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
4/x it is important not to be dogmatic...Though a blue wave would be great for economy & stimulus, it could force a continued rotation from growth to value, as I’ve mentioned, that could drag the indices down. This said, even if a down move was to materialize, I don’t foresee it
5/x being a fast move. Both due to positive vanna flows & short dated hedged positioning, a down move w/a clean result this week’d likely be met w/ significant vol compression & calendar expansion into 11/18 (Vix exp)...None of this is to say that a quick rally has been taken off
6/x the table.Quite the contrary. W/ a quick & decisive resolution to the election, significant vol compression across the curve, like today, & a vanna driven move by 11/18 above the 20 day, around 3400-3415, a melt up to new highs would be likely...But technical weakness must be
7/x Overcome & the market must show meaningful strength upon resolution of vanna flows or risk capitulation... the best bet, as I have mentioned, continues to be to bet on the continued compression of Ivols. Backwardation, though less steep, continues to be meaningful enough that
8/x Dealers should continue to decay longer IVol in the front of the curve. This paired w/ over hedging in ViX calls (& puts) seems to point to a smaller likelihood of tail events. A move down, in particular, could ironically lead to even greater compression of fixed strike vols
9/x than a rally, as the market would slide to some very elevated vols post event...Watch the NDX, the 1std dev down on 20 day & then 20 day itself on close. Watch supports & price action after morning & EOD vanna flows for weakness despite them. Vanna support & Vol compression
10/10 are both likely to occur, but whether they will be enough to support this technically broken market facing severe rotation is still uncertain... Good luck!!!🍀 🍀 🍀

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More from @jam_croissant

4 Nov
1/x So, there you have it all those months of anticipation and speculation and what do we get? The most feared outcome a possible Biden/Red Senate + a contested outcome. & does it matter? NO.... what matters? Just like Brexit. Just like 2016.... THE REFLEXIVITY OF VOL.People will
2/x prognosticate & retroactively try & attribute fundamental reasons for the move in order to rationalize the market reaction, just like during Brexit & 2016, but they will all fall flat....Yet people will accept them anyway & move on, managing their money by speculating about
3/4 fundamentals. When we have said here all along, this move was inevitable..The answer is participants were largely hedged & with the curve in backwardation, dealers are decaying shorter deltas and longer Ivols. So they must sell Vol & buy deltas. It comes down to Supply/Demand
Read 4 tweets
2 Nov
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...
Read 13 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

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