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27 Oct, 5 tweets, 2 min read
1/x So a quick post Morten trade school: today should‘ve been a disaster.I had turned long in the last 2 days preemptively before my 10/26 deadline thesis. But despite a massive market drawdown, it ended up being a big winner. How? It’s all about preparation & discipline...
2/x I had a clear trailing stop in place on close that i have studied ad nauseam & had a clearly defined level of support that I was confident would lead to a gap if broken. I knew that gap was big enough relative ivol, that gamma would pay for any losses in spades if broken
3/x so, the plan was clear, wait & let the market price dictate my position. Don’t jump the gun, but the second price breaks into a different part of my understood distribution, i was into the next low risk/high reward play on the other part of the distribution. It is all about
4/x set ups. If you are buying/selling without a broader understanding of the entire distribution of outcomes, u don’t have an edge. But if u can use any info u have to help draw a bigger more complete picture of the outcomes, and build stops & leverage upon that info,
5/5 with discipline & well prepared proactive plan you will come out ahead more times than not.

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Cem Karsan Profile picture
26 Oct
1/x I will keep this brief, so as not to repeat myself. I am cautiously bullish & have yet to add to my 50% long exposure from lower. Candidly, despite price action that has broadly confirmed my thesis @ every turn. Come Mon we will have made it through the most challenging 1.5
2/x week window for these markets without any technical damage...Seasonality & vanna flow cyclicality will continue to significantly improve from here. This week EOM/BOM flows should also provide support.Maybe most importantly however, is simply Short-dated index IVol compression
3/x this compression has served to pin these markets the last several days, despite numerous threats to their stability. The threats have come from DXY & MOVE & their knock on effects to the duration trade/ NDX. These threats are not to be taken lightly, & just as we have seen
Read 8 tweets
Cem Karsan Profile picture
23 Oct
1/x Both Pres candidates confirmed that there’s no stimulus deal, and the reaction from the market? Yaaaaawn. Red Herring. As predicted in space & time we knee-jerked to the 20day in the Wed-Fri window w/a negative knee jerk on this ‘negative’ news today. & there you have it...
2/x The market reacted well around the 20 day, & we have what looks like it‘s likely the short term bottom we’ve been looking for. As I’ve insinuated here & been more explicit w/ a number of you by DM I’ve been adding @ the 20day the last 2 days after patiently waiting for a week
3/x & am now 50% long from those levels & looking to add to these positions over the next 2 trading days. Although the window has not officially closed yet, the body of supporting evidence has grown to a point where our models have pointed to the need to proactively risk on.
Read 8 tweets
Cem Karsan Profile picture
21 Oct
1/x Today price action was important. The price strength in the face of numerous attempts to break down & uncertainty surrounding stimulus talks was impressive. It was also notable in its inability to not even reach the 20 day. This is the kind of price strength you’d expect from
2/x a market intent on a bullish thrust. That said, election vol was notably bid today despite the rally & the NDX was relatively weak, which should continue to give us a bit of pause. Maybe most importantly today though was quite simply the passage of time.We are 1 day closer to
3/x reinforcements in the form of more positive flows starting next week. Tomorrow is VIX expiry & importantly the deadline for a stimulus deal. How the market responds to these events is critical. As I expressed in a separate thread, I would be surprised to see a stimulus deal,
Read 11 tweets
Cem Karsan Profile picture
20 Oct
1/xFri & today are perfect examples of why you don’t chase a rally when you don’t have flows behind you. As I‘ve stated, this is a window of time where the market is vulnerable. Despite encouraging strength mid-last week, the fact that we were overbought & sentiment & positioning
2/x were so stretched have made it easy on the shorts. This morning’s significant NDX underperformance and significant retail overextension as shown by p/C equity, were once again what we were called for and were textbook signals. But now, here we are, not surprisingly, at
3/x a crossroads. We are no longer overbought & sentiment has definitely shifted. Fixed strike IVol was significantly compressed today, just as it was on the last leg down.Vanna delta liquidation in the NDX complex, which was obvious this morning, by the end of the day had abated
Read 8 tweets
Cem Karsan Profile picture
20 Oct
1/x To answer @TheStalwart’s Q? from the pod... The reason the term structure of Implied vol tends to be upward sloping is several fold. 1)most importantly: liquidity premium. In 2009 10 year Implieds ticked 60... in LTC 1-2 year puts traded 150, despite being clearly illogical,
2/x there were simply more buyers than sellers due to illiquidity...Whereas short dated options will, within a short period of time be tethered to an immutable expiration, long dated options are, quite simply, priced at wherever buyer & sellers can clear price. 2) Volatility is
3/3 an insurance product. Given infinite time the odds of an extreme unknowable tail event, given fat left tails in markets is almost guaranteed, due to infinite uncertainty. Whereas, in shorterm we have significant informational advantages & outcomes are, in theory, more bounded
Read 4 tweets
Cem Karsan Profile picture
18 Oct
1/x Current Market thoughts: tomorrow is important. There‘s a window for bears to take control, but I’ve been clear, that this must begin in earnest by this Mon & show weakness through mid next week, otherwise bulls are in control & reinforcing flows will soon be on their way.
2/xThis coming week will see little Vanna flow support in the SPX. If bears can take ahold of their opportunity & break the market down below 20 day on close by 10/26, the market could still see a liquidity driven unwind.NDX names are still experiencing negative Charm/Vanna flows
3/x Sentiment and positioning have shifted meaningfully more bullish and retail is clearly overextended. As I have warned, we are reaching an important inflection point. I have been vocal about not yet chasing a rally and am Neutral. I believe odds favor a coming rally, but
Read 5 tweets

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