Alpha_Ex_LLC

"The Shock Heard 'Round the World: US Government Bonds" Airpods out of charge? Substack: alphaexchange.substack.com/p/the-shock-he… Airpods working: Apple: podcasts.apple.com/us/podcast/the… Spotify: open.spotify.com/episode/1pWvMl…

Markets are all about processing and pricing change. So, what are you up to on June 17th? One of the most interesting and FOMC meetings is set to take place. The Committee pulling in 3 directions (ease, remove bias to ease, do nothing)...we have a new Chair, we have data that is going to be pretty unwelcome, we've had huge moves in implied probabilities, we get a fresh SEP and DOTS and it will be Warsh's first presser. 6/16 expiry 7400 straddle: 14.8 vol 6/17 expiry 7400 straddle: 14.9 vol 6/18 expiry 7400 straddle: 14.9 vol 6/22 expiry 7400 straddle: 15.1 vol 6/12 expiry TLT 84 straddle: 11.7 vol 6/18 expiry TLT 84 straddle: 11.8 vol It's not that easy to isolate a one day move via calendar spreads, but it is interesting to me that it's kind of an unpriced event. Thoughts?

Tremendous interview with @GavinSBaker …one of the observations he shares is that history tells us that a shortage cycle in memory often leads to a glut cycle. I think this applies more broadly in economics and markets. When there’s a shortage of a critical input, the decision-making timeline shortens. “You want it now? Here’s the price, take it or leave it.” Critical economic choices must be made in a hurry, whether you like the price or not. Remember Chuck Prince in ’07? Shortage creates a fear of being left behind that is more powerful than the fear of overpaying. This is asymmetric in a very specific way: the cost of missing the shortage feels existential; the cost of overshooting feels manageable (at least at the time). That asymmetry is why everyone rushes in simultaneously. Hard to not see the hyperscaler capex cycle writ large through this lense as well.

Really enjoyed this Odd Lots with Albert Edwards. A very well-hosted discussion. @albertedwards99 @TheStalwart @tracyalloway The Greenspan quote from Jan’2000, on the doorstep of the bubble unwind, is especially good. podcasts.apple.com/us/podcast/odd…

this snippet from a recent interview of Lloyd Blankfein on market to market risk had me bring up a short vid I did "Vol Laundering and the Portrait of the Perfect Hedge" youtube.com/watch?v=jUK0uo… x.com/i/status/20563…

@unturnededge I think you framed it well: I see these as indicators of the stress. I'm not suggesting one vol is cheap to the other (though a mean reversion strategy would want to be on these ratios normalizing lower).

So the read is: KOSPI2 vol is the market’s memory-shortage stress gauge, USO vol is the crude-shortage stress gauge, both normalized to SPX? ..Curious if you see this more as a relative vol trade or just a cleaner way to track which shortage the option market is actually scared of.

option market pricing outcomes of the two critical shortages: memory and crude ratio of 2m implied vol of Kospi2 to SPX and USO to SPX...

@KrisAbdelmessih @abcampbell @patrick_oshag @FairweatherPhD Eager to read!

Moontower Sunday 🌙racing to a mountaintop? 🌙how high implied vol can work against you or for you 🌙the greatest intern class of all time? moontower.substack.com/p/collection-o… refs: @abcampbell @patrick_oshag @Alpha_Ex_LLC @FairweatherPhD

In markets, we follow the economy, earnings, valuations, the Fed, inflation, regulatory policy, fiscal policy, and global affairs for a common reason: to seek insights on the direction of asset prices and to evaluate risk/reward. We live in an era of profound uncertainty with both huge opportunities and threats. In this context, here are 5 critical questions: UNCERTAINTY #1: Is the stock market in a tech bubble? Have we pulled too much forward with respect to valuations? UNCERTAINTY #2: Has the Iran war already lit the inflation fuse? UNCERTAINTY #3: Is the Treasury market at risk of its own crisis? Is US government debt a source of instability? UNCERTAINTY #4: Will anything close to the Citrini memo materialize in white-collar job loss? UNCERTAINTY #5: Will private credit concerns intensify? Can we muddle along or is there potential for a contagion event?

@darioperkins Great thread. Fed Chairs need to master the "sweet art of saying nothing"...it's a learned skill that even excellent eloquent communicators like Warsh don't initially possess.

