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Why The Market Is Crashing Into The Close: JPM Explains

Tyler Durden's picture




 

Curious why someone just pulled a trapdoor from under the market? JPM's Marko Kolanovic, head of quant strategies explains.

Impact of option hedging on the S&P 500 into the close

S&P 500 put option gamma exceeded call option gamma by more than $50bn prior to the option expiry this morning. This was the highest S&P 500 put gamma imbalance ever. The impact of this imbalance was evident in the intraday market momentum developed from 3:30PM to the close yesterday. The Figure below left show yesterday’s intraday price action for the S&P 500. We note that the market selloff accelerated into the close, with a 60bp fall in the last 30 minutes. Consistent with theory on the impact of gamma hedging (see our report Impact of Derivatives Hedging), this temporary market impact reversed near the market open today (57bps recovery in the first 30 minutes, right Figure).
 
Despite the fact that S&P 500 options expired this morning, put gamma is still higher than call gamma by ~$38bn, which is a large imbalance (on account of other S&P 500 option maturities and SPY options expiring at the close). This can lead to further selling pressure into the close today.

Given that the market is already down ~2%, we expect the market selloff to accelerate after 3:30PM into the close with peak hedging pressure ~3:45PM. The magnitude of the negative price impact could be ~30-60bps in the absence of any other fundamental buying or selling pressure into the close.

Good luck.

 

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Fri, 08/21/2015 - 15:27 | 6452724 EverythingEviL
EverythingEviL's picture

Ho-Lee-Chit

Fri, 08/21/2015 - 15:31 | 6452748 freewolf7
freewolf7's picture

This is gonna leave a mark.

Fri, 08/21/2015 - 15:36 | 6452786 balanced
balanced's picture

At this level (-485) it would be the top 15th one-day decline in the Dow... of all time heh.

Fri, 08/21/2015 - 15:45 | 6452842 jbvtme
jbvtme's picture

small caps stronger today.  broad market rally next week?

Fri, 08/21/2015 - 15:50 | 6452869 Henry Rearden
Henry Rearden's picture

This article is incorrect.  The long gamma traders are the ones buying futures at this level, while everyone else is panicing.  The short gamma traders usually hold their balls, and don't negatively scalp themselves.  Hoping that the market will reverse course.

If you have a long gamma position you will be buying each level as the futures keep moving lower. If they rally off the lows, you might have some gamma sellers, but only if the market goes lower first and only if they bought in the futures lower. 

If you want to know where the market is going to close today, find the largest open interest strike at the CME that expires today within 10 points of the current price action.  We will pin that strike. 

 

Fri, 08/21/2015 - 15:54 | 6452894 ThaBigPerm
ThaBigPerm's picture

Just waiting on the deer...

Fri, 08/21/2015 - 16:52 | 6453203 boogerbently
boogerbently's picture

So, where's the $ going ?

Gold only up $7 !

Fri, 08/21/2015 - 17:34 | 6453487 El Oregonian
El Oregonian's picture

The Longs got a good ramma Put in their gamma's.

Fri, 08/21/2015 - 15:55 | 6452897 Money Counterfeiter
Money Counterfeiter's picture

QEIV yes or no?  What the fuck else is there?

Fri, 08/21/2015 - 16:21 | 6453058 Save_America1st
Save_America1st's picture

QEternity

Fri, 08/21/2015 - 15:56 | 6452901 FL_Conservative
FL_Conservative's picture

Carnage....the other red meat.

Fri, 08/21/2015 - 15:57 | 6452905 r101958
r101958's picture

At these inflated prices (starting at 18000) a real 'crash' would need to be a fall of 20% or more. So if the market fell 4000 points I might think this is the start of something big. Until then, wait and see. Right now we aren't really even talking 10% yet.

Fri, 08/21/2015 - 16:41 | 6453160 FL_Conservative
FL_Conservative's picture

Sorry, but in this "new" QE-fabulous normal, any 4% decline in the S&P is an all-out panic with blood in the streets.

Fri, 08/21/2015 - 16:48 | 6453176 Squid Viscous
Squid Viscous's picture

Phi Slamma Gamma!

