| VIX – gradually then suddenly |
| On Aug 10, when VIX puked below 20 and some strategists were telling us that SPX should catch up, we reminded our readers and wrote the following: “Several strategists are pointing out the VIX vs SPX gap, but these people do not trade volatility, nor do they understand what volatility is. Volatility is mean reverting by “nature”, so don’t buy into the “last time VIX was here…” arguments. Time to get busy when it comes to using cheap(er) volatility in your overall strategy.” Fast forward to today and the VIX has exploded to the upside and hedges are suddenly not that cheap. If you played the “follow up” logic on Aug 15 (here), where we suggested the VIX Sep 23/29 call spread, we remind you of not being “lazy” and roll those strikes (and keep part of the profit). |
 Refinitiv |
| Covered in panic II |
| Volatility control punters were forced to chase the latest squeeze. Recall this crowd bases equity exposure on volatility. The question is what do they do when vols explode (again)? Second chart shows the 1 vs 3 months SPX realized vols. |
 DB |
 Refinitiv | |
| Covered in panic III |
| CTAs chase momentum and trends. The last squeeze has been brutal as this crowd has forced to chase an illiquid tape. Overall exposure to equities is not rather flat, but recall what they need to do from here (chart 2). Downside convexity anyone? Over the next month…Up big tape $48B to buy…Down big tape $147B for Sale…(Scott Rubner) |
 DB |
 GS | |
| The “stabilizer” is gone |
| Given the latest moves lower in equities, we are now trading in short gamma land. Our “sell or sell” logic played out well, and we are now in an environment where dealer hedging behavior will magnify all moves… |
 Tier1Alpha | |
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| The delta of THE delta is changing – the big “roll over” |
| The Fed is moving from $35bn per month to $95bn per month. Soc Gen reminds us as they write: “At present, ample liquidity is available, but as the balance sheet shrinks, we must monitor conditions, remembering that in 2019, ample liquidity rapidly and unexpectedly became a scarcity of reserves in the system that induced market disruptions. In addition, the shrinkage of the balance sheet could, along with rate hikes, cause the economy to slow.” |
 Soc Gen | |
| Kolanovic’s 4 reasons why he is still bullish |
| Marko setting the record straight and what he expects next 1. inflation will resolve on its own as distortions fade. Will likely see a Fed pivot, which is positive for cyclical assets. 2. On China, expect a strong H2 recovery to lift not only Asia and EMs, but provide support for the global cycle. 3. positioning is still very low – for both systematic and discretionary funds it is now in the ~10th percentile. 4. In terms of monetary policy, the decline in the July CPI can likely be repeated in August given the lower energy prices and provide room for a market-friendly Fed (Sep 21st). |
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| Please mind the gap to FX volatility |
| The most recent move in FX volatility is actually huge. VIX was up on Friday, but there is much more potential for VIX to move as equity people realize that “systematic” funds chase momentum and the fact cross asset vols have picked up lately… |
 Refinitiv | |
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| Please observe the gap between BTC and NASDAQ |
| If crypto still is a good indicator of the “aggregate” psychology of the market then you should pay close attention to the latest px action in the “crypto majors”. The BTC vs NASDAQ correlation perfection is less perfect these days, but it revived on Friday. |
 Refinitiv | |
| Please mind the gap to “most shorted” |
| While S&P 500 has gained 15% from its June low, Goldman Sachs Basket of most-shorted stocks was up >45% at one time. But short-covering rally seems to be over for the time being. |
 Holger Z | |
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