1/n When speaking to institutional clients and regulators, I often share a video to explain the short vol/gamma phenomenon. Most are familiar with some variant of the “positive gamma, positive theta” market position for dealers. This is created by systematic vol selling 
2/n This vol selling typically takes the form of single stock — overwrites, worst of, buybacks — and is then repackaged into index vol and sold at a premium generating the positive theta (time decay). However, this is not riskless as there is an implicit short correlation bet
3/n which kicks in at lower prices/more violent moves. The past few days have seen nearly all stocks in the S&P 500move in same direction, hence dealers find themselves underwater having sold much more vol (Vega) than they thought they did.
4/n The system has elements of natural reset, however, as vol decays exponentially towards expiry. March expiry will be big, but with much hedging done for the election there will be echoes of this on both the downside and the topside until that short Vega clears. Hence pop in
5/n longer dated variance (~ the VIX “curve”). For the reset, as new vol sellers come in we will see the system dampen over time and once dealers are back into positive gamma+theta the vol will settle down quite rapidly. Having heard of few blowups, my expectation is that we
6/n have more vol supply to emerge. But in the meantime, the promised video. We are currently in the reset gyrations... unless events conspire to interrupt vol flow (eg DAL suspending buyback spreads like a virus), I’d have to bet on the house for now
