Niels Bohr the Danish physicist infamously kept a metal horseshoe over his door. In Europe the horseshoe is used as an amulet to ward off evil spirits. A fellow scientist who was visiting him questioned him on it. "how is it possible that someone so steeped in deep science like you, pay attention to such superstitious nonsense? Surely you dont believe in this thing. Niels answered: I dont believe in it but here is the thing. I have been told that it works even if you dont believe in it"
That's the start of the latest note from Morgan Stanley Derivatives strategist John Storey, who explains that the Neils Bohr horseshoe anecdote is a little bit like gamma and systematic flows and &cliquets - a highly exotic, cash-settled, option type that settles at predetermined dates - in that gamma matters even if you dont believe they do.
As we explained in detail last June (recall "Gamma has the potential to be one of the most important non-fundamental flows in equity markets"), their presence is felt on an intraday basis where lows are made early in the day, and the market slowly gets bought into the close. Just consider the following remarkable statistic from Morgan Stanley: in the past month SPX is down 4% in the overnight session and it is up 3.5% from 930am to 4pm. But, as Coffey warns, all this long gamma is: