Warren Buffett compared interest rates to gravity. Mike Khouw heard this and thought "perfect, I'll use this to pitch bond trades on television." The metaphor works until you remember Buffett spent fifty years buying equities and telling people to avoid doing exactly what Mike Khouw does for a living.
Bonds are tilting. Not crashing. Not collapsing. Tilting. Like a pinball machine when you nudge it too hard but the game's still going. The options market says things could get heavy. Could. Maybe. The options market also said volatility would stay elevated in 2018 and then sold you VIX calls at the top. But sure, this time it's probably right.
Khouw wants you to play bonds. Play them. Like they're a f*cking kazoo. He's not saying buy them or short them or avoid them entirely like a rational person who just checked the yield curve. He's saying play them. Which means he's about to describe a multi-leg options strategy that requires four commissions and a prayer that implied volatility doesn't collapse the second you enter the position.
Retail traders will hear "gravity" and "heavy" and think they've unlocked some deep truth about monetary policy. They'll open their Robinhood app. They'll search for bond ETFs. They'll buy puts because puts go up when things go down, right? Then they'll watch theta decay eat their position like a wood chipper while the underlying moves exactly nowhere for six weeks.
Buffett also said derivatives are financial weapons of mass destruction. Khouw skipped that quote.
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