0. We all want simple narratives but in reality mkts are messy (fallacies of compression & ambiguity avoidance)
This thread is my quest to understand the ~2/19-2/16 pullback & current memetic mkt dynamics vis-à-vis liquidity, structure, & psychology:
This thread is my quest to understand the ~2/19-2/16 pullback & current memetic mkt dynamics vis-à-vis liquidity, structure, & psychology:
1. Extended retail/tech positioning:
- Low P/C ratio on Nasdaq => tech selloff as dealers dumped call hedges into 2/19 OpEx
- Tech selloff = scared momo & bears smelt blood causing shorts to start attacking ARK et al on 2/22
- Cathie starts FAANG rebalance to small cap
- Low P/C ratio on Nasdaq => tech selloff as dealers dumped call hedges into 2/19 OpEx
- Tech selloff = scared momo & bears smelt blood causing shorts to start attacking ARK et al on 2/22
- Cathie starts FAANG rebalance to small cap
2. VIXperation 2/17
- VIX spread blown out due to UVXY inflows (credit @acrossthespread)
- 2/17 rolling caused VIX to rise from 2/12 onwards
- 2/15 long wkd effect causes VIX pop on 2/16 & traders to notice => reflexivity
- 2/17 exp removes vanna flows (credit @jam_croissant)
- VIX spread blown out due to UVXY inflows (credit @acrossthespread)
- 2/17 rolling caused VIX to rise from 2/12 onwards
- 2/15 long wkd effect causes VIX pop on 2/16 & traders to notice => reflexivity
- 2/17 exp removes vanna flows (credit @jam_croissant)
3. Rising yields (RY)
- Rising yields mean cheap bonds => mechanical 60/40 passive fund rebalancing => passive funds dump equities (credit @profplum99)
- Exacerbates "tech is dead" & reopening narrative => bear fuel causing shorts to hunt tech & ARK et al
- Rising yields mean cheap bonds => mechanical 60/40 passive fund rebalancing => passive funds dump equities (credit @profplum99)
- Exacerbates "tech is dead" & reopening narrative => bear fuel causing shorts to hunt tech & ARK et al
4. L/S HFs
- Momo jumps to $GME, $AMC from tech weakness
- RY => reopening narrative => brick & mortar retailers catch a bid
- L/S 120/80 HFs like Melvin get margin called AGAIN as they got right back in their consensus shorts causing them to puke longs like 1/27 (credit @hkuppy)
- Momo jumps to $GME, $AMC from tech weakness
- RY => reopening narrative => brick & mortar retailers catch a bid
- L/S 120/80 HFs like Melvin get margin called AGAIN as they got right back in their consensus shorts causing them to puke longs like 1/27 (credit @hkuppy)
5. Crypto
- ARK, $TSLA, #Bitcoin memetically & ontologically linked => traders dump BTC (credit @nope_its_lily)
- $GBTC premium flips negative stopping HF arb play (credit @hkuppy)
- #DeFi & #Ethereum are basically just higher beta BTC so they sell off
- ARK, $TSLA, #Bitcoin memetically & ontologically linked => traders dump BTC (credit @nope_its_lily)
- $GBTC premium flips negative stopping HF arb play (credit @hkuppy)
- #DeFi & #Ethereum are basically just higher beta BTC so they sell off
Next wk I expect a bounce:
- Only reflexive feedback loop is dealers flipping short gamma (credit @SqueezeMetrics)
- long gamma keeping a lid on $SPX selloff
- RY narrative not reflexive since 60/40s mechanically buy bonds
- GME probably gets nuked again & takes pressure off L/S
- Only reflexive feedback loop is dealers flipping short gamma (credit @SqueezeMetrics)
- long gamma keeping a lid on $SPX selloff
- RY narrative not reflexive since 60/40s mechanically buy bonds
- GME probably gets nuked again & takes pressure off L/S
- VIX declines since no long wkd & UVXY roll is done
- VIX down=HFs increase VAR & puts lose value (vanna flow) = buy
- Saylor has a B sitting on the BTC bid = keeps BTC in-check & perception of liquidity while futs closed
- BOM flows
- Incoming stimmy + $1.9T
- VIX down=HFs increase VAR & puts lose value (vanna flow) = buy
- Saylor has a B sitting on the BTC bid = keeps BTC in-check & perception of liquidity while futs closed
- BOM flows
- Incoming stimmy + $1.9T
HOWEVER a lot of structural risks
- $SPX breaks = dealers go short gamma & sell into weakness
- WSB@8M subs + OTM puts + delta hedging + runaway VIX
- VIX up=>VAR down
- $GBTC neg premium nukes HF arb & BTC
- L/S can still get squeezed
=> a @choffstein liquidity cascade
- $SPX breaks = dealers go short gamma & sell into weakness
- WSB@8M subs + OTM puts + delta hedging + runaway VIX
- VIX up=>VAR down
- $GBTC neg premium nukes HF arb & BTC
- L/S can still get squeezed
=> a @choffstein liquidity cascade
@CathieDWood treats FAANG as cash equivalents (stated in an ARK update.) Hence when small/mid cap ARK faves like $TWLO dip she will mobilize "cash" (FAANG) to buy. This can cause small cap growth sell offs to jump to large cap.
https://twitter.com/TheMarketDog/status/1365120319975956480
Great explanation of the dynamic & the bear case.
Basically rebalancing liquid into illiquid leaves ARK open to predatory shorts in its illiquid holdings. This reduces performance causing a reflexive redemption loop.
thebearcave.substack.com/p/special-edit…
Basically rebalancing liquid into illiquid leaves ARK open to predatory shorts in its illiquid holdings. This reduces performance causing a reflexive redemption loop.
thebearcave.substack.com/p/special-edit…
@acrossthespread dives into the UVXY issue in this RV DB
Basically UVXY is implemented on VIX futs like USO was implemented on CL
Leading up to vixperation UVXY sells front month & buys next causing spread to blow out & VIX to whipsaw & affects SPX
Basically UVXY is implemented on VIX futs like USO was implemented on CL
Leading up to vixperation UVXY sells front month & buys next causing spread to blow out & VIX to whipsaw & affects SPX
https://twitter.com/RealVision/status/1362175922074435595
120/80: 120% long & 80% short in a L/S HF. Advantage is a smoother return profile.
Low vol attracts $ (ambiguity aversion) & allows HFs generate annuity-like returns
IMO HFs still in same shorts because Bandwagon effect & hard to change fund prospectus
Low vol attracts $ (ambiguity aversion) & allows HFs generate annuity-like returns
IMO HFs still in same shorts because Bandwagon effect & hard to change fund prospectus
https://twitter.com/TheAdrianVeidt/status/1365848979817205761
My simple conceptualization of the 2/16 "VIX pop" due to the long weekend effect paraphrased from the vol genius @bennpeifert
https://twitter.com/TheAdrianVeidt/status/1361559929593585665
New Canadian Bitcoin ETFs also collapse $GBTC premium. Probably not as drastic as a US ETF but worth keeping an eye on.
https://twitter.com/TheAdrianVeidt/status/1344492176600797186
@acrossthespread posits that $TSLA, $BTC, & $GME draw from the same liquidity pool & I'm inclined to agree
https://twitter.com/acrossthespread/status/1358805039469322241
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