Here Is The Stealthy Way Some Are Betting On A Market Crash

Tyler Durden's picture




 

Credit markets have been warning of a looming crisis for months...

 

And as the cost of protecting against credit collapse has soared so the cost of protecting against equity downside (VIX) has started to awaken:

 

However, as we detailed previously, more than a few market participants have turned to deep out-of-the-money options to protect themselves against drastic downside (pushing the skew - the relative cost of crisis protection over 'normal' protection - to record highs).

And so, with the cost of protection so high, traders are looking for cheaper alternatives.

Since the Fed folded in September (under the same conditions that are playing out now), basically admitting it is terrified to raise rates and willing to backtrack due to market fragility, IceFarm Capital's Michael Green explains, it appears many market participants are piling into par Eurodollar calls:

[the chart shows the cumulative open interest in par calls on eurodollar futures contracts that expire in 2016 and 2017 - basically options on short-term interest rates with a strike price of zero, such that they pay out if the Fed takes rates negative]

When queried whether this is indeed a trade to bet on a market drop, Michael Green responded as follows:

[A reader] thought  this might be an attempt by hedge funds to hedge out their exposure to rising interest rates very cheaply.

 

My initial idea was that it actually could be a bet on negative rates (if for some reason the Fed had to come back into the picture with QE4).

 

The bottom line: "Deep OTM puts on the S&P are very expensive while par ED calls are relatively cheap.  In my view, we are that inflection point where the Fed is going to start to waffle…the bear market beckons and they will not be able to stick with their interest rate guidance. Of course, markets tend to frown on Central Bankers revealed as less than omniscient..."

And the market is already shifting to that opinion - as CME shows, no one trusts The Fed's dot-plots anymore:

 

Thus, the ED Par Calls are a direct proxy for The Fed's "Dow-Data-Dependent" policy (and given the surge in Open Interest, it seems more than a few agree).

h/t IceFarm Capital's Michael Green

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Sun, 01/17/2016 - 15:56 | 7059028 besnook
besnook's picture

dollar short

Sun, 01/17/2016 - 15:59 | 7059051 Mr.Sono
Mr.Sono's picture

Dollar long

Sun, 01/17/2016 - 16:00 | 7059060 Truther
Truther's picture

No Dollar. Only Gold.

Sun, 01/17/2016 - 16:02 | 7059066 Soul Glow
Soul Glow's picture

There is no spoon.

Sun, 01/17/2016 - 16:04 | 7059078 Buckaroo Banzai
Buckaroo Banzai's picture

There is no dollar, only Zool.

Sun, 01/17/2016 - 16:15 | 7059118 besnook
besnook's picture

soon we will all be eating gruel

Sun, 01/17/2016 - 16:20 | 7059134 The Merovingian
The Merovingian's picture

The best hedge is not to play.

Sun, 01/17/2016 - 16:25 | 7059152 knukles
knukles's picture

My Momma told me that, too.  Swore I'd get hair on my knuckles and a horrible lisp.

Sun, 01/17/2016 - 16:37 | 7059202 besnook
besnook's picture

i'm deaf

Sun, 01/17/2016 - 16:46 | 7059234 slimycorporated...
slimycorporatedickhead's picture

LOUD NOISES

Sun, 01/17/2016 - 17:07 | 7059326 besnook
besnook's picture

what did you say? tell me after i'm done playing.

Sun, 01/17/2016 - 17:44 | 7059452 tc06rtw
tc06rtw's picture

   
 Don’t you understand??!!
   
The Fed wants us all to be RICH !!

Sun, 01/17/2016 - 21:44 | 7060329 Never One Roach
Never One Roach's picture

"It's complicated."

Sun, 01/17/2016 - 22:03 | 7060374 red red wine
red red wine's picture

Do opposite to the pundits recomendations.

 

Sun, 01/17/2016 - 22:09 | 7060390 brockhardman
brockhardman's picture

We confused some folks.

Sun, 01/17/2016 - 22:37 | 7060480 new game
new game's picture

say what?

Sun, 01/17/2016 - 23:47 | 7060608 silverer
silverer's picture

You can run, Dr. Jekyll, but you can't Hyde.

Mon, 01/18/2016 - 03:28 | 7060852 All Risk No Reward
All Risk No Reward's picture

BTW, that's an exact quote when an anti-war democrat under Banksto-Bush was confronted with the democratic wars under BankstObama.

"It's complicated."

The Sith mind control is strong in people who demand it...

Sun, 01/17/2016 - 16:46 | 7059235 Stainless Steel Rat
Stainless Steel Rat's picture

You'd have to be insane not to be in this market.  This is my wet dream!

Sun, 01/17/2016 - 17:28 | 7059405 Money_for_Nothing
Money_for_Nothing's picture

Hello Slippery Jim. How's Angelina and the boys?

Mon, 01/18/2016 - 03:33 | 7060853 OldPhart
OldPhart's picture

Better shave thothe knukleth and conthult a thpeech thpechialitht.

I had a horrible listhp for yearth.

Mon, 01/18/2016 - 04:09 | 7060888 Wulfkind
Wulfkind's picture

"My Momma told me that, too.  Swore I'd get hair on my knuckles and a horrible lisp."

