Closing Ramp Unramped

Tyler Durden's picture


Equity markets were stumbling lower into the close of the US day session and volume was picking up... the powers that be clearly decided that was not to be allowed and the NASDAQ needed to close green (as we noted previously). JPY was not going to help as overnight volatility had reduced carry games so... slam dat VIX was the game. While not much in nominal size, the 0.3 vols smackdown in VIX starting at 1550ET lifted the S&P 3.5 points to close at the afternoon highs, Trannies up 0.3%! (and helped NASDAQ green and new highs)... But, seconds later (as INTC and AXP earnings disappointed), the entire ramp - and more - was dissolved before S&P futures closed. Ah, the efficient markets...


S&P 500 Cash index traders were treated (green oval) to a late-day VIX smashdown momentum ignition fantasy to lift the index up to highs... and then (as is clear from the futures in blue, the markets crumbled after hours)...


Just look at the effect the VIX slam had!! a 0.3% rise in Trannies and 0.2% in SPX, NASDAQ and Dow...


Charts: Bloomberg


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Thu, 01/16/2014 - 17:34 | 4338976 AccreditedEYE
AccreditedEYE's picture

This dude Kevin is really losing his touch.

Thu, 01/16/2014 - 17:37 | 4338981 InjectTheVenom
InjectTheVenom's picture

You didn't ramp that !

Thu, 01/16/2014 - 17:39 | 4338986 Cult_of_Reason
Cult_of_Reason's picture

If you like your ramp, you can keep your ramp. Period.

Thu, 01/16/2014 - 18:10 | 4339060 Say What Again
Say What Again's picture

Can someone expand on who we think is actually doing this late day VIX trading. 


Is it

  • The Fed
  • Big Banks
  • Hedge Funds

and what is the exact mechanism by which they profit.  I'm guessing there is some form of arb taking place, but I would like someone to spell this out in as much detail as possible.

Thu, 01/16/2014 - 18:59 | 4339175 SheHunter
SheHunter's picture

And second question.  Skip the caustic comebacks plze but does anyone have insight into what has happened to market volumn?  It's better on down days but still below what used to be the norm. Maybe I'm answering my own question but who the hell can trade this thing?  Look at BIDU today.  WHAT the F???  No rhyme or reason to the level it fell to or the level it jumped back up.  Just low volumn and weirditity.  MAX pain is couple bucks below today's low so not OPEX to blame.  Bring on the conjectures.  I'm thoroughly bummed at being in the trade fear camp.

Thu, 01/16/2014 - 20:08 | 4339441 asteroids
asteroids's picture

Anybody that dares to be short usually covers before the close on ramps. They just don't want the overnight risk. They know the FED can ramp the market 1%-2% overnight with little effort. I'm usually out of the casino by 3:30 to avoid this fuckery.

Thu, 01/16/2014 - 17:41 | 4338983 Cult_of_Reason
Cult_of_Reason's picture

Kevin is no longer part of NY Fed Banging the Close Team.

Thu, 01/16/2014 - 18:09 | 4339056 FL_Conservative
FL_Conservative's picture

Yeah, given his experience, Obama decided to let him to take over responsibility for the website.

Thu, 01/16/2014 - 18:10 | 4339061 Stoploss
Stoploss's picture

Generally on POMO day's, it's a gang bang.

Pump and bang orgy, probly when they bring Kev in.

Thu, 01/16/2014 - 17:38 | 4338985 kaiserhoff
kaiserhoff's picture

It's like pork bellies back in the old days.

Whatever you can get away with, and the regulators don't care and don't want to know.

Thu, 01/16/2014 - 17:39 | 4338987 the not so migh...
the not so mighty maximiza's picture

somebody just made allot of money

Thu, 01/16/2014 - 17:40 | 4338988 css1971
css1971's picture


Thu, 01/16/2014 - 17:50 | 4339005 Ban KKiller
Ban KKiller's picture

Anderson accounting methods. Normal abnormals.

Thu, 01/16/2014 - 17:52 | 4339006 disabledvet
disabledvet's picture

there was a ramp up all treasuries. we'll see how that euro does going forward should do well since lower rates in the USA should mean a weaker dollar. So far that hasn't been the case at all.

