Here Is The Stealthy Way Some Are Betting On A Market Crash
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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dollar short
Dollar long
No Dollar. Only Gold.
There is no spoon.
There is no dollar, only Zool.
soon we will all be eating gruel
The best hedge is not to play.
My Momma told me that, too. Swore I'd get hair on my knuckles and a horrible lisp.
i'm deaf
LOUD NOISES
what did you say? tell me after i'm done playing.
Don’t you understand??!!…
The Fed wants us all to be RICH !!
"It's complicated."
Do opposite to the pundits recomendations.
We confused some folks.
say what?
You can run, Dr. Jekyll, but you can't Hyde.
You'd have to be insane not to be in this market. This is my wet dream!
Hello Slippery Jim. How's Angelina and the boys?
A new life awaits you in the Off-world colonies! A chance to begin again in a golden land of opportunity and adventure!
Everybody wanted me to do it. Even the jungle wanted him dead.
All along the watchtower...
i saw a lion, he was standing alone with a tadpole in a jar.
Gruel is good ......oh wait that's greed ....
-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.
Dollar neutral!
Lollar Dong
Long Dong Silver
Pass the... bong!?
Long Dong
Yuan short
Yellen short.
Really don't want to see her shorts.
Long into Yellen shorts
Not with a 10 foot pole. Good fucking luck.
Stop that yellin', Shorty!
May the Schwartz be with you...
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!!
Naw, you ARE the only one, so good luck.
(Note: Please don't tell us about it.)
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.
More like a three-way with the City of London. Audit the Fed
More like a three-way with the City of London. END the Fed
There, fixed it for you...
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.
Another rate increase Tuesday?
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 ...
Yellen won't need another rate hike or rate cut. The markets will ALWAYS correct themselves. The laws of supply and demand are far bigger and stronger than the Fed or any other central bank.
Timing is the hard part...
lol Yellen, Bernanke is drinking Lafite and selling books away from the building fray
Bernie Bernie Bernie
Everyone else will print for special interests
Bernie willl FINALLY print for the people and stick it to big money
At this point, does it matter?
Past the point of no return anyway
You think those trillions are ever going to be paid back and a balanced budget is ever going to be attained?
-----------------------------------BERNIE 2016---------------------------------------
---------------LET'S PARTY LIKE IT'S THE END OF THE WORLD
Awww..There are still people who hold out some hope that the FRAUD and CORRUPTED SYSTEM will somehow not fall apart.
They profit from Corruption. Thus they have incentives tokeep it from crumbling intothe dustbin f History.
Of course the corrupted do not want exposure so they junk your post anonymously.
If voting actually mattered I would vote for the most competently corrupted that I can find.
It needs to become absolutely intolerable before it gets any better...with no guarantee that it will get better.
I raise my cup and give a toast to the collapse.