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This Has Never Happened To VIX Before
Amid the carnage and chaos of the last two weeks, one thing has become crystal clear - the effect of massive one-way bets on 'everything', predicated on the omnipotence of central bankers, has left a market (stocks, bonds, FX, commodities) bereft of fundamental linkages and instead driven entirely by technicals (flows, forced unwinds, systematic gamma). While many 'records' were broken in terms of velocity of moves, it is the VIX complex that seems to have suffered most, and as the following chart shows, positioning is now at an extreme in both stocks, vol, and bonds once again.
Speculative traders have never - ever - been this net long VIX futures... and traders have not been this net short S&P futures since Summer 2012.
The VIX curve remains deeply inverted - the longest period of backwardation since 2011's plunge.
And the crowd has 'decided' to pile into bond shorts - with 5Y Futures net shorts the largest in 7 years...
As is clear, the last time the crowd was this short, bonds ripped 250bps tighter, forcing a massive short squeeze.
With such extreme positioning across the equity, vol, and bond complex, it would seem no matter what The Fed does in September, there will be blood.
Charts: Bloomberg
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or a massive short squeeze
Or the sheeple will have another drink, have another joint and read up on the latest celebrity gossip as the banksters plunder them blind.
The history of revolutions (French, Mexican, Russian, Chinese) shows us that things have to get truly awful before people rise up.
Good point, but the American Revolution, driven by the landed gentry, was an exception.;)
The local oligarchs of their time.
Cops are out for blood, but there pay checks are on the line so it's all good to them.
I work with stockbrokers everyday, many of their equity clients have been crushed. bond investors have survived as long as they have not been overexposed to Puerto Rico, IL/Chicago munis and even New Jersey munis are showing signs of stress now. Oil related bonds continue to be pressured. I saw one broker short selling the VXX at 23-24 right after the 1000 point decline but now the VXX is over 29 with the S&P higher than when he first started shorting, so he's got to be going nuts. Gold seems to be holding but definately not getting the pop many would expect to happen in these conditions. Brokers DO NOT want to call clients who's recent performance has been so bad, that is human nature.
That's not a paired trade! Watchu mean "hedge fund"?
The 1650-1700s Mini-iceage-the Maunder Minimum brought about world-wide revolutions and 1/3 of the worlds population died. That happens whenever sunspots quit showing up.. So the revolutions were caused by the sun and lack of food.
Charles II's father, Charles I, was executed at Whitehall on 30 January 1649, at the climax of the English Civil War. Although the Parliament of Scotland proclaimed Charles II King on 5 February 1649, England entered the period known as the English Interregnum or the English Commonwealth, and the country was a de factorepublic, led by Oliver Cromwell. Cromwell defeated Charles II at the Battle of Worcester on 3 September 1651, and Charles fled to mainland Europe. Cromwell became virtual dictator of England, Scotland and Ireland, and Charles spent the next nine years in exile in France, the Dutch Republic, and the Spanish Netherlands.
good point, kaiserhoff...geo washington held a purchase and sale contract for the ohio river valley just after the french and indian war. he didn't appreciate the colonial squatters hob knobbing with the natives on the frontier and england looking the other way. the revolution was not about tea or taxes. it was a land grab. he knew attacking england would draw the indians in opposition and align the french (germans and russians) with the colonials. beat the british and indian land would be the spoils.
driven entirely by technicals..
Seems to me that all summer, the market has been driven by running stops.
Agreed. Funny how some obvious contrarian signals get missed in the rush to prove everything is a sign of the next crash. If VIX longs weren't so aggressive before 2008, why would we assume there is any kind of signal now? Isn't the more likely conclusion that they'll get whipsawed and proven wrong? (at least near term - maybe the crash happens after the shorts first get wiped out. the market screws the maximum number of people)
<---- THERE WILL BE BLOOD THIS MONTH.
<---- THERE WON'T BE BLOOD THIS MONTH.
Answer truthfully, i'd like to get an idea of how many people believe this is it.
I guess it depends on what you mean by "Blood."
