The media seems to attribute the current sell-off to new Covid variant.

However, I'm curious how much of the sell-off is actually due to Covid and how much is due to a less dovish Fed, as there were news that Fed might double its tapering and raise rates quicker than expected.
If the market is indeed falling due to a new variant, in my opinion, the impact might be limited.

Even if this variant is more serious than earlier ones, it's very unlikely it will have the same worldwide economic impact as the original coronavirus pandemic in March 2020.
The world has been living with Covid and we all know the drill by now.

If anything, an argument can be made that Covid is good for stocks, as $SPX more than doubled since its Covid lows.

A new variant can give Fed an excuse to carry on with QE and keep the BTFD mentality alive.
However, if the sell-off is actually due to Fed taking inflation more seriously, then we might have a problem.

In my opinion, it's more about how the Fed reacts to the new variant than about the variant itself.

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More from @perfiliev

17 Nov
Looking at Nokia, I noticed there's a non-trivial open interest sitting at January 10-strike call:

327,961 contracts.

This is the largest OI across Nokia options.

With $NOK trading at $5.68, the option is quite deep OTM, and its gamma impact is muted...

Unless...
Unless $NOK rises and wakes up the sleeping beauty 🙂

How many shares would market makers need to buy to delta hedge this option?

Let's completely ignore any call overwriting and assume that OI is held long by investors and short by market-makers (a bold assumption, I know).
If dealers are short this option, they need to buy $NOK in order to delta hedge.

At the moment, this option's delta is ~0.05.

If (and only if) on 21 Jan 2022, $NOK closes just above $10, its delta will become 1.
Read 20 tweets
4 Nov
Looking at $TSLA's call options, the largest near-term OI sits at 5 Nov expiry $1,200 and $1,300 strikes.

The 1,200 strike has been one of the most traded options this week.

If $TSLA stays >$1,200, that option's delta has to get to 1 by EOD tomorrow.

Currently delta is ~0.79.
OI is 25,686.

Assuming market markets are short that strike, they need to buy 0.21 of delta to hedge:

0.21 * 100 * $1,230 * 25,686 = $663,469,380 of $TSLA stock.

Which is $663,469,380 / $1,230 = 539,406 shares.

This is insignificant, compared to ~25 mil shares traded today.
This will be further offset by OTM call strikes whose deltas will -> 0 tomorrow.

Unwinding OTM call hedges will force dealers to sell $TSLA shares.

So the current setup doesn't look particularly great for another gamma squeeze leg higher...
Read 4 tweets
27 Oct
It's not always that you get a nice and smooth yield curve.

Sometimes there are kinks.

Embedded in those kinks is a wealth of information.

For example, what does a kinky yield curve tell us about interest rate expectations?

Well, let's have a look 👇
So last Friday, I decided to spend my evening looking at a Portuguese sovereign yield curve.

(I know... but it’s still more exciting than watching Squid Games...)

And there was something odd about it.

The curve wasn't smooth!
Ok, yes, market liquidity and all that jazz - maybe it shouldn't be smooth to begin with?

Or there could be a multitude of other explanations, like credit risk, market conventions, high atmospheric pressure and bla bla bla...

(after all - the Fed! Because... well, why not?)
Read 42 tweets
19 Oct
Fuck it! Aim to fail.

Go out there and do things!

And fail.

Fail once.

Fail again.

Fail so many times that no one has ever failed before.
Become the fucking expert at failing.
Fail better.

Fail in a way that you haven't failed yet.

Fail faster.

Surprise yourself and fail in a way that you didn't expect to fail.

Make it all about failing.

Write a detailed plan to fail and stick to it!
Read 16 tweets
1 Oct
$500,000,000.

Half a billion dollars.

Currently, this is how much of $SPX index needs to be bought or sold for every 1% down or up move, respectively.

These flows are a result of a substantial options trade that was placed yesterday.

Let's have a look at what's going on 👇 Image
Once upon a time, there was a certain bank that shall remain unnamed. Image
This bank has an Asset Management unit.

One day, they embarked on a noble mission to help investors who might be concerned about a market correction.

Since many investors are, it looked like they could offer an attractive product.

And so, they launched a fund.
Read 44 tweets
1 Oct
Catching up on the markets today, after a 2-week video-making blackout.

Here's what I gather so far:

• Energy prices up: Crude hit $80 per 🛢️, US Nat Gas highest since 2014.
• Energy worsens China's ongoing supply chain issues 👇
• China coal supply falls (China stopped coal imports from Australia in 2020), exports surged, power outages and restrictions common
• Supply chain issues fueling 🌍 inflation - US CPI is persistent around 5%
• Eurozone inflation released today came 3.4% (vs 3.3% est, 3% prev)
• Evergy crisis in the UK: UK Natural Gas futures highest for decades.
Read 4 tweets

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