Risk today feels bit on the soft side, and while I have literally no clue whatsoever whether this is going to develop into a sell-off today or not there are few things that worth keeping an eye on:

1. USDJPY vol has been outperforming implieds for about a week now...
when you see this kind of dynamic it's definitely a good sign for risk. wider trading range of USDJPY = more volatile USD/ TYs

2. SGD realized x2 move compared its 1m vol. We are talking about a currency that almost never moves

3. very weak HY currencies (EM, commodity G10)
4. FX vols coming of a somewhat low base, which means that gamma is cheap to own (short gamma more painful, less buffers)

5. Inflation expectations creeping higher w/ commodities but treasury yields are somewhat low
All these + may seasonality (in FX mostly) are some signs that we might see some downside here

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More from @VolQuant

10 Apr
While most of the people on my twitter feed are all about the next 5-10pts in ES and vanna/charm/gamma squeeze (or anything else which is the flavor of the month), very few look at a pretty big thing that can (and should) be alarming - China shadow banking
This "little" problem is something that unlike other crises, is an ongoing bubble-like train wrack that the CCP has to carefully deflate, so every few months they deleverage a bit more.

In 2015 they had to deleverage their stock market after a boom of margin retail accounts
that sent their stocks to the moon (think today's US market on steroids). After that they had to devalue their currency, which global markets really didn't like.

After that they kept on letting thousands of companies to under in a controlled way, and occasionally drained
Read 6 tweets
8 Apr
One of the biggest misconception in boxing is that the southpaw stance indicates left-hand domination (@Ksidiii should know a thing or two about that...)

Ex-soviet union coaches (Cubans are actually known for the overwhelming portion of southpaw fighters) teach from young age
boxers to fight in a southpaw stance, and I can assure you that most of them are right-hand dominant.

So you are probably asking how this is all has to do with trading, right?

Very much like in boxing, experimenting different strategies/models/market helps you develop arsenal
of tools that can become handy under different market regimes...

I'm an orthodox fighter, so my default stance a leading left hand, but I do train at least twice/week in a southpaw stance to be able working both stances. This helps me become more versatile as a fighter
Read 11 tweets
27 Mar
If you run a portfolio (no matter what you trade) the most important question you need to ask yourself is "in what situation this portfolio blows up?)

I recently took some time off the market, and besides doing a lot of housework and renovation I ran complete scenario analysis,
backtest, and stress test to my portfolio.

We tend to think that we know our strategies in-and-out and we know that in scenario X the performance will be x1 and in scenario Y the performance will be y1, but we tend to neglect the crucial part of cross effect
of the individual strategies on our entire portfolio:
1. Are there correlated strategies (either positively or negatively) ?
2. How are the greeks on the portfolio level move with respect to spot/vol? are we happy with our gamma/vega at X% move? should we mitigate some of that?
Read 7 tweets
22 Mar
Let's talk FX funding..

Today's move in $TRY is a great opportunity to talk about a rather niche segment of FX trading which is the funding cost..

Generally speaking, when we trade any FX spot (buy CCYx/ sell CCYz) the trade settles in T+2 days (except TRY and CAD who are T+1)
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In EM, in addition to the rate differential between the key rates the market prices in additional basis in most currencies to reflect the funding risk premium of these market.

Low risk EM (CZK, ILS, PLN, CNH) will price a moderate, while premium, while market like ZAR , TRY
Read 7 tweets
15 Mar
1/n

Let's talk Realized Vol...

If there is one single most important number that we, as volatility traders, look at, it's realized vol.

The problem with realized vol is that it's one of the most biased estimators... Give two traders identical time-series and get 4 RVs
2/n

The reason this estimator is so biased is because it's highly sensitive to both sampling frequency and size (window).

Also, we can get very different result if we sample based on close-close or OHLC (open-high-low-close).

medium.com/swlh/the-reali…
3/n

So why do we use such a biased estimator, as it tends to over/underestimate the "true" realized volatility in most cases?

Over the years I came to a realization that although possible to come up with an unbiased realized variance estimator

aip.scitation.org/doi/abs/10.106…
Read 7 tweets
25 Feb
1/n

A shift in volatility/correlation regime has been boiling beneath the surface over the last few weeks, and while many are solely focused on one market segment, my mandate of cross-asset volatility comes in handy watching this situation unfolds
2/n

Let's start by stating the obvious - the narrative right now is driven by the steepening of the yield curve (led by the selloff in long-end bonds). I will not make any argument whether this is justified or not, as I'm a very bad macro trader, but this steepening governs
3/n

the market dynamic for two reasons: 1. it correlates to forward inflation expectations (some reflexive dynamic is definitely going on there), 2. it accelerates the rotation trade in equities (and overweight growth stocks).
Read 8 tweets

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