1/x So 1st things first, Vanna/Charm flows will continue to be very supportive.11/4-9 to 11/20-11/23 Ivol backwardation is simply too steep.W/out meaningful stress(<3100 SPX) the path of least resistance is therefore higher this week, despite the technically broken picture.
2/x more likely even than an up market IMO for the next several weeks though is short-dated Ivol compression, again quite simply due to the fact that dealers will be decaying dramatically longer cheap vol & skew as short term 11/4-9 Ivol expires. Pair these overwhelming dynamics
3/x with the usual OpEx cycle driven vol compression & Vanna/Charm flows into 11/18th VIX expiry+ dramatically improving seasonality + an accommodative Fed meeting Thurs 11/5 + likely positive post election Pfizer Stage 3 results... all that remains to is of course...
4/x is the resolution of the election.That said, this is 1 of those exceedingly rare instances where you’ll here me say fundamentals matter...B/c fundamentals here’ll determine flows. Similar to how Fed policy matters, this election matters. As I’ve said ad nauseam @ this point
5/x in 3 out 4 scenarios a Fiscal Wave is on the way. & not just in the ST...but likely for the next several years to come regardless of economic circumstances. However, in a Biden Pres/Repub Senate there is reason for ST concern. This scenario could take >$3 Trillion stimulus
6/x off the table. This is the 1 scenario in my models where we likely see ST weakness post election. but even so, I would still expect it to come w/ IVol compression (market down/vol down) given the vol dynamics previously mentioned. Ironically, whereas the 3/4 other scenarios
7/x are ST bullish, IMO they are LT bearish for markets due to their shift to fiscal dominance & demand side econ that’ll likely drive econ growth & higher rates in the coming year(s) & ultimately lead to end to the TINA effect, multiple contraction & unpinning of risk premia.
8/x Whereas gridlock under a Biden/Red Senate scenario would likely be more constructive for markets in the due to a likely maintenance of the status quo w/ monetary dominance & likely YCC, neg rates, & the kitchen sink over the next 2 years... So, What does this mean?:
9/xIn the short term though there’s downside risk in a 1)(real) contested election or 2)1/4 clean outcome scenario of Biden/Repub...the odds point to higher SPX & maybe even a surge into EOY, if outcome is a clean 3/4 scenarios & market can close above 20 day & repair technicals
10/x If we get the rally but it is weak & fails @ 20 day, be careful though, as post 11/18 +Vol flow dynamics will dissipate, & we could instead see a retest & decline into EOY. How calendar vols perform on the rally will be the tell. If Dec/ Jan Ivols don’t collapse into line on
11/11 the rally, I would start to prepare for a relapse. If we can get momentum above the 20 day, and see the Dec/Jan compression... it should be smooth sailing through Santa Clause & the Jan effect 1/15/21. Good Luck! 🍀
Hear 👂 not here 👇
*In the Longterm due to

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More from @jam_croissant

3 Nov
1/x The election is here. I’m not going to belabor my previous points(which u can read below),but I do have some important nuances to add based on today’s action... Given the amount of vanna flows we clearly saw today, w/ the $20 move down in SPX straddles across the board, the
2/x price action was underwhelming. It’s important to keep in mind, that these markets are still technically broken, & despite these very positive flows, which will continue this week, if these markets can’t manage to repair their technical damage post election w/ a move above
3/ the 20 day, as I’ve mentioned before, this’d be an important sign of underlying weakness. A driving point of concern today was obviously the overwhelming NDX weakness. Despite my mention of 3/4 of scenarios being positive for fiscal stim & other bullish flows on the horizon
Read 10 tweets
30 Oct
1/x I agree with this whole heartedly. Today’s & Mon’s close...The thinking goes like this: the vol curve is so inverted that there are dealers short 11/4 puts, as these are the highest Vol, & long some cheaper Vol somewhere behind. The backwardation is so steep that as long as
2/x a real meaningful drop soon, say below 3100. Dealers are going to quickly become longer cheaper vol & shorter delta... & then they will, in turn, be forced to buy back deltas & sell vol. this would stabilize the market and lower vols & lead to a positive feedback loop of
3/3 risk on flows from the usual suspects of trend follow, risk parity, vol target. This window is critical. Textbook Vanna/Charm flows & they’re @ their most extreme.Of course, the opposite side of this is @ this very moment gamma risks are @ their peak & the market most fragile
Read 4 tweets
30 Oct
1/x In my1st year in the pits of Chicago, I quickly learned a favorite pastime of idle traders on a Friday w/nothing trading was to create a humorously absurd challenge for someone on the floor to undertake & then coax the entire trading apparatus into action betting on outcomes.
2/x By the time the challenge had fully taken hold, there would be hedge funds in London & banks in Paris taking positions on whether or not ‘John’s’ Clerk ‘Gary’could eat 150 Chicken McNuggets in 60 min..Early on I would look at Gary, look at some online research & place a wager
3/x But after a few months, it became clear you always wanted to bet on ‘Gary.’ or ‘Mary’, regardless of how crazy or ridiculous the challenge, because, invariably, ‘Gary’ was offered some portion of the winnings of the bets for him to encourage him to compete in the 1st place.
Read 6 tweets
29 Oct
1/x That was quick. All it took was 3 days to go from a technical break below the 20 day, to get a move down to 2.5 std dev down. These types of moves don’t happen easily & the scale of price weakness must be respected for what it says about supply/ demand for shares. Despite
2/x the trend change & weakness, we must be aware that sometimes countertrend rallies in a down move aremassive.We saw several things today that told me we were getting towards a short term inflection. 1-the scale of the move relative to IVol was simply too far too fast 2-retail
3/x equity call buying, after hanging in the last 2 days on the drop, suddenly disappeared & shifted to a wave of puts 3- the NDX was relatively strong 4-all of this, while after a long absence, charm/vanna flows have finally begun to show themselves once again on open & close
Read 9 tweets
27 Oct
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
Read 5 tweets
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

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