Over half the small and medium-sized companies which together provide jobs for two-thirds of European workers fear for their survival in the coming 12 months, according to a survey released by management consultancy McKinsey on Thursday.
The McKinsey survey of more than 2,200 companies in five countries – France, Germany, Italy, Spain and Britain – found that 55% expected to shut down by September next year if their revenues remained at current levels.
Nothing new in the below points by Mizuho, but makes you go a little hmmm…
– More than 40mn people infected, over
1mn have died
– An effective vaccine is the only option for early suppression of the pandemic
– The spread of the virus can be halted once sufficient numbers of people have
developed antibodies, either through prior infection or vaccination
– However, vaccine development in Europe and North America has slowed
Large-scale vaccination programs will not begin until 2021 at the earliest
– Even once a vaccine is available, immunity may only last for a number of months
– Fears of side-effects….
– The virus has not gone away quickly
and the punchline….
The crisis looks set to drag on, but what is “priced in”?
The entire curve is “extremely” flat, basically saying there is little post event normalization priced in by markets.
TME’s take remains, prefer long gamma as headline risks remains strong and lean into short volatility soon.
Such an outcome would most probably be a big move lower in implied vols. Record % of VIX option volumes have been in VIX put options, reflecting this view.
On the other hand, you have the virus and vaccine narrative that seems to be dragging on for longer than markets thought a few months ago which will keep vols relatively well bid, offering interesting vol overwriting strategies.
GS trade for the lower post election day scenario is : Buy VIX 18-Nov 26 put vs sell two 23 puts (scenario chart below, nearly unlimited losses should the future fall below the downside breakeven at maturity).
Equity fundamental L/S HF grosses and nets are currently at 4+ year highs.
We have been patiently waiting like William Wallace at Stirling Bridge (“hold…..hold”) for the right momement when enough fast money is in the pool on the long side. That moment is now.
Keep a close eye on this dynamic into month end (October is most popular Fiscal year end for MFs). Could actually be more important than the election – at least for stock pairs etc, MoMo quant strategy popular names etc
VIX 2/8 months futs spread small uptick over past sessions, but the overall trend since early Sep is clearly lower.
The spread is elevated in a historical perspective, but there is no big demand for short term protection here.
Apple has been one of the hot names (along AMZN etc) when it comes to “nouveau” punters trying their luck in short term options. One of our Apple logics has been to use elevated vols to enhance yield for the “must be long stock” crowd.
Below shows the 23 Oct 116 call and the implosion post that “event” ramp earlier in October.
Chart 2 shows the AMZN theta implosion…
The probability of a vaccine not happening (mass distribution) before end Q1 has increased to 53%.
The McKinsey study from earlier today saying that 50% of all SMEs in Europe will go under by Q3 next year if the economy does not improve….
Does that mean 25% probability of total Armageddon?