1/x Our 2 day slide has hit a speed bump...The problem w/ speed bumps in markets though, is they don’t just slow markets down, they eventually tend to lead to reversals. A slowing rate of decline ultimately leads to a decline in IVol from an elevated level, which leads to more
2/x supportive Vanna flows—> which leads to a decline of IVol_—> repeat. this is why Ndx strength today was more important than it may have seemed. It stemmed the rate of change in the overall market, several times throughout the day releasing vanna & ultimately driving another
3/x last minute kick save. @ the EOD. If the NDX Can hang in again, the market is oversold, p/C eqty ratios are higher than they have been all year & speak to a level of retail pain/ fear that we haven’t seen all year. Liquidations like this ultimately are correlated with.
4/x reversals. 👀 all of these factors point to hope, as we sit here playing🐔with the 1 std. dev down again overnight, w/out a technical break (2 closes below 1 std dev down or 1 close below 2.3 stddev of 20 day) & midterm market momentum still positive. Add to the mix the fact
5/x HF net flows on short equities, is the largest in recent history. Look at this all & you start to piece together a dynamic, where despite the overseas moves in Taiwan and Japan & poor seasonality (sell in May), the greater fear for our models lie in a rally...All that said
6/x the risks to this market, if we do get a technical break at this juncture are significantly fat tailed for 2 reasons: 1/ forced tax selling is coming in earnest over the next 4 trading days & should continue to be paired w/ selling in tech from lock up releases into
7/x EOQ 2) any decline now when we are ultimately in a🪟💪🏼 opens the way for something faster & potentially more dangerous and larger if vanna/Charm are forced to leave for the 🏖 amidst an already nascent decline. Continue to own convexity for a break in our names funded with
8/x local IVol. but could to hold strong, scalping at our levels from the long side particularly in our daily vanna🪟 until we see a tech break. Watch for NDX to ultimately lead on the way up if we can muster a rally. Look to buy June Fed Event Vol that currently has no extra
9/9 juice, but should begin to matter more & more in the next several weeks if inflation continues to rip higher. Don’t be greedy in this kind of market. Be 💦 good luck! 🍀
*continue to
• • •
Missing some Tweet in this thread? You can try to
force a refresh
