GammaLab

GammaLab

Tadaaa! Markets are more or less back in positive gamma land, what a ride. From a gamma perspective the markets behaved text book style: Fast dips and explosive counter rallies, that's what it is all about when dealers are forced to trade "with the flow". What happened? Markets where whipsawing back and forth at the 4650 strike, when Powell hit the mic and...

GammaLab

The picture was brightening up overnight and more positive gamma was materializing at 4725/4750, while negative gamma decreased at the major strikes. However..just in time those calculations were finished, yields started to push to new intraday heights and pulling iV up again. This is a reminder, that the market still has it's concerns about the price of...

GammaLab

Finally, the markets were able to unfreeze und release some volatility as one would expect in such a deeply negative gamma environment. The S&P 500 was able to recoup heavy losses, but total net gamma still dropped to minus 500M which is suggesting elevated levels of realized vol in the days ahead. In early trade it looked like the value/growth rotation was...

GammaLab

Term Premium is the premium bond investors pay for longer dated bonds instead of rolling shorter dated maturities. Currently we are at minus 0.9 percent. Imagine what would happen if we would go back to March 2021 levels (about 0.6%), while inflation expectations stay elevated. If "growth" acts up now, imaging what would happen in such a scenario. Food for thought.

GammaLab

Since we already reached 4600 I need to issue a new downside target at 4550. Doesn't mean we will see that level, but just in case..

GammaLab

Risk parity strategies are having another bad day since yields remain stubbornly high despite the market rout. Markets waking up to the fact that the Fed is maybe way behind the curve.

GammaLab

See above chart for gamma levels. Market is highly unstable. Spike in vol could easily result in a drop towards 4600, but a decline of VIX could also spark a rally. More updates to come throughout the day.

GammaLab

I did not post a gamma update, because not much changed and that is pretty perplexing in itself. In general the markets do not want to stay in negative gamma territory and they typically do not get pinned at "put barriers". Or to think about it from another angle: Volatility does not like to move sideways on an elevated level. It's natural tendency is to shoot up...

GammaLab

Surprisingly this was quite a dull session. The market tried to escape the gravity of the 4700 put strike, but was not successful in it's attempts. Total gamma decreased slightly by 19M to -490M which was reflected by the elevated volatility compared to a couple days ago, but in general trends were pretty stable as yields went nowhere and the growth sector was...

GammaLab

The market tried to bounce but failed, so here are more downside targets just in case. As we are deep in negative gamma territory realized volatility remains elevated. Main strike to watch is still 4700.

GammaLab

Pretty straightforward chart for today. We stabilized at 4700 as expected and so far there is little reason to assume we go into a full blown sell-off as market action still feels more like a rotation. All eyes are on vol now: If implied volatility comes back down, this could mean that 4700 could act as a launch pad towards higher prices as option dealers would...

GammaLab

I have a feeling that it makes more sense to post a gamma update early tomorrow morning, but you still might want to check out the current levels I posted above. I mean if today has set the mood for the rest of the year, then 2022 will be epic: Uproar in Kazakhstan, which will "force" Russia to go on a "peacekeeping mission" to secure the peace..err the worlds...

GammaLab

Markets move towards 4700. This is what could happen next.

GammaLab

Markets starting to price in a hike in April. Markets were not prepared for that.

GammaLab

Quick note: The minutes sound pretty hawkish regarding the upcoming tapering policy: "Some participants commented that removing policy accommodation by relying more on balance sheet reduction and less on increases in the policy rate could help limit yield curve flattening during policy normalization. A few of these participants raised concerns that a relatively...

GammaLab

The market was oscillating around the prominent gamma strike at 4800 points and was only little changed at the end of the day. The main theme was the steepening curve (see last post), which caused a rotation from growth (-0.8%) to value (+1.0%). Interestingly the rise in yields was not caused by inflationary pressures, but by growth expectations. Fundamentally...

GammaLab

Today we had a pretty big moves at the long end of the yield curve. At the peak on Tuesday nominal yields increased by 18 basis points year to date, while the short end hold relatively steady. The result was a dynamic steepening in the curve which caused growth stocks to decline by about 0.8 percent, while value stocks gained about one percent at the same...

GammaLab

As we move lower I want to highlight the area below 4775. Not many call options are located in that zone, and supporting hedging activity from option dealers potentially dries out here before turning into a counterproductive force below 4720.