1/x This market’s stuck & going nowhere fast....Election Resolution ✅ , Vaccine success ✅, Fed support ✅, Stimulus ✅, TSLA inclusion ✅. All of these themes that we have been riding now for almost 3 months have 1 by 1 been resolved exactly as expected. & so, here we sit @ ATH
2/x w/ extremely overextended sentiment & positioning by both HF & Retail... Vanna flows have driven the expected rally & commensurate Vol compression to an extreme, & though their work is not yet over, with the indomitable flows of Santa Claus & the Jan Effect waiting patiently
3/x around the corner, their terminal point is in sight, and the 1/5 GA primary sits only 2 weeks away...As such, the headwinds to this market are growing ever stronger by the day. Our calls for a correction in price post Dec OpeEx morning came & went on Fri, resolved by forced
4/x buying tied to TSLA inclusion flows, paired w/ the seemingly immutable mean reverting power of IVol oversupply, leaving the day as more a correction in time than price. Not surprisingly, this digestion continues here overnight, despite the fiscal stimulus deal’s passage...
5/x Similar to Fri’s pullback, we continue to expect the market to attempt to shake out the overextended positioning @ points in the next 3 days, but it’ll be to no avail...IVol oversupply, compressed near it’s post March lows w/RVol largely pinned is simply too strong. Retail
6/x sentiment & positioning are stretched, yet as mentioned, we continue to tactically eye opportunities to buy corrections in price/time, as an EOY chase, or @ a min, continued RVol compression in the ST, will be hard to bet against, as EOY/BOY flows & seasonality-accelerated
7/x Charm/Vanna flows lie ahead & the overwhelming 10k 🦍 of index Vol compression should still hold any correction in time & price in check in the shortterm in SPX land given how cheap & abundant Xmas Vol is 12/23-12/24....Along w/ continued targeted short Vol, Delta neutral
8/x calendar call spreads continue to be the holiday gift that keeps on giving, as expansion continues to print $ with VRP >95th% of occurrences & post 1/8 Vol still at a low floor w/a 1 Day GA runoff event straddle of now only $56! Given the potential macro-cyclical consequences
9/x of the next 2 years of fiscal stimulus (NTM final election resolution on 1/6) this seems absurd...Dispersion also continues to be a great play here w/ the prospects of continued Index IVol compression w/remaining elevated idiosyncratic risk still on the horizon for names, &
10/x should be a great trade until 1/5, particularly as it relates to owning IVol in the growth complex relative to SPX given the coming regulatory/antitrust news/duration trade funding risk, NTM the retail-driven dealer short Vol positioning present in that complex...We continue
11/x to eye 1/6-1/15 as an interesting window to sell the news & finally go long IVol, playing the market from the short side, after doing the opposite successfully for 3.5 months, bracing for convexity on a resumption of factor rotation in Value/Growth again, & yes even
12/x short TSLA, as the REAL (underpriced) risks of policy uncertainty, creep into the market...In the meantime, seeing as we are quickly approaching our terminus, all longs should be carefully managed w/ a closing stop @ the ascending 1 std dev down of the 20 day. Good luck!🍀
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1/x Tonight’s update is Same Same but Different...but still Same. To keep it short, EVERYTHING FROM YESTERDAY STILL APPLIES. The only addendums are on 2 fronts: 1) I fully expect the market for the next 2 days to continue to try & shake the longs. Sentiment has already normalized
2/x a bit after yesterday’s rollercoaster. A close below the 20 day (but above 1 std dev of the 20 day)would seem like a perfect stair step destination & would go a long way to shifting some systemic strategies less long+ forcing retail out of some of their long calls. This could
3/x be just the correction in price/time head fake this market needs in order to set off another shot at a 2/28-1/4 rally to 3752.5...Until 2/28, SPX Vol compression should remain dominant & I’d continue to expect some chop. That said, 2) I’d reiterate, given the action in Europe
1/x This’ll be short...For those wondering why I haven’t had a new daily thread, it’s because nothing has changed. Tomorrow is 🧙♀️🧙♀️🧙♀️ OpEx, & per usual, I expect morning support, followed by a correction in time & price as any remaining Vanna dissipates. Index compression
2/x continues to drive the price action & as mentioned in an earlier TSLA thread, the compression is so extreme at this point it has all but pinned the index until 12/28. We’re witnessing this overnight as the blacklisting of dozens of Chinese firms received ~ no SPX reaction.
3/x Due to this I expect very little moves in the next few days. If we do get a pullback, on any stimulus worries, I would look to be a buyer around the 20 day or by EOD 11/21. Although cheap, next week IVol is a sale & calendar call spds & dispersion trades continue to be my
1/x I’ve done some thinking about this TSLA inclusion event... My read is that @bauhiniacapital is right that TSLA is it’s own Vol center & will not have its RVol meaningfully suppressed by SPX...That said, SPX RVol for the next 2-3 weeks won’t likely be meaningfully raised by
2/x TSLA’s addition either. The compression due to oversupply in the SPX is simply too extreme @ this juncture over the holidays, EOY, and Jan effect. Which leaves the the only possible remaining outcome as a decrease in constituent correlation...This is what we saw in 2017 & is
3/x the usual release valve under these types of conflicts between index Vol suppression and single name idiosyncratic Vol. So, IMO, in the short term the answer to make $ on this, will likely not be to sell 1 Vol & or buy the other. The way to profit here will be to suss out who
1/x I’m going to do this early & keep it short today... EVERYTHING FROM YESTERDAY STILL APPLIES, but I’ll add a little more texture here. Tomorrow morning is vixperation. Which is another 1 of Vanna’s big mornings. It is also Fed day, which is historically the most bullish days
2/x of the year. In particular there is significant potential headline risk to this fed meeting b/c of what it says about what the Fed will do to ease liquidity concerns surrounding EOY... This paired w/ potential headline risk around the fiscal stimulus plan, would make me very
3/x worried, if I was exposed to upside risk in the market. That doesn’t mean that we can’t get disappointment on either of these fronts, we clearly could. & given vanna’s diminishing role after the open, it will likely pay to take profits if vanna is able to muster another push
1/x The market continues to try & shake out weak hands from overextended positioning by both HF & Retail...After a strong Vanna run up overnight, as expected, retail exuberance exploded on the open in the form of retail call buying, this fragility, paired w/a)Mean reverting flows
2/x from pinned Index Vol b) well documented, risk parity rebalancing flows & c) selling flows tied to bank EOY liquidity constraints. In combination, these flows have together have amounted to substantive selling pressures, strong enough to counteract the positive vanna/ charm
3/x flows, & point to continued likely index RVol an IVol pinning...Historically, the week of quarterly OpEx markets are notoriously volatile intraday, but also mean reverting like we saw today. I think it is fair to expect continued IVol compression & more of the same underlying
1/x Vanna joined the wheel of fortune on this day in 1982,& 38 years later she’s stronger than ever...Friday’s into the Mon of qrtrly OpEx in particular aren’t a time to trifle w/her...As called for, the market continues to try & shake out weak hands from overextended positioning
2/x by both HF & Retail, but ultimately these moves are no match for our fair lady’s charming flows during this window, & should continue to support this market through 12/16 w/ qrtrly Vixperation & the Fed upon us....As I highlighted Fri, the minor correction in price/time that
3/x we got down to the 20 day, w/precise technical support at that level, paired w/ increasingly positive Dark Pool (DIX) demand was a textbook buy signal, given the timing...Despite all of this, the real story is not these positive flows nearly as much as the continued reflexive