Markets stocks VIX volatility

‘Bandit Logic’ And Gamma Gravity

Local stability, but mind the "bandit" at 1600 Penn.

In what feels like a less funny version of the kind of propaganda Western audiences delighted in lampooning when it emanated from North Korea, the People’s Daily’s Zhong Sheng column (Zhong Sheng is a Chinese homonym for “voice of China”) on Thursday accused the US of employing “gangster logic” or, alternatively, “bandit logic” in trade talks.

Specifically, the Party lambasted Washington for attempting to unilaterally dictate policy to other nations and accused the Trump administration of disingenuously characterizing disagreements as broken promises.

The shrill tone underscores China’s frustration with Trump and it also speaks (figuratively and literally) to the notion that Beijing is now marshaling the full power of its vast propaganda machine in the service of shaping public sentiment and turning the Chinese populace against Trump, Lighthizer and Navarro (the “bandits”).

Part and parcel of that effort is drawing a clear distinction between Trump and American citizens. “By saying the tariffs would benefit the country, the US is imagining a situation in which it is taking money from the pockets of China like a hot knife through butter”, another Zhong Sheng column reads. “The US is indeed taking the money out of the pockets of its consumers and claiming the money comes from heaven.”

Read more: Trump’s Endless Trade War Draws Ire Of Chinese Propaganda Machine, US Farmers Alike

Wednesday evening’s crackdown on Huawei is yet another serious escalation with far-reaching ramifications.

Equities, though, have held up for going on three days, even as a safe-haven bid, rate cut bets and hedging flows drove US yields lower on Wednesday amid renewed concerns about global growth.

What accounts for the two-day rally in US stocks? “Like a broken record, the Equities story is once-again about index futs / ETF options Greeks and VIX term structure”, Nomura’s Charlie McElligott wrote Thursday, adding that Wednesday “saw further extension of the short squeeze exacerbated on the index level by dealer short Gamma into yesterday’s trade (relative to spot at the time), which drove overshoots both lower (the sloppy move down to 2815) and ultimately higher (the rip into close ~2860) in a manic futures trade.” 

Charlie continues, noting that today we’re “seeing more gravitational pull higher to the big OpEx strikes which actually align with a ‘neutral’ dealer Gamma profile.”


Into OpEx, he calls 2850 the “most likely ‘pin’ (with $4.8B of Gamma at that strike) although with potential ‘pull’ up to the 2880 level ($1.8B) as the most realistic course of action.”

On the VIX curve, Charlie says it’s likely that systematic roll-down strategies are already reengaging. “VIX futures term structure is now back in contango/no longer inverted, which means that systematic roll-down will begin/have already begun rebuilding ‘Short Vega’ positions”, he writes.


All of this is, generally speaking anyway, conducive to a sort of local stability.

But mind the “bandit” at 1600 Penn. He harbors what certainly comes across as a deep-seated disdain for calm and if the move to blackball Huawei is any indication, the tension between Washington and Beijing is going to get worse before it abates.



1 comment on “‘Bandit Logic’ And Gamma Gravity

  1. Love Charlie’s approach , it is like a breath of fresh air……but..There like in Charting methodology the Flows based approach he advocates has some of the same limitations one being that it can be massaged to explain everything in 20-20 hindsight.. Some of the occurrences we are currently experiencing are Complex Geopolitical trends that are longer term and not as quantifiable ever… It is all interesting and the more you familiarize yourself with …..well the better you get… till confusion takes over..LOL !!!

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