Tag: Volmageddon

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Yield Hunger Sparks Concerns Of A Volmageddon Redux

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As we step into Spring, we’re riding the wave of one of the strongest stock market rallies in over fifty years. It’s been a period of smooth sailing, with record highs beckoning transition from concern over potential downturns to the fear of being left out of further gains.

The BIS has commented on some of these trading behaviors, which can drive upward momentum and foster a sense of calm or low volatility. They point to the increased use of yield-enhancing structured products as a critical reason for reducing volatility. These products have stolen the show, boosting investor returns by selling options or betting against market fluctuations. In calm markets, those on the opposite side of these bets hedge in a way that reduces volatility: they buy when underlying asset prices dip and sell when they rise. As the supply of options increases, the liquidity injected to hedge stifles movement, resulting in a stubbornly low Cboe Volatility Index or VIX.

The BIS example illustrates a product that sells call options against an index position to lower the cost basis by collecting premiums. The counterparty buys call options and hedges by selling the same index. If the call options lose value or the market declines, the counterparty buys back the index they sold initially. This strategy is constructive and potentially bullish, especially in a rising market, as one could infer counterparties may postpone rebalancing to optimize profits (i.e., swiftly cut losses and allow profits to accumulate).

Graphic: Retrieved from Bank for International Settlements.

However, these trading behaviors come with risks. 

While individual stocks may experience volatility, the indexes representing them move begrudgingly. Investors have concentrated on selling options or volatility (the all-encompassing term) on indexes to fund volatility in individual components, a strategy known as dispersion. Although typically stabilizing, experts caution that it can end dramatically. One can look at the destructive selling in China as a cautionary example.

Kai Volatility’s Cem Karsan compares the trade to two sumo wrestlers or colossal plates on the Earth’s core exerting immense pressure against each other. While the trade may appear balanced and continue far longer, the accumulated pressures pose significant risks. Major crashes (up or down) happen when entities are compelled to trade volatility and options. Often, the trigger is the inability to cover the margin and meet regulatory requirements, causing a cascading effect (e.g., GameStop and 2020 crash).

The current scenario mirrors the conditions before Volmageddon, where short-volatility tactics failed. 

With implied correlations low, a market shock could see investors exiting their positions abruptly, amplifying volatility. Karsan notes a precursor to such a crash is a weakening supply of margin puts, particularly the highly convex and far out-of-the-money ones. These options play a significant role during stressful market periods, acting as indicators and drivers of impending crashes. The focus is on convexity (i.e., the rate of change of delta for changes in the underlying asset’s price or the nonlinear relationship between the option’s price and the underlying asset) rather than whether there are good odds the underlying asset will trade down to the options in question.

“Implied vol is about liquidity. It isn’t about fear or greed,” writes Capital Flows Research. “Implied vol is about liquidity on specific parts of the distribution of returns on an asset. Remember, even the outright price of an asset is pricing a distribution of outcomes, not a single destination. Options make this even more explicit by having various strikes and expirations with differing premiums and discounts.”

History shows a minor catalyst can lead to a dramatic unwind. Take what happened with S&P 500 options a day before XIV crash day.

“Going into the close the last hour, we saw nickel, ten, and five-cent options trade up to about $0.50 and $0.70,” Karsan elaborates. “They really started to pop in the last hour.”

“And then, the next day, we opened up and they were worth $10.00. You often don’t see them go from a nickel to $0.50. If you do, don’t sell them. Buy them, which is the next trade.”

Graphic: Retrieved from Bloomberg.

Similar to downward crashes, there are occasional but now more common upward crashes. 

Recent market movements, particularly the surge in stocks such as Nvidia, Super Micro Computer, and MicroStrategy, echo the frenzy seen with high-flying stocks like GameStop in 2021. This caused losses for some liquidity providers and funds that mistakenly equated the price or level of volatility with value, selling it at a discount to where it would eventually trade.

Graphic: Retrieved from Bloomberg via Simplify Asset Management’s Michael Green.

“I remember several traders I knew trying to short-vol on GME when it was at 300 because it was ‘cheap’ due to its level,” Capital Flows Research adds. “They were blown out of those positions.”

Graphic: Retrieved from Bloomberg via Capital Flows Research.