I am beginning to think instead of a 'crash' we get the 'Japanese Treatment:'
Death by a thousand cuts.
A market that slowly grinds sideways and downwards with many sharp rallies and mini-crashes along the way.
Perhaps this is the best scenario TPTB can hope for...
Possible -- years of deflationary net sideways or downward markets .. think Dow 1968-1982.
… ahh, but in those days
wealth actually EXISTED !
I would think with this much turmoil something has to break....if nothing breaks, it can yo yo for a while.
I said not this month only because "they" ain't gonna let it completely crumble "overnight"
The problems are known and the manipulations coming unglued, but my bet is choppy down, not a "bloodbath" down.
Empires by and large take a long time to find their bottoms, collapse generally being a bit more gradual than most people think .... Gradual enough that most people don't see the BIG Picture until way later. And even more so, we're inside our own thought bubbles here, as well. Anybody thinking they/we got this thing "pegged" is delusional.
Just because we haunt the Hedge don't make us mini Ray Dalios or Superman.
I don't necessarily think Humpty Dumpty falls off the wall this month. I do believe current economic conditions have been kept up for many years at the expense of everything that is fundamental for the health of an economy. Therefore, the system has been seeking a bottom for a long time but one off gimmicks have kept it patched up till we have patches upon patches upon patches, so when it blows it should be catastrophic.
You may be right but on the other hand there are a lot of exterior variables out there such as war or China, etc that could bring down this market faster than a Chuck Norris kick to the knee.....
There better be, I have been long volatility & getting donkey punched for awhile now waiting on this mess people call a 'market' to correct back into at least some kind of 'reality'.
Good luck; but don't forget the classic warning (attributed to Keynes) that "[m]arkets can remain irrational a lot longer than you and I can remain solvent."
There will be blood.
everytime i have thought "there will be blood" the exact opposite occurs. therefore, "there will not be blood".
There is ALWAYS blood....
Time to recalculate the SD to get the true 6 sigma range.
Alright, can we just cut to the extreme, big daddy, ultimate brought to you by Carl's Jr. Death Cross and get this collapse started?
EXTRA BIG ASS TACO
You're obviously an unfit mother...
this particular individual really wants an extra big ass fries now.
The computer is a tool of man, not a replacement of man. I have this feeling that while the banksters have been busy counting their HFT skim and spoofing "wins", they are going to sorely regret abdicating to the computer. Even the guy in the back with the "Rule 48" tattoo is going to feel uneasy.
This bitch is coming down soon.
Keynesians and progressives think they can mold the future without taking into account human nature. There is a god, if called nothing else then reality and it trumps all, always. Obviously, Keynesians and progressives feel they are the omnipotant ones and their bungling fuzzy thinking feel good plans and solutions will lead us to perdition.
Lots of tricks are still left to float this turd...will the FED use them or finally let it flush?
They can't let it flush because the banks and the federal government would collapse. The collapse will happen eventually, of course, but they want to postpone that event as long as they can.
While the contrarian would be inclined to take a long spx position with such positioning staring them in the face the market can continue to move lower as evident in the above chart in 2008-2009. having said that a short squeeze would be in order considering the fed is getting ready to unleash QE 4
That there is even a VIX instrument to be traded is the very definition of market insanity. Much fodder here for another great book by Lewis.
There is no underlying asset. One might as well form and trade an instrument based on daily word count in ZeroHedge posts. Which just like VIX trading could be massaged to change market prices on the underlying.
"trade an instrument based on daily word count in ZeroHedge posts."
Ticker symbol: BS
Like the .gov statistics on unemployment and inflation - statistical fabrications employed as propaganda props.
Pardon? How can VIX trading "change market prices on the underlying" when, as you say, there is no underlying asset?
It's abstract stuff, certainly: being calculated on a basket of SPX options, it's a derivative of a set of other derivatives. But what's insane about trading something with no immediate underlying asset? What's the underlier for Chelsea v. Man U, for instance?
There has never been an article named this before. :P
shemitah
Shemitah is yiddish for Y2K
...