You were probably spewing the same shit yesterday, and you lost

and panicing is not a word, maybe you meant picnic-ing but that's not a word either?

Fri, 08/21/2015 - 15:37 | 6452790 bcups
bcups's picture

Also known as delta hedging. Which in plain terms is trying to buy insurance after your house catches fire. 

Genuis at the academic level. Not so much in reality.

 

Fri, 08/21/2015 - 15:39 | 6452804 Bilderberg Member
Bilderberg Member's picture

Margin clerks can't hit the sell button fast enough at this point

Fri, 08/21/2015 - 15:39 | 6452805 Sanity Bear
Sanity Bear's picture

This is why you should take market advice from an anonymous commenter on the Internet with an anime-comedy avatar.

http://www.zerohedge.com/news/2015-08-20/dow-dumps-1200-points-record-hi...

 

You're welcome, those of you who were paying attention (all three of you).

Fri, 08/21/2015 - 15:48 | 6452861 gmrpeabody
gmrpeabody's picture

You and a couple of thousand other folks...

Fri, 08/21/2015 - 15:55 | 6452895 WhackoWarner
WhackoWarner's picture

YOUR COMMENT WAS....wait for it....... "Can't help but to think the bottom could fall out at any moment"

 

I am thinking that you and several hundred thousand others can take credit for this insight. 

 

Fri, 08/21/2015 - 16:06 | 6452955 Sanity Bear
Sanity Bear's picture

As many learned in 2008, it's not enough just to get the direction right, you also have to get the timing right too!

Fri, 08/21/2015 - 16:20 | 6453044 Urban Redneck
Urban Redneck's picture

Only if you are trading against the trend.  As long as you actually understand the direction (trend)- BTFD will work in any bull market (rigged or unrigged) and SFTU will work in any bear market since time immemorial.  ...as long as you don't have a weak stomach or too much leverage, but to make each trade work in the reverse market condition- you have to time the trades correctly.  

Being "early" is being "wrong".  It's a sine wave.  

Fri, 08/21/2015 - 15:45 | 6452847 lasvegaspersona
lasvegaspersona's picture

"Better put some ice on that".... William Jefferson Clinton

Fri, 08/21/2015 - 15:56 | 6452899 freewolf7
freewolf7's picture

Scotch?

Fri, 08/21/2015 - 16:01 | 6452923 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

This is one for the record books.

Fri, 08/21/2015 - 15:32 | 6452755 pods
pods's picture

Yep, and the market is gonna shoot straight up like Jared's wiener at JV Gymnastics meet as soon as everyone piles on the shorts.

pods

Fri, 08/21/2015 - 15:36 | 6452781 saints51
saints51's picture

look we know it will happen but let's fucking celebrate as this is a taste of victory against the moneychangers. Like Kaiser is always saying:

Death to the money changers!!!!

Fri, 08/21/2015 - 15:37 | 6452791 Bryan
Bryan's picture

Rally next week.  The Fed won't stand idly by and watch all their hard work go to crap.  Either that, or they are complicit in it, who knows.

Fri, 08/21/2015 - 15:50 | 6452876 hoist the bs flag
hoist the bs flag's picture

read that real quick...piles IN the shorts...guess that works too

Fri, 08/21/2015 - 15:52 | 6452885 pods
pods's picture

Forgive my lingo. Not a trader.  :)

Fri, 08/21/2015 - 16:51 | 6453194 Squid Viscous
Squid Viscous's picture

Hilarious Pods...finally someone on the Jared jokes!

 

so much material there,

Fri, 08/21/2015 - 17:03 | 6453257 Adahy
Adahy's picture

On the day I read a story about him 'rear-ending' someone in that vehicular manslaughter case no less.
Will serve a year tops; may ask for more.

Fri, 08/21/2015 - 16:15 | 6453014 Sages wife
Sages wife's picture

Say what you want about Jared and his wiener, at least he drives slowly through school zones.

Fri, 08/21/2015 - 15:38 | 6452776 ZH Snob
ZH Snob's picture

btfd...please!

 

Fri, 08/21/2015 - 16:01 | 6452920 J Jason Djfmam
J Jason Djfmam's picture

The Shemitah hits the fan.

