The Market Has Just Gone Nuts

Tyler Durden's picture

Presented with little comment, aside to ask: "where are the liquidity-providers?"

Extremely heavy volume... and wild swings

 

Zoomed in the moves actually occurred over a 5 minute span... (via @NanexLLC )

 

And it appears all about algos playing The VIX ETFs... (though we already know that VIX manipulation runs the entire market)

 

420 Point roundtrip in The Dow in under 9 minutes...

 

As HYG hit Friday's lows...

 

And all of this is happening right on cue following JPMorgan's Marko Kolanovic warnings of "massive stop losses" ahead..

Not surprisingly, the biggest potential selloff catalyst is the Fed itself and specifically the Dec. 16 FOMC announcement, which the Fed is desperate to guide as being "priced in" by the market, but considering the Fed's track record with getting any forecast right, concerns are starting to grow. "As for near-term risks—we believe the most imminent market catalyst will be the December Fed meeting in which we are likely to see the first rate hike of the cycle."

* * *

So far so good, but to a market which has traded mostly on technicals and program buying (and selling) in recent months, there is something far more troubling than just what the Fed will announce:

This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers, and since the vol surface of the market will be well-known to everyone in advance, there is a very high probability the implied "stop loss" level will be triggered, and the market could trade to a level equivalent to the strike price, somewhere in the 1,800 area, or nearly 200 points below current levels.

Which would be a tragedy for the Fed: after all, nothing is more important to Yellen, Draghi et al, than affirmative market signaling - pointing to the (surging) market's reaction and saying "look, we did the right thing", just as Draghi did on Friday when he explicitly talked the market higher in the aftermath of the ECB's disastrous announcement.

The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market's read through of monetary policy but by the "pin" in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the "psychological" stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

Whether this happens remains to be seen, and we are confident the Fed's "arm's length" market-moving JV partner, Citadel, is currently scrambling to prevent any imminent selloff. However, considering Kolanovic' track record of hinting at key risk inflection risk, it is quite likely that whatever the ultimate closing price on December 16 and, more importantly, December 18, volatility may very soon have an "August 24" type event.

*  *  *

Something has broken.

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Maplehood's picture

Gold still solidly in the red - all is good

hedgeless_horseman's picture

 

 

Simon Potter, please adjust the sensitivity of 33 Liberty's joy sticks. You're making the passengers sick.

Truther's picture

Simon: "Wait till I get get circumsized."

hedgeless_horseman's picture

 

 

“Our testing program,” Mr. Potter told money-market professionals at a
dinner off Wall Street in mid-April, “gives us confidence that we have
the necessary tools to enable a smooth liftoff.”

idea_hamster's picture

“It’s a feature, not a bug.” -- Citadel

He_Who Carried The Sun's picture

Don't worry!
Tyler is just feeling a tad miserable to-day...

Ignatius's picture

Off topic, but interesting:

"Zero Hedge's infamous Tyler Durden has provided us with a fact sheet on high treason."

"Tyler Durden, who probably really is Daniel Ivandjiiski..."

http://sputniknews.com/analysis/20151207/1031363406/us-russia-terrorism....

Manthong's picture

I wonder how many thousands of stops were triggered and billions of dollars of profit that sweet maneuver produced.

Quus Ant's picture

Paper promises backed by bullshit.

This is purely for our amusement so enjoy brothers and sisters, for tomorrow we will must amuse ourselves.

kralizec's picture

Oh oh, somebody just got outed...again.

http://www.nakedcapitalism.com/2009/08/who-is-tyler-durden_21.html

No hedging your bets now!  :)

Harlequin001's picture

of course it's only the guys at the Fed and their buddies who know already what will happen on Wednesday...

