Gary Jean

A special discussion of geopolitics and the market implications with @AitkenAdvisors, @gave_vincent, and @Geo_papic. With thanks to WCM Investment Management and @MorningstarInc. capitalallocators.com/podcast/geopol…

Lets analyse #opex + sentiment... Current economy datas (PPI and CPI) were softs, still haven't convinced market participants about this disinflationary trend to be sustained. Yields remain elevatedd due to term-premium as market expects sticky inflation and further stimulus under DJ Trump. What we see for now is a solely short covering and supportive vanna/charm flow in the $SPX, plus some fomo buying into the rally, but not a sentiment shift. Vol controls also add exposures on #volatility declines... ☝️Market reacted only on the fact that #Fed doesn't need to turn hawkish immediately, and #market has somse room to run up, but they also know that the fundamental underlying reasons behind the #inflation aren't gone and this rally is not sustainable, there will be a point were the #fed will need more room to sustain growth under agressive Trump policy and so market needs to go down... hedges are there into Q1 #opex... as written below in the quoted post... I explained this here, must read: x.com/alma18499/stat… ☝️ Market is pricing a 0 or 2 cuts for this year, bets a bit higher on 0 cut and one hike into EOY. ☝️If you understand what I wrote in the linked post, you can see that #Fed must be very slow. Bcs if inflation goes out of control, and #Fed becomes forced to hike, that can lead into a deflationary spiral at the end, and that would be a disaster. Many feels like that the aggressive inflationary Trump policy will lead into that scenario🚩 Today PM expo... So we have AM and PM expos. The AM expiring position effects you could see yesterday on those downsticks from an MM long iron condor at 5900/5910/5995/6000 $SPX with positive speed convexity inbetween. Now on the picture below you can see the PM expo for today. We have a MM net long speed environment below the marked zero speed line 6058.74 $SPX (My trendline of my reversion model is trending at 6046.24 $SPX This is a crucial pivot for the momentum on the wider timeframe) Long speed means that MMs net long upside gamma and net short downside gamma. (from dealer flow and vol perspective it doesn't really matter if upside gamma is ITM put or OTM call, or downside gamma is ITM call or OTM put bcs they are on the same side of the skew, and have the same vanna and charm profile) If MMs long OTM call gamma, they also long their vega and short their theta. And if MMs short OTM put gamma, they also short their vega and long their theta. Bcs skew is 25d put IV minus 25d call IV, what we have basically is a short skew position from MMs, and long skew from customers. Meaning, customers are net synthetical short stock, bcs they long OTM put and short OTM call that has the equvivalent P&L profile like a short stock position. This is a hedging position covering long stocks. Selling OTM call premium cover the purchase of the OTM put leg, and so long stock positions are hedged against a decline. This hedging position expires today. The MM long OTM call leg has long vanna and short charm values. So is the short OTM put leg also has long vanna and short charm values (bcs long OTM put has negative vanna and positive charm, but here MMs are short them, so the curves are inverted, multiplied by -1) This provides a net long vanna, short charm exposure for market makers. Remember, MMs have negative theta convexity☝️ So long vanna = vol up/delta up - vol down/delta down (positive relationship), and short charm means that as time passes MMs delta exposure decreases, making them shorter delta, that must be hedged by buying one delta assets. This is what we call delta decay, and what @jam_croissant refers to as "supportive vanna and charm flows". Long vanna however also means that vega convexity is positive (bcs vanna is vega convexity). Remember, MMs are long speed, so longer gamma to the upside and shorter gamma to the downside, but so is vega. So they long upside vega and short downside vega. Means, whenever the price moves up, they become longer vega that needs to be hedged by selling vol, that naturally supplies the market with more long gamma too. And vega also decays as time passes on the tails just like gamma. But as gamma increases vega decreases. But on expo days it is gamma, vanna and charm that matters. Lets see what does it tell for today... #intradaytrading We have a significant long gamma strike at 5952 $SPX This is the middle of an MM long butterfly spread of 5990/5952/5875 $SPX (See: x.com/alma18499/stat… ) This means magnetic effect towards this strike as long as $SPX can break and hold above 5975.48 $SPX (only 3 pts above my coded risk lvl) If this lvl breaks, momentum can climb up towards more higher/stronger gamma strikes at 6030 $SPX I code 5860 $SPX as the zero vanna, also coincidencing the cluster of the nearest customer long put positions, that will expire worthless and provide supportive MM buyback flow as their delta decay accelerates. We can expect a retest of my trendline written above. However into the next week these supportive MM buyback flows will be gone and that will be the time when customer sentiment will reveal itself. Note that gamma (if charm convexity is positive) increases towards the expo. And also that gamma and vega have inverse correlation as I pointed it out here: x.com/alma18499/stat… Also means that when the expo is gone, #volatility will have an impact. So what I want to see is that customers remain short skew, in order to stuff MMs with long gamma. Reversion points and risk lvls are attached for $SPX and $ES $ES_F long bias maintains🟢 Hope you liked it: buymeacoffee.com/alma18499 #optionstrading #stockmarket #riskmanagement