Thu, 01/16/2014 - 17:52 | 4339007 Castiel123
Castiel123's picture

Okay, excuse the neophyte here, but could someone explain in reasonably plain english just how a VIX slam works and (presumably) who pushes the button? I assume there is an implicit cost to moving any of these indexes, so how is that cost recouped?

Thu, 01/16/2014 - 18:10 | 4339051 ebworthen
ebworthen's picture

I'll take a stab at it:

VIX is implied volatility of S&P 500 index options -market upside or downside - based upon percentage.

Someone with unlimited funds could buy put and call options selective (balancing the scale or see-saw) to push the implied volatility down.

In our BTFATH equity ramp casino, a lack of volatility would be an "all clear" for buying the dip.

It is akin the butcher (the FED) putting their finger on the scale.

Thu, 01/16/2014 - 18:13 | 4339070 Castiel123
Castiel123's picture

Of course, no one has "unlimited" funds, though I imagine there are some deep pockets out there. Assuming they don't have a side hobby of lighting big bonfires of cash, where's the profit motive?

Thu, 01/16/2014 - 18:19 | 4339077 ebworthen
ebworthen's picture

The FED and the Treasury have unlimited funds, and by extension, the squid of Wall Street.

Thu, 01/16/2014 - 18:44 | 4339104 Say What Again
Say What Again's picture

Sorry, but none of the discussion so far really explains the details of the "VIX Slam"  I understand that there are VIX Futures that a market participant can short, but this still requires capital in the form of maintenance margin, slippage, etc.  This capital and the cost of the trade has to be balanced by the potential benefit.  The devil is in the details, and no one has described those details yet.  Also, I presume that most of the activity happens with option on the VIX Futures, which influences the price of the VIX Future in an indirect fashion, but there are a number of details that are getting glossed over here.  As soon as I buy options, I have risk exposure to the option, which may be correlated to the target index (SP500) now, but things can chantge real fast.  Again, I would like to read about the details.

Thu, 01/16/2014 - 18:44 | 4339137 kaiserhoff
kaiserhoff's picture

I've never traded at anything like this scale, so consider the source, but:

As Ebworthen says above, the leverage is enormous.  By simply buying some calls, you force a specialist into a massive offsetting position.  The market is cheap to move and member firms pay only fees, no commissions, and they laugh at margin.

But you're right.  The profit on the long has to cover all those costs, or it makes no sense, which is why it is done at the close, on days with low volume, and is often easy to spot;)

Thu, 01/16/2014 - 19:14 | 4339191 Say What Again
Say What Again's picture

Back in the prehistoric times, before the advent of Dark Pools and HFTs, it was common for institutional traders to use SP500 futures to hedge intra-day to protect a large transaction they were planing on making that day.  For example, they knew that if they had to unload a massive amount of large cap stocks, there would be negative market impact. 

The strategy would be to short the futures early in the day as quietly as possible to the point where they had the proper size to offset the expected market impact.  Then they would start unloading their shares, quietly at first, but they would get more aggressive as they approached the close of the session.  This selling would have a downward influence on the futures, so the institutional trader would benefit if the futures declined.  If they did NOT decline, he made out by the good price he made on the sale of his large block trade.  Either way, the hedge - in this case the short of SP500 futures - would be unwound before the session closed. 

Of course, this strategy is antiquated now, but it sheds some light on what is happening with the VIX futures, and options.


Thu, 01/16/2014 - 20:08 | 4339444 Darksky
Darksky's picture

Wow. Nice to see a question asked and people chime in with answers that allow for discussion and not one person jumped in making a mockery of the question. I dont fully understand 75% of what was said but it is refreshing. This is why i find this site valuable. Thanks.

Thu, 01/16/2014 - 19:38 | 4339305 Obchelli
Obchelli's picture

Plus they always profit as their gaming works and market goes in "their" direction so next day whatever positions they took they slowly unwind into covering shorts - or everyone else who is caught on a wrong side of trade and man you are always on a wrong side unless you play nice with FED....


