What are the key takeaways from this Odd Lots episode?

Key insights include: **Market Size & Growth:** U.S. SEC-registered structured notes are tracking toward $300 billion in 2025, up 50% from $200 billion in 2024. The fastest-growing segment is worst-of auto-callables tied to S&P 500, NASDAQ, and Russell indices simultaneously. Understanding this scale helps investors recognize when structured product flows — not fundamentals — are driving index price movements.; **Auto-Callable Mechanics:** Auto-callables pay above-risk-free coupons because investors sell embedded put options to the bank. The "auto-call" feature terminates the note early if the underlying index is above its starting level at each observation date (typically every 3–6 months). Early termination forces reinvestment at lower yields when markets rally and volatility compresses simultaneously.; **Worst-Of Structure Risk:** Worst-of notes reference three indices or stocks and pay based on the single worst performer. This structure generates higher coupons than single-index notes because correlation risk is added — two indices can be up 20% while one underperforms, triggering full downside exposure. Investors receive premium for bearing this correlation risk without being able to replicate it in listed markets.

What did Alex Michelizzi discuss on Odd Lots?

Alex Michelizzi, Nomura's international head of equity structured notes, explains how the U.S. structured notes market is on track to hit $300 billion in 2025, up from $200 billion in 2024, and how these products create technical market flows that amplify volatility during turbulent periods. Key topics include: **Market Size & Growth:** U.S. SEC-registered structured notes are tracking toward $300 billion in 2025, up 50% from $200 billion in 2024. The fastest-growing segment is worst-of auto-callables tied to S&P 500, NASDAQ, and Russell indices simultaneously. Understanding this scale helps investors recognize when structured product flows — not fundamentals — are driving index price movements.; **Auto-Callable Mechanics:** Auto-callables pay above-risk-free coupons because investors sell embedded put options to the bank. The "auto-call" feature terminates the note early if the underlying index is above its starting level at each observation date (typically every 3–6 months). Early termination forces reinvestment at lower yields when markets rally and volatility compresses simultaneously..

How long is this episode of Odd Lots?

This episode is 51 minutes long. SignalCast provides an AI-generated summary so you can get the key insights in about 3 minutes.

Odd Lots

The $300 Billion Structured Notes Market Is Booming

November 2, 2026

51 min episode · 2 min read

Alex Michelizzi

Episode

51 min

Read time

2 min

Topics

Investing, Fundraising & VC, Product & Tech Trends

AI-Generated Summary

Published Nov 2, 2026

Key Takeaways

✓Market Size & Growth: U.S. SEC-registered structured notes are tracking toward $300 billion in 2025, up 50% from $200 billion in 2024. The fastest-growing segment is worst-of auto-callables tied to S&P 500, NASDAQ, and Russell indices simultaneously. Understanding this scale helps investors recognize when structured product flows — not fundamentals — are driving index price movements.
✓Auto-Callable Mechanics: Auto-callables pay above-risk-free coupons because investors sell embedded put options to the bank. The "auto-call" feature terminates the note early if the underlying index is above its starting level at each observation date (typically every 3–6 months). Early termination forces reinvestment at lower yields when markets rally and volatility compresses simultaneously.
✓Worst-Of Structure Risk: Worst-of notes reference three indices or stocks and pay based on the single worst performer. This structure generates higher coupons than single-index notes because correlation risk is added — two indices can be up 20% while one underperforms, triggering full downside exposure. Investors receive premium for bearing this correlation risk without being able to replicate it in listed markets.
✓Dealer Hedging Creates Volatility Feedback Loops: When structured note books extend in duration because markets fall, dealers must sell additional vega (volatility exposure) into a market where buyers are already retreating. This concurrent supply surge amplifies implied volatility moves. Conversely, a small market rally can leave dealers suddenly short vega with no new issuance to offset, pushing volatility higher even as spot prices rise.
✓Gamma Exposure Near Barrier Levels: As underlying assets approach knock-in put barriers (typically set at 60% of initial price), dealers shift from long gamma to short gamma positioning. Short gamma means dealers must sell into falling markets and buy into rising ones, mechanically exacerbating price moves. Investors in single-stock notes with daily observation windows face the most binary outcomes from this dynamic.

What It Covers

Alex Michelizzi, Nomura's international head of equity structured notes, explains how the U.S. structured notes market is on track to hit $300 billion in 2025, up from $200 billion in 2024, and how these products create technical market flows that amplify volatility during turbulent periods.

