1/x The outlook was indeed promising yesterday... As posted, we were able to monetize our long deltas & short Vega this morning at the 3508.5 level. Good thing, b/c, as highlighted midday, fives strike IVols bottomed & moved significantly higher in the back of the curve.
2/x This kind of move into a rally can serve to unpin the market, if it continues, & shows concern on the part of institutions, retail call buying exuberance, & is a sign of increasingly short dealer gamma positioning. Moreover, we had several other ST warning signs today.
3/x NDX weakness, low P/C equity reading all day, & maybe most importantly, a very poor price thrust to an approaching technical level in the 1.5 st dev up of 20 day of SPX. This weakness is particularly notable given the dealer gamma squeeze that should have helped the market
4/x squeeze higher today.... All of that said, these bearish cross currents are presenting themselves in the context of an otherwise strong backdrop. 11/9 dealer positioning is still short & Vanna flows should be supportive into Mon morning, & more potential Vanna flows w/ more
5/x election certainty soon. As mentioned, continue to look for vanna flows most from 2-3:15pm CST &1am-6am CST...Given these cross currents, we moved to the sidelines & are now neutral & watching our factors carefully. The market has come too far/too fast & greater risks are
6/x presenting themselves... Until we get a close 1.5 std dev above the 20 day, a healthy correction in price, or a correction in time where we move safely into mid next week with lower vols, the technical pic is somewhat precarious...Time is on the side of the bulls, as
7/x OpEx cycle driven vol compression & Vanna/Charm flows into 11/18th VIX expiry & improving seasonality as well as likely positive post election Pfizer Stage 3 results could be coming soon. What’s more, the Dec/Jan election hump, which expanded significantly again today,
8/8 is building up potential energy for a thrust higher, if election uncertainty can be resolved amidst significantly improving seasonality around Turkey Day, Santa Clause & the Jan effects until 1/15. Tread carefully until we have more clarity in the days to come...Good Luck!🍀
Fives= fixed

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More from @jam_croissant

5 Nov
1/x Post election Vol compression w/ massive Vanna flows ✅ Rally & hold above the 20 day on close ✅ Dec/Jan election hump flattening some, but still has room to continue to decline which could yield potential energy here. 11/9 dealer positioning is also still quite short &
2/x should be supportive into Fri/Mon w/more Vanna flows & a potential election resolution soon...The outlook looks promising here. We were able to jump back in long @ EOD & are still short Vega/long gamma.Time is on the side of supporting flows,as they should continue to gain
3/x secular strength into EOY. As mentioned, continue to look for flows most on close & overnight, as we’re seeing now... It’s important to play any long w/stop @ 20 day on close, as technical picture, though improving, is still potentially precarious until we get close 1.5 std
Read 7 tweets
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
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
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

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