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Catching The Invisible Hand Pushing On The VIX In Action

Tyler Durden's picture




 

Every now and again the coincidences (or some might call them conspiracies) become too much to bear. We have noted the incessant deep-pocketed use of volatility as a levered way to manage equities up (or down we suppose should the need arise from a centrally-planned banking institution that does not feel the incumbent is in his court). Today was a great example of the desperate interaction of the world's most over-owned (and biggest) company and selling pressure over-whelming the VWAP algos. As the chart below shows, the early selling pressure in AAPL smashed prices down to yesterday's close and closing VWAP; volumes surged as algos piled institutions out but they soon got overhwhelmed as the price fell through their VWAP level (which means the costs start to pile up to the market-maker's algo which promised VWAP execution). Immediately Plan B comes into play - Sell Vol Hard! which implicitly lifts the stock in a 'bullish' index-signaling way and enables the algos to offload the overwhelmed volume to unsuspecting nibblers. Once stable and flat again - business can continue and the selling commenced as they bought back the vol they sold. Conspiracy or coincidence? If you know how VWAP algos work - there is no doubt.

 

 

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Tue, 08/21/2012 - 17:39 | 2725410 HelluvaEngineer
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Fuck you Potter!

Tue, 08/21/2012 - 18:06 | 2725482 ACP
ACP's picture

"One Fed to rule them all, one Fed to find them, one Fed to bring them all, and in the darnkess bind them."

...the invisible hand...

Tue, 08/21/2012 - 18:13 | 2725495 Dr Benway
Dr Benway's picture

The beer barely helps me bear the bull

Tue, 08/21/2012 - 18:51 | 2725574 Xibalba
Xibalba's picture

free market?  think again.  this gestapo shit has to stop.  

Tue, 08/21/2012 - 17:39 | 2725412 fonzannoon
fonzannoon's picture

I wish ZH would point out this kind of stuff in the gold miners. They are the most manipulated play toy in history.

Tue, 08/21/2012 - 17:40 | 2725414 Conman
Conman's picture

Not invisiable at all, this market reeks of manipulation daily.

Tue, 08/21/2012 - 17:49 | 2725433 diogeneslaertius
diogeneslaertius's picture

not invisible at all

and a growing population of humans who not only are able to, but even Delight in throwing back all seven veils...

 

as it turns out the great and all powerful OZ is a little old man behind a curtain , scaring the world into submission by yelling into a microphone

Tue, 08/21/2012 - 18:30 | 2725535 Never One Roach
Never One Roach's picture

They are running out of suckers to sell to. The "Greater Fool Theory" works only so long. Even Buffet realizes that and dumped half his Muni's recently, not wanting to be left holding the Hot Potato.

Tue, 08/21/2012 - 19:00 | 2725593 HungrySeagull
HungrySeagull's picture

And assisted by great balls of fire.

Cortesy of the NatGas that seems to be getting cheaper by the day.

 

I remember that movie... it scared me good when I was 4.

Tue, 08/21/2012 - 17:53 | 2725446 Hype Alert
Hype Alert's picture

And they claim to be befluxed as to why retail has left the building.  What is truely amazing to me is they are not even pretending to clean any of this up.  Seems to say they don't care and you have to wonder, what's coming to make it not worth fixing?

Tue, 08/21/2012 - 17:58 | 2725462 NotApplicable
NotApplicable's picture

You're acting as if A) it's fixable, and B) TPTB have the capacity.

In reality, they've only got one play in their book; break shit in a manner that profits them.

Plan B? Break even more shit as cover, if needed.

Tue, 08/21/2012 - 18:14 | 2725500 Hype Alert
Hype Alert's picture

Plan B is the next level since they've obviously walked away from trying to fix what we have (Plan A - the market as we know it).  The scary part is what the hell is Plan B?  State owned companies without pretending to raise capital in a market?  The media keeps trying to sell us on the Government Motors takeover to make their guy look good.

Tue, 08/21/2012 - 17:40 | 2725415 Jlmadyson
Jlmadyson's picture

This magic will only last so long.

Tue, 08/21/2012 - 17:40 | 2725416 reader2010
reader2010's picture

that's your new tax authority.

