The Hamster Wheel
It was as predictable as it was laughable.
Stocks ended the week mostly unchanged, making geniuses of dip-buyers, vol sellers and retail investors, whose Pavlovian instincts were rewarded yet again.
US equities brushed aside the Evergrande drama and found plenty to like in what some still insist was a "hawkish" September Fed meeting.
This week will go down as yet another piece of confirmatory evidence in favor of the notion that "BTD" is no longer just a derisive meme about retail bagholders.
I found this on the internet, must be true?
“Hamsters are full of energy and can run up to 9 miles in a day, so a wheel is essential to keep them happy.”
Surely the physicists that have been hired onto Wall St have modeled all of this. I honestly couldn’t tell you the difference between gamma and an unclenched vol (or vole?), but one would expect that the anticipation of the dip-buying opportunities (an oscillatory pattern) would get built into the strategies of the big players, and all of the options expiry excitement will be pulled forward and incorporated into the algorithms, and this particular oscillation will get smoothed out. But someday there will be a breakout event. Something will happen that reinforces, rather than opposes, the monetary forces that have been applied to generate an artificially smooth graph out of what should be an inherently noisy system. When that happens–well, it might get loud (maybe as loud as Jimmy Page, Jack White, and the Edge combined).
Of course they’ve modeled it. Vol control, CTA, etc. are systematic strats. The algos you’re talking about are embedded in the structure. On top of that, algo market making can exacerbate the situation because they tend to retreat in the face of turmoil, very much contrary to what HFT proponents contend. That can lead to diminished liquidity, wider bid/asks and more dramatic swings, which in turn increases volatility. Volatility is inversely correlated to market depth. So all of these vol-sensitives are selling into a thinner market that gets thinner the higher vol goes. Algos are part of the problem.
ultimately sees the Op-Ex cycle as a “vol expansion” opportunity as supportive vanna- and charm- dynamics drop
I know what gamma and vol and option expiries are. I don’t know what vanna and charm dynamics dropping mean in terms of market structures? Can someone explain?
Ah! https://www.youtube.com/watch?v=-RhSCoElB9Y&ab_channel=KeyPaganRush