So, we have played along, nodding to George Soros’s famous statement: “When I see a bubble forming, I rush in to buy, adding fuel to the fire. That is not irrational.”

To explain, we go deeper into something known as implied volatility skew.

Skew refers to the difference in implied volatility across different strike options on the same underlying asset. Typically, options with farther away strike prices (out-of-the-money puts) have higher implied volatility than options with higher strike prices (at-the-money calls).

Implied volatility skew, as shown below, is often nonsymmetrical due to higher demand for downside protection.

When volatility skews become steeper, the disparity in implied volatility between various strike prices widens. For instance, the implied volatility of out-of-the-money (OTM) puts, which offer protection against market downturns, rises compared to at-the-money (ATM) puts and upside protection (calls). This steepening volatility skew indicates heightened apprehension among investors regarding potentially large downward market movements. Similarly, when the implied volatility of upside protection (calls) surpasses that of downside protection (puts), it signals growing concern (i.e., FOMO) about potential upward market movements. A steepening call volatility skew results from distant call options pricing higher implied volatility than usual due to investor demand/fear.

Graphic: Retrieved from Exotic Options and Hybrids: A Guide to Structuring, Pricing and Trading.

As savvy traders, we can construct creative structures and sell options against the closer ones we own to lower our costs on bullish trades. We detailed such bullish trades in our last two commentaries titled “BOXXing For Beginners” and “Foreshocks.” The outcomes for one of Physik Invest’s accounts are detailed below.

Graphic: Retrieved from TD Ameritrade’s thinkorswim platform.

Regrettably, enthusiasm is waning. Using Nvidia as an illustration, the stock surged 2.6% on Friday but plummeted 8% on the same day. The call skew was elevated over the weekend before leveling off earlier this week, which poses difficulties for traders betting on further upward movement.

Graphic: Retrieved from SpotGamma.

We discussed how such a flattening could foreshadow waning risk appetite and potentially herald market softness. SpotGamma indicates that call skews are flattening across the board, as illustrated in the chart below.

The red bars on the left represent approximately 90th percentile skews during a significant stock rally. However, a week later, on the right side, the skew rankings decline. “This appears like the uniformly bullish action in top tech stocks is breaking apart,” SpotGamma explains. This “is a reduction in bullish exuberance.”

Graphic: Retrieved from SpotGamma.

This activity will not likely disrupt the broader market; markets will stay intact as traders double down, selling shorter-dated volatility and buying farther-dated ones. We observe this using SpotGamma’s Fixed Strike Matrix below. In a simplistic sense, red indicates selling, while green suggests buying.

“By default, cells are color-coded red-to-green based on the Implied Volatility Z-Score,” SpotGamma explains. “If the cell is red, Implied Volatility is lower than the average implied volatility over the past two months. If the cell is green, Implied Volatility is higher than the implied volatility over the past two months.”

Graphic: Retrieved from SpotGamma on Monday, March 11, 2024.

The recent compression in short-term volatility aids stabilization, leading to restrained ranges in the indexes relative to components. Among these components, which drove the S&P 500 upwards, some big ones face downward pressure, partly due to the expiration of previously demanded/bought call options. This expiration prompts those initially selling these (e.g., call) options to re-hedge by selling the corresponding stocks.

Graphic: Retrieved from Damped Spring Advisors.

As the indexes remain fixed, the only resolution is a decline in correlation. As larger stocks decline, smaller constituents rise, contributing to the strength observed in the S&P 500 Equal Weight Index.

Graphic: Retrieved from Macro Ops.

Breadth can be evaluated naively by comparing the S&P 500 stocks trading above their 50-day moving average and examining the proportion of index constituents achieving new highs and lows. We see improvement, per the below.

Graphic: Retrieved from Physik Invest via TradingView. Breadth black. Correlation purple.

Based on the above explanation and graphics, after the triple witching expiration of futures, stock, and index options, traders may rebalance their portfolios and sell some of the remaining volatility they’ve bid. 

As explained earlier, this will further compress volatility, reducing the potential downside and providing critical support for stocks. Considering it’s an election year and policymakers prioritize growth over instability, Karsan suggests the market may remain stable with these forces above offering an added boost. Therefore, focus on creatively structuring longer-dated call structures and financing them with other trades to amplify return potential.