Fri, 08/21/2015 - 15:27 | 6452725 LoneStarHog
LoneStarHog's picture

The kids who call this a CRASH have never actually experienced a CRASH.

Fri, 08/21/2015 - 15:37 | 6452794 pods
pods's picture

I've never masturbated furriously waiting for the -500 money shot during a crash.  Good thing there aren't many people here today.

pods

Fri, 08/21/2015 - 15:45 | 6452846 J Jason Djfmam
J Jason Djfmam's picture

pods, I've heard it works better if you strangulate yourself at the same time.

Seems appropriate for the times. };{D>

Fri, 08/21/2015 - 15:57 | 6452904 hoist the bs flag
hoist the bs flag's picture

nail gun it to the floor too

Fri, 08/21/2015 - 15:50 | 6452874 serotonindumptruck
serotonindumptruck's picture

I've been sporting a long, thick rubbery one for the last 48 hours, and I'm not even a trader.

(Apologies for the ghey visuals)

Fri, 08/21/2015 - 15:54 | 6452893 pods
pods's picture

I don't trade either. :)
Schadenfreude is a such great lubricant I just can't pass it up.

pods 

Fri, 08/21/2015 - 15:58 | 6452910 hoist the bs flag
hoist the bs flag's picture

whatever you do...never use Crisco to wank with. It's shortening :)

Fri, 08/21/2015 - 16:22 | 6453071 J Jason Djfmam
J Jason Djfmam's picture

Try rapeseed oil.

Fri, 08/21/2015 - 16:48 | 6453184 hoist the bs flag
hoist the bs flag's picture

rusty steel wool works too. Give it a few weeks, the sores will fall right off.

Fri, 08/21/2015 - 15:58 | 6452915 Government need...
Government needs you to pay taxes's picture

Just ran outside and fired up the CAT on my M1078.  Racked the slide on the .308, counted all 658 cases of canned chicken/tuna, and the thousand weight of rice is looking long and strong.  Burn this muthafucka to the ground.  I want to see jumpers along Park Ave. . .

Fri, 08/21/2015 - 16:04 | 6452939 J Jason Djfmam
J Jason Djfmam's picture

"counted all 658 cases of canned chicken/tuna"

Whichever you want it to be?

Fri, 08/21/2015 - 17:30 | 6453468 Government need...
Government needs you to pay taxes's picture

chicken/tuna = better than squirrel.

Fri, 08/21/2015 - 16:18 | 6453032 Montani Semper ...
Montani Semper Liberi's picture

Well then pods, the Ashley Madison info dump must have given you multiples. Stock up on kleenex!

Fri, 08/21/2015 - 15:39 | 6452800 mt paul
mt paul's picture

Beep Beep

tickle your ass with a feather...

Fri, 08/21/2015 - 15:43 | 6452829 breadonwaters
breadonwaters's picture

...I mean, typicaly nasty weather!

Fri, 08/21/2015 - 15:43 | 6452830 Flatchestynerdette
Flatchestynerdette's picture

@LoneStarHog-since this is nobody's retail money the margin calls will be between banks on Monday.

Fri, 08/21/2015 - 16:07 | 6452959 corporatewhore
corporatewhore's picture

It is starting to smell a bit like 1987

Fri, 08/21/2015 - 15:27 | 6452727 franzpick
franzpick's picture

You explain it all JPM, we'll just watch it collapse.

Fri, 08/21/2015 - 15:28 | 6452728 PoorMan429
PoorMan429's picture

its called a rush for the exits before the weekend.

Fri, 08/21/2015 - 15:34 | 6452765 Greenie
Greenie's picture

Janet probably is speeddialing the pharmacy this moment to get her Xanex script refilled

Fri, 08/21/2015 - 15:28 | 6452729 Raoul_Luke
Raoul_Luke's picture

Bullshit!  It's crashing because the HFT flash boys are all selling in unison.  This isn't rocket science...

Fri, 08/21/2015 - 15:29 | 6452736 thecondor
thecondor's picture

SO 3:45 is when JPM starts buying. 

