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Hedges Roasting On An Open Fire
"A smoldering pile of ash."
That's your puts, may they rest in peace.
Over the past several sessions, downside hedges established ahead of the US election were summarily roasted like a pet at an Ohio barbecue. (I've got jokes!)
The post-vote rally which pushed the S&P to 6,000 was brought to you in part by familiar dynamics in the equity options space, where skew and put skew were "absolutely decimated," to quote Nomura's Charlie McElligott, who weighed in Monday with a quick note.
The
Thanks!
Don’t stand in front of the speeding algo train. Yet.
This was as close to telegraphed free money as it gets in the options market. Even the slight pullback before election day was there.
The issue with the spot-up/vol-up environment is we’re now entering a completely new volatility regime due to how spot has shifted away from MMs positioning/skew. Repositioning will be expensive which is likely to lead to underhedged portfolios and low vega environment which is a increases the probability for a more convex move.