the industry. His methods are a closely-held secret, and no one has been able to reverse-engineer his results.
Karsan’s clients like Kai’s products because they don’t tend to move in sync with other types of assets. That offers an additional method of diversifying portfolios to ensure relative stability.
Cem Karsan On Why The Stock Market Broke Down Right On Cue
Cem Karsan’s long history of success has given his words quite a bit of weight in the investing community. Over time, his guidance has proven more reliable than the experts at leading financial institutions. When he makes predictions, people act, and when he offers analysis of economic events, people listen.
Karsan recently weighed in on the root cause of the 2020 market crash, and his listeners were shocked. To date, analysts have blamed panic related to the pandemic for the dramatic plunge that spread around the world like wildfire.
Karsan pointed out that all of the commentators who have attributed the crash to a virus outbreak have not considered the fact that the crash started the day after February OPEX and ended the day after March OPEX.
OPEX is the date each month that US options expire. This usually occurs on the third Friday of the month, and it tends to create market volatility. The fact that the 2020 market crash occurred between two OPEX dates is significant because of the way common options strategies work.
When options traders buy put options, sellers usually take out a short put position and a short stock position in the underlying asset. This ensures they stay delta-neutral – in other words, it minimizes risk for the dealer. The tricky thing is that the closer OPEX gets, the more options change in value. Dealers have to make adjustments to their various positions to keep their overall position neutral, and Karsan believes this effect contributed to the 2020 market crash.
Could it happen again? Perhaps. According to Karsan, options markets can be extremely combustible or extremely supportive depending on the circumstances. The direction of its influence is heavily dependent on investor sentiment in the moment.
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