Fri, 08/21/2015 - 15:39 | 6452784 Flatchestynerdette
Flatchestynerdette's picture

I see GS is not riding to the rescue. But Dow down to correction terrirtory is only 10% of air. Lets talk actual value which is a lot further that -10%.

Fri, 08/21/2015 - 15:41 | 6452814 thecondor
thecondor's picture

I'm waitng for the Fed to come out in the last 15 mins to mention a QE4

Fri, 08/21/2015 - 15:45 | 6452845 Squid Viscous
Squid Viscous's picture

this has been fun, but you know they will come out with some bullish bullshit over the weekend, time to buy

Fri, 08/21/2015 - 15:52 | 6452884 new game
new game's picture

1000 pts this week. thats a start. pe still 20 something? actually higher with poor guidance and results that are going to disappoint, ha...

toast with global recession to boot. fucking about time the chicken come home to roost.

Fri, 08/21/2015 - 15:56 | 6452871 Flatchestynerdette
Flatchestynerdette's picture

I was wrong. The fed is trying to use GS to bring it back w/5 minutes left to go they had it back to 16550  when we were close to breaking 16,500. wow. Now they're letting it go south.

Fri, 08/21/2015 - 15:29 | 6452738 firstdivision
firstdivision's picture

If they're saying sell...I'm buying.

Fri, 08/21/2015 - 15:30 | 6452739 db51
db51's picture

The Fucking Cavalry is just over the horizon....everything is fucking awesome.......      General Custer

Fri, 08/21/2015 - 15:43 | 6452832 Winston Churchill
Winston Churchill's picture

Steady as she goes.

Capt. Smith.

Fri, 08/21/2015 - 15:53 | 6452888 Budnacho
Budnacho's picture

"Land-War in Asia?.....WTF not?"

-Adolph Hitler

Fri, 08/21/2015 - 15:30 | 6452746 Bilderberg Member
Bilderberg Member's picture

Cordinated dollar selling to the rescue...Just in time for the holidays

Fri, 08/21/2015 - 15:31 | 6452752 agstacks
agstacks's picture

I just pulled up a chart of the DOW and thought, no I don't want the silver chart I want the DOW.  

Fri, 08/21/2015 - 15:35 | 6452771 BasqueRand
BasqueRand's picture

That took me a second but I got it.

Fri, 08/21/2015 - 15:32 | 6452754 franzpick
franzpick's picture

This'll be a long and wrong weekend for the yellin' crowd, the corporate press jerks, and the promise-the-electorate-everything political crowd. You'll have to have wings to stay above the b*llsh*t on black Monday.

Fri, 08/21/2015 - 15:32 | 6452757 agstacks
Fri, 08/21/2015 - 15:33 | 6452759 Sardonicus
Sardonicus's picture

It's just the market pricing in all of the big layoffs that will be announced next time quarter gets reported.

Should be bunches getting sent to the dumpsters

Fri, 08/21/2015 - 15:41 | 6452768 Chuck Knoblauch
Chuck Knoblauch's picture

Que the Black Knight.

It's only a flesh wound.

Zero getting lazy on the entertainment value?

Come now, keep the bread coming!

Fri, 08/21/2015 - 15:35 | 6452770 franzpick
franzpick's picture

Gee look, not a knife-catcher in sight all afternoon:

http://www.investing.com/indices/us-30-futures-advanced-chart

Fri, 08/21/2015 - 15:35 | 6452772 Callz d Ballz
Callz d Ballz's picture

a c c e l e r a tion.

Fri, 08/21/2015 - 15:36 | 6452782 Jack of All Trades
Jack of All Trades's picture

Translation - it's on like Donkey Kong peeps!

Fri, 08/21/2015 - 15:36 | 6452787 franzpick
franzpick's picture

Not everyday you see the SPX down 60, and today's not over yet:

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=spx&insttype=&freq=1&show=&time=5

Fri, 08/21/2015 - 15:37 | 6452788 Spungo
Spungo's picture

NASDAQ 100 is down 3.7%. What the fuck?

Fri, 08/21/2015 - 15:37 | 6452789 Germany4Liberty
Germany4Liberty's picture

Dax below 10K

Fri, 08/21/2015 - 15:38 | 6452798 Ward no. 6
Ward no. 6's picture

woo hoo

time to party...

