This page has been archived and commenting is disabled.
Market Preparing For Some Crazy Action
SPY Out Of The Money Vol spiking relative to At The Money.
Two days ahead of OPEX, market is gearing for some fireworks. The chart demonstrates the vol skew on SPY over the last three days. Today we have seen net Call covering and net Put buying - this is
what one would expect given the current SPY price is way above
the equilibrium option price.
So Vol is dropping as it always
tends to drop more quickly into OPEX, the skew is likely forcing near the money Vols down as dealers hedge OTM buying,
also the net impact of the option action would mean net buying of underlying to delta hedge. With HFT taking away most of the market liquidity, could delta hedging be the primary culprit for the inexplicably stupid market move over the past week.
»
- 5595 reads
- Printer-friendly version
- Send to friend
- advertisements -
..or it could just be earnings.
Im curious, was it CIT that borrowed from the discount window and got a rate of 7% then on June 30? Remember that anyone? I still want to know that answer...
http://www.newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm
Earnings? INTEL? IBM? Hey anonymous, What color spray paint ya huffin' under the paper bag. yoy quarter alone, THESE REPORTS SUCK!!!!!!!!!!!
Dennis Gartman was all about the Yen/Euro cross indicating a bear move in equities over the last week or so and in his morning letter today he was palpably embarassed for being caught short in this rally. This market is not trading on fundamentals or even technicals, nothing persists, and historical means are irrelevant. Even some very experienced pro traders I know are barely able to keep up. Something is very, very wrong.
I prefer silver paint...
We are facing the greatest threat to our Nation and our way of life since the 1930's. Yet our corrupt government (I am an Army Officer saying this!) is actively involved in one of the biggest frauds in history yet our citizenry sits like sheep since the government controls the media thru its corporate cronies. I have lost all faith in our government to do the right thing and expect total anarchy where I may have to make harsh decisions as to whom to support....the corrupt government that is behind this debacle or the enraged citizenry who are pissed off with good reason. Whom would Benjamin Franklin vote to support?
-Silence
To whom did you take the oath for? Read it again and I believe that you will know the answer.
With respect to what the populace is waiting for,.....someone to lead them that looks pretty, speaks well, and is not tainted with the actions of a traitor. I believe that this person will come in the form of you or one of your fellow officers (x-Iraq or x-Afgan).
.someone to lead them that looks pretty, speaks well, and is not tainted with the actions of a traitor. I believe that this person will come in the form of you or one of your fellow officers (x-Iraq or x-Afgan).
obama is scum tht's 4 sure. he destains the troops
good reads http://www.bit.ly/12NCJR...
I knew it... NED spam.
Tyler, just block all shortened URLs. That'll stop him...
Sir, (and fellow veteran)
Franklin would support the citizens, as I know you will, too. Unlawful orders are not to be obeyed. We are your parents, friends, spouses, neighbors...Americans all. Not all are sitting like sheep.
^^^^^^^^^^^^^^^^^^^ Nuf Said
All military and police offices are soon going to have to decide between their government or their country. Unfortunately...gauging from my own family in law enforcement's opinions, its going to be ugly. I consider my father to be a really rational cop, a good cop so to speak, and even he looks at me perplexed when i ask him that question.
My opinion is that the government would never take up arms against the citizens on a large scale. It can't win something like that.
It couldn't contain the population. I live in the foothills of the Cascade range, and the cops in my little town break up bar fights, and issue tickets. Anytime the wanted, they could move on the meth labs in the hills behind me, but there are not enough national guard troops in Oregon to even the fight.
And those are the bad guys. You should see the weapons us good guys have.
Please don't shoot us if they tell you to, ok man?
THERE IS A RUMOR GOING AROUND THE MARKETS THAT SOME DEALER WAS
SEEN UNWINDING A HUGE REVERSE DOUBLE KNOCK OUT BARRIER OPTION
CORRELATED TO BRAZIL SPREADS. IT PRODUCED A POSITIVE VOL SKEW WHICH RECALCULATED THE CORRELATIONS ON A MASSIVE FIXED RECOVERY
SWAP. DESPITE THE FACT THAT GAMMA, DELTA, AND RHO WERE ALL
[SUPPOSEDLY] NEUTRAL, IT WAS PART OF A LARGER BARBELL TRADE
WHICH LEFT THE STREET EXPOSED...AND, OF COURSE, DELTA's HAD TO
BE ADJUSTED.
