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Why The Market Is Crashing Into The Close: JPM Explains
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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Ho-Lee-Chit
This is gonna leave a mark.
At this level (-485) it would be the top 15th one-day decline in the Dow... of all time heh.
small caps stronger today. broad market rally next week?
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.
Just waiting on the deer...
So, where's the $ going ?
Gold only up $7 !
The Longs got a good ramma Put in their gamma's.
QEIV yes or no? What the fuck else is there?
QEternity
Carnage....the other red meat.
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.
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.
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?
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.
Margin clerks can't hit the sell button fast enough at this point
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).
You and a couple of thousand other folks...
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.
As many learned in 2008, it's not enough just to get the direction right, you also have to get the timing right too!
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.
"Better put some ice on that".... William Jefferson Clinton
Scotch?
This is one for the record books.
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
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!!!!
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.
read that real quick...piles IN the shorts...guess that works too
Forgive my lingo. Not a trader. :)
Hilarious Pods...finally someone on the Jared jokes!
so much material there,
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.
Say what you want about Jared and his wiener, at least he drives slowly through school zones.
btfd...please!
The Shemitah hits the fan.
The kids who call this a CRASH have never actually experienced a CRASH.
I've never masturbated furriously waiting for the -500 money shot during a crash. Good thing there aren't many people here today.
pods
pods, I've heard it works better if you strangulate yourself at the same time.
Seems appropriate for the times. };{D>
nail gun it to the floor too
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)
I don't trade either. :)
Schadenfreude is a such great lubricant I just can't pass it up.
pods
whatever you do...never use Crisco to wank with. It's shortening :)
Try rapeseed oil.
rusty steel wool works too. Give it a few weeks, the sores will fall right off.
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. . .
"counted all 658 cases of canned chicken/tuna"
Whichever you want it to be?
chicken/tuna = better than squirrel.
Well then pods, the Ashley Madison info dump must have given you multiples. Stock up on kleenex!
Beep Beep
tickle your ass with a feather...
...I mean, typicaly nasty weather!
@LoneStarHog-since this is nobody's retail money the margin calls will be between banks on Monday.
It is starting to smell a bit like 1987
You explain it all JPM, we'll just watch it collapse.
its called a rush for the exits before the weekend.
Janet probably is speeddialing the pharmacy this moment to get her Xanex script refilled
Bullshit! It's crashing because the HFT flash boys are all selling in unison. This isn't rocket science...
SO 3:45 is when JPM starts buying.
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%.
I'm waitng for the Fed to come out in the last 15 mins to mention a QE4
this has been fun, but you know they will come out with some bullish bullshit over the weekend, time to buy
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.
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.
If they're saying sell...I'm buying.
The Fucking Cavalry is just over the horizon....everything is fucking awesome....... General Custer
Steady as she goes.
Capt. Smith.
"Land-War in Asia?.....WTF not?"
-Adolph Hitler
Cordinated dollar selling to the rescue...Just in time for the holidays
I just pulled up a chart of the DOW and thought, no I don't want the silver chart I want the DOW.
That took me a second but I got it.
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.
This may have been a bit pre-mature...
http://www.cnbc.com/2015/08/19/janet-yellen-please-take-your-victory-lap...
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
Que the Black Knight.
It's only a flesh wound.
Zero getting lazy on the entertainment value?
Come now, keep the bread coming!
Gee look, not a knife-catcher in sight all afternoon:
http://www.investing.com/indices/us-30-futures-advanced-chart
a c c e l e r a tion.
Translation - it's on like Donkey Kong peeps!
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
NASDAQ 100 is down 3.7%. What the fuck?
Dax below 10K
woo hoo
time to party...
eskimo hookers
and iceberg blow...
"So Bullish It Hurts"
http://finance.yahoo.com/video/bullish-hurts-paul-richards-163100180.html
Down 500.
Down 500 to close for the weekend.
Anyone.
Going once. Twice.
.....
Those last 20 seconds of the DOW...Up and down 30 every few seconds?
.......SOLD!!
Have a bitchin weekend.
WE HAVE A WINNER...
The low of the day is on solid support that goes all the way back to the middle of December.
Buy! Sell! Buy! Sell!
http://youtu.be/qsMc-IswG3w
https://www.youtube.com/watch?v=Yd0fBXwDBmo
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.
A lot. Next TIC report will be a doozy.
so said a cow
moooooooooo
No SDR for Yuan
No Market containment worldwide. haha
Chinaman angry, but patient.
I'm in gold now. +$5.30. Not too good but hey better than nothing. FAZ +7.57%
Ah fuck it. Just fuck it.
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...
ATTABOY Marko !!!
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?
the computers are panicing!!!!!!
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
When this is all over, they can make a movie called 'Face (Ripped) Off II'.
This should do wonders for the solvency of the pension funds.
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....
Looks like PPT showed up now.
whew..that was a close one
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.
Jesus Titty Fucking...
100 point move up in last 20 mins.
WTF ! Flash crash at the end!
JPM fuckers were right.
JPM was a major participant.
US financial markets are out off control. Corruption and manipulations are a runaway train.
Five minutes left!!!!
BURN BABY BURN...DISCO INFERNO!
...and it's gone.
Next week should be interesting. Monday's close will be...
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.
Love that last yellow arrow. ?.
Do you really want to listen to an outfits opinion, regarding such important issues, that is fucking bankrupt?
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.
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.
New Headline Tylers...
JPM Explains How They're Cashing In As The Market Crashes Into The Close.
Well, that escalated quickly!
Let's talk about Monday, shall we?
Gap down 350 at the open?
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...
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.