When the proverbial shit hits the fan, don’t blame risk parity and the trend followers. Rather, point the finger at the Target manager next door.
Category: volatility
‘If You See A Vol. Spike, Try To Kill It, Ok? It’s Not A Pet.’
“It has been over 50 years since realized vol was as low as this year’s 7%. 2006’s 10% was the lowest SPX volatility of the lull between the dot com selloff and the financial crisis. The lowest annual SPX realized vol years on record are 1964 and 1965 with 5.3% and 6.8%, respectively.”
One ‘Ominous’ Sign For The Vol. Sellers: Fatter Tails
“Vol shorts will get their comeuppance, even if it’s later rather than sooner.”
Doom Loop Update: VIX ETP ‘Risk’ Remains High
According to the latest read on this, the potential for an ETP rebalance to cause problems is still near record highs.
Will ‘Great Trends Grow’ From ‘Little Volatilities’?
“It’s a toss-up when looking at markets to wonder whether the better analogy is the duck looking completely placid above water while its little feet are scrambling like crazy below the surface or a patient lying on the psychiatrist’s couch moaning of just being too conflicted to make life’s tough decisions.”
This Is The Playground For Markets: Everything That Can Happen, Has To Happen Here
“For anything to happen, 5Y5Y sector has to move higher. This is the catalyst for everything.”
What Could Go Wrong? ‘Tis The Season To Be Vol-ly
Just to be clear, Goldman doesn’t think anything too bad is likely to happen, but the overarching point of everything said above is that if the question you want to ask is “what could go wrong?” the answer is: “a lot.”
One Chart Shows All The Ways A Fed Hike Could Create (Fleeting) Bouts Of Volatility
Start from the bottom left…
This Is ‘The Most Intriguing, Worrying’ Factor For Volatility (Hint: It’s The Flow, Stupid)
“We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE ‘flow effect’ being more powerful than the vol depressant ‘stock effect’.”
Nobel Winner Richard Thaler: ‘Stocks Are Napping During The Riskiest Moment In Our Lives’
“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping.”
One Bank Looked At FX Volatility And Found Something Disturbing…
“…a market sell-off could trigger a large volatility spike, the magnitude of which is multi-fold higher than the pre-crisis level.”
‘It’s Going To End Badly’: Dissensus And The Frozen Deer
“Think of it like you have your two Greek gods, the water and the sun, fighting each other and right now it’s not going anywhere.”
The Great Disconnect: 5 Reasons Why Volatility Is Detached From ‘Chaotic Uncertainty’
After all, “shouldn’t greater uncertainty about key economic policy issues lead to a larger dispersion of likely potential outcomes for companies?”
It’s A Volatility Trap!
“Investors face a conundrum.”
‘The Risk Remains Large’: Updating The VIX ETP ‘Doom Loop’
“With VIX futures several points below their historical average, a several point move would not be a tail scenario.”
If You’re Short Volatility, Do Yourself A Favor And Go Buy A New iPhone
Here’s one that’s sure to bring in some angry e-mail from both the Apple acolytes and the vol. sellers.
‘Until It Blew Up’…
“They mistake the distortions of their wall of money for the wisdom of their observations.”
The Noisy Status Quo
“This is an environment that is bearish for volatility. It fosters further complacency and encourages continued vol selling.”
‘Dancing On The Rim Of A Volcano’: Vol. Sellers May Get ‘Badly Burned’
“Beware of complacency: reduce risk.”
Transparency: The Dark Side
Ok, who’s ready to take another look behind the “fourth wall?”
‘The Short VIX Plane Is About To Be Running On A Single Engine’
“Ultimately, investors can choose to second-guess fund flows, but once headline volatility reaches the lows, the proverbial short VIX “plane†will again be running on a single engine – carry – which itself is reflexively determined by fund flows.”
(A New) Record VIX Short
Make of it what you will.
Goldman Warns: Brace For A Volatile October
“High October volatility is visible in each major index and sector over the past 30 years.”
In 2020, It All Goes ‘Horribly Right’
“So hang in there, volatility longs. Only three more years ’til it all goes horribly right!”
‘Run, Forrest. Run.’
“… the bears could catch up into year-end.”
The Doom Loop Is Back: ‘VIX ETP Risk’ Hits All-Time High
“This vega-to-buy is at a record highs, almost doubling since mid-July on inflows to short VIX ETPs.”
It’s Hard To Quit.
Because then you’ll be actively contributing to the vol. spike (by selling assets or letting them roll off the balance sheet) and passively contributing to it as well by removing the “put” that incentivizes investors to buy dips and suppress volatility.
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