This week saw some really unusual moves, 10Y repo, intraday volatility, stock rotations, A harbinger of more volatility to come?
Geode handles $700 bn of Fidelity’s index tracking assets. Geode Diversified, the much smaller hedge fund business, took a 36% loss on COVID’s volatility rally. It is now getting the axe.
Infinity Q may be the new variance swap skeleton. The New York hedge fund has just been suspended by the SEC pending valuation of its variance swaps and its full liquidation.
The fund’s main investor is handling the fund, while the founder is on administrative leave.
‘When you combine ignorance and leverage, you get some pretty interesting results.” Warren Buffett
Three good notes from the derivatives research teams of Morgan Stanley, Société Générale, and Nomura point to a potential squeeze in the VIX, as a result of the increasing retail activism. This technical post explains the contents of the research papers. Spoiler alert, yes, the VIX is prone to a squeeze.
GameStop’s rally and its short squeeze are more than just market exuberance. Thanks to low-cost trading, employees working from home, and a Fed-induced market rally, retail traders are pushing the market to new highs and enjoying the excitement of the rally. Worse, social media allow them to focus on a few instruments, with wild rallies.
It is only a matter of time before this party is over, for this stock or the market. We should start thinking of the aftermath.
A good note from Ralph Sueppel on the relationship between market volatility and macroeconomic uncertainty.
The schizophrenic behavior of Mr. Market. A bi-modal view of option-implicit asset return expectations
Skew is well explained by the sum of TWO return expectation Gaussians. The model reviews these distributions and leads to an interesting market structure interpretation, with applications in asset allocation.
Goodhart’s Law: When a measure becomes a target, it ceases to be a good measure.
The Sharpe ratio has changed investor behavior. We chase the metric rather than the underlying quality it is trying to assess, and there are plenty of situations where the Sharpe is a poor metric of quality.
And there are unfortunately major losses, which keep on demonstrating the point – LTCM, AIG, Malachite…
RealVision interview video, May 19th, 2020
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