30Y Yields are back above 2.00% this morning, with rates having jumped notably in the last few days...
Nomura's Charlie McElligott notes that, after the three week rolling squeeze in bearish fixed-income / underweight duration trades (helped by the epic global CB "rug pull" on prior hawkish rhetoric) has now allowed for resetting of shorts as the buy impulse fades…particularly from Systematic Trend.
Specifically the Nomura MD points out that this shift is reflected in the Nomura QIS CTA model, where after the prior few weeks of cumulative +$140B of buying (covering of massive shorts across G10 Bonds and fresh “long” in JPY 10 signal), we have now seen fresh selling / shorting in G10 Bond aggregate exposure to the tune of -$28.9B over the past 1 week (-$19.9B in USD 10Y and back to “-100% Short,” -$3.4B in ESP 10Y, -$2.4B in ITA 10Y, -$1.7B JPY 10Y, -$700mm EUR 10Y)
And as has been the major story in the Equities space all year, McElligott notes that this week’s Options-Expiration cycle should again open the window for “volatility expansion” and allow for a wider trading distribution in the process.
The Nomura strategist notes that equities yesterday were whipsawed by an ongoing market flow as the ongoing unwind / roll-out of a very large SPX Call Spread again leaned on the tape all day, somewhere to the tune of nearly ~$6.2B in Delta which came in waves as parts of legs were sold off. That roll appears to have abated this morning...
And yet-again with this monthly Op-Ex and the short-dated nature of trading time horizons and risk appetite / constraints these days, we will lose the “Vanna stabilization” from the recent Volatility reset lower (since the September selloff in spot Equities, as SPX 10d rVol prints 7.9 this morning) come Wednesday, and there will of course then be the substantial Index / ETF / singles options “Gamma unclench” to follow, alongside historically massive $Delta to potentially de-risk as the options come off:
SPX / SPY options will see 31.4% of the overall $25.7B of $Gamma roll-off, with $Delta a monster $460.5B / 97.2%ile rank (since 2013)
QQQ options will see a whopping 46.5% of the overall $163.3mm $Gamma drop, with $Delta being $17.2B / 98.4%ile
IWM options will see 41.9% of the $306.5mm $Gamma roll-off, with $Delta historically long at $9.1B / 99.3%ile
The SpotGamma team are doing a live stream of what to expect from this sizable 'unclenching' (due to start at 1pm ET)...
SpotGamma sees resistance at 4695 into 4719 and support at 4675 and 4650 from an options perspective into this OpEx.
Tomorrow morning is VIX expiration which may be the first shakeup to the current high gamma environment.