Ignatius's picture

Thanks for the link.  I haven't really spent any time thinking about who 'Tyler' is as I judge ZH by its content and quality of the articles and analysis.  I did note that when I registered (Sept 2010) that it was one of the few sites that didn't suppress controversial comments on things like 9/11.  Journalism, properly defined, requires courage and ZH does journalism.

kralizec's picture

ZH is at least closer to a functioning free press than what the MFM in any media format spews, of that there can be no debate!

emersonreturn's picture

ig & kralizec, i've been anticipating, as i'm sure have you & others, that as the tylers continue to dig & present what's going on geopolitically & financially that they will begin to feel the displeasure & pressure of those with the most to lose. what i admire about the tylers is that they appear to be as committed to truth & unravelling the great lies as many posters: paveway, j burton, WC, just observing to name but a few.  we are witnessing a huge game, i think one of the greatest, & with truth & courage we may be able to free ourselves of the infamous PTB.  some wags over the weekend posted their disapproval of the tylers' pointing out their prowess (yet consider, if they don't how much easier it should be for the threatened to rewrite facts---the tylers understand media, memory & history much better than most (thank god!)).  high 5, tylers, for continuing to point out the lies, the money trail, & to shine light upon the deception.  you are singularly doing a benchmark job.

Ignatius's picture

Good thoughts.  Human nature being what it is there will inevitably be some form of the "PTB", but hopefully we roll back some of the worst excesses and soften the edges in these perilous and dangerous tech-powered times.

johngaltfla's picture

Oh jeez, not this shit again.

We are all Tyler Durden.

aVileRat's picture

Remember when Chilton said HFT's would become more active as volumes/vol grows ? Remember when CS argued that darkpools + rebates will improve market transparency and prevent price spikes (up & down) from damaging investor confidence? lol.

 

Consuelo's picture

> Sheer ignorance

> Pandering to the 'base'

Ghordius's picture

I'd say neither. the linked article talks about Trump's policy paper calling for the US Treasury to "brand" China a "currency manipulator"

now, independently from what you think about that issue, this was a policy option that was discussed in all earnest, not that long ago

it used to be the standard approach... until someone the size and importance of China did it

MisterMousePotato's picture

By the way, for the benefit of those bereft a classical education, the post above 'neither' is a good illustration of the Hegelian dialectic in all it's dishonest glory.

Be alert. Don't get sucked in.

pff136's picture

Countries have been throwing off dollars for years; since at least 2008. Nobody wants to be left standing with the bad currency when it dies, including China. I hate to say it but the end is nearing for the U.S. dollar's world reserve currency status. The United States has been poking sticks at the BRICS nations for years in order to hold on to world reserve currency status. If Trump doesn't understand this concept, all he is doing is adding gas to the flames. It's not just China. Countries such as Australia stopped trading with China in dollars. Russia and China trade outside the dollar. India and China started trading gold for oil with Iran bypassing U.S. sanctions. No one wants to hold the dollars because the Federal Reserve Central Bank kicked the can down the road in 2008/09 for the economy's "correction." Because they put it off thinking money-printing and our govt bailing out failing businesses (which should've failed), the "correction" is going to be exponentially worse. The money-printing will eventually kill the currency and will end in hyperinflation (John Williams, Austrian theory economist, shadowstats.com). The reason Williams believes it will be hyperinflation is because not only do we have massive amounts of dollars circulating, the world is dumping dollars and those dollars are going to return. Dr. Ron Paul tried to sound the warning on this decades in advance. He said the markets are always stronger than the manipulation. President Calvin Coolidge kept his hands off the depression of 1920/21. He allowed the "correction" in the economy. The depression was severe but lasted only about a year. Whereas, Presidents Hoover and FDR interfered in the correction after 1929 and made it much more severe, lasting over 10 years and making it "great". Just seems the lessons of history bypass peoples' memories. Unfortunately, this time we've all been put through a rather unbelievable experiment by the Fed. I hope Trump understands this because trying to stop the "correction" or fighting China/Russia over the use of the U.S. dollar is going to be disastrous.

pff136's picture

Countries have been throwing off dollars for years; since at least 2008. Nobody wants to be left standing with the bad currency when it dies, including China. I hate to say it but the end is nearing for the U.S. dollar's world reserve currency status. The United States has been poking sticks at the BRICS nations for years in order to hold on to world reserve currency status. If Trump doesn't understand this concept, all he is doing is adding gas to the flames. It's not just China. Countries such as Australia stopped trading with China in dollars. Russia and China trade outside the dollar. India and China started trading gold for oil with Iran bypassing U.S. sanctions. No one wants to hold the dollars because the Federal Reserve Central Bank kicked the can down the road in 2008/09 for the economy's "correction." Because they put it off thinking money-printing and our govt bailing out failing businesses (which should've failed), the "correction" is going to be exponentially worse. The money-printing will eventually kill the currency and will end in hyperinflation (John Williams, Austrian theory economist, shadowstats.com). The reason Williams believes it will be hyperinflation is because not only do we have massive amounts of dollars circulating, the world is dumping dollars and those dollars are going to return. Dr. Ron Paul tried to sound the warning on this decades in advance. He said the markets are always stronger than the manipulation. President Calvin Coolidge kept his hands off the depression of 1920/21. He allowed the "correction" in the economy. The depression was severe but lasted only about a year. Whereas, Presidents Hoover and FDR interfered in the correction after 1929 and made it much more severe, lasting over 10 years and making it "great". Just seems the lessons of history bypass peoples' memories. Unfortunately, this time we've all been put through a rather unbelievable experiment by the Fed. I hope Trump understands this because trying to stop the "correction" or fighting China/Russia over the use of the U.S. dollar is going to be disastrous.

KnuckleDragger-X's picture

We're on the roller coaster from hell getting ready to hit the fun part.....

Four chan's picture

we have gone up the hill the last 8 years, i cant wait for the WHEEEEEE moment we are in store for.

Truther's picture

This is Yellen with a hangover. This is fucking lunatic.

Cognitive Dissonance's picture

Nothing a little super glue (Fed QE) won't fix.

Consuelo's picture

Super glue...?   More like Loctite Pro Line 3X...

Gordon Freeman's picture

I'm a liquidity provider--I just don't want to buy crap!

Cognitive Dissonance's picture

The only liquidity I'm willing to provide is the neighbors' horse piss. Free collection services if I can personally deliver it to Yellen.

_ConanTheLibertarian_'s picture

<insert mandatory sex related remark>

nmewn's picture

Here comes the money on the sidelines! 

"We made a bet. One dollar. Here ya go Billy Ray." 

slaughterer's picture

Flash smash!  What are they testing now?

Truther's picture

If this was rust or blood stains on Janet's underwear.

G.O.O.D's picture

Anyone see any Russian  Radar Jamming planes

ThroxxOfVron's picture

Preview of Santa OPEX Shitstorm.

Sir SpeaksALot's picture

one would hope it s finally the black swan taking off...

herkomilchen's picture

Extending and flapping its wings a few times.  Preparing for its own 'liftoff.'

Snarf's picture

Holy crap that was weird.  Never seen anything like this.   That was INSANE.

slaughterer's picture

All done with 6 ES minis.  3 bought, 3 sold.  /sarc

Bill of Rights's picture

Very dangerous place to be playing, better to watch.

walküre's picture

100%

These girations look as if there's a massive portfolio exchange going on and the buyer of last resort is stepping up to the plate. They can't do it outside of market hours. We all get to sit back, relax and watch the transfer.

Fed needs to buy the equities or the dream of raising rates won't work. Fed has unlimited fire power.

Tall Tom's picture

The FED cannot create that type of liquidity without selling off assets from their balance sheet or loaning it to large institutions, if not Governments.

 

Or can they???

 

You know...Maybe they are running on two sets of books?

Bryan's picture

There you go using that word "market" again.

BiPolarFrenchman's picture

What would be a better word to use that truly described it?  

I've read ZH users say 'casino', but I don't think that does it justice.  Casinos don't lie about what they are.