The equity rally. You missed it.
Ok, maybe you didn’t, but some people might’ve. And if they didn’t miss it entirely, they didn’t capture as much of the upside move off the April lows as they would’ve preferred, let alone all of that move and then some (i.e., all of +40% on the S&P plus whatever extra could be had through various manifestations of leverage).
Early this week, the bull ran even further away to the upside when US shares jumped the second-most in two months for the largest three-session gain since May, leaving the benchmark eying 7,000 acquisitively with a Fed cut and big-tech earnings on deck.
Small wonder some investors are now concerned about missing the next leg of the melt-up. That’s fear of the right-tail or, as Charlie McElligott put it Tuesday, acronymizing, “FORT.”
The figure on the left, below, shows you Mag7 skew, which is to say relative demand for downside protection versus upside optionality. It’s the flattest since February.
The figure on right, above, shows you Mag7 call skew (note the emphasis) which measures demand for out-of-the-money calls versus at-the-money. It’s the steepest in nine months, and 87%ile on a one-year lookback.
“With [Monday’s] gap to fresh SPX all-time highs, it will be critical to watch whether traders are forced back into the ‘F.O.R.T.’ from a performance / career anxiety perspective and chasing into year-end,” McElligott wrote.
Nodding to the under-positioning discussed here on Monday, he went on to say that “low nets from the hedge fund space and the fact that market neturals are struggling with the daily destructions in short books is feeding the F.O.R.T. chase,” creating a situation where buyers are higher.
Of course, this could all go wrong way in the event the mega-caps miss when they report this week. But if not (i.e., if the hyper-scalers beat), the grab for right-tail exposure could take on a new sense of urgency, setting up the always entertaining, but also unstable, “spot up, vol up” trade.
I am the “worry” in the “wall of worry.”
How could the hyperscalers fail to report an excellent quarter after booking even a accrual-based fraction of all of the revenue from circular funding deals? Especially given the cozy relationship between CFOs and analysts? Undercommitment will majorly over deliver this quarter and any negative guidance will be construed with a nod and a wink.
I am in the curious position of not having entirely missed out, but having reached for ex-US securities in the aftermath of Liberation Day, I’m decorrelated somewhat from SPX movement.
Do I want to put my money where my mouth is and buy a few calls in my play-money account? FORT is tempting, even for a retail investor.
If you would like a contrarian indicator the fed just announce a 30% reduction in the number of employees in its bank regulation staff. When I was in money and banking in college back in the stone age lighter regulation was considered a part of monetary policy- lighter regulation equalled stimulus. You won’t hear the braking class of wall street economists put it that way, but it is true.
What could go wrong?
‘Braying’ not breaking