tyb
From Feb 15th-and some background and translation for non-financial oriented anons below
JPMorganâs Kolanovic Warns of âVolmageddon 2.0â Risk in Options: potential Flash Crash due to over-sized zero days to expiry option over-use translation included
The explosive rise of short-dated options is creating event risk on the scale of the stock marketâs early-2018 volatility implosion, according to JPMorgan Chase & Co.âs Marko Kolanovic. That episode, known as Volmageddon, sparked market chaos exactly five years ago (what could be potentially coming/brewing with this here will make that look like a bounce house party) and forced the shuttering of one major volatility-focused exchanged-traded product (this is the VIX and the Federal Reserve watches/manages this quite a bit-it is know as muh 'Fear Index' so they try to control it as much as they possibly can- when it got out of hand in 2012 the FRBNY brought in a "specialist" to manage the spiking VIX and the result can be seen in Cap#3-story linked below). The latest proliferation of options with zero days to expiry has similar potential to create market turmoil, the top-ranked strategist says. By his teamâs estimate, daily notional volumes in such short-term options â known as 0DTE (Zero days to expiry)''' in industry parlance âis around $1 trillion.âWhile history doesnât repeat, it often rhymes,â Kolanovic wrote in a note to clients. The selling of these âdaily and weekly options is having a similar impact on markets.â The February 2018 âVolmageddonâ episode is one of the more famous instances of dynamics in derivatives markets bleeding into their underlying assets, in this case stocks. The main culprits were exchange-traded funds designed to pay investors the inverse of equity volatility. When turbulence in stocks ramped up in the early part of that month, it triggered a snowballing effect that eventually sent many such strategies hurtling toward worthlessness, contributing to a 10% plunge in the S&P 500 over two weeks.
Now, Kolanovic is issuing whatâs likely the loudest alarm on 0DTE options whose explosion since mid-2022 has been often blamed for amplifying moves in underlying assets. Their impact was on display Tuesday, when S&P 500 futures swung wildly following an inflation report, making any attempt to figure out the marketâs collective thinking on the economy an especially futile exercise-(and if you thought Tuedays action was completely ridiculousâŚit certainly was because of these 0DCE expiration's when the CPI #s came out it was a rollercoasterâŚwaitâŚyou ain't seen nuffin yet-that is IF they allow a consequence because that is the key to any market movesâŚallowing consequences of this type of behavior-the big bois never have them) In the eyes of Kolanovic, the risk involves options dealers, who take the other side of trades and must buy and sell stocks to keep a market-neutral stance. Since 0DTE options rarely get in the money, their market impact is now mostly felt through volatility suppression and an intraday buy-the-dip pattern that results from hedging, according to Kolanovic.
However, should the market stage a big move that put these contracts in the money, that would force options dealers to unwind a large amount of their positions (in a massive way), warns the strategist, who was ranked the best in equity-linked strategies in last yearâs latest Institutional Investor survey. On a big down day such intraday selling would reach $30 billion, his model shows. âThese flows could particularly impact markets given the current low liquidity environment,â he wrote. Taken up first by retail traders during the 2021 meme mania, 0DTE options have gained popularity among big money managers. During the second half of 2022, such options made up more than 40% of the S&P 500âs total trading volume, data compiled by Goldman Sachs Group Inc. show-thatâs almost double from six months ago.'''
https://www.bloomberg.com/news/articles/2023-02-15/jpmorgan-strategist-kolanovic-warns-of-volmageddon-2-0-risk-in-options-market
What this is describing is a catalyst for a Yuge 'flash crash' as these options expire daily (0CDE are daily use options) and since the system piles into products because they are chasing performance on a daily basis they really do not consider (or care) what any long term effect is to the markets. This comes into play because trading strategies that worked when interest rates were at or near zero just don't work any longer (60/40) and the buyer faces a capped amount of loss as these can just expire worthless but the 'seller' or hedge (on a long position or 'Call') has an unlimited loss potential if they sold (shorted) a call option (long poisiton). These are making up almost half of the daily volume of the daily SPX trading now and since they can move up in value by 4 digit percentages in seconds (they have short expiry as described above) i.e. they can go from worthless to worth thousands of dollars per contract in a matter of seconds-thus increasing volatility across all asset classes and that is not good if you are on the short side of that-this has increased the chances of a Flash Crash exponentially at this point and we really don't want that as the system will just buy it back 'cheap' and start the process all over again. To put in succinctly.. all of us will be here for a lot longer if they do that and then introduce CBDCâŚgonna be a long road extricating ourselves from that trainwreck coming-it's pretty much a race to see who implements that first: the Bank of England or the Bank of JapanâŚ
This is earliy-similar to the Credit Default Swaps(CDS) problem that was created as a niche-product in the mid 2000s and was rolled out is small amounts at first since it was thought that no one would bet against the housing market failing in size nor take positions-again in size- to profit from that event habbening (see the Book 'Big Short') and has the potential to lead the cart before the horse in either direction with these 0CDEs-similar to ETF products
Now it's not so much the actual Options themselves that create the problem (but the growing size of it is contributting to it moar and moar) it's the fact the dealers who write these have to hedge this and that means for every one of these issued the opposite side must be taken as the 'hedge' or counter to the initial position. If the amounts were not so high this would not normally be much of a problem but since they are now (cap#2 it estinated at over $1T or %40% of the SPX's daily volume and has only gotten bigger since last year this is going to create a selling problem that will bleed into the overall markets..i.e. a domino that begets moar selling and affects all the underlying assets that these daily expiry options are tied to.
So if anyone was looking for a catalyst for the markets to start to drop-and very fastâŚthis is looking like one of several taht could kick off a liquidity crunch at many hedge funds who are increasingly using these as there main venichle to capture performance on a daily basis-eventually one of them are going to take on too much risk and will start the daisey-chain of selling (and asset/collateral grabbing)-there are many claims on assets and collateral through hypothecation-please see these links for moar on that
The Federal Reserve and the VIX Index
from July 2012 cap# is the 'result' of that switch
NY Fed names Potter as head of markets group
The Federal Reserve Bank of New York named Simon Potter, an internal director of economic research, as the new head of its division that conducts monetary policy in the marketplace for the U.S. central bank. Potter, 51, starts as head of the New York Fedâs markets group on June 30, replacing Brian Sack, 41, whose resignation was announced in April. The markets group deals directly with Wall Street and foreign central banks, carrying out Fed actions in the open market. Potter will oversee the extension of so-called Operation Twist, unveiled on Wednesday, in which the Fed sells short-term bonds and replaces them with longer-term ones in an effort to lower borrowing costs. Potter, who is now the co-head of research and statistics at the New York Fed, will also manage the Fedâs System Open Market Account (SOMA).
https://www.reuters.com/article/usa-fed-markets/update-3-ny-fed-names-potter-as-head-of-markets-group-idINL1E8HLGU020120621
The NYFRB has a VERY active trading desk in it's Building on Liberty Street-and they try to deflect inquireies that they even have one but they do
also from the 2012 VIX explosion and management episode-written in 2018
Fed Chair Powellâs Stunning Admission: âThe Fed Has A Short Volatility Positionâ
https://www.theburningplatform.com/2018/01/05/fed-chair-powells-stunning-admission-the-fed-has-a-short-volatility-position/
For moar on the really Yuge Flash Crash from 2010 (and this next one comng-again IF they allow it-will make that look like a church picnic) see here and it also has a lot of the rise of High Frequency Trading-the person that uncovered all of this was the first person to recivee a payment from the SEC's whistleblower programâŚbut in usual fashion nothing was ever done to the firms and/or people that caused all of it
it's dated material however the only thing that has really changed is computing power and the SEC and other regulatory bodies ignoring of all of this on a much different level-they just settle everything now-and no one admits anything
Ongoing Research - Market Events and Phenomena
http://www.nanex.net/FlashCrash/OngoingResearch.html
Rec'd reading this book "Flash Boys' for moar on High-Frequency Tradings Rise and how they did it.
They tested all of it (the Algos) in the Options markets in 2005/6âŚsaw it along with the fellow in the book from Royal Bank of Canada-who just recently lost an ass-ton of money via FTX
It's very dry and they will never make a movie out of it-written by same author as 'Big Short'-Michael Lewis
The movie made from the Big Short book was horribruh imo as 80% of the actors in it were just not believable in the roles they played.
Really only the Michael Burry role and the bald money guy at Scion and a few of the Wall Street douches were believable..Steve Carrel definitely not convincing at all
>>18364360 pb
PF: High level ACs and passengers departed and arrived at JBA: SPAR65 USAF G5Indo-Pac Cmdr Aquilinodeparted JBA after arriving on 0213 from Hickam AFB depart
TITAN25 E-4 B NightwatchSec of Defense Austinand SAM986 C-40BJCOS Milleyarrived back at JBA earlier from Nuremburg ground stop and Tallinn, Estonia departure earlier today'''
Both Austin and Milley were in Brussels earlier this week and tail #02-0042 (SAM986) has been used in the past by Milley
>He might be one of the guys in that ocean water photo that has been circulating.
If you are talking about the one in the water @ Dominican Republic beach with Tony Podesta and Bubba and the tall one on the far leftâŚalmost 100% sure it is Doug Band.
Some thought it was John Roberts but that did not match at all
Don't have that specific picture just this one that doesn't include him but the shadow being cast on the one on the left in that pic was Doug Band
>>18367829
>sucking his own dick.
>(28)