Fri, 08/21/2015 - 15:44 | 6452836 mt paul
mt paul's picture

eskimo hookers

and iceberg blow...

Fri, 08/21/2015 - 15:40 | 6452808 spekulatn
spekulatn's picture

Down 500.

Down 500 to close for the weekend.

Anyone.

Going once. Twice.

.....

Fri, 08/21/2015 - 16:01 | 6452922 buzzkillb
buzzkillb's picture

Those last 20 seconds of the DOW...Up and down 30 every few seconds?

Fri, 08/21/2015 - 16:03 | 6452935 spekulatn
spekulatn's picture

.......SOLD!!

 

Have a bitchin weekend.

Fri, 08/21/2015 - 16:04 | 6452940 cheech_wizard
cheech_wizard's picture

WE HAVE A WINNER... 

Fri, 08/21/2015 - 15:41 | 6452811 gmak
gmak's picture

The low of the day is on solid support that goes all the way back to the middle of December.

Fri, 08/21/2015 - 15:41 | 6452812 CapitalistPigsInZen
CapitalistPigsInZen's picture

Buy! Sell! Buy! Sell!
http://youtu.be/qsMc-IswG3w

Fri, 08/21/2015 - 15:41 | 6452816 Yen Cross
Yen Cross's picture

  Where's all that $usd strength everyone was saying would happen when the markets sold off? ;-)

  I can see bond yields (10's) aren't dropping that much. I wonder how much emerging market selling UST to raise cash is keeping yields from dropping more violently.

Fri, 08/21/2015 - 15:47 | 6452854 Winston Churchill
Winston Churchill's picture

A lot. Next TIC report will be a doozy.

Fri, 08/21/2015 - 15:42 | 6452818 mt paul
mt paul's picture

so said a cow

moooooooooo

Fri, 08/21/2015 - 15:42 | 6452823 moskov
moskov's picture

No SDR for Yuan

No Market containment worldwide. haha

Fri, 08/21/2015 - 15:45 | 6452843 Chuck Knoblauch
Chuck Knoblauch's picture

Chinaman angry, but patient.

Fri, 08/21/2015 - 15:44 | 6452825 q99x2
q99x2's picture

I'm in gold now. +$5.30. Not too good but hey better than nothing. FAZ +7.57%

Fri, 08/21/2015 - 15:43 | 6452827 CHC
CHC's picture

Ah fuck it.  Just fuck it.

Fri, 08/21/2015 - 15:43 | 6452834 rwe2late
rwe2late's picture

But, but

Yahoo said today  this is a "Normal" stock drop,

and just a "little cold spell".

 

Who can I believe?

'Normal' stock drop
"if you’re chilly in this stormy little cold spell, put on a sweater and wait."
https://finance.yahoo.com/news/-normal--stock-drop-breaks-an-uncommon-ma...

Fri, 08/21/2015 - 15:44 | 6452835 3bavboys
3bavboys's picture

ATTABOY Marko !!!

Fri, 08/21/2015 - 15:44 | 6452837 scatterbrains
scatterbrains's picture

Could the interparty war between the Clintons and Oblamos which is seeing the dirt on Clinton leaked trigger factual evidence that the Oblamo Treasury is corrupt to the corp?  Would that cause the Fed to freeze up in fear?

Fri, 08/21/2015 - 15:44 | 6452841 besnook
besnook's picture

the computers are panicing!!!!!!

Fri, 08/21/2015 - 15:45 | 6452844 Mat Cauthon
Mat Cauthon's picture

Aaaaand it's gone!

Stock Market Review Aug. 17-21

 

 

Dovie'andi se tovya sagain (It's time to toss the dice)

The Daily Economist

Fri, 08/21/2015 - 15:47 | 6452857 zeroaccountability
zeroaccountability's picture

When this is all over, they can make a movie called 'Face (Ripped) Off II'.

Fri, 08/21/2015 - 15:48 | 6452862 rwe2late
rwe2late's picture

 This should do wonders for the solvency of the pension funds.