If the market consolidates without breaking, we may have the groundwork for a much bigger FOMO-driven call-buying rally culminating in a blow-off. Karsan adds that the signs of this “more combustible situation” would appear when “volatility remains persistent during a rally.” To assess combustibility, observe the options market. 

We remember that calls trade at lower implied volatility than puts, particularly from all the supply. As the market moves higher, it transitions to lower implied volatility, reflected in broad measures like the VIX. If the VIX measures remain steady or higher, “that indicates that fixed-strike volatility is increasing, and if this persists, … it can unsettle volatility and create a situation where dealers themselves … begin to reduce their volatility exposure, leading to a more combustible scenario.”

To elaborate on the reducing exposure note in the previous paragraph, if there is greater demand for calls, counterparties will take on more exposure and hedge through purchases of the underlying asset. The support dealers provide will diminish once this exposure expires. If the assumption is that equity markets are currently expensive, then after another rally, there may be more room for a decline, all else being equal (a simplified perspective), thus increasing risk and combustibility.

Graphic: Outdated. Retrieved from Nomura. To help explain.

This week, we discussed a lot of information. Some of it may need to be explained better. Therefore, we look forward to your feedback. Separately, I wish my friend Giovanni Berardi congratulations on starting his newsletter. I worked with Berardi, giving him input on some of his positioning-related research. He shares his insights here. Please consider supporting him with a subscription. Cheers, Giovanni!

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Commentary

Strategies For Economic And Political Disorder

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While scrolling through online news, some may relate to the idea that, sometimes, a lot can happen quickly. In other words, “There are decades where nothing happens, and there are weeks where decades happen.” This feeling was especially noticeable during last week’s “Volmageddon” anniversary, when the VIX skyrocketed, causing significant market disruptions. Skeptics and worriers were vocal about everything, from problems in how markets work to possible economic and political troubles.

Graphic: Retrieved from Bloomberg via Interactive Brokers’ Steve Sosnick. Pictured is “Volmageddon.”

A highlight was Tucker Carlson’s interview with Russian President Vladimir Putin. Throughout the conversation, besides uncovering insights into the Ukraine conflict’s ties to Poland, it became evident that not only the BRICS nations (Brazil, Russia, India, China, and South Africa) but also other countries like Saudi Arabia, Egypt, Ethiopia, Iran, and the United Arab Emirates, collectively representing over 30% of global GDP and 45% of the world’s population, are diminishing their dependence on the US dollar.

Graphic: Retrieved from Bloomberg.

Putin suggested that the US effectively undermines the dollar, misusing its position as the issuer of the world’s primary reserve currency. This shift, previously discussed in our newsletters on January 4 and 5 of 2023, reflects broader changes in the global economy, carrying significant implications for the future. Let’s break down how.

Countries that share ideological alignment with BRICS are actively working to decrease their dependence on the US dollar and mitigate risks associated with (potential) sanctions. One practice involves trading resources for development without relying on US dollars for funding. For example, China securing oil at discounts by utilizing its renminbi currency allows Gulf Cooperation Council (GCC) nations to convert it into investments, development projects, and gold. Further implementing central bank digital currencies (CBDCs) streamlines interstate payments, an alternative to the Western-dominated financial system.

This gradually diminishing dependence on the West complicates challenges like inflation. Nations can boost their weights in currency baskets by encumbering and re-exporting commodities in strict supply. Accordingly, as Zoltan Pozsar shares, “the US dollar and Treasury securities will likely be dealing with issues they never had to deal with before: less demand, not more; more competition, not less.” Monetary policymakers can’t fight this trend alone; instead, for one, Western governments can boost energy production (not just productivity), states Rana Foroohar, global business columnist and associate editor at the Financial Times.

“Petrodollars also accelerated the creation of a more speculative, debt-fuelled economy in the US, as banks flush with cash created all sorts of new financial ‘innovations,’ and an influx of foreign capital allowed the US to maintain a larger deficit,” shared Foroohar. “That trend may now start to go into reverse. Already, there are fewer foreign buyers for US Treasuries. If the petroyuan takes off, it would feed the fire of de-dollarisation. China’s control of more energy reserves and the products that spring from them could be an important new contributor to inflation in the West. It’s a slow-burn problem.”

