Economist El-Erian says derivatives show retail traders may be drowned by a large correction in stoc
- Thread starter ajacobson
- Start date
S&P making news highs on the daily, but the VIX has remained around 25 
Which will come first the VIX at 12.5 or the VIX at 50?
Which will come first the VIX at 12.5 or the VIX at 50?
it took an options guy a week to mention the wackiness in the vol market.
what’s your take on it?
You mean the frenzy speculation in call buying where the options market makers have to buy the underlying stock to hedge. What could possibly go wrong when this unwinds?
S&P making news highs on the daily, but the VIX has remained around 25
Which will come first the VIX at 12.5 or the VIX at 50?
Obviously, (from what little I know about volatility), 50 will come before 12, fer sure. 12 VIX is like 2017-level calm. Those days are gone for the long time.
But what I don't get from Mr. Gumby's chart is why the call buying is going to collapse anything? I thought buying calls that fail will just expire worthless? I thought the put buying would be the worrying thing, where when the market falls all those short hedgers start exercising the puts? (Gawd I hate why my brain just cannot get options.)
I was of the opinion that the unrelenting buying was a result of :
1. people wanting to hedge against inflation
2. people stuck at home with nothing to do but trade
3. government handing out free money so might as well make it work for you
I'm no options guy, but the rationale you state above sure does make this even more interesting.
call buying won't collapse anything. but consider the other side of the trade- the call sellers. call sellers are often market makers and by selling calls they're effectively net short the market - because they want to remain neutral, they must hedge their short calls with long spot.
when those long calls expire, MMers will be left long spot. Since MMers want to retain flat exposure they'll have to unload their positions. As they liquidate their longs, spot will react accordingly
this is pretty basic stuff, pick up up an options book because you really should know it