Is the market going to "test" Kevin Warsh? 🧵 “The market always tests new Fed chairs”. That’s long been the popular mantra on Wall Street, and I remember my first City boss telling me about this back in 2006, just as the softly-spoken, slightly-nervous-looking Ben Bernanke replaced Alan Greenspan. The idea was that financial markets didn’t like rookies, and they would soon “misbehave”, just to see whether the world’s most important banker could handle the pressure of his new post. But is the mantra true? If it is, that could be bad news for Kevin Warsh, “central casting” or not…

The interaction between risky and "risk-free" markets has rarely been more important, especially as UST yields rise. Visit axpod.com to download recent whitepaper "The Three Types of Risk-Off". Scroll down a bit on the home page on the right.

@chamathGundlach I would almost do the opposite. Maybe a 1x2 (buy 1, sell 2) put spread. Maybe a put fly to be a bit more conservative about it.

@Alpha_Ex_LLC So what’s the trade sir? Your friend at nomura pitching put ratios on smh (sell 1 x buy 3) but seems like you are saying the opposite?

they say a picture is worth a thousand words... it's a "spot up, vol up" world, you just live in it this chart nails the option dynamics for members of the $SMH ... horizontal is the %ile of 1m implied vol (2y lookback window)...vertical is the %ile of the ratio of implied to realized. what is incredible here is that the mean and median 1m return of these stocks is 31 and 26%, respectively. two things are true at once: these stocks have such momentum, history tells us they can easily run further AND... they are likely to experience a very sizeable drawdown in the not too distant future.

@17thfellow of course nothing is perfect...but in the limit, history teaches us that every very sharp "spot up, vol up" event ends in spot down, vol down... GME'21 and SLV'26 are two good examples... timing always tricky

@Alpha_Ex_LLC Is it possible to derive a signal for correction from IV? or is it too blunt of a measure

@tcoste110 tons of volume, for sure. but the market's "need" for a narrative that ties cause and effect leads to all kinds of explanations...

@Alpha_Ex_LLC I haven't been watching. Are ODTE options generating anything close to the volume required to make that argument even lightly credible?

the "gamma squeeze" takes are interesting and contradictory. 1. we are in a "gamma squeeze" and that explains why realized volatility is so low. this is the "ODTE did it" by flooding the street with short options explanation. 2. we are in a "gamma squeeze" and that explains the self-reinforcing buying loop. this is the "massive call demand did it" by taking the street short vol explanation. maybe it's neither? maybe it's just earnings?

@unturnededge The Cuban collar was so incredibly well timed because YHOO shares would ultimately plummet but if they didn’t, he at least had the chance at about more upside because of how the volatility impacted the pricing in his favor.

@Alpha_Ex_LLC This is the rare case where high vol is not a problem, it’s the product. A concentrated holder gets to sell the market lottery-ticket upside and buy survival. I’d have a hard time not doing this on at least a chunk of the position.

you are (lucky enough to be) a top 10 holder of $SNDK ... you can implement a zero cost collar out to Dec'28 and hedge all but 10% of the downside but retain up to 100% of the upside from here. that is, you can buy a put that is 10% out of the money and finance it by selling a call that is double the current stock price. do you do it? this is a theoretical pricing exercise, but it's not going to be that far off. the trade capitalizes on 3 factors, all of which go your way. 1) interest rates and (lack of) dividends 2) the incredibly high level of implied volatility on these options 3) the very small differential between the vol on the put you'd buy versus call you'd sell check out the video I did on this "Cuban's Collar is Jensen's Alpha" to learn more about the economics of zero cost collars youtube.com/watch?v=CMREJb…

@globalmacrorisk Fair. It’s just meant to be illustrative, not BlackRock size.

@Alpha_Ex_LLC It's good but GL finding someone willing to sell you Dec28 puts on this in size

@_____Lightning It won’t matter. Stock doesn’t pay a dividend a rates are high. But most collars and pre paid forwards are done European style and OTC.

@Alpha_Ex_LLC You have to tinker with some things my man. Why would it be a European exercise if we are in the United States, the vol does look accurate, same with the rate period and you should use your own model.

@m7mdkj smart response :)

where my rate gurus at? Kalshi bet on 2/10 Treasury spread 10Y-2Y by Dec 31, 2026 — Above 1.00%. The bet is at 24%, the spread is currently at 48bps. this is a "one touch"...from Kalshi, below: "If the FRED T10Y2Y series (10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity), measured in percent (not seasonally adjusted), on any daily observation dated between Issuance and Dec 31, 2026 (inclusive), is above 1.00%, then the market resolves to Yes. Outcome verified from Federal Reserve Bank of St. Louis."