This will all work untill it breaks one day - but I can't see what kind of event that could be...

Even start of WWIII could be bullish event in this crazy marked...


Pissonme will say defence is up taking up Dow

Thu, 01/16/2014 - 18:11 | 4339057 kaiserhoff
kaiserhoff's picture

There is no rational explanation, but here's a start.

Lots of traders (and computer algorithms) use preset valuation models for stocks and/or momentum which is just recent market direction.  VIX (volatility) is one input into these models because in a rational world low volatility means lower risk and higher stock prices. 

Here's where is gets hinky.  The old models calculated VIX as a derivative of past volatility, but now you can TRADE VIX, so it has a market value..., which can be manipulated.  Slamming VIX is the cheapest and easiest way to move short term stock prices.  That is illegal, and almost never punished.  Hope that helps.

How do they profit?  They bet long 10 or more times what it costs to manipulate the VIX.  But as Tyler pointed out, sometimes, they still get their asses handed to them;)

Thu, 01/16/2014 - 18:20 | 4339085 Castiel123
Castiel123's picture

Okay, that helps, but still a neophyte here.

So the bad actor goes long, trickf%@ks the VIX, but he/she still has to close out that rather substantial long position. Wouldn't that just slam the particular asset back down?

Thu, 01/16/2014 - 18:34 | 4339114 kaiserhoff
kaiserhoff's picture

Good question.  This can become an increasingly risky exercise, because, as you suggest, it drives prices higher with no rational underlying support.  The answer depends on whom you think is doing most of this.  Two points.

The oldest adage in the market is don't fight the Fed.  Some believe the Fed will keep providing liquidity until everything breaks at once.  Not my view,  Not, I think, the Tylers', but very popular among the big boyz.

Secondly, lots of people live or die on closing prices, especially at month or quarter end.  This is a very short term game.  They don't have much skin in the future.  IBG/UBG.   I'll be gone/you'll be gone.'

Thu, 01/16/2014 - 17:54 | 4339011 Rainman
Rainman's picture

Anyone still believing in market randomness is full of shit !

Thu, 01/16/2014 - 17:57 | 4339019 buzzsaw99
buzzsaw99's picture

Bang Dae-Ho

Thu, 01/16/2014 - 17:59 | 4339024 Stoploss
Stoploss's picture

If not for the VIX hammering we might have been slightly lower on the close..

Thu, 01/16/2014 - 17:59 | 4339026 starman
starman's picture

i told you idiots ramp nor ram! 

Thu, 01/16/2014 - 19:18 | 4339241 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

I came home just before the market close, and watched the action on the NASDAQ 100 futures.....a 3 minute decline on high volume is immediately bought on low volume and ends up at a higher value. A process that seems to have been repeated throughout the day. Then the last minue bang-down, of course.

Next on the agenda:  the overnight, low-volume ramp up to provide some padding for the new day of trading. 

Thu, 01/16/2014 - 19:43 | 4339326 Yen Cross
Yen Cross's picture

  The Russel 2000 closed up though. When that thing implodes it's gonna leave a huge crater.

Thu, 01/16/2014 - 22:31 | 4339837 chirobliss
chirobliss's picture

I used to read ZH and this daily analysis of the action and thought, "wow, that is amazing, how do these guys know this stuff?"

About six months ago I started trading the eminis, and being a (very small potatoes) participant, I can tell you that this article, like sadly every other article here these days, is nothing more than misleading BS.

If, instead of drinking the koolaid here, you actually were to do some work in the markets, you would have seen today that the ES traded up, then down, then up then down, about three points each turn, sixteen times.

The close was not a conspiracy to pump and dump it was just churn that had been going on all day long.

Thu, 01/16/2014 - 23:43 | 4340005 StychoKiller
StychoKiller's picture

Hard to make someone understand a problem when their paycheck depends on their NOT understanding the problem.  J'accusé!

Thu, 01/16/2014 - 23:58 | 4340035 chirobliss
chirobliss's picture

You can moan and complain about the unfairness of those guys who fly their planes back and forth each day, makin' good money, and just a passin' you by...

or you can learn to fly and start havin' some fun yourself...

Life is for living.

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