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Cem Karsan 🥐 Profile picture
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29 Nov, 4 tweets, 1 min read
1/x I addressed this in my recent RVision Aftermath talk, but here’s a quick summary for noobs. Back in Sep, 2 things led to a massive hump in the curve post election (a very rare & odd occurrence for something as big as the election)...1/ the emergence of fear surrounding a
2/x contested election 2/ the dominance of VIX futures + etp’s (over SPX Vol) w/significant Naive flows into Nov & Dec Bix futures (representing 30day Dec &Jan underlying vols). These Dec &Jan Vol bids were massively overdone and allowed dealers to own massive amounts of cheap
3/x gamma through 11/30. When the election resolved, the entire Vol curve compressed, driving the market higher via Vanna/charm flows & sliding what were already cheap 11/4-11/30 vols to even lower levels (as dealers had these Ivols to sell versus getting back Dec/Jan vols they
4/4 were short). This has caused massive vol compression in the front of the curve, which in turn has pinned RVol in the market & caused even > Vol compression across the entire curve. None of this was a surprise. Twas all plain to see it coming several months ago...

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More from @jam_croissant

Cem Karsan 🥐 Profile picture
1 Dec
1/x I’m going to keep this short. If you haven’t already, read yesterday’s 👇. Not much has changed. As advertised, the Turkey Day digestion & correction in time & price ended on 11/30 @ our *** support of 3596-3600.5 & we were able to BTD as stated last night.Not surprisingly,
2/x we got a late EOM/BOM surge into the EOD & ETH as predicted for some time. Ivol oversupply is still the dominant force until 12/11, which will make it hard for any decline until 12/14 to catch any meaningful momentum. The narrowing of 20 day RVol as well as ATH’s close
3/x overhead should serve to mute rallies as well, pinning the market on days. That said Jan call’s on back are cheap & call calendars are still the best index trade in town.Especially as these LT Ivols begin to approach a floor. The best trade, though, should still be dispersion
Read 6 tweets
Cem Karsan 🥐 Profile picture
30 Nov
1/x The election has come & gone, & the grand negotiation we have discussed seems to be coming to an end. The expected post-election vaccine has also come. Vanna flows have driven the expected rally & commensurate Vol compression.The correction in time & price post Nov VIX expiry
2/x as expected, has been a healthy one, & the digestion continues overnight. Here we are near ATH amidst positive seasonality w/IVol compressed near it’s post March lows w/RVol largely pinned. Retail sentiment & positioning are stretched yet structural vanna/charm flows should
3/x continue to steadily increase, as we move towards 12/14-16, as should other systematic flows such as risk parity, Vol targeting, & trend following, making it dangerous to fade this structurally positive holiday period...As such, we continue to tactically eye opportunities
Read 10 tweets
Cem Karsan 🥐 Profile picture
25 Nov
1/x Holiday weeks are notoriously squirrelly...Time can be decidedly difficult to partition out correctly, & can often be dramatically accelerated. That was the case today...Aided by an overwhelming retail equity call buying wave & Its commensurate gamma, today’s call squeeze led
2/x to an earlier than expected unpinning of the market & end of the correction in time & price of the last week. Fixed strike straddles were, understandably, higher on the day $5-$10, given the size of the move relative to IVol & strong gamma effects took over in what was an
3/x otherwise illiquid tape... Ultimately, we received our correction in time & price, as expected. It was a healthy one, as we had as our base case. Unfortunately, we weren’t aggressive enough in buying into it, as it was decidedly more accelerated than our models had expected..
Read 10 tweets
Cem Karsan 🥐 Profile picture
24 Nov
1/x As expected, a shortened Thanksgiving week this week has made it hard for neg flows to take hold & IVol compression has continued to dominate all other forces... What was not expected was the degree to which this IVol compression would overtake all other factors so quickly.
2/x A veritable Ivol EXPLOSIÓN occurred under the surface of markets today. It started much like all the other days of IVol compression of the last 1.5 weeks, but after a failed morning breakout in the market & decline back to unchanged, it accelerated into forced selling by EOD.
3/xThe standard $10-$4 declines in straddles of the last few days ended the day w/ $20-$15 declines. In fact, the vol contraction in the back was so significant it forced the acceleration of Vanna flows, calling our fair lady back from holiday for a begrudging appearance & a late
Read 9 tweets
Cem Karsan 🥐 Profile picture
23 Nov
1/x Thanksgiving week is upon us...The correction in time & price has played out exactly as predicted. On Fri, fixed strike straddles were once again down another $10-$4. Tactical shorts @ our levels once again paid off, as we got the predicted 2pm CST air pocket, right on time,
2/x as called for...For the 3rd day in a row this followed the playbook to a T. Vanna should be noticeably absent through Wed, but the IVol compression should dominate all other forces until 11/25. The 11/25 to 11/30 pre holiday-post holiday IVol spread continues to be 1 of the
3/x most extreme we’ve seen. This is a critical factor @ work & should continue to drive the price action, w/morning stability, RTH steps down, & significant continued Vol compression until 11/25. It is still unclear whether there will be any real drama to be had in this critical
Read 11 tweets
Cem Karsan 🥐 Profile picture
20 Nov
1/x The predicted correction in time & price continues. Fixed strike straddles once again we’re down $11-$5 today, & although the tape did recover late w/ some remaining OpEx Vanna flows, Tactical shorts @ our levels once again paid off after hours w/ some last minute gymnastics
2/x dropping from 3578.5 to 3544. These trades are rarely easy & obvious when right, but for the 2nd day in a row this was textbook. Tomorrow morning is OpEx. Vanna’ll be gone for a week after the morning print, but the IVol compression should remain until 11/25. The 11/25-11/30
3/x pre holiday-post holiday IVol spread is 1 of the most extreme I’ve ever seen. This should reinforce the script of morning stability w/ RTH stairsteps down w/continued IVol down. As mentioned, a sell off of any import should accelerate tomorrow by 2pm CST
Read 11 tweets

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