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Haven't seen gold volatility do this in a long time
Gold became very boring, so people forgot the positive skew feature when it comes to gold volatility. Gold is a hedge itself, so gold volatility "should" rise when gold rises. The market decided to apply this logic during last move higher. The call spreads we outlined in late January have risen both due to direction, but also due to the fact vols have risen. Make sure to adjust strikes dynamically as we have moved higher quickly (roll strikes).
The collapse of margin debt
First chart shows NYSE index vs recently collapsing FINRA margin debt (just updated). Margin debt is a big part of the puzzle, but even more important is the "delta" of the margin debt. The YoY % change of FINRA margin debt looks slightly scary...
Running for short term protection
VIX term structure moving higher across the curve with the most notable shift in the short end of the curve. This is where max " juice" is... but don't forget to buy protection when you can and not when you must. VIX does not remain cheap to buy, nor expensive enough to sell as a vol trade. From an overwriting point of view we find vols an interesting sell in order to enhance yield.
More range trading and then...
...the bigger leg lower? At least that is what the 2018/2019 chart analogy looks like. Credit risk is elevated, but could get worse if the analogy is to hold...
In case you missed some of Zoltan's wise words from earlier today:
"To improve labor supply, the Fed might try to put volatility in its service to engineer a correction in house prices and risk assets – equities, credit, and Bitcoin too… Maybe the Fed should hike 50 bps in March, put an end to press conferences, and sell $50 billion of 10 -year notes the next day… Maybe FOMC members talk too much. They don’t keep the market guessing. They suppress volatility…" Full note here.
It looks he got the initial reaction today at least...
Welcome to max short gamma pain
SPX at 4000 has short gamma dealers chasing deltas lower and lower in order to sell and neutralize the book. The agony of buying high and selling lows continues. Imagine the pain if this decided to bounce again and short gamma had to chase everything higher again...
Oil - refusing the war narrative
Despite the most recent war headlines, oil refuses moving higher. Everybody is very bullish oil and sees it moving higher, but we have seen this movie before. Oil has hit the big upper trend line and looks to be closing below the steep short term trend line. A close below $92 and things could turn lower quickly. The curve is in heavy bacwardation, making those time spread trades interesting as well if you think oil has some downside from here.
Source: TS Lombard
The Fed isn't more hawkish. It's just hiking sooner
Boss Brooks: "All that focus on how much the Fed will hike in 2022 is a bit misguided, because hikes now priced for 2022 (blue) simply got brought forward from 2023 & 2024. Overall size of the hiking cycle through 2024 (black) is unchanged. The Fed isn't more hawkish. It's just hiking sooner."
Source: Robin Brooks
Repeat after me: "bitcoin is not a fear hedge"
Gold, the "original" safe haven hedge has made a huge come back lately, but some people are still referring to bitcoin as the fear hedge. This crowd refuses looking at what is going on in markets these days...
No more boring cryptos
BTC and ETH short term vols are moving sharply higher. Lately some institutional buying has been spotted (chart 3), but will they be able to hold another volatile asset in an already volatile portfolio? If anything, portfolio managers need less volatility these days, not more...
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