| Exploding NASDAQ and exploding NASDAQ volatility – a move is a move |
| Lot of people have started to note the recent surge in VIX, and especially the NASDAQ version of VIX, VXN.Most equity traders have never traded volatility as an asset, and very few have done it in size to truly understand what volatility actually is. You need to have experienced “gamma holes” etc in order to fully understand the “greeks”.Majority of people quoting VIX and VXN on a daily basis think that market up volatility down always holds, but that is incorrect. A move is a move (FX vol traders understand this).Recent melt up in NASDAQ has been brutal, with FAANGs showing some huge moves to the upside. From a point of a short options dealers, the move higher hurts just as much as a move lower. For reference, the move in Netflix the other day was bigger than the earnings day move. For a short vol trader, these types of moves hurt, and the short gamma dealer needs to chase deltas higher and higher.Despite NASDAQ index gamma being relatively flat, single stock gamma have been rather big as among other participants, retail army has been very active.Add to this less overwriting by funds over past weeks (we have seen very little of this activity) and the “vol deficit” has created an environment where the “natural” hedge has been to chase NASDAQ index vol (our own VIX guy was once again very early on this trade).Let’s see where things go from here, but rising index and rising index volatility have spelled trouble before.Remember that short gamma works both ways, so should this turn lower again, same dealers will need to puke all the stocks they have chased higher…and no, VXN, is not a perfect hedge for single stock vols… |
| Global flows equity: It’s tech and everything else |
| No wonder FAANMG represents majority of gains as global inflows into equities is all going to tech while there is a net outflow of everything else. |
| COVID continuing to print new summer lows |
| Many important “KPIs” continuing to trend lower. Hospitalizations are at their lowest level since June 30.Seems like the “US strategy” with social distancing (some), masks (some), prayer (some) and ignorance (some) is finally working….. |
| GS: “Growing conviction in our 2021 bullish oil view” |
| Goldman raising long-term oil price forecasts”2021 fundamentals appear skewed to a faster rebalancing than our base case given:(1) the rising likelihood of widely available vaccines next spring(2) discipline by both OPEC+ and shale producers and with the majors’ upstream capex still low and shifting towards renewables”The sun also rises – in everything financial markets related in 2020 |
| China’s trade with US saw big pick up over past months |
| Note the widening of the trade surplus. |
| EEM not buying the latest squeeze in S&P…despite the DXY having moved lower |
| Nothing huge, but watch this closely as risk is almost always most “sensitive” far from the “main markets”. |
| So EM does come with risk… |
| VXEEM trading above VIX again, just as it should… |
| All in |
| Gross Exposure: Level at 97%-tile since Jan-2018. Net Exposure: Level at 100%-tile since Jan-2018. Mighty splits – the 1999 4/1 split was the top for QCOM…NASDAQ followed with a 2 month lag… …but now is probably different, or? |
| Paranoia“We must stay humble and paranoid about our customers’ and employees’ happiness.” (Eric Yuan, Zoom, 2019) “I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers.”(Boss Bezos, 1998) |
| Our VIX guy is way out of the money on his latest prediction…We do not like to chase protection as it often overshoots, but we can’t but ask ourselves:how will VIX trade should this (Spuz) actually roll over given how it is trading now? |
| GS: expect seasonal uptick in volatility“we expect volatility to rise further driven by seasonality, upcoming analyst days and election risk. Among the sectors, one-month implied volatility on the average Tech stock rose sharply by 8 points last week to 39. We believe this rise in implied volatility has been led by significant call buying in tech stocks, pushing the put-call skew on the average tech stock to 15-year lows” |
| Second Wave of Layoffs Is Here, Now Hitting Well-Paid JobsInteresting podcast from The Wolf Street Report in which he notes a “sector rotation” of layoffs do not bode well. |
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