MARKETS RULED BY SHORT GAMMA

 

“The motto of every institutional hedge fund!”

Getting “squeezed” by being “short gamma”, happens either by being short 

more OTM [Out of The Money] calls than ITM [In The Money], or more than 

what you got positioned long in the underlying … ditto with puts. The problem 

is, when you “Christmas Tree” or leverage back spread your position, to take 

advantage of what you consider high time premiums in high delta OTM 

options, when the market quickly moves in the undesired direction of the 

short premium, you get caught in what is known as a “gamma squeeze”.

Remember, gamma is the change in the delta … and big moves produce rapid 

percentage changes in delta, thus causing gamma to expand quickly as well 

… the only solutions are twofold: 1) pay up & liquidate for even more 

overpriced options that you’re short, or 2) buy the underlying if caught short 

in the calls, or sell the underlying if short the puts … “and over the last several 

years, this explains many of the large moves financial markets have seen, 

especially in NDX100, DOW30, & SP500, as well as gold”.

And all it takes to get the “gamma squeeze” going is about a ± 3 % - 4% move 

[or even less in some cases] in the asset class in question, and somebody is going 

to be puking very quickly, thus extending either the “Thelma & Louise” 

waterfall down, or the “to the moon Alice” melt up … it’s what drives index 

futures and gold as well … and I’m not talking about small amounts of money 

… cuz via leverage, we’re looking at many billions of dollars. “This is what 

moves markets these days … out of the blue, somebody unloads their short 

gamma … a market, or group of markets move violently … and when they’re 

done? … “crickets” … there isn’t any follow through, as other market 

participants look around and ask themselves, “WTF just happened?”, and 

everybody acts the part of deer in headlights before moving forward, while the 

market in question now just sits and waits for the next casualty of war coming 

down the pike”. 

Turning to today’s gold market … “why even bother? … elections tomorrow, 

and FED interest rate decision on Thursday … and the G20 after that” … right 

before the New York 7AM start, out of the blue somebody pukes gold lower, 

no doubt longs frustrated with zero follow from last Thursday’s big up move. 

And, in case you’re wondering, all of this gold action can be summed rather 

well, by Craig Hemke @ Sprott Metals, via his ZH article from Halloween 

linked directly below.

https://www.zerohedge.com/news/2018-10-31/same-old-comex-games 

In short, it’s the same old “Comex game” between metals dealers and specs 

… in other words, the “dealer yo-yo” that sees the public buy tops in price 

from the dealers … the dealers erect the “Great Bullion Wall of Selling” and 

force price lower … the dealers then buy from the public when the sell stops 

get hit off for spec losses at lower prices … and of course, rinse & repeat, and 

you get the general idea of how this game is played, and has been played for 

generations.

Backing up my thesis rather nicely, as I write I see this post on ZH, link 

directly below.

https://www.zerohedge.com/news/2018-11-05/worlds-smartest-investors-cant-

figure-out-markets-and-thats-really-bad-thing

The author laments the ability of “the smartest people in the room”, to be able 

to make any sense out of today’s markets … “well John, they create their own 

volatility when they pursue strategies that can get them into trouble … and when 

said trouble comes calling, they’re the ones pouring gas on the fire to make the 

situation worse”. … in other words, they listen to the “quants”, who assure 

them the “sigma” needed to hurt them has a very low probability … bingo, 

bango, Boom!, the black swan appears, and its butthurt time … the problem 

is twofold; 1) they’ll do the same “Hoover Dam” thing all over again soon, 

and 2) markets move too fast to cooperate with their plans. 

“Today’s Asian session trade a complete joke … ditto with Europe … and the 

U.S. isn’t starting out any better … can we just get these damn elections over 

with? … ranges just simply pathetic, with almost no volumes clearing and very 

little liquidity”.

Today simply an absolute bucket of hog slop … another subpar range day in 

New York, with Asia & Europe dead. A few trades today in the PAMM 

… PAMM down about $175.

Every fill today a complete “shitshow circus”, with the “slippage meter” set to 

double max … every fill ripped at least 10 cents from the scumbag LP’s, 

adding to the problems of no volume & no liquidity. It is what it is, and there 

isn’t anything I can do when ranges are shit, and the market gaps lower in an 

instant when I’m long … there just isn’t anything here.

Over on the C2 options advisory signals service, I put on a Long GLD 

calendar spread … this should work out well for “Subs”, as front month 

premium is high relative to back … when the election & Fed are done with, all 

that premium goes “buh bye”, hopefully by Friday … if you’re not signed up, 

you’ll have to wait until the position is closed to see the trade, and that’s when 

I’ll comment on it further.

