Volume Off; Hedges On

Tyler Durden's picture

Equity futures closed at their lows (after cash ended nearer its highs) amid deathly quiet volume with VIX at 6 week highs and HYG underperforming. Much was made Friday about the compression in VIX from its early spike highs - with those that have the microphones explaining how this must be a bullish sigh - surely, and that this also means the cliff resolution is merely hours away. Unfortunately, as we noted at the time, both VIX's behavior (and the reality of our politicians) means that resolution is nowhere near (and the options market remains priced for more pain). In fact the rolling of hedges in VIX futures (and Friday's quad-witching) almost forced spot VIX to drop; today we see spot VIX rising  (towards its now anchored January futures levels) and still pointing to significantly more 'concerned' pricing than the market would suggest. We go back to what we have been saying - managers know that selling down their exposure into this thin market creates a bid vacuum (a la Thursday's flash-crash) and so bidding option protection is the only way to survive (meanwhile dribbling down the underlying exposure). During this holiday week, with its low volumes, it would surprise us to see VIX rising further as algos take advantage of low volumes to tickle stocks higher - but the vacuum underneath grows larger by the day.


Credit underperformed but the rest of the market traded in a very narrow range (gapped down from Friday's close)...


EURUSD tried and failed to spark a rally in risk...

Short-term, VIX's Friday spurt has retraced and compressed to its new maturity anchor in January - still notably away from stocks' prices...


Medium-term, hedgers have been very active with the low liquidity melt-up being hedged all the way (note VIX's rise - drop in the chart). Furthermore, hedges are being pushed out to Jan (above) and March (below)...


Merry Christmas all...


Charts: Bloomberg and Capital Context

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Snakeeyes's picture

Brace for impact!

Obama uninterested in avoiding fiscal cliff. Boehner is little better.



FreeMktFisherMN's picture

'Brace for impact'/Hedge accordingly for the REAL cliff that this country has already gone over but is just like Wile E. right now and just hasn't looked down. This 'fiscal cliff' speedbump is nothing but panem et circenses.

icanhasbailout's picture

Nothin' to do but hedge the downside risk of your negative real yield investments

ball-and-chain's picture

I don't see it happening.

The Republican "chuckleheads" are posturing.

They'll cave at the last minute.

Obama's a tough guy.  He ain't no Jimmy Carter.  He plays for blood.

I call him the Velvet Hammer.


CPL's picture

Looks like two Algo's playing hot potatoe.

'no, you take it.'

'no, you take it.'


Man it's going to be an awesome show when someone is left holding the last bag.

Cognitive Dissonance's picture

I suspect you and I will be left holding "the last bag".

ThirdWorldDude's picture

Fill it with glue and pass it on to Ben.


Merry Xmas, bitchez!  May Santa fill up your socks with shiny 1oz rounds...!

El Oregonian's picture

I'd rather see a pair of handcuffs in that bag for Benny. In fact, several dozen pairs for all those criminals... Including politicians and such... and say: Merry Christmas you're all going to prison you effing thieves! And a Happy Screw Rear!!!

CPL's picture

lol!   Maybe.  I see other possibilities though, accidental routing being the primary one.  


The Algo's are behaving "strangely" enough and act independently that it would only take one of the server farms to make an executive decision to attempt to save itself and their owner to trigger a land slide sell off.  The machine doesn't care if it's makes money, it only cares that it wins the fight, once one of the Algo server farms figures out this is a war of attrition.  And one of them will eventually learn how to do it, because that's what it's built to do.  It's only goal as a synthetic trader is to learn how to win the game.

All this stuff runs 24/7/365 now, the room for a terrible error can happen in any category across weakening asset prices except for where it matters like energy, food and PM's.  When my first market crash experience happened black friday, markets were 9:30 - 4:00.  The Chicago market for commodities was a hollowed ground that underwriters dare not enter.  The fresh pain from S&L refocused everyone's hard line.  Which was good.  Now its all the time, like TV.  24/7/365 with no breaks.


As bottom floor business plebs, we'll be hosed for cash but at least we'll have each other to count on.  I'm still of the mind it will not be as bad for people that work for a living.  Anne of Green Gables but with lowered expectations and lower foot print teleco communications.  We might not get to keep cars and planes in the future for obvious reasons, but I know of about twenty ways to keep telecom running with next nothing, because that's how we built it to begin with.  lol.  

How that happens...no clue.  All the pieces are there but no definition to the order of it yet.

SmoothCoolSmoke's picture

Uh-huh.  "Algos tickle stocks higher"....to 1440ish ....and the the FC gets "fixed", and we rocket back up to 1470.  Wait and see.   Then we'll have January mutaul funde inflows....and the next thing you know, why we're at 1510!!!  ....and the Crash-o-meter just sits there.  So tired of this BS. 

MyBrothersKeeper's picture

I see VIX collapsed at the close

JustObserving's picture

In 2008, the Dow used to fall 7% a day and VIX was 80 to 90.  Now if the Dow falls 1%, it is a big move.  And VIX is 17, only a fifth of what it was.

The entire market has been tranquillized by the trillions of dollars printed by the Fed.  Gold and silver have been suppressed.  All is right with our phony markets.  For now, it is the triumph of corruption.  Berrnanke should get a medal or two for superior corruption.


Yen Cross's picture

 No shit... 13,132

             x 1%


            131.32 points    Are you kidding me?  Clowns on acid!  These consummate optimists are going to get their asses douched, if they don't do something by 01-01-2013.

Dollar Bill Hiccup's picture

Political mind games at their finest.  Someone posted a nice Marshall Mcluhan quote the other day :

World War III is a guerrilla information war with no division between military and civilian participation.

While listening to the words, "Peace on earth goodwill to men ..." today, I wish all of you luck this year.

THX 1178's picture

Does this mean WWIII ends not with atom bombs, but the destruction of INFORMATION!?!?! LIKE the one and zeroes in computers... electronic currencies?

mwarden's picture

perhaps it means short BA, long BAH

q99x2's picture

Twas the night before Christmas.

notadouche's picture

Funny thing happened to me on the way to the mall as I am a last day Christmas shopper.  No crowds to fight.  I thought the Christmas season was a blow out.   Based on today either I was the only one that didn't shop until today or this season is going to be dismal for the retailers. Not what I was led to believe by MSM.   Didn't really have any trouble finding merchandise.  One of the least annoying last minute shopping days I've ever had.   

luna_man's picture



And this...Ladies and Gentlemen, what makes MY MAIN MAN #1!!


A fellow can learn somethiN here

Yen Cross's picture

 Some little prick, lost in space?  I can't stop laughing/

Melody7773's picture

I live in Chicago now and as crazy as that I am always a last day shopper (no matter how hard I try to do everything beforehand. I can’t even save enough, I keep on using this website: PaydayLoansAt.com to borrow me some cash, I know that this is ridiculous). Well what I wanted to say is that I did not feel like I was alone. Malls were crowded with people, buying presents and decorations. As for the article, I believe that Obama is against fiscal cliff as well. He will do something about it.