Easy with the BBERG CAPS LOCK :)
My Bad
Somehow the caps lock makes me take him more seriously. Not sure how that works.
How is it even within the realm of what's possible to calculate VaR for structures like this? It makes my head spin. And there's what, like $4 quadrillion some-odd notional of this stuff out there?
It's a wonder the sun even rises.
The market action of the past week just SCREAMS of ALGO program manipulation. ISN'T IT JUST INTERESTING HOW THE MAGIC HAND COMES OUT OF NOWHERE AND BREAKS THE BEARISH HEAD AND SHOULDER PATTERN??!! how many times have we've seen this happen, over and over again?? "Unnatural" buying that just happens to lift the market to some "bull happy" chart level.
Whenever everyone on CNBC becomes a technical analyst you know to take the opposite side of the trade.
Technically, that H&S pattern has not been violated. 940 on S&P futures was a bump into overhead channel resistance. If it goes over that.....who the hell knows?
The invisible hand won't crash the market until the bears and the sidelines capitulate. Why crash now? It's all their own money in there. They need my money and your money. And a lot of people out there are squirming, just about ready to drop the hammer and go back in. Three months after that happens, BAM. "Oh! Darn your luck! Well, thanks for playing. Sucka!"
Or we can just check the coming week's schedule of Treasury sales (or lack thereof) to determine whether the market will be taken down, or run up to 950.
This week's schedule was empty, of course.
or maybe the market was just really long 875 puts ?
Yup BUT 8805 and 952 would form a double top for the Dow and S&P respectively. Let's see if those hold up...
-Silence
i was just looking at charts this p.m. and thought of the double top on the spx as well.
Gearing up for CIT TGIFF(failure Friday.)
CDS for CIT screamed today. I would love to see who is
buying this crap. Goldman? Will the FED bail them out at the last minute-and make another 100 mill?
How do you calculate the option equalibrium price?
Equilibrium occurs at the strike with the lowest aggregate value of put and call open interest
Are you kidding me TD? Are you a Fundamentalist or a Technician man? The failed HNS created a huge push up, and now we don't have anything but short term paper being issued giving GS the greenlight to pump up the market. I work for an RIA firm (filled with hopeful idiots) and they all WANT to believe things are better and act like nothings wrong. We're going to break 1k on the SPY in the next two weeks and then it's look out below.... there's a lot of suckers out there waiting, especially with Roubini on Volker's cock now.
Roubini is a sellout. He wants to carve out a nice lucrative position within the corrupt establishment so he can keep throwing those loft parties and seducing NYU grad students.
It's a shame his moral compass is not on par with his intellect.
Not to sound as ignorant as I am, but wtf is OPEX? Operating Expenses? If so, what do you mean when you say "two days ahead of OPEX"? I really enjoy your articles btw. I feel like I learn something new every time. Thank you.
--Sonic
option expiration
Options Expiration
OPEX=Options Expiration Week. This week will be crazy due to this...
-Silence
As someone who follows this page but never posts comments, what the hell is going on with the market this week?
I know we're living in bizarro world, but nothing makes sense.
Here's my theory: Take this from someone who works in government and used to work in the media.
The FED/Treasury will do anything and everything in their power to keep the DJIA propped up as we drift into 10% unemployment. If that means letting GS and JPM have their way with the NYSE, so be it. The FED/Treasury need a sideways or rising market to offset the terrible news on the employment front.
MI has 15.2% unemployment, Kentucky is up to 10.9%, God forbid where California and other states will be when the June #'s for states come out tomorrow from the BLS.
The FED/Treasury know they need a headline in the Business section of every newspaper and the ticker of every cable news network that portrays confidence, no matter how phony that confidence might be.
You throw in 10% unemployment (over 27% in Flint, MI) with a DJIA that were to sink to 6K or lower and you would have people completely freaked out.
It's a war of perception and the FED/Treasury will do everything in their power to win it.
The real question is what do they do when this idea fails? Bank holiday? Revalue the currency? We can't afford to pay back China. What happens then?
bank holiday in september / october. money
center banks and fed are insolvent - they must
take out for a breather and place new
bandages on the corpse....obama
is spending faster than a hysterical genie
trying to escape a corked bottle....
the fed has purchased so much junk its balance
sheet looks like it was prescribed by
gideon gono.
economic self immolation with cit is picking up
big steam.
the winner will be financial terrorist gs....its
repositioning as a bank was no accident.
anon 8059, good post and your theory is shared by many. for most americans, the "confidence" mantra is critical and the politicians know it. some of us recall that the first three letters are "con".
the problem that the fed/treasury/obama complex has is that the market cannot be fooled too long or should I say, the smart people participating in propping the market will eventually pull the very tight and anxious trigger fingers.
