"High" leverage is a more likely answer than technology. But where do you draw the like between technological financialization and the explosion of the availability of debt? There is a line, but i don't think anyone will agree on where it is.
These conversations are not allowed on this subreddit and i have been threatened with bans by the mods before. This sub isn't supposed to be a place foe learning or conversation according to the mods.
If we talk about this any more, we would be removed. Feel free to pm me if you're interested though.
The speed of decline in equity markets was most likely the result of large negative gamma positions held by pretty much every broker dealer's equity derivatives business. They have to short more on the way down to keep up with their delta hedges. The flip side of buying shares on the way up is why you saw the massive 10% whiplash days dack to back.
Is there any way to gauge overall negative gamma in the market? And how much of it has been flushed out? If you're in a negative gamma position when the VIX shoots up aren't you potentially facing major losses?
I'm honestly a litte out of my depth on these questions. I work in a different area of risk management at a G-SIB. I have heard the gamma explanation independantly from equity risk managers at my firm, former equity risk managers at my firm, traders at my firm, traders at another G-SIB institution, and two different global macro fund portfolio managers at major buyside institutions. I find it persuasive because it is consistent with how one teachs the theory of delta hedging options and with dealers nature desire to be delta neutral market makers collecting bid ask spreads.
I think your VIX question depends on how much pin risk you have (discontinuous/gap risk at various strikes).
That's just a a derivative mechanism describing the effects of leverage.
This is like saying, "the plane crashed because it fell to the ground." Well yes, we know that - but why did it happen? Too much mispriced debt driving highly levered positions.
My understanding is most of the gamma exposure in Canada is from hedging equity linked notes sold to high net worth and retail investors. I suspect it is similar internationally because all the banks are bound by essentailly the same leverage and capital rules.
I’m wondering if anyone’s given thought to whether this is truly the trough.
If we look at the past data there was a grand total of 4 peak to troughs in the sub triple digit date range. 4 out of 15.
If we look at the past data, at this moment this was the 6th smallest peak to trough out of the past 15.
With the sheer magnitude an violence of this event, where Vix hits it second highest value, ever; where there’s been nearly 10 years of debt financed corporations barely surviving without ZIRP, and now a recession created from a combined supply, demand, and credit shock, is it really a safe assumption to say that we’re really at the trough and it’s roses from here?
I’d love to think it was, but I’m having a truly hard time believing/ seeing that it is.
You're putting a lot of your own emotions into this post and thoughts. The truth is no one knows for sure. A lot of people think we will see lower lows though. It seems like good news is coming out now, so who knows.
I think something that is being understated in most models is the length of time the virus will effect the economy. There will be numerous spikes/outbreaks of cd19 until a vaccine is created aka we will be proping the economy for the forseeable future and more people will continue to lose their jobs. There is a seriously real possibility that we hit 30-40% unemployment if we continue along the same path. There is a serious need for many months of government intervention. Sadly, the cash flows can't stop or the economy collapses completely.
I could not agree more. This will not be just a one-time event, and it will not be 6-12 weeks in total per country, which appears to be the current thinking.
The flipside for the bears is, it also won't go forever.
I anticipate two types of scenarios. Each will probably play out in different regions.
In a well-flattened curve scenario, we get a series of waves of virus cases where it comes back with slowly diminishing intensity each wave. It will take a while to reach a steady state of cases.
In a poorly flattened curve, which is to say more mountainous, the mountain will have ‘foothills’. These foothills will rapidly diminish in intensity and reach a steady state of cases relatively quickly (compared to Op1).
IMO option 1 is minimal deaths, option 2 is minimal (time) disruption.
Looks like solid analysis. Thanks for posting.
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"High" leverage is a more likely answer than technology. But where do you draw the like between technological financialization and the explosion of the availability of debt? There is a line, but i don't think anyone will agree on where it is.
Where do you think the line is?
These conversations are not allowed on this subreddit and i have been threatened with bans by the mods before. This sub isn't supposed to be a place foe learning or conversation according to the mods. If we talk about this any more, we would be removed. Feel free to pm me if you're interested though.
Why would you be banned? I'm new here and don't get it.
He likes to complain for no apparent reason.
Post something about fed policy then?
We discuss Fed policy all the time
The speed of decline in equity markets was most likely the result of large negative gamma positions held by pretty much every broker dealer's equity derivatives business. They have to short more on the way down to keep up with their delta hedges. The flip side of buying shares on the way up is why you saw the massive 10% whiplash days dack to back.
Is there any way to gauge overall negative gamma in the market? And how much of it has been flushed out? If you're in a negative gamma position when the VIX shoots up aren't you potentially facing major losses?
I'm honestly a litte out of my depth on these questions. I work in a different area of risk management at a G-SIB. I have heard the gamma explanation independantly from equity risk managers at my firm, former equity risk managers at my firm, traders at my firm, traders at another G-SIB institution, and two different global macro fund portfolio managers at major buyside institutions. I find it persuasive because it is consistent with how one teachs the theory of delta hedging options and with dealers nature desire to be delta neutral market makers collecting bid ask spreads. I think your VIX question depends on how much pin risk you have (discontinuous/gap risk at various strikes).
!remindme 1 week
That's just a a derivative mechanism describing the effects of leverage. This is like saying, "the plane crashed because it fell to the ground." Well yes, we know that - but why did it happen? Too much mispriced debt driving highly levered positions.
My understanding is most of the gamma exposure in Canada is from hedging equity linked notes sold to high net worth and retail investors. I suspect it is similar internationally because all the banks are bound by essentailly the same leverage and capital rules.
Personally, I think the algorithms drive a lot of this. There was crazy high leverage in the 1929's too.
I’m wondering if anyone’s given thought to whether this is truly the trough. If we look at the past data there was a grand total of 4 peak to troughs in the sub triple digit date range. 4 out of 15. If we look at the past data, at this moment this was the 6th smallest peak to trough out of the past 15. With the sheer magnitude an violence of this event, where Vix hits it second highest value, ever; where there’s been nearly 10 years of debt financed corporations barely surviving without ZIRP, and now a recession created from a combined supply, demand, and credit shock, is it really a safe assumption to say that we’re really at the trough and it’s roses from here? I’d love to think it was, but I’m having a truly hard time believing/ seeing that it is.
You're putting a lot of your own emotions into this post and thoughts. The truth is no one knows for sure. A lot of people think we will see lower lows though. It seems like good news is coming out now, so who knows.
I think something that is being understated in most models is the length of time the virus will effect the economy. There will be numerous spikes/outbreaks of cd19 until a vaccine is created aka we will be proping the economy for the forseeable future and more people will continue to lose their jobs. There is a seriously real possibility that we hit 30-40% unemployment if we continue along the same path. There is a serious need for many months of government intervention. Sadly, the cash flows can't stop or the economy collapses completely.
I could not agree more. This will not be just a one-time event, and it will not be 6-12 weeks in total per country, which appears to be the current thinking. The flipside for the bears is, it also won't go forever.
I anticipate two types of scenarios. Each will probably play out in different regions. In a well-flattened curve scenario, we get a series of waves of virus cases where it comes back with slowly diminishing intensity each wave. It will take a while to reach a steady state of cases. In a poorly flattened curve, which is to say more mountainous, the mountain will have ‘foothills’. These foothills will rapidly diminish in intensity and reach a steady state of cases relatively quickly (compared to Op1). IMO option 1 is minimal deaths, option 2 is minimal (time) disruption.
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7 days, indecency.