Key Questions Answered

•Market Size & Growth: U.S. SEC-registered structured notes are tracking toward $300 billion in 2025, up 50% from $200 billion in 2024. The fastest-growing segment is worst-of auto-callables tied to S&P 500, NASDAQ, and Russell indices simultaneously. Understanding this scale helps investors recognize when structured product flows — not fundamentals — are driving index price movements.
•Auto-Callable Mechanics: Auto-callables pay above-risk-free coupons because investors sell embedded put options to the bank. The "auto-call" feature terminates the note early if the underlying index is above its starting level at each observation date (typically every 3–6 months). Early termination forces reinvestment at lower yields when markets rally and volatility compresses simultaneously.
•Worst-Of Structure Risk: Worst-of notes reference three indices or stocks and pay based on the single worst performer. This structure generates higher coupons than single-index notes because correlation risk is added — two indices can be up 20% while one underperforms, triggering full downside exposure. Investors receive premium for bearing this correlation risk without being able to replicate it in listed markets.
•Dealer Hedging Creates Volatility Feedback Loops: When structured note books extend in duration because markets fall, dealers must sell additional vega (volatility exposure) into a market where buyers are already retreating. This concurrent supply surge amplifies implied volatility moves. Conversely, a small market rally can leave dealers suddenly short vega with no new issuance to offset, pushing volatility higher even as spot prices rise.
•Gamma Exposure Near Barrier Levels: As underlying assets approach knock-in put barriers (typically set at 60% of initial price), dealers shift from long gamma to short gamma positioning. Short gamma means dealers must sell into falling markets and buy into rising ones, mechanically exacerbating price moves. Investors in single-stock notes with daily observation windows face the most binary outcomes from this dynamic.

Notable Moment

Michelizzi describes a creative knockout structure where individual stocks within a worst-of basket can be eliminated one by one as they rally, leaving a deeply underwater remaining stock whose put value can be entirely wiped out the moment the last surviving stock ticks upward — creating extreme vol-of-vol exposure.

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Episode Transcript

00:00:02 Speaker 1: Bloomberg Audio Studios. 00:00:04 Speaker 2: Podcasts. Radio. 00:00:06 Speaker 3: News. 00:00:18 Speaker 4: Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Allaway. 00:00:22 Speaker 2: And I'm Joe Weisenthal. 00:00:23 Speaker 1: Joe, I'm going to warn you in advance. 00:00:25 Speaker 4: This is one of those episodes that's going to come with a lot of Greek letters, I think. 00:00:30 Speaker 2: I like these episodes. You know, it's funny. Some people, listeners, they'll tell us, they're like, you know, I love listening to Odd Lots. I have to admit, there are a few episodes I don't totally get what you're talking about. 00:00:41 Speaker 3: And I'll be like, I don't really get what we're talking about either. 00:00:44 Speaker 2: But I, you know, I aspire. 00:00:46 Speaker 1: But we like to aim high. 00:00:47 Speaker 2: Yeah, we like to aim high on this podcast. That's right. 00:00:50 Speaker 3: All right. 00:00:50 Speaker 4: Well, I think this is actually an important episode. We're going to be, I don't think we've ever devoted an entire episode just to this topic. We probably touched on it at various points in time. But today we're going to be talking. about structured notes. And I think this is important because we're used to talking about markets as these sort of fundamentally driven things. Like what's the bull case for AI? What's the bear case for AI? 00:01:13 Speaker 1: But there are all. 00:01:14 Speaker 4: These technical flows that also have an impact on markets. And I think we're in one of those moments right now. 00:01:21 Speaker 2: No, totally. So I think a couple of things. First of all, you know, we are in this moment where like, look, anything AI related has been up an extraordinary amount. over the last few years. That's undisputable. And in fact, if you look at like expectations going over the next couple of years, all you see are various straight lines into the right. So revenues, capital expenditure, all of it, it all looks pretty good. But we are clearly in this moment of turbulence. If you just look at, say, certain aspects of the market, whether we're talking about some of the neoclouds, whether we're looking at credit default swaps, even credit default swaps on some of the really big companies are starting to inch out. I mean, I hadn't seen anyone post a chart of NVIDIA credit default swaps up until recently, but they're inching up just a little bit. There is clearly like, it's like the planes like rattling at high speeds here. And one of the ways that people have expressed bets on the AI trade is through structured notes, which, as you've mentioned, we've mentioned in various episodes, but I don't think we've really devoted an episode to them. 00:02:23 Speaker 4: Yeah, so this is one of the things when …

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