@deadhead
Not sure, but this is Anon 8059 if it doesn't say when this posts.(I need to register an s/n and start posting)
What do you think will make those engaged in propping the market pull their fingers on the trigger?
notwithstanding the obvious significant bad news event(s), the big players as well as the smart players know that the equity markets are overpriced. i think the day will come when a few start heading for the doors and then a mad rush will begin. market crashes will happen when many least expect it. '87 was a fairly good example of this as i recall.
It's worse than that.
I'm pretty sure they think if they keep equity prices high, things will improve... That somehow jobs will be created from this.
http://thetaildoesnotwagthedog.blogspot.com/2009/07/in-end-tail-does-not...
Yes, they are completely deluded.
That's a good question. Not many people know what the hell is going on. Most likely it has to do with options expiration.
My personal view is we are getting set to take a plunge.
The irony is that the beyond bizarre behavior of this market completely UNDERMINES CONFIDENCE of money managers and professionals, who can easily recognize how pathological it is.
fed & tsy firepower is not unlimited. things didn't really go their way last year.
This is just a volatility game. If the S&P breaks 950, confirmed
by a new low in the VIX, we will have a strong short term
bbuy signal on the markets.
There are no freaking "signals" anymore. Buy signals, sell signals, accumulation days, distribution days.....hell, even TA is screwed up. It's a casino, until further notice.
Completely agree - everything has become wildly distorted.
Word.
I like your comment, but if the market breaks out of a 2 week side ways range
to the upside, accompanied by a strong bearish market sentiment, you should
watch out for long positions, capitalista! Forza! The US Gov. should not have given
the banks so much money to play. And the Gov. is so stupid!
Buy signals were triggered across the board on Wednesday. As the post says get ready for some crazy action.
I'm not a scientist, I don't play one in TV, but I watch the market with cynicism of late. Based on recent observations, when in doubt, assume the market will go higher for flimsier reasons than ever before. These reasons will be the new normal. Until the next pump.
It may have not gone their way last year, but this time is different. They will do EVERYTHING in their power to keep this puppy propped up, IMO. I know it defies logic and reason, but this shit is rigged in favor of the house.
agreed. i expect to be surprised by how hard and long they will fight to keep the current system alive
I think OPEX is Options Expirations. 2 days before and everyone is covering their calls with puts(As i read it.) This would mean that the top in this cycle is close to pooping out. Or, I will stand aside for a better explanation. This blog deserves a Nobel Prize
I think OPEX is Options Expirations. 2 days before and everyone is covering their calls with puts(As i read it.) This would mean that the top in this cycle is close to pooping out. ...I hope so. This market needs to take a whackin' hat tip to http://www.bit.ly/12NCJR...
H/T Hmmmm... Let's try this game, the "You know you're trying to ...." (fill in the blank)
You know you're trying to SPAM & obscure something when the TinyURL is longer than the site!
"This blog deserves a Nobel Prize" I agree
Oh and what's up with the math question to validate posts? I was told there would be no math!!!
Three things - Opex for VIX is Tues, which makes for an interesting IVol collapse component early next week after Equity OPEX. Second, Slosh Report is showing 36B getting pulled - not a lot, but isn't going to help point above. Lastly, wierd arbitrage today on JPM and BAC made for tasty vert spreads - "decay kills OTM calls dead".
I have never been able to get my head around how to trade VIX OPEX. Some things are just beyond my pay grade.
Second. Esp with VIX calc being mostly weighted to next month options at that point. Anyone want to drop some knowledge?
Negative gamma positions treat opex like some flesh eating virus. They just devour everything around without prejudice. Add in low volume/low liquidity and you have a ridiculous 7-8% move just prior to opex.
Despite the market defying the technicals in the DOW, the S&P is still about 50 pts from crossing the previous high. At that point, it would look like the market is moving for a longer wave up-which makes no sense especially since the world know this is going down hard in the fall. The S&P,OIL and commodities are all about where they would be in a 1/2 cycle recoil. The DOW is a joke-I mean when you swap a bank for KRAFT foods, what kind of effing snowjob is that?
