Convexity

"This Has Never Happened Before": Goldman Warns Low-Vol Regime Is In Jeopardy

This morning Goldman points out something that has never been observed before: the ratio of VVIX to VIX, or the vol of vol relative to implied volatility as per the VIX, just hit the highest level on record, while the VVIX itself spiked to the highest level since the August 2015 ETFlash crash.

What's Next For The VIX? RBC Explains

"From a ‘vol control’ fund deleveraging perspective, we still aren’t likely to have seen heavy de-risking flows from the masses yet (many targets at 8 or 10), as SPX realized vol—even of the short-term 20d varietal—remains painfully low at 6.5.  So, in order to ‘trigger’ it would either require another violent jump in vol, or a few more days further in this 15-16-17 vols level to ‘drag up’ the trailing number."

"Visions Of Cataclysms": Why Eric Peters Is Starting A Long-Vol Fund

"Rising volatility begets rising volatility. And given the unprecedented volatility-selling in this cycle, I can imagine a historic reversal. And at that point, investor imaginations will run rampant with visions of cataclysms. It is always thus, it is who we are. Confidence in a tomorrow that is indistinguishable from today will vanish, replaced by some new hysteria."

"The Swarm Effect": Every Trader Today Has Just Two Choices

"...one faces a choice between two scenarios: 1) A small probability of losing all of your money all at once at an undisclosed time in the future, or 2) A high probability of gradually losing small amounts over an indefinitely long period of time, keeping in mind that persistent small losses over an indefinite time period could lead to large cumulative losses."

Deutsche: The Fed Has Created "Universal Basic Income For The Rich" And Now It Can't Get Out

"The accommodation and QE have acted as a free insurance policy for the owners of risk, which, given the demographics of stock market participation, in effect has functioned as universal basic income for the rich. It is not difficult to see how disruptive unwind of stimulus could become. Clearly, in this context risk has become a binding constraint"

Gundlach: "You Should Be Raising Cash Literally Today"

"Volatility is a trade that's made a lot of money and its very very crowded, which suggests to me the days of low volatility are numbered. If you're a trader or a speculator I think you should be raising cash today literally today. If you're an investor you can easily sit through a seasonally weak period."

RBC Is "Astounded" By The Magnitude Of This Rotation

This is "classic 'shorts outperforming your longs' stuff," notes RBC's head of cross-asset strategy Charlie McElligott, as he warns Friday's VaR-shock is a worst-case scenario against a backdrop where post-financial-crisis highs in 'net' and 'gross' exposures are currently deployed by the majority of equity hedge funds. However, he does offer a silver-lining for stock dip-buyers (and what to watch for).