Max short gamma pain?

Overnight

Overnight

What exactly does it mean with these greeks?

"...
After yesterday's marketwide rout - which was launched by yet another powerful blast of bear-steepening as yields surged following the latest "scorching inflation" comments out of the latest round of ISM and PMI surveys - and which saw further unwinds as expensive “secular growth” longs where smashed - Nomura's Charlie McElligott notes that the Nasdaq/“Secular Growth”/Expensive Stock pain dragged SPX into “negative gamma & delta” territory with it (dealers negative gamma vs spot below SPX 3871, negative delta vs spot below 3819). However, as the Nomura quant notes, "it is the extreme magnitudes of the current QQQ’s greeks which make this market so fragile" with a huge short gamma overhang chasing every move lower in the Qs.

  • QQQ $Gamma -$852mm, 0.9%ile since 2013
  • QQQ $Delta -$30.7B, 0.1%ile
And right now with QQQ spot around $308-309 preopen, Nomura warns that we sit almost at “max short gamma” pain point..."

That's the bad news. The good news is that as McElligott critically notes, ~31% of said QQQ Gamma is set to run-off after tomorrow’s weekly expiration, with the most substantial chunks at 310, 315 and 320. Which means that absent another major selloff, the Nasdaq will finally get reprieve as the negative gamma shrinks by a third, and dealers cover forced shorts.

https://www.zerohedge.com/markets/max-short-gamma-pain-relief-coming

So now that Powell did nothing to calm the markets and we DID have a "major" selloff, what will those dealers do when their weeklies expire tomorrow? Will there still be a "forced cover"?
 
It means that with this sell-off, a lot of dealers & MMs with large short puts exposure on QQQ are getting more losses on their positions, which they expect might lead their models to actually decide to hedge those short puts by shorting QQQ further thus accelerating the decline.

In my opinion, this won't happen. I believe market will rally Friday, killing out all those put options (Of course driven by the dealers & MMs) who will be playing a time game today, cover shorts from your books and add to longs to fix the short puts situation for the weekly expiration. If this happens, expect a gap down early next week.

The concern is not really the 5-Mar weekly expiration, the concern is the monthly expiration on 19-Mar, which has a much larger gamma exposure to dealers & MMs (Almost 3 times the exposure compared to 5-Mar).

It will be interesting to see how the market will move in those 2 weeks given such options positioning.
 
Overnight said:
What exactly does it mean with these greeks?

"...
After yesterday's marketwide rout - which was launched by yet another powerful blast of bear-steepening as yields surged following the latest "scorching inflation" comments out of the latest round of ISM and PMI surveys - and which saw further unwinds as expensive “secular growth” longs where smashed - Nomura's Charlie McElligott notes that the Nasdaq/“Secular Growth”/Expensive Stock pain dragged SPX into “negative gamma & delta” territory with it (dealers negative gamma vs spot below SPX 3871, negative delta vs spot below 3819). However, as the Nomura quant notes, "it is the extreme magnitudes of the current QQQ’s greeks which make this market so fragile" with a huge short gamma overhang chasing every move lower in the Qs.

  • QQQ $Gamma -$852mm, 0.9%ile since 2013
  • QQQ $Delta -$30.7B, 0.1%ile
And right now with QQQ spot around $308-309 preopen, Nomura warns that we sit almost at “max short gamma” pain point..."

That's the bad news. The good news is that as McElligott critically notes, ~31% of said QQQ Gamma is set to run-off after tomorrow’s weekly expiration, with the most substantial chunks at 310, 315 and 320. Which means that absent another major selloff, the Nasdaq will finally get reprieve as the negative gamma shrinks by a third, and dealers cover forced shorts.

https://www.zerohedge.com/markets/max-short-gamma-pain-relief-coming

So now that Powell did nothing to calm the markets and we DID have a "major" selloff, what will those dealers do when their weeklies expire tomorrow? Will there still be a "forced cover"?
More...

They will start to buy and the market should go up a bit starting next Monday.
 
narafa said:
It means that with this sell-off, a lot of dealers & MMs with large short puts exposure on QQQ are getting more losses on their positions, which they expect might lead their models to actually decide to hedge those short puts by shorting QQQ further thus accelerating the decline.

In my opinion, this won't happen. I believe market will rally Friday, killing out all those put options (Of course driven by the dealers & MMs) who will be playing a time game today, cover shorts from your books and add to longs to fix the short puts situation for the weekly expiration. If this happens, expect a gap down early next week.

The concern is not really the 5-Mar weekly expiration, the concern is the monthly expiration on 19-Mar, which has a much larger gamma exposure to dealers & MMs (Almost 3 times the exposure compared to 5-Mar).

It will be interesting to see how the market will move in those 2 weeks given such options positioning.
More...

The market won't move much on Friday. It will open lower but will go up a bit during the day but it won't be much.
 
According to squeezeMetrics, they're defining "net short gamma" as net betwee calls and puts, making very rough, or wrong imo, assumptions of how MMs and their counterparties trade. You'll find that stuff institutions are willing to share publicly, especially stuff from zeroH or twitter, will almost certainly not be very useful for making money.
 
JSOP said:
The market won't move much on Friday. It will open lower but will go up a bit during the day but it won't be much.
More...

It was a wild ride on Friday. Both of us were incorrect in our expectations (Neither a strong rally nor a calm day). The market rallied as I expected, but it rallied after selling off for the first 2 hours, which was not what I was expecting.
 
narafa said:
It was a wild ride on Friday. Both of us were incorrect in our expectations (Neither a strong rally nor a calm day). The market rallied as I expected, but it rallied after selling off for the first 2 hours, which was not what I was expecting.
More...

Well to my defense, I did say it would go up and it would open lower (lower than the previous open), 2 out of 3 correct. :p. Yes the range did surprise me though. I thought the market would be undecided after such a huge down day previously and wouldn't start to cover this early. I really expected the rally to not happen until next week.
 
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