GammaLab

GammaLab Updated 

On a two day basis the 2/10 spread is steepening faster than at any other time after November 2020. Value outperforming growth. Another bad day for ARKK.

GammaLab

Implied volatility jumped to about 18.5 percent in early trade which was related to weak macro data and re-hedging activities as dealer gamma in the neighbourhood of 400M expired, but declined throughout the rest of the day to close at 16.6 percent. Option dealers are buying calls from institutional investors and are selling futures to hedge against the...

GammaLab

I was whining a lot about european power prices especially natgas. Well, thanks to the invisible hand of the free market the price for dutch natural gas collapsed dramatically over the last days and dragged baseload prices lower (red line german baseload February future) as well, as a big junk of electricity generation depends on natural gas plants. To put this...

GammaLab

I hope everybody had a great start into the new year! As I briefly discussed in my last post - the dreaded JPM trade was pretty much a non-event like also OPEX, as volatility declined for a variety of reasons, including the absence of big wall street firms during the last days of the year. Seasonality tells us that implied volatility can be expected to fall to...

GammaLab Updated 

Ok, since I have mentioned it briefly in my last post, I want to shed some light on an issue that could have a huge market impact tomorrow. I also want to note that there are way smarter people out there on twitter (check out Andy Constan for example) that have a lot more in-depth knowledge about this hidden mechanic and you might want to check out what they have...

GammaLab

Short gamma note before the big OPEX thing tomorrow. The market was pinned to the 4.800 strike level as expected until something appeared to break in the last hours of trading after Musk called a recession. Maybe just a correlation.. I want to mention two things briefly. First: Gamma levels remain largely unchanged, but there is a caveat: Total gamma is...

GammaLab

The main story of the quarter was certainly the realization that inflation is not transitory as claimed for months by the Fed and other central banks, and the final acknowledgement of their own ignorance in recent weeks. The fed funds future markets now clearly price in a hike for May and I am wondering if the stock market is maybe similarly behind the curve...

GammaLab

Let's talk some serious gamma for followers that maybe just have joined and who are wondering what is happening, why the market is stuck at 4800, and where we could go from here. Let's start with a couple of assumptions: a) The SPX option market is a nifty tool for big whale investors to hedge the downside risk of their single stock portfolio and they do so by...

GammaLab Updated 

My more frequent readers already know, that aside from the esoteric (gamma), I have a faible for way more existential matters like energy, food, or..urea. And before the title of this post gets misinterpreted. No, I do not believe in overpopulation, quite the opposite. I am on absolutely the same page as Elon Musk and I believe people/markets will eventually wake...

GammaLab

Quick gamma case study. The red lines are mapping the gamma inversion level over time. Compare how differently volatility behaves when dealer gamma is positive (market above line) vs when dealer gamma is negative (market below line). When the option dealers carry negative gamma in their books, they are forced to hedge cyclical (sell into weakness/buy into...

GammaLab

By and large the market behaved as expected even though the slight uptick in realized vol caught my attention intraday, but thankfully this turned out to be a fad. The narrative stays the pretty much the same for the coming days: Plenty of gamma until Friday (now total net gamma at about 800M) and only a limited number of fundamental data points. Tony...

GammaLab

I find it interesting that realized vola is picking up at the 4800 strike. Usually more gamma means less vol, but this looks like quite a battle about the further direction. Maybe markets are frontrunning OPEX.

GammaLab

Absent any fundamental data the S&P 500 pushed 1.4 percent higher today and closed on a new record high. Growth (+1.7%) was outperforming value (+1,0%), with both setting new records, but overall volume was light, which could suggest a market dominated by retail traders. Total net gamma climbed to 717M dollar, up from -417M only seven days ago. Gamma at the 4800...

GammaLab

Absent any fundamental catalysts the market is moving higher into the year end. Total gamma is at 376 Million dollar as of 9:00 AM this morning, which should support the idea of a rather non-eventful day. Please consult chart for current gamma levels.

GammaLab

As the season winds down I want to take some time to explain in very simple terms and without the usual option terminology how a basic "delta hedge" works and how it can cause markets to collapse. Assume a situation with only one option dealer and a sole option trader, both with enough firepower to influence markets. Take a look at the chart: September 2nd the...

GammaLab

A spectacular week, which catapulted the S&P 500 hier by over four percent over the course of the last days to another record high, has come to an end. Economic news were solid and Omicron seems to be in the rear view mirror, but a relatively hot PCE index pushed rate hike odds notably higher (see last chart). In terms of gamma we are back at a net total of close...

GammaLab

The odds for a hike in May are now higher than at any other point since the FOMC statement. The attached graph is inverting the Federal Fund Rate Future for May to translate it to the implied federal funds rate five months ahead.

GammaLab

European natgas comes down hard after reports that an armada of US tankers loaded up with about five million cubic meters of gas is heading towards Europe. There must be a substantial speculative factor in play, since this should not be news to informed hedgers I would assume. After all those maritime trackers can be purchased for a tiny 20 bucks a month or...