Onto tomorrow’s election … won’t this be fun. Until tomorrow mi amigos 

… Onward & Upward!!

I got an issue with the spreadsheet, that needs to be fixed. I’ll have it up either 

later tonight or tomorrow, directly below.

Have a great day everybody!!

-vegas

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FRIDAY CRICKETS … THE FX SLOT MACHINE IS DOWN

 

“Follow your chart indicators they say … umm yea … errr HELP”!

Maybe some “economic porn” from the department of Unicorns & Fairy Tales 

this morning in NY can get things moving, but I’m not hopeful … it’s gonna 

have to show some “sigma” misses to have an affect … it’s quite simply a 

Friday and traders will be hitting the exits early, no doubt using Hurricane 

Florence [CAT 1 now] as an excuse.

Earlier, Mrs. Wantanabe & gal pals did their “schtick” in EURUSD … as the 

below chart shows, with frightening efficiency no matter the MT4 market, 

whatever they do from about 2 AM - 4 AM [Asian session close & European 

open], is almost always WRONG … famous for getting gold wrong for years, 

they’ve wandered into FX when not at the local casino, and the results 

predictable. 

 

click too enlarge!

Still, a 30 something PIP range after 12 hours of trading isn’t earth shattering 

by any means … really rather pathetic, but on the other hand, unless some 

government Pie Hole or substitute Apparatchik needs some mistress money, 

markets don’t move anymore without a “prompt” from them … and that’s the 

saddest commentary regarding the state of financial markets one can ever hear 

… everybody is at the mercy of “loose lips, sink ships” bullshit, followed by the 

predictable “TNT & Crickets” market that is sure to follow.

And while it would be easy to finger Mrs. Wantanabe & gal pals as market 

morons, stooges, FX flunkies, etc., these folks are generally wealthy, biz savvy, 

college educated, and overall smart people. So, as I’ve said before, most 

recently in the Information Tutorial on the “-vegas EURUSD Algorithm”, over 

in “Download Links”, how is it they almost always lose money? … “I’m pretty 

“Hoover Dam” sure it isn’t cuz they want to … so how do you explain generally 

successful, intelligent people being on the wrong side of things more than 90% of 

the time”? … On the surface, it makes zero sense, and has led many people to 

shake their heads in disbelief cuz they can’t figure it out … at the same time, I 

used to stand in the FX currency pits for years, in Murder, Illinois, and some of 

the dumbest people on earth … literally a bag of carrots had higher IQ’s … and 

they’d make not only a great living, but create and hold wealth … meanwhile, 

the doctors, lawyers, engineers, & MBA’s would walk in and would be “toes up, 

out the door” in less than 2 months … so, the $64,000 question to ask is simply, 

“what dynamic is at play here that 99% of all traders miss, and can’t identify”?

For most people, the answer is met with denial & derision, “cuz this is ‘Murica, 

and that can’t happen here or be allowed cuz we’re free markets”! MY 

RESPONSE: “Yea well, snap out of the delusional dream you’re in, or you will 

find your account empty … ‘Murica stopped being America a helluva long time 

ago … think “Plunge Protection Team” in stock indices, “Rally Protection Team” 

to keep gold prices suppressed indefinitely, and TBTF [Too Big To Fail] & TBTJ 

[Too Big To Jail] scumbag LP banks that run and control FX markets with their 

“tied at the hip” central bank buds … there isn’t a market on earth that isn’t 

being manipulated by central banks for “policy” purposes”.

Of course, MANIPULATION is the key element here, and what people miss is 

that their MT4 [or other trading platform] screens are lying to them! YOU SEE 

WHAT BANKS WANT YOU TO SEE … banks computer networks keep track 

of thousands of the most popular trading indicators … they know instantly, in 

real time, which brokerage house customers are long/short, and of course they 

know where client stops are … running these stops allows banks & large hedge 

funds to liquidate their positions profitably at your expense. 

In today’s modern financial markets, post financial crisis 2008 & post Central 

Bank QE programs [money printing] that started in 2012, it’s no accident 

market volatility has dropped significantly … central bankers don’t like 

volatility, only traders do! … take any FX pair and do some historical research; 

there isn’t anything more volatile now than it was 30, 20, or even 10 years ago 

… not even close. The biggest casualties in the dollar pairs are USDJPY & 

GBPUSD, but EURUSD volatility is down significantly as well from the 

Euro’s introduction in 1999. What all this means, of course, is that “trending 

markets” in FX is an illusion … granted depending on how you define trend 

along with time matters greatly, but for hypothetical sake just take a look at the 

daily/weekly candlesticks over the years … again, the Greek Crisis caused 

EURUSD to trend lower for about 9 months straight, but other than that, it’s 

mostly “chop” the last 10+ years and counting outside of a few months of trend 

… “and who benefits the most from this “chop”, when central bankers & Pols 

start opening their Pie Holes to make markets move? … the scumbag LP banks, 

that’s who, and I don’t seriously think that’s ever going to change outside of some 

kind of revolution and blood in the streets … cuz now that they have the power, 

they aren’t ever going to give it up voluntarily”.