Tue, 08/21/2012 - 17:43 | 2725420 Lohn Jocke
Lohn Jocke's picture

Conspiracy? Definitely bullish.

Tue, 08/21/2012 - 17:46 | 2725425 Rainman
Rainman's picture

Man, if the bucket shops of the thirties just had this kind of technology ......WOW

Tue, 08/21/2012 - 17:49 | 2725438 diogeneslaertius
diogeneslaertius's picture

crazy eddie approves

Tue, 08/21/2012 - 17:45 | 2725427 diogeneslaertius
diogeneslaertius's picture

there is no such thing as a mere coincidence

especially in human affairs

and anyone suggesting otherwise should be immediately flagged as an imbecile for not understanding the simplest principle tenets of causality

 

though we may draw diverse lines of divergence, at some point all events meet and are linked, inextricably bound up in the net of existenz - our inability to map the connection is irrelevant

 

nice leg work as usual

Tue, 08/21/2012 - 17:47 | 2725430 diogeneslaertius
diogeneslaertius's picture

upon any discrete examination the substance of all human history reveals itself to be Conspiracy

 

knowledge is power

Tue, 08/21/2012 - 17:49 | 2725437 gunsmoke011
gunsmoke011's picture

Not to worry - I'm sure the crackerjack investigative teams at the SEC and CFTC are already all over this one. Hey Joe - pause that porn and come look at this shit.

Tue, 08/21/2012 - 17:50 | 2725441 diogeneslaertius
diogeneslaertius's picture

"crackerjack investigative teams at the SEC and CFTC" lol u sray me almost did a spit take :D

Tue, 08/21/2012 - 19:33 | 2725677 Aquaman
Aquaman's picture

Good One!  All you need to know about Bart Chiltons decision making abilities you can glean from his hairdo

Tue, 08/21/2012 - 21:07 | 2725923 Mesquite
Mesquite's picture

Had to login so I could up-vote you gunsmoke011..

:-)

Be safe all..

Tue, 08/21/2012 - 17:52 | 2725443 New_Meat
New_Meat's picture

not such an "invisible hand" n'est ce pas? - Ned

Tue, 08/21/2012 - 17:54 | 2725450 JimRogers
JimRogers's picture

You didn't sell that vol. Somebody else made that happen...

This all makes sense. Except why would presumed deep pocketed seller EVER buy back the vol?

Tue, 08/21/2012 - 18:13 | 2725496 Everybodys All ...
Everybodys All American's picture

In my opinion it's also more than likely a market maker balancing the trading activity.

Tue, 08/21/2012 - 18:00 | 2725469 Frankie Cokeupt...
Frankie Cokeupthenozza's picture

As long as there is no very large demonstrable act of extreme anger, this shit will continue. What are you gonna do, post on ZH.

Tue, 08/21/2012 - 18:00 | 2725470 Frankie Cokeupt...
Frankie Cokeupthenozza's picture

As long as there is no very large demonstrable act of extreme anger, this shit will continue. What are you gonna do, post on ZH.

Tue, 08/21/2012 - 18:19 | 2725513 Dr Benway
Dr Benway's picture

It's the modern version of writing a fuming letter to the editor.

And you're right. It does nothing to dissuade the criminals because the taking are enormous, and only enormous sanctions can be effective

Tue, 08/21/2012 - 18:02 | 2725474 sablya
sablya's picture

There was a similar spike in the VIX yesterday which was immediately bought back up.  Today is spiked down, spiked back up, dropped back down and then spiked back up again.  Freakin' weird to see it real-time. 

Tue, 08/21/2012 - 18:09 | 2725490 hugovanderbubble
hugovanderbubble's picture

VIX target = 8.20 Blackswan coming RedOctober

Tue, 08/21/2012 - 21:14 | 2725939 sablya
sablya's picture

VIX target ... 8.20% ????  

One thing I find humorous about P&F charts is how inconsistent they are among similar trading vehicles.

The bearish P&F objective for the $VIX is 7.5%, whereas VXX has already met its bearish objective of 13.  

I don't know why people believe in that method but when it indicates an outrageous objective, like VIX at 7.5%, which is far below the all-time low, in a day and age where one can barely see the sky for all the black swans circling overhead, you just have to wonder....what is wrong with the method??

Tue, 08/21/2012 - 18:12 | 2725492 Never One Roach
Never One Roach's picture

Thanks for sharing this information. The graphs show it clearly. Hard to believe they let this stuff go on.

Tue, 08/21/2012 - 18:50 | 2725505 HelluvaEngineer
HelluvaEngineer's picture

Who is "they"?  Does that mean "you"?

Tue, 08/21/2012 - 19:29 | 2725661 Aquaman
Aquaman's picture

The "they" you are referring to ARE THE ONES DOING IT.  As the earlier poster said, it buys them time before they have to print again.  Its their game, its their money (just look on the back).  Ever played a board game with a three year old who makes up the rules as they go.  Its kind of like that.

Tue, 08/21/2012 - 18:31 | 2725512 exartizo
exartizo's picture

Simply put:

 

It's waaaay cheaper to manage algos and sell volume intraday than print money with it's political/economic price tag.

 

Everything is just fine.

 

"Nothing to see here. Move along."

 

They've gotten waaaay smarter since 2008.

We all know money printing has to come back around eventually any way.

Tue, 08/21/2012 - 19:30 | 2725670 Aquaman
Aquaman's picture

You have said it perfectly.

Tue, 08/21/2012 - 18:30 | 2725536 q99x2
q99x2's picture

Wonder how many days left to make money on this latest ZH tidbit.

The algo can be your friend too.

Tue, 08/21/2012 - 18:40 | 2725548 GolfHatesMe
GolfHatesMe's picture

Nice trade Waddell and Reed, nice trade

Tue, 08/21/2012 - 18:42 | 2725557 Rehab Willie
Rehab Willie's picture

Welcome to the "Novus ordo seclorum".   We must accept the new neo-classical paradigm we live in today.  We must accept what our dear leaders tell us, through their official mouth pieces, as the truth.  Only they are true shepherds to us sheeple.  Without their divine stewardship where would we end up.

Tue, 08/21/2012 - 18:57 | 2725588 HaroldWang
HaroldWang's picture

This can't be true - Cramer didn't even mention it on his show...wait, does he still have a show??

Tue, 08/21/2012 - 19:16 | 2725630 Lokking4AnEdge
Lokking4AnEdge's picture

"TVIX" made an all time low this morning and than closed up on the day on high volume.

In theory it cannot go to zero (unless the markets are closed...),

Buy Tvix-very low risk compared to a huge upside potential.....

Tue, 08/21/2012 - 23:31 | 2726252 endorush
endorush's picture

reverse split?  or am i missing the sarcasm

Tue, 08/21/2012 - 19:17 | 2725636 Racer
Racer's picture

This is a  computer game where they just lost a life and got back a new one a few seconds later

Tue, 08/21/2012 - 19:20 | 2725646 chump666
chump666's picture

The "nibblers" are either human hedge funds and/or investments banks getting gamed (on a daily basis) by HFTs.  The market is on the cannibal trip.  But it's a symbiotic cannibal, both need each other, one sells the other cuts and you have a huge stock plunge.

 

Tue, 08/21/2012 - 19:36 | 2725682 luna_man
luna_man's picture

 

 

Testing!...Testing!...Is it time? (just ten shares)...I'm "CHOMPING @ THE BIT", To "SHORT"!...(Not the market of yester year)!

 

Been SCORCHED, too many times!

Tue, 08/21/2012 - 19:44 | 2725699 Everybodys All ...
Everybodys All American's picture

just don't ever use margin.

Tue, 08/21/2012 - 20:23 | 2725774 ekm
ekm's picture

Structurally (and that's what matters) there is only one way to win and there is only one way to lose in the stock casino:

- Win = Sell to shit to the suckers

- Lose = Can't sell your shit to the suckers.

There's no other way.

 

It always worked like this:

- Fed buys stuff from the Primary Dealers and creates money

- Primary Dealers buy stock

- The suckers think: Oh God, somebody knows something I don't know, let me go all in.

- Primary Dealers sell to the suckers.

- Suckers have nobody to sell to and need money.

- Suckers sell. Market crashes.

- Primary Dealers buy the same stuff at cheap price from suckers.

- Start again.

 

Suckers always wanted to be suckers as somebody told me: The suckers infested the sell side.

However there's one problem: Suckers still want to be suckers but.........................have no money any longer. House prices are underwater, medical expenses are rising, people are old. No more suckers.

 

So, since 2007 the weakest Primary Dealer became the next sucker: Bear Stearns, Lehman, MFG etc. All these former PDs had so much MBS or italian bonds purchased that had nobody to sell them to. Since Bear Stearns and Lehmam collapsed people thought no primary dealers will ever be allowed to fail. Wrong. MFG kaboooom.

Hence, the primary dealers right now are piling up on stocks because they have nobody to sell their current inventory to.


Which one is next? How about JPM having 70% of Whale's credit tranches with nobody to dump to? Is it a strech?

Tue, 08/21/2012 - 21:10 | 2725932 chump666
chump666's picture

That is a very good point.

We have crowded trades on food commodities.  I think a firm will implode, or another rogue trade goes haywire. Central banks for the n'th time have exasperated leveraged speculation.  The market now is topped with a clear false break out from the 16Aug, now a possible correction is taking place as the Fed and ECB will have to encourage some profit taking to lower the oil/food price.

But...It could get very messy.

Tue, 08/21/2012 - 21:35 | 2725977 ekm
ekm's picture

This situation may continue until one or two of them are left without money and the Fed would refuse to help, just like Bear Stearns, Lehman or ..................MFG.

The only thing left is to continue to buy the same stocks, same as MFG was forced to keep buying italian bonds.

 

Timing is impossible, but structurally there is no other way around except for one theoretical way:

Same as Food Stamps which are basically Debit Cards that can be used only to buy stuff but cannot be cashed or saved, the Gov can theoretically come up with a Stock Stamp. The suckers will be given Stock Debit Cards that can be used only to buy stocks so the Primary Dealers would sell their shit to them.

I think I have great imagination, but do not call it impossible.

 

Tue, 08/21/2012 - 21:35 | 2725989 chump666
chump666's picture

I agree.

Tue, 08/21/2012 - 20:26 | 2725807 ekm
ekm's picture

Let's assume QE3 is announced next month.

What's going to happen? Primary Dealers will get money to................buy more of the same shit that they can't sell to anybody?

No solution, period.

 

Crash should have been allowed to happen in Nov 2011 when the european markets froze. It could have been less bloody.

Now it will be merciless.

Tue, 08/21/2012 - 20:43 | 2725851 Aquaman
Aquaman's picture

Market manipulation?   This is my shocked face   :>0

Tue, 08/21/2012 - 21:17 | 2725942 Jim in MN
Jim in MN's picture

Silly Humans.  Profits are for machines. 

Tue, 08/21/2012 - 21:34 | 2725984 crzyhun
crzyhun's picture

ZH again confirms what my gut told me allllllll a long. The arm of the Fed, et. al. is real hairy and long. When the next big one comes all the short hairs get caught in the ringer. Stay nimble.

Tue, 08/21/2012 - 21:56 | 2726036 Jake88
Jake88's picture

I knew there was a nefarious explanation to the hard very sharp sell off in the VIX. Only on ZH do I get this info. Thank you to all you Tylers.

Tue, 08/21/2012 - 22:09 | 2726078 mirac
mirac's picture

And I give them my invisible middle finger...

Tue, 08/21/2012 - 22:31 | 2726129 icanhasbailout
icanhasbailout's picture

the invisible hand is a fist in the back door

Tue, 08/21/2012 - 22:56 | 2726185 slewie the pi-rat
slewie the pi-rat's picture

pretty cool

thxz tyler!

[tyler is long gold coins and VWAP algos]

Tue, 08/21/2012 - 22:59 | 2726195 kevinearick
kevinearick's picture

the idiot professors make this sh- as complicated, arbitrary, as possible to impress their robots. nothing new; new empire same as the old.

a mechanical system is a mechanical system.

Wed, 08/22/2012 - 00:35 | 2726329 chump666
chump666's picture

It's getting cold in hell.

VXO (reconstructered) 1987 lows 27th July 1987 16.45(before the crash)

We are now at 13.88.

Prepare.

 

Wed, 08/22/2012 - 08:37 | 2726739 DavidC
DavidC's picture

Tail, meet dog...

DavidC

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