 

Whath thath thu say ?   Sthorry.  I can't hear you over the sthound of my Norelco Nuckle Shaver.

Sun, 01/17/2016 - 16:23 | 7059147 Wackford Squeers
Wackford Squeers's picture

A new life awaits you in the Off-world colonies!  A chance to begin again in a golden land of opportunity and adventure!

 

 

Sun, 01/17/2016 - 16:36 | 7059195 Big Corked Boots
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Everybody wanted me to do it. Even the jungle wanted him dead.

Sun, 01/17/2016 - 17:57 | 7059491 Sturm und Drang
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All along the watchtower...

Mon, 01/18/2016 - 01:08 | 7060744 Four chan
Four chan's picture

i saw a lion, he was standing alone with a tadpole in a jar.

Sun, 01/17/2016 - 16:24 | 7059149 mrdenis
mrdenis's picture

Gruel is good ......oh wait that's greed ....

Sun, 01/17/2016 - 20:00 | 7059953 Yuubokumin
Yuubokumin's picture

-yes there is. of course there is. cannot you see the size of my newly enlarged d***? CANNOT YOU SEE the size of my freshly quantitative eased, multi-billion bank account? cannot you see my cars, my houses, my women? CANNOT YOU SEE? 

- why my friend, of course I can. who could not? I see all those things, and I stand in awe. but there is something, my firend, which I cannot see, and neither can you, it would seem. I cannot see yourself. what is your part in all this? don't you create also? don't you also share, and give back? merley owning, boasting and collectiong does not seem like any fun to me.

 

Sun, 01/17/2016 - 16:04 | 7059076 Buckaroo Banzai
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Dollar neutral!

Sun, 01/17/2016 - 16:12 | 7059105 prudent1nvestor
prudent1nvestor's picture

Lollar Dong

Sun, 01/17/2016 - 20:56 | 7060172 Baby Eating Dingo22
Baby Eating Dingo22's picture

Long Dong Silver

Sun, 01/17/2016 - 22:14 | 7060414 Golden Showers
Golden Showers's picture

Pass the... bong!?

Sun, 01/17/2016 - 22:16 | 7060421 billybobtx
billybobtx's picture

Long Dong

Sun, 01/17/2016 - 16:01 | 7059062 KingdomKum
KingdomKum's picture

Yuan short

Sun, 01/17/2016 - 16:04 | 7059073 Soul Glow
Soul Glow's picture

Yellen short.

Sun, 01/17/2016 - 16:07 | 7059090 Truther
Truther's picture

Really don't want to see her shorts.

Sun, 01/17/2016 - 16:26 | 7059159 Mr.Sono
Mr.Sono's picture

Long into Yellen shorts

Sun, 01/17/2016 - 16:37 | 7059198 Truther
Truther's picture

Not with a 10 foot pole. Good fucking luck.

Sun, 01/17/2016 - 16:37 | 7059201 Big Corked Boots
Big Corked Boots's picture

Stop that yellin', Shorty!

Sun, 01/17/2016 - 16:38 | 7059203 Satan
Satan's picture

May the Schwartz be with you...

Sun, 01/17/2016 - 19:32 | 7059861 chubbyjjfong
chubbyjjfong's picture

Surely I can't be the only one, but I find Janet (J dog) very attractive. She's a strong, powerful intelligent woman. When I think of JY, I wanna grab the KY!!

Sun, 01/17/2016 - 19:47 | 7059915 Nobody For President
Nobody For President's picture

Naw, you ARE the only one, so good luck.

(Note: Please don't tell us about it.)

Mon, 01/18/2016 - 03:35 | 7060858 OldPhart
OldPhart's picture

Where's that guy with the sick porn links?

Sun, 01/17/2016 - 16:05 | 7059081 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

The problem is that our central bank is in bed with Europe's. They will hold hands and step into the printing abyss together. If both currencies collapse simultaneously, the trade doesn't work.

Sun, 01/17/2016 - 16:32 | 7059178 SuperRay
SuperRay's picture

More like a three-way with the City of London.  Audit the Fed

Sun, 01/17/2016 - 21:39 | 7060302 BullyBearish
BullyBearish's picture

More like a three-way with the City of London.   END the Fed

There, fixed it for you...

 

Sun, 01/17/2016 - 16:06 | 7059083 gatorengineer
gatorengineer's picture

Its not going to matter, if this is the real deal the casino will close wiith all of the chips....

Its comming very quickly to a time where if you cant hold it you dont own it.

Sun, 01/17/2016 - 16:06 | 7059085 max2205
max2205's picture

Another rate increase Tuesday? 

Sun, 01/17/2016 - 16:27 | 7059164 knukles
knukles's picture

Hah ha ha ha ha ha ha
Fucking amazing.

While everything that can go wrong is going wrong and Yellen's rate hike bump doesn't mean squalooch, she's gonna get tarred and feathered for everything's going wrong so nothing needed to remedy the situation on the fiscal or regulatory side will get any better.

I knew you knew about getting from frying pans into fires.

Just wait 'till Good Olde Bernie Crazyshit gets elected ... 

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