“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.
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.
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
OUR TURNKEY FOREX “PAMM/MAM” IS OPEN AND
OPERATIONAL, AS WELL AS OUR C2 OPTIONS ADVISORY
SERVICE. DETAILS IN “DOWNLOAD LINKS” SECTION IN
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