Fri, 08/21/2015 - 15:49 | 6452868 coast
coast's picture

they are so busy keeping precious metals down, and keeping the WTI from staying above 39, and trying to keep the dow below 500...I guess now we see how good they are at juggling....

Fri, 08/21/2015 - 15:49 | 6452870 KCMLO
KCMLO's picture

Looks like PPT showed up now.

Fri, 08/21/2015 - 15:52 | 6452882 the not so migh...
the not so mighty maximiza's picture

whew..that was a close one

Fri, 08/21/2015 - 15:51 | 6452879 debtor of last ...
debtor of last resort's picture

The last promise will fade away after cb's go all in. They know that, they will come in after the blood in the streets has dried up. Not before.

Fri, 08/21/2015 - 15:54 | 6452891 general ambivalent
general ambivalent's picture

Jesus Titty Fucking...

Fri, 08/21/2015 - 15:54 | 6452892 Jacksons Ghost
Jacksons Ghost's picture

100 point move up in last 20 mins.

Fri, 08/21/2015 - 15:58 | 6452906 Jacksons Ghost
Jacksons Ghost's picture

WTF ! Flash crash at the end!

JPM fuckers were right.

Fri, 08/21/2015 - 17:24 | 6453414 caconhma
caconhma's picture

JPM was a major participant.

US financial markets are out off control. Corruption and manipulations are a runaway train.

Fri, 08/21/2015 - 15:56 | 6452898 zeroaccountability
zeroaccountability's picture

Five minutes left!!!!

Fri, 08/21/2015 - 16:02 | 6452926 steveharless
steveharless's picture

BURN BABY BURN...DISCO INFERNO!

Fri, 08/21/2015 - 16:05 | 6452949 cheech_wizard
cheech_wizard's picture

...and it's gone.

Fri, 08/21/2015 - 16:08 | 6452962 atthelake
atthelake's picture

Next week should be interesting. Monday's close will be...

Fri, 08/21/2015 - 16:12 | 6452989 Kelley
Kelley's picture

Please be careful walking to the subway from Wall Street, all you traders. It might be best to walk in the street rather than the sidewalk to avoid any falling bodies.

Fri, 08/21/2015 - 16:19 | 6453050 J Jason Djfmam
J Jason Djfmam's picture

Love that last yellow arrow. ?.

Fri, 08/21/2015 - 16:18 | 6453039 rsnoble
rsnoble's picture

Do you really want to listen to an outfits opinion, regarding such important issues, that is fucking bankrupt?

Fri, 08/21/2015 - 16:40 | 6453087 Quinvarius
Quinvarius's picture

Of course.  Of course.  It is not the market crashing algo they used at the closes in 2009 almost every day.  It is...hedging.  We all know what these asshats do in middle of the night thin markets and at closes.  It has zero to do with hedging.

That being said, this market is at least 50% overvalued. 

Fri, 08/21/2015 - 17:48 | 6453573 Zabugrom1
Zabugrom1's picture

Sure, the evil is the evil but... the fact is the fact aslo and for everyone. Massive fall yesterday and today caused massive margin calls. Why 3:45PM? - it's time when brokers close positions of traders in a trouble. JPM just knows it very well. Of cause, algos know it very well and help. Good for those who have never seen this movie. This can go every day.

Fri, 08/21/2015 - 16:30 | 6453108 vincent
vincent's picture

New Headline Tylers...

JPM Explains How They're Cashing In As The Market Crashes Into The Close.

Fri, 08/21/2015 - 17:27 | 6453439 zeroaccountability
zeroaccountability's picture

Well, that escalated quickly!

 

Let's talk about Monday, shall we?

Gap down 350 at the open?

Fri, 08/21/2015 - 20:33 | 6454161 RabbitChow
RabbitChow's picture

I hope youse guys dont actually have money in the market... I sold the last in 2008, never to go back. Just watchin the fun now...

Fri, 08/21/2015 - 21:21 | 6454278 bid the soldier...
bid the soldiers shoot's picture

Yellen semaphored Blankfein "Keep your powder dry".

Blankfein sent a runner to JPM not to start the phony 3:30 rally.

It's as simple as that.

Do NOT follow this link or you will be banned from the site!