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Cem Karsan Profile picture
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11 Oct, 4 tweets, 1 min read
1/x I’ve had a few questions about the VVIX/VIX divergence...In brief, the recent divergence‘s been driven by 2 major factors 1) SPX IVol curve from 11/6 to 11/27 is flat due to the election premium in 11/6, so there‘s no longer been any contango support for the VIX as of 10/6 &
2/x in the face of broadly declining IVols, the VIX has declined. Whereas the VVIX represents 30 day fwd Vol of the VIX, which ties it to 60 day Vol. 11/30 to 12/18 contango is very steep, due to the event premium built into the 12/14 electoral college vote. 2) broad measures of
3/x Market skew have jumped in Dec/Jan period, with the drop in IVol. This is quite common, in the face of declining IVols & a rallying market, but even in this context, the increase‘s been fairly dramatic.This is likely a fxn of participants wanting to maintain convexity for the
4/4 Post election period due to the fear of the growing potential tail, despite the significantly decreasing probabilities of occurrence.

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Cem Karsan Profile picture
9 Oct
1/x Alright. Time to spin the wheel....I probably sound like a broken record at this point, but vanna/charm flows are at their peak this week into 10/12. If you haven’t seen the overwhelming market support that comes with them, you’ve got your head in the sand.
2/x-today was an important day technically. Closing just over 1.5 stddev up yesterday & then following through meaningfully today/ holding meaningfully above has opened the door for risk parity & Vol targeting flows to put new capital to work. -The seasonality is improving fast
3/x -& despite increasing retail call buying in the last couple days, the Vol bid is much more tentative then it was near the highs in August -sentiment is equally tepid -the market has come very far/very fast and is a bit overbought, & NDX continues to lag -But when market shows
Read 6 tweets
Cem Karsan Profile picture
6 Oct
1/x A couple of important thoughts:
1) failure @ 1.5 std dev up of 20 day for last several days keeps the market technically broken & shows a lack of buying strength given where we are in the OpEx cycle, but we’re still above 20 day & stable 2) fixed Ivols came down on the drop,
2/x this was particularly the case in the post election ‘hump’ which came down $8, despite the sudden decline. This is important because this is where dealers were short 3) Vanna flows & Vol compression are @ their peak until 10/12-14.Stabilization here would give way to positive
3/x flows once again, particularly on the open & close of trading 4) after 10/12, flows become less supportive & post 10/14 in particular we could see the total disappearance of support, going into a 5 week OpEx cycle.
-I am slightly long right now from EOD entry.I Would sell on
Read 4 tweets
Cem Karsan Profile picture
6 Oct
1/xWhat we know: -All If this has been very predictable we flowed versus 3200, all the sentiment and flow indicators turned bearish and with the seasonal and expiration calendar turning all that was left were poor technicals -with Vol tidily compressed and a move last week above
2/x the 20 day, it was just a matter of time before vanna, trend following,Vol targeting, & risk parity flows took the baton & pushed us to this point -2nd to last week of monthly OpEx is strongest week of the cycle -given Fri concerns, the size of the rally was a bit of catch up
3/x on what are predictable Mon vanna flows. -Even so, the move has been relatively big in a short period of time, especially given still relatively weak seasonality, weak NDX leadership, & still not fully repaired technicals... What does this all mean: the 200 pt SPX rally has
Read 7 tweets
Cem Karsan Profile picture
20 Sep
1/x Post OpEx week thoughts:
What we know: -Price action shows structural, technical weakness, with movement below the 50 day -Through Fri, the drop has been predictable, & only shown signs of a ‘refresh’ & ‘rebalancing’ of metrics that were historically dramatically offsides
2/x -Short interest, despite still low has seen a meaningful uptick -NDX Non-commercial shorts have dramatically increased -sentiment has shifted meaningfully - implied correlation has dramatically normalized -& for the first day in weeks NDX outperformed SPX Beta Adjust on Fri
3/x -Despite continued seasonal & Ivol cycle weakness this week, calendar starts to turn more favorable for structural reasons next week. -elec Ivol has compressed meaningfully -Maybe most importantly, IVol’s continue to be dramatically compressed, providing meaningful support.
Read 8 tweets
Cem Karsan Profile picture
17 Sep
1/x When I had my vol market making firm, the best trades were always to trade with the smart directional players. You almost always wanted to avoid the retail directional flow. This may seem counterintuitive. Why would you want to trade against the smart directional players?
2/xWhen a good directional player buys deltas, as a MM, you sell them their soft deltas & hedge w/the underlying.Therefore, Generally, your exposure wins when they do.& when they come to take a profit & you have the added benefit of flow pushing the trade in your favor as well.
3/xhistorically w/retail the opposite is true on 2 fronts. Not only are they generally directionally wrong, forcing you into poor positioning with the underlying, but they don’t sell at a loss. They just keep repeating the same losing trade at worse & worse levels....
Read 4 tweets
Cem Karsan Profile picture
16 Sep
1/x A little Pre-VIX Print SOTU: What we know:
-The Markets are still technically very weak, as they have been unable to recapture 20 day, despite significant Vanna/Charm flows past 1.5 weeks
-little retail or institutional capitulation & Short interest @ extremes
2/x-Index Vol structurally compressed due to recent Low rVol during high Sep OpEx decaying away in front of lower expiries behind. -VIX exp often marks low in vol & end of Vanna flow market support
3/x -low Sep VX rolling off & higher event Oct VX front month, naive demand in VIX complex for already rich post event vol could shift Vega higher.
-Street broadly short vol dispersion (extra long in indexes, short in names)
-Fundamental election risks looming under Biden sweep
Read 5 tweets

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