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Cem Karsan 🥐 Profile picture
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8 Dec, 4 tweets, 1 min read
1/x I received a simple question today from an RIA asking: WHAT WAS THAT VIX SPIKE ON THE OPEN THIS AM?...& thought I might share the answer here for others that aren’t as familiar w/these products, b/c it addresses a few common issues w/looking at the VIX as a ‘fear index’w/out
2/x having context regarding how it’s calculated...THE ANSWER IS AS FOLLOWS: There was no actual Vol spike on the open. This was caused by 2 data artifacts: 1)The Mon VIX effect: the VIX is priced in calendar days, but the market tends to price Ivol in trading days. So, on Mon’s
3/x the VIX takes 3 days of time out relative to Fri, but the market really only deducts 1 day of theta, pushing up the calculation 2)the GA runoff is on 1/6 which is about 30 days out (VIX=30d Vol). So, as expirations past that higher Ivol ‘event date,’ including the event Vol
4/4 become a greater share of the VIX calculation it naturally pushes the VIX higher as well (This effect was also accentuated due to the VIX pricing in calendars, b/c there was a sudden 10% (3/30days) greater weighting of these event Ivols on Mon compared to Fri).

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Cem Karsan 🥐 Profile picture
9 Dec
1/x Last night we got a nice dip down to 3664.25, but if you blinked, you missed it. That was the dip we were looking for...Despite the pullback, Vol was compressed, making it nearly impossible for the market to escape the suffocating iVol compression & exponentially increasing
2/x daily charm/Vanna flows. As stated, the key has been, & will continue to be, to ride this market from the long side scalping tactically at our levels. I would look for this market to keep trying to shake the aggressive longs, but to begin stretching more aggressively,
3/x Towards an expanding 2 std dev up of the 20 day as we head into 12/14-12/16. Come 12/16 it’ll be time to briefly consider selling the news & preparing for a brief correction in time/ price again, being watchful of potential drama, as the prospects for final resolution of the
Read 6 tweets
Cem Karsan 🥐 Profile picture
8 Dec
1/x Time’s on the side of the bulls this week, as Vanna should put in more & more late night & EOD work all week,& there’s a decent amount of potential energy to be released from positioning early next week w/ the resolution of the electoral college, Fed meeting, fiscal stim/govt
2/x shutdown, vaccine approval, & qrtrly OpEx/VIX. That said, the only thing stronger than Vanna right now is her daddy IVol Compression, & he’s got the market under his thumb until 12/11. Our calendar & dispersion trades continue to print $. We plan to continue to ride these
3/x winners, as the dynamics remain the same. 1/8 on back Vol is simply too cheap, while the indices are pinned for at least another week. EVERYTHING FROM SUNDAY’S COMMENTARY STILL APPLIES, the only addendum would be to look to increase delta exposure on a dip and then look to
Read 4 tweets
Cem Karsan 🥐 Profile picture
7 Dec
1/x Vanna is back & ready to turn back on the charm! Overnight the market hit our weeklong target of **3705 and pulled back... We were able to take profits & play for a bit of morning digestion. It’s been a nice +3.5% in a week w/a few extra scalps along the way...But the best
2/x part has been the gift of Vol compression, which along w/ short Vol profits, has given us significant calendar expansion & dispersion opps, as predicted. I expect this to continue this week as well, as Ivol oversupply should continue to be the dominant force until 12/11.This,
3/x paired w/ the significantly increasing Vanna & Charm flows, will make it hard for any decline until 12/14 to catch meaningful momentum. This said, the narrowing of 20 day RVol as well as the 2 stddev of the 20 day just overhead should cap any rallies, given the dramatically
Read 9 tweets
Cem Karsan 🥐 Profile picture
3 Dec
1/4 no need to repeat myself. Until this Friday, IVol compression is dominant. This is compressing RVol, which continues to lead to some charm flows and of course continued expansion of our calendar spreads and dispersion trades...NTM, it is still allowing for Charm effects from
2/4 the vols through 12/11, causing continued EOD rallies. That said, retail yolo equity buying continues to cause morning negative Charm/Vanna flows in the growth names. This push & pull dynamic has this market chopping but should be pinned through 12/11. As mentioned, despite
3/4 many obvious signs of blatant retail & HF complacency, the overwhelming structural dynamics still point to digestion...we’ll continue to follow the trend from the long side at Charm/Vanna times & scalp @ our levels, collecting decay paired w/ some long Vega post 1/15 hedges.
Read 4 tweets
Cem Karsan 🥐 Profile picture
2 Dec
1/x There’s not much more that hasn’t been said the last 2 days. Not a surprise today for this thing to take a healthy pause midday in the face of absurd p/c equity readings & dramatically low DIX, showing unabashed retail overextension & the buy side unwillingness to chase into
2/x a rally, as stated midday. That paired w/relative weakness in growth, made it clear that it was time to take a quick scalp on our +2.2% rally in < 24 hours. As discussed, LT IVol compression has forced IVol to unconscionably low levels, given the risks out there surrounding
3/x admin change & all the uncertainty that entails. This will make it hard for this market to rally hard. That said there are forces @ work that’ll support the market until 12/11, like Vanna/charm, structural dealer positioning in Dec/Jan skew, systematic chase, Vol compression,
Read 7 tweets
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

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