So, I guess to be redundant, may I ask the pros here-does the net PUT buying indicate imminent rollover-like next week?
yes, i think so. at the very least we see significant hedging against the possibility of a drop.
somebody knows something that we don't. I hate that.
The net put buying may be longs hedging their risk. they have some gains to protect.
Just a noob here who loves the schooling, but the best call I saw for this bizzare move was Charles Hugh Smith last week:
"Now I am seeing extremely asymmetric put/call ratios in a number of ETFs (exchange-traded funds): players and punters have gobbled up 10 bets that the market will plummet (puts) for every 1 bet the market will rise (calls).
Are the players who sold all those puts really going to let the punters pocket tens of millions of dollars in winnings? Please don't strain credulity by insisting that yes, the big players sold bets 10-to-1 that the market will drop and then they're going to let the market drop."
As Smith says, the market just won't let 10 win and one lose, no matter what all the technicals and fundamentals say. Makes as much sense as any other theory of how the dang market works.
9 times out 10, that what's going on. The market will seek the equilibrium strike to cause max pain to long vol traders. But today's action is not adequately explained by this as the deviation from equilibrium is widening at a rapid pace much to the chagrin of the smart money. The only choice in this case is to cover (unusual VIX up move yesterday) and delta-hedge (SPY today).
Or so it seems to me.
"The market will seek the equilibrium strike to cause max pain to long vol traders."
Agreed... until it doesn't. And when it doesn't, the price tells me that it won't be a controlled implosion. It's pretty bleak underneath that thin crust of happy illusion we're all dancing on.
Look for insanity tomorrow: The CIT miracle hail mary may happen. That means anyone who played the CDSwaps on CIT just made a bizzillion.
I think I said this before. Turbo Tax Tim says CIT is getting no love from the FED. The company gets near bankruptcy. Some miracle bailout occurs and anyone who had the credit default swaps for CIT(whihc had insane drops today) just made a killing.
If this occurs, the insider trading was between CIT, the FED and I assume Goldman.Let's see what happens:
http://www.marketwatch.com/story/some-cit-debt-holders-consider-rescue-f...
Just a heads up for ppl. Last Sunday night US time, trading time in Singapore, the Dow Futs, down about 50 pts, did their frequent spike to down 15 points. Even if Whitney's text was leaked . . . you can't be sure anyone would care what she said.
Rather, a decision was made that night to force a reversal this week. It was visible in the Asian trading of US futs.
Forget TA, forget P/E (before you do, go have a look at it, it's 135 on the S&P As Reported, and not getting much better, given that JPM was DOWN vs Q1), forget your moving avgs, forget your stochastics.
There's almost no human trading in significant money taking place and there certainly isn't institutional activity. It's all out of GS, JPM, MS and Greenwich. They are just doing what they want. It takes significant bad news forcing institutions to adjust asset allocation to overwhelm their bias.
Actually, the reason for the market rally is explained here:
http://www.theonion.com/content/radio_news/dow_rallies_after_escaped?utm_source=a-section
I agree with most of the sentiment in the comments.
But.... If the markets have not been following fundamentals, or even technical norms, then won't many of you be even more puzzled when it defies conventional thinking again?
I felt I had a very loose understanding of valuations a while ago. But all of that is gone out the window...
I, actually, would be completely stunned if it did something that made sense.
So are you guys getting burned trying to time this market? If so, get out before you hurt yourself further.
P/E isn't about timing. The S&P As Reported P/E is over 130 right now. Historical norms are about 14. This is people paying 130 dollars for the right to get 1 dollar of earnings.
It has nothing to do with squiggly lines on a screen. It has to do with buying 1 dollar of earnings with 130 dollars. Here's the Barron's link showing P/E: http://online.barrons.com/public/page/9_0210-indexespeyields.html Note that is As Reported. Operating Earnings P/E is a bit less, but still absurd.
Isn't the point of a stock exchange to allow companies to raise money through rational, efficient resource allocation? If so, surely this doesn't bode too well for the recovery, let alone people's trading accounts.
we ought to face up to it: the equity markets are meaningless...been that way since it dawned on people at the end of the October mayhem, that the FED would set FFunds at zero for forevermore and we were all Japanese...
for the capital- and funding-challenged, equity exists, or is called into being, to be sold to chumps...it may be good for a trade, but it can't be called an Investment any more...more like supporting a crooked whorehouse with your family's rent money