And so what we’re left with, when you strip away all the market commentary 

bullshit from the usual suspects, and look simply at “action in the marketplace”, 

is nothing short of the premise I have put forth describing what the purpose of 

trading is today, and most likely will be going forward, and that is simply, “Big 

money [banks] getting small money [you] to do what they want, which is buying 

high and selling low, without small money ever really knowing what it is that just 

happened, and how they’ve been manipulated in the collective like Pavlov’s dog 

by the banks through muscling the market up/down”. Understand the 

manipulation, and who’s positioned where … understand where the buy/sell 

stops are and what price levels are going to get violated, and then adjust your 

trading strategy [algorithm] around those factors that have the highest 

probability of influencing price, and you’ve flipped the tables on the banks and 

can give them a “tip of the hat” for their efforts at destroying most, but not you!

Turning to today’s EURUSD market … “is it time to go to bed yet”? … good 

grief, what a pile of hog slop … and then some sell stops knocked off on the 

retail sales numbers, after they take out the buy stops … “same shit, different 

day” is the only way you can describe bank behavior … day’s range still 

extremely tight, and the action of the M1’s downright lethargic.

It’s Noon in NY, and since the retail sales numbers came out, this market got 

slammed [kinda] for 3 minutes, and that’s been it the entire frickin’ day 

… won’t rally and won’t break … have gotten NO algorithm signals the 

entire day, and the reason is simple; NO INTRADAY VOLATILITY 

… without it, this or any other market becomes a crapshoot, and you end up 

risking multiples of what any gain is likely to be. Today’s intraday volatility 

readings off my proprietary “volatility heat map”, are the lowest I’ve seen in a 

while. “I guess since nobody needed to fill up the “Mistress Fund” today, 

Apparatchiks worldwide are taking the day off from the heavy lifting of 

manipulating markets with useless words … that leaves the scumbag LP banks, 

which will happily rip prices up/down and take no prisoners”. 

“Well, that escalated quickly didn’t it? … thank you President Trump for those 

tariff tweets”. As I have repeatedly said, nothing moves anymore except when 

Pie Holes & Apparatchiks talk or Tweet … everything else is just mindless 

“chop”, until the next one comes along … today’s EURUSD just off the charts 

in “weirdness”, where the entire day is nothing but a series of M1 blitzes to the 

downside that last 1 to 3 minutes, and then that’s it … no rally, no 

back & forth, just dead M1’s that sit in 1 PIP ranges going nowhere and the 

scumbag LP’s will still find a way to throw the “slippage meter” to  

“double MAX”, whatever you do. Now that we’re in the NY afternoon trade on 

a Friday, “I’m sure Squid & the boys will help you out of whatever trouble might 

come your way … not”! Why, just look what they did to a corporate order 

@ 17:00, if you want to know what “help” looks like … with friends like these, 

who needs enemies?

It’s well after 1 PM in NY, and even though the day’s range looks impressive at 

just shy of 100 PIPS, the trading action is anything but … some of the worst 

conditions I’ve seen since mid to late August, but that was cuz of vacation time 

… here, today, I don’t know except maybe Hurricane Florence has muted 

trade, and of course it’s Friday … every single move down coming on spikes 

down in the M1 that are one to three minutes in scope, created by Pie Holes 

and/or Apparatchiks, and then literally zero action until the next one .... can’t 

get a buy signal and can’t get a sell signal cuz nothing is literally moving in 

EURUSD … it’s literally what I have dubbed it before, which is 

“TNT & Crickets”, and in that environment there are only M1 explosions 

[today down] and no action, where it doesn’t matter if you’re long or short you 

aren’t going to make money in anything.

No signals today, which is very rare, and so no trades on C2 for the advisory 

service and no trades in the PAMM.

Just a depressing day for trading the algorithm signals … “cuz there weren’t 

any! … the law firm of  “Zero, Zip, Zilch & Nada” called and left a message”. So, 

onto Monday where I’m hoping trading isn’t anything like today’s action. 

Sunday night sees a short blog weekend update … until Sunday Mi amigos 

… Onward & Upward!!

Have a great weekend everybody!!

-vegas

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