I'll just add it to the bucket of other "never happened before" things. The bucket is getting full.
never - ever just doesn't have the same ring to it as not since lehman
A serious question: Is anyone here actually long VIX futures, or VIX options, or options on VIX futures for that matter?
If so, would you be so kind as to explain why? What's the plan -- when would you sell your long VIX hedge? Also, who do you believe would buy it from you at that point, and why?
What I'm getting at is that VIX is mean-reverting: it can continue to go up only if the IVs of its constituent options continue to go up, which will happen only if prices continue to swing more and more wildly. Eventually this has to slow down, no matter what the absolute level of SPX is at that point. You're betting on the vol of vol, essentially.
What's more, VIX options are European style: they can't be exercised before expiration. So if you bought longer-dated VIX options and VIX duly goes to the moon, surely your counterparty can just wait it out, betting that at least some mean reversion will occur before expiration?
VIX products are all the rage, so it's entirely possible that I'm missing something here. Please explain...
If you are going to buy the VIX, and trade it you are correct. Buy near term, because they move the fastest. I really do no get buying long term vix options. But, that is why I am here reading another hysterical ZH article and not floating in my pool in the Hamptons.
That said, I bought a few near term options going into the weekend. I figured one way or the other Tuesday morning is going to be a shit storm. Might as well make a bet of a few bucks in an effort to make a couple hundred.
You need to read the prospectus on these products, and or read the numerous authors/articles that can explain the usage of these products. Don't listen to the idiots on these boards proclaiming VIX products as rip offs. They are lazy asses who don't want to invest the time and energy into understanding it. They would rather have a Cramer figure tell them what to do, rather than do their homework. These are awesome products used correctly.
I bought VXX in May and sold at 27 last week. I didn't get the recent top of 30. The crowd is always wrong. Wall Street will find a way to clean the clocks of the VIX longs. Then, I will re-enter. VXX is not an option and has no expiration date. But, when they drove the sucker down to 11 at one point, I thought that VXX might evaporate. This is a strong dose of speculation. Not storng enough, then try UVXY.
Thanks, all of you. It's clear that some serious reading is required before trying to trade the VIX and related indices; the contract specs alone are very different than most standard options (Wed. expiration?!). Good to hear that a few of us here are managing to trade these things with some success.
Serious reading or not ... one still has to choose his points of speculation. Will the environment and then the traders perform as envisioned????? Will it go up because .... or will it go down because ..... ?
Yes, I bought some way out of the money vix long option for next week. I would agree with your logical analysis but its missing one thing: emotion. I've come to realize that markets aren't about fundamentals but about emotion. The emotion is running very high and so logic goes out the window. Logic says a quarter point rate increase is very very small. Emotion says "OMG, they are raising rates, WHY, WTF, are they crazy, the world will collapse". And then with automated programs designed to buy/sell based on certain factors but never designed for crazy swings, the programs will just exacerbate these swings.
The roundheads. Interesting part of history.
"no matter what The Fed does in September, there will be blood."
nep nep nep nep nep nep nep nep
What's driven the market to the highs, corporate buybacks!
The long end of the bond curve Is getting hammered so Buy backs are getting expensive. Ceo's Will not sell their own stock because bonuses are at risk.
So traders have an one sided trade, and company balance sheets are going to get smashed because of the executive greed.
That's why the Vix is not going to revert back to the mean. We have breakout and about to start wave three of five.
I'm looking for a 50% correction and will take two years to the bottom.
"... no matter what The Fed does in September, there will be blood."
Indeed damned if they do and damned if they don’t. The FED has painted itself into a nasty corner again.
Because if the FED in it’s ‘normalization’ insanity hikes rates anyways, in this reckless QE experiment, they will get the blame and they don’t want that, don’t they.
But if they don’t hike rates they’ll lose any credibility that they had left.
Rickards is even talking about negative interest rates now which if implemented by the FED, will cause even more deflation.
Jim Rickards: Will Currency Wars Reorder the World? https://www.youtube.com/watch?v=J33oi_qor2Y
Short sqeeze coming up?