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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