Graphic: Retrieved from VoxEU.

Regarding the market functioning narratives, David Einhorn, founder of Greenlight Capital, believes markets are fundamentally flawed, blaming the rise of passive investing and algorithmic trading. According to Einhorn, these methods prioritize short-term profits over long-term value creation.

To explain, we consider Nvidia’s case. Over the past five years, its weighting in the S&P 500 increased by 3.7%. This growth was driven by active managers who recognized the company’s value and bought shares, consequently boosting its market capitalization. This increase in market capitalization, in turn, elevated the stock’s weighting in the index.

Graphic: Retrieved from Bloomberg.

Passive funds create a problem because they purchase stocks regardless of price when they receive new investments, as Bloomberg’s John Authers explains. Ultimately, “Passive decreases the inelasticity of a stock as it grows in market cap,” Simplify’s Michael Green shares. “Lower inelasticity, more extreme price response to the same volume of flow.”

As a company’s value increases, passive funds buy more of its stock, increasing prices. This trend is particularly concerning in the technology sector, where the flow of funds into passive investments pushes those stocks even further from value, stoking bubble fears. 

Moreover, weakness beneath the surface is hidden, as seen in the comparison between the stocks above their 50-day moving average and the S&P 500.

Graphic: Retrieved from Bespoke Investment Group.

The US stock market is approximately 70% of the world’s total market value, despite the US economy contributing less than 20% to global economic output, Authers adds.

“These valuations cannot make sense,” he elaborates. Markets imply that “over the next 20 years, less than 20% of the world economy will earn three times more profits than the remaining 70%,” Charles Gave of Gavekal Research says. It is a significant multi-decade bet on a small portion of the global economy generating most profits, primarily through the sustained dominance of technology giants.

Graphic: Retrieved from Damped Spring Advisors.

Despite the strength and profitability of these companies persisting, with firms beating earnings estimates by about a margin of 7%, says Nasdaq economist Phil Mackintosh, whether their fundamentals alone justify such continued dominance is questioned.

Still, many experienced fund managers, who would typically bet against tech stocks, are refraining from doing so. Einhorn highlighted the costliness of taking such positions due to passive investing. As a result, his fund has shifted focus towards companies with lower market capitalizations relative to earnings and strong cash flows to support share buybacks.

According to Damped Spring Advisors’ Andy Constan, the trend towards indexation will continue as all investors have not fully embraced passive investing. If everyone were to adopt passive investing fully and no one bought stocks outside the S&P 500, companies not in the index would lose access to the public market, impacting funding for PE/VC markets and capital formation.

Though index investing may eventually face challenges as money moves from expensive stocks to cheaper, non-indexed ones, we can stick with it. Even if active managers do better than the index and counteract the distortions caused by passive investing, many of their stocks are still in those indexes. Again, more of a reason to invest in index funds.

A similar reasoning can be applied to the growing short volatility trade, which the likes of The Ambrus Group’s Kris Sidial have generated much buzz around.

Even though volatility was very low in 2017, the smart move was to sell it. As Sidial explains, volatility can have two modes. If you sold volatility in late 2017 to early 2018 when the VIX was in the 9-11 range, you made money because it tends to cluster. There’s a time when it’s wise for traders to take risks and go against the flow to make profits. However, there’s also a time when the flow is too big, dangerous, and not sensitive to price, and it doesn’t make sense to take that risk by buying low volatility and hoping for a big win, he shared in a recent update.

At this point in the newsletter, it’s apparent that timing matters. Manufacturing and employment appear strong, and overall, the economy is in a good place in the short- to medium-term, with above-zero rates contributing to the solid economic growth. 

Graphic: Retrieved from Fidelity via Jurrien Timmer, Director of Global Macro at Fidelity. “This chart shows that during most cycles, the baton gets passed from P/E-expansion to earnings growth a few quarters into a new bull market cycle.  We appear to be there.”

The context states rates and stocks can stay higher for longer. On the flip side, we know volatility can stay lower longer, though its falling from lower and lower levels has less of a positive impact on stocks. Positioning is stretched, and the focus is shifting from worries about missed opportunities to safeguarding against potential downturns.

