Desperate Demand For Short-Term Crash Protection Pushes Implied Correlation Above 100%

Tyler Durden's picture

In one of the more quirky results of the rush for short-term protection and macro overlays this morning, the price of index protection was bid so far above the 'fair-value' based on the volatility of the underlying S&P 500 index components that the implied correlation (a modeled measure of the relationship between index and single-name implied vol demand - often reflective of 'crash risk' sentiment) for Jan 2011 exploded above 100%. Yes, we know that is 'impossible', but the point being that last week's smash higher in equity (and credit), as we noted at the time, had the feel of hedgers capitulating which leaves today's growing tensions (Europe and domestic) enough to push nervous traders massively into liquid hedges (macro protection).

Implied Correlation for Jan 2012 was also excessively high this morning and is holding above 80% - record highs - indicating medium- and short-term demand for protection is very high and we wonder if the huge divergence between the Jan 2011 and Jan 2012 'crash risk' demand suggests timing expectations of Dec 2011/Jan 2012 as a crucial period.

Chart: Bloomberg

h/t John Lohman

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Irish66's picture

WE already said no santa

eurusdog's picture

Tyler, can you spend some time on discovering who would win the elections in Greece if they happen and how the probable leaders would treat the debt deal.

SMG's picture

This is just a guess, but it would probably be the banking oligarchy.   Somehow they always seem to come out on top.

ISEEIT's picture

No doubt he is in Greece right now and will get back to you upon his return.

GeneMarchbanks's picture

Sub zero winter. Is this MF Global? The China landing? Gpap going rogue? Or just a general sense of despair?

Hedgetard55's picture

Funny how quickly euphoria can turn to despair in the markets.

JohnG's picture

Schizophrenia is like that.

lolmao500's picture

There needs to be a coup in Greece, that's the only way things can get fixed.

Dr. Engali's picture

Greece? Is that the only place?

lolmao500's picture

Nah. America. France. Italy. Germany. Ireland. Britain. Basically most of Europe.

Melin's picture

Nah...we've only just begun the argument.  Three years ago Bush "saved Capitalism" by shoving the mixed economy deeper into the statists hands.  Since then, many people have been waking up and speaking loudly to and at their government and others have been speaking loudly to and at the bankers who keep our government "representatives" lolling about in the lap of luxuries in return for regulating competition out of the market. 

The incredible corruption is decades old but we’ve only just started to demand that it change.  Let's do it right.

Irish66's picture

Corzine better be arrested today

earleflorida's picture

brain injury from past auto-crash has manifested its presence, once latent, now visible - dr.'s say this malfunction in rationale thinking has caused johny to be euphorically schizophrenic risk-on, risk-off adverse -

believe it or not,... msm bizarro news

jmo  :-()

The4thStooge's picture

I bought protection against a market crash a long time ago. 12 guage bitchez

Dr. Engali's picture

That's a good start. You better get a couple 223's and 7.62s

hyperbole2000's picture

Broadheads can be reused (think green) unless they've got C4 strapped to them.

afdestruction's picture

Good, most stock investors are known for B&E...

bnbdnb's picture

When equity finally catches up to credits, omg this volcano will be devastating.

qussl3's picture

The assumption is that credit is sound and currency somewhat stable.

Neither assumption is a given in today's environs.

unionbroker's picture

gee good thing someone started the "Greek rumor" the Dowser was going down for the count. Amazing down 310 and going lower and all of a sudden some Greek gentleman has something to say .

srsly-wtf's picture

1 hour half life reached....going back down looks like

TeamDepends's picture

The Greeks always were good orators.

TeamDepends's picture

Uh-oh, -263 and dropping.  Quick, somebody rouse Plato from his slumber, or at least the Plunge Protection Team.

youngman's picture

That graph sure did not show up in the Gold and Silver markets.....wonder why?

lolmao500's picture

People are afraid that the big monster is gonna come and eat their cookies. And they are right.

Long ammo, food, water, morgues, blood transfusions, silver, gold, oil... short peace.

Agent P's picture

Correlation > 1.  That must be when two things move in the exact same direction, by the exact same magnitude, at the exact same time...only faster. 

I must be getting numb to this surreal world we're living in, because after seeing negative yield on bills, even this doesn't really surprise me.

common_sense's picture

If everybody is expecting the crash in dec11/jan12, it will arrive now, and if every body is expecting now, it will arrive in dec or jan or february 2012...

We never know when the crash arrive, or when the implosion arrives or never arrives, just the opposite always. so is lost time trying to hit it.

Why now could be different?


Schmuck Raker's picture

That's because Jan '12 is going to be...


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