Why The Archegos Blow-Up Failed To Trigger Instant Mayhem

There was confusion (feigned and otherwise) to start the week around what I called the “missing calamity.”

A margin call for the history books and the attendant unwind of positions built atop what Bloomberg described as one the world’s biggest “hidden” fortunes, failed to trigger any index-level tumult coming off a weekend dominated by headlines promising broad-based chaos.

For my part, I was characteristically flippant: Sometimes you blow up.

Read more:

‘Argh Chaos!’ And The Biggest Margin Call Of All Time

Sometimes, You Blow Up

If you’re wondering why the Archegos drama has (so far) failed to manifest in broader selling pressure and index-level mayhem, Nomura’s Charlie McElligott said Tuesday that “a remarkable week of forced deleveraging drama has been unable to shake the market-insulating grip of Dealer ‘long gamma.'”

The “flip” (i.e., neutral) line for spot is is 3,850 in the S&P, according to Charlie, who also flagged the “offsetting ‘dispersion’ impact of the Value / Growth rotation and long-term ‘Momentum’ unwind.”

And don’t forget about the “background” bid from the vol control universe, which continues to add exposure as big down days fall out of the one-month sample, and trailing realized moves lower.

That’s crucial. I mentioned it here around a half-dozen times last week.

Read more: Vol Control Plunge Protection, Gamma Gravity & April’s ‘Impulse Turn’

On Monday, McElligott estimated a vol control add of around $17 billion of US equities, another 98th%ile one-day change. Last Thursday witnessed a similar impulse (see the linked article, above).

“The net one-week exposure change [is] a walloping +$28.3 billion,” McElligott said.


Notably, if spot stays a semblance of “well-behaved” (i.e., trades in a reasonable range), this vol control “add” impulse should continue, albeit at a slower clip.

There is a risk, though. As McElligott wrote Tuesday, the vol control “plunge protection” (if you will) might be in jeopardy due to the rapidity of the move lower in one-month realized.

That signal “has come in so fast that our model is likely to flip to the three-month realized vol window in coming days, as we use the higher of the two as the trigger signal,” he said.


NEWSROOM crewneck & prints