Graphic: Retrieved from Bloomberg.

“We tend to see this type of movement before a reversal,” Kai Volatility’s Cem Karsan says, noting that volatility may rise, with the S&P 500 peaking as high as $5,100. “The speed of the move starts getting more accelerated towards the top because people start betting against, saying, ‘this is crazy, these values are too high, and the market needs to come down.’”

What Karsan describes is a more combustible situation arising from the market and volatility syncing.

Graphic: Retrieved from SpotGamma.

To measure potential volatility, check the options market. Calls usually have lower implied volatility (IVOL) than puts. As the market rises, IVOL typically drops, reflected in broader IVOL measures like the VIX. If these broad IVOL measures rise, it suggests fixed-strike volatility is also rising. If this persists, it could unsettle dealers, leading them to reduce their exposure to volatility, boosting the momentum and whipsaw.

More demand for calls means counterparties take on more risk, hedged with underlying asset purchases. If this hedging support is withdrawn, it may increase vulnerability to a downturn. Still, we must remember that it’s an election year, and there could be more monetary and fiscal support for any weakness.

Graphic: Retrieved from Morgan Stanley via Tier1 Alpha.

As George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” Given the low volatility environment and the performance of skew with such aggressive equity positioning and divergences beneath the surface of the indexes, consider the lower-cost structures we’ve discussed in newsletters, minimizing equity losses by employing the appropriate unbalanced spread.

Graphic: Retrieved from SpotGamma on February 11, 2024. Volatility skew for options expiring on March 15, 2024, on February 5 (grey) and February 9 (blue).
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Commentary

Turning Nickels Into Dollars: A Winning Strategy For Market Crashes

Christian Bale as Michael Burry in a scene from The Big Short

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Risk appetite in the last months was fueled by the emergence of a “goldilocks disinflation thesis,” describes Marko Kolanovic of JPMorgan Chase & Co. This thesis envisions a no-recession scenario where central banks cut rates early, especially in the lead-up to elections.

The market is banking on such anticipatory movement by the Federal Reserve, pricing five rate cuts and the target interest rate moving from 525-550 to 400-425 basis points by year-end. With the backdrop of easing liquidity conditions through 2025 and continuing economic growth, equity investors are positioning for a broader rally. This has led to churn and a loss of momentum.

Graphic: Retrieved from Carson Investment Research via Ryan Detrick.

Though historical trends encourage optimism, Kolanovic is concerned markets are overlooking geopolitical events, such as the Houthi shipping attacks, exercises near the Suwałki Gap, and Russia’s testing of electronic warfare. Despite these potential disruptors, atypically low volatility skew and implied correlation indicate a lack of market responsiveness and positioning for less movement.

Recall skew reflects a scenario where increased market volatility disproportionately impacts farther away strike options due to losses from more frequent delta rebalancing in a moving market, leading option sellers to assign higher implied volatility to those strikes to compensate for increased risk. The relationship between index volatility and its components involves both individual volatilities and correlation, with implied correlation as a valuable indicator for pricing dynamics between index options and their components and trading volatility dispersion.

Appearing on The Market Huddle, Kai Volatility’s Cem Karsan emphasized the impact of more structured product issuance and investor volatility selling on index levels, describing how it pins the index and lowers correlation. When a dealer, bank, or market maker on the other side owns options, they need to buy the market when it goes down and sell when it goes up, keeping the index tight and realized volatility low. Much less of this, or even the opposite, is happening in single stocks, so they aren’t experiencing the same level of suppression.

Graphic: Retrieved from The Ambrus Group’s Kris Sidial. Higher short Vega exposure, growing derivative income fund and equity short vol hedge fund AUM, a larger auto-callable market, and record-high dispersion trading flow suppress index vol, posing significant risks.

“As dealers buy and sell index exposure, market makers will attempt to keep the index level and the underlying basket in line via arbitrage constraints,” Newfound Research well explained in their Liquidity Cascades paper. “If dealer hedging has suppressed index-level volatility, but underlying components are still exhibiting idiosyncratic volatility, then the only reconciliation is a decline in correlation.”

SpotGamma’s Brent Kochuba weighs in, noting low correlation typically aligns with interim stock market highs, presenting a potential cause for caution. Examining data since January 2018, Kochuba points out that the SPX’s average close-to-close change is 88 basis points, with the open-to-close average at 70 basis points. This analysis suggests the current SPX implied volatility (IV) is relatively low. While low IV levels can persist, the concern arises as current readings hint at overbought conditions.

“These low IVs can last for some time, but the general point here is that current readings are starting to suggest overbought conditions as index vols are priced for risk-less perfection, and single stock vols expand due to upside call chasing.”

Graphic: Retrieved from SpotGamma. Short-dated S&P 500 implied volatility is compressed. Updated Sunday, January 28, 2024.

Nomura Cross-Asset Macro Strategist Charlie McElligott explains selling volatility, which continues to attract money as it’s been profitable, is a stabilizing trade in most cases. Kris Sidial, Co-Chief Investment Officer at The Ambrus Group, warns it may end spectacularly in his most recent appearances. The situation in China is a cautionary example, where stock volatility triggered a destructive selling cycle as market participants grappled with structured product risk management.

Graphic: Retrieved from Reuters.

Accordingly, for those who perceive a meaningful chance of movement, there is value in owning options, Goldman Sachs Group says, noting they expect more movement than is priced.

Graphic: Retrieved from Goldman Sachs Group via VolSignals.

Karsan, drawing parallels to the unwind of short volatility and dispersion trade from February to March of 2020, says the still-crowded trade can be compared to two sumo wrestlers or colossal plates on the Earth’s core exerting immense pressure against each other. While the trade may appear balanced and continue far longer, the accumulated pressures pose significant risks.

Graphic: Retrieved from JPMorgan Chase & Co via @jaredhstocks.

Major crashes happen when entities must trade volatility and options. Often, the trigger is the inability to cover the margin and meet regulatory requirements, causing a cascading effect.

Karsan, drawing on 25 years of experience, notes a precursor to a crash is a weakening supply of margin puts, particularly the highly convex and far out-of-the-money ones. These options play a significant role during stressful market periods, acting as indicators and drivers of impending crashes. The focus is on their convexity rather than whether they will be in the money, as the margin requirements become a determining factor in their impact on market dynamics. History shows a minor catalyst can lead to a dramatic unwind, turning one week to expiry $0.05 to $0.15 S&P 500 put options into $10.00 overnight.

“Prior to the XIV crash day, … going into the close the last hour, we saw nickel, ten, and five-cent options trade up to about $0.50 and $0.70. They really started to pop in the last hour. And then, the next day, we opened up and they were worth $10.00. You don’t see them go from a nickel to $0.50 very often. If you do, don’t sell them. Buy them, which is the next trade.”

Graphic: Retrieved from Bloomberg.

Setting aside the pessimistic narrative, the current scenario favors continued ownership of risk assets. Cautious optimism surrounds this week’s Quarterly Refunding Announcement (QRA), “depending on how much bill issuance is scaled back and on the absolute funding needs,” CrossBorder Capital explained, coupled with Fed-speak and anticipation of cutting interest rates on falling inflation later this year. Still, according to Unlimited Funds ‘ Bob Elliott, predicting outcomes following this week’s releases lacks an advantage; instead, in this environment of churn, momentum loss, and indicators like low correlation and volatility, last week’s trades for managing potential downside stick out, particularly vis-à-vis volatility skew.

Graphic: Retrieved from SpotGamma. Updated Sunday, January 28, 2024.
Categories
Commentary

Daily Brief For February 16, 2023

Physik Invest’s Daily Brief is read by thousands of subscribers. You, too, can join this community to learn about the fundamental and technical drivers of markets.

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Graphic updated 6:15 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of this letter. Click here for the latest levels. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) with the latter calculated based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. Click to learn the implications of volatility, direction, and moneyness. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. The CBOE VIX Volatility Index (INDEX: VVIX) reflects the attractiveness of owning volatility. UMBS price via MND. Click here for the calendar.

Positioning

In the news is quite a bit of noise surrounding ultra-short-dated options with little time to expiry. To quote Nomura Holdings Inc’s (NYSE: NMR) Charlie McElligott, the trading of these options is adding noise; “US equities are such an untradable mess right now.” 

However, your