Negative gamma, short squeeze?

[Overnight]

The last time I saw that SpotGamma place posting an article like this (Tuesday) was in February, around the time the market was heading to March lows.

https://www.zerohedge.com/markets/clock-has-now-started-negative-market-gamma

Does that article make sense to peeps here, and is it a foreshadowing of a repeat of March? They (ZH) have an update to it today behind a premium paywall, so can't see the new bits. Could this also be why the markets have been selling off, even in the wake of generally positive news?

And with all that said, in the face of all this increasing put volume, is there a possibility of some catalyst causing this script to flip in the form of a short squeeze? One would have thought today would have been it, but that didn't work out.

 

[Snuskpelle]

As of their morning note and last day's aftermarket note they were more neutral than anything, but described IV crush after a beneign CPI as a possible tailwind for equities.

Of course, in hindsight, something happened after first half hour. I don't have their realtime info so I can't say.

Will address your actual question when I have time to reread that note.

 

[SunTrader]

NQ (60min chart) gapped down Aug 1st and it has been sell the rip ever since:-

 

[destriero]

1) SpotG is garbage; full stop.

2) I actually trade a lot of vol. 30-100 transactions/day and I notice any hickup in liquidity, microstructure, etc. I only trade mega-cap SN and index vol.

I notice that liquidity has been absent as I'm having to take more edge loss to fill SN-vol. I roll long puts in SN and index often and run bear skew locks on index so I always have a convex bear tail.

I gauge fear by the structure visualization on my bear skew lock. It's been difficult to fill (bear locks) which leads me to believe that the street is carrying down and out gamma.

 

[Snuskpelle]

1) SpotG is garbage; full stop.

Absolutely, if you have a better suggestion for a delta only piker like me, LMK. Doing the corresponding analysis myself would have been ideal, but skill wise I am far, far removed.

While SG's general market calls have been noise, they have added value for me, e.g. their SPX "call walls" have been good places to short.

 

[Arnie]

Rick Santelli interviewed an options floor trader today and they were talking about option “charm” and how everyone is short and it was skewing the action in vol. Said it happens a couple of times a year. I was occupied with other things so didn’t really understand it, but it sounded like an opportunity. I don’t recall if he was saying shorts were a hedge.

 

[destriero]

I

Rick Santelli interviewed an options floor trader today and they were talking about option “charm” and how everyone is short and it was skewing the action in vol. Said it happens a couple of times a year. I was occupied with other things so didn’t really understand it, but it sounded like an opportunity. I don’t recall if he was saying shorts were a hedge.

Translation: everyone is short wings.

 

[Overnight]

...I actually trade a lot of vol. 30-100 transactions/day and I notice any hickup in liquidity, microstructure, etc. I only trade mega-cap SN and index vol.

I notice that liquidity has been absent as I'm having to take more edge loss to fill SN-vol...

So you're like a guy who drives a specific manual car for years, and can tell when something is off with the engine by the sound of the revs at the time you'd normally shift from, say, 2nd to 3rd. It just "feels" different.

 

[destriero]

So you're like a guy who drives a specific manual car for years, and can tell when something is off with the engine by the sound of the revs at the time you'd normally shift from, say, 2nd to 3rd. It just "feels" different.

Well yeah, but I have an arb which in normal mkts will fill at a price leaving all areas under the curve above X. Not currently on the down and out payouts (bear coverage). Meaning that there is some level of tail-hedging under the mkt.

 

[carson_volsignals]

The last time I saw that SpotGamma place posting an article like this (Tuesday) was in February, around the time the market was heading to March lows.

https://www.zerohedge.com/markets/clock-has-now-started-negative-market-gamma

Does that article make sense to peeps here, and is it a foreshadowing of a repeat of March? They (ZH) have an update to it today behind a premium paywall, so can't see the new bits. Could this also be why the markets have been selling off, even in the wake of generally positive news?

And with all that said, in the face of all this increasing put volume, is there a possibility of some catalyst causing this script to flip in the form of a short squeeze? One would have thought today would have been it, but that didn't work out.

I did a whole thread about this on our subreddit at Reddit.com/r/VolSignals

The gist of it was that markets overshot on the way up, heading into the Fed taking the foot off the gas given the data in May-> June. With investors broadly UW US equities, there was a real rush into stocks especially after end-Q2.

The problem with that: the move pushed the index (SPX) *through* a LOT of call overwrites. You can assume anytime the SPX moves 5% higher in the span of ~2 months, you're going to be sitting on the other side of a "call wall", and gamma is just not negative.

Top it off- gamma is never really negative. That's total garbage. These sites- they scrape the single leg retail execution (screen trades) to try to improve upon the old "dealers short puts, long calls" adage. But they miss almost everything that routes through the CBOE SPX floor. You know- the one that all the banks and funds put up massive size on.

Garbage in- garbage out.

Fact is, systematic vol selling has ramped up, and it's more true than ever that dealers are swimming in positive gamma. Yes- to the downside, too.

The negative gamma coincidence is a function of other systematic flows that hit in big size. For example, CTA flows and Vol Control flows *BEHAVE* like negative gamma.

If option dealers were short gamma in that range too? Look out...

You are lucky they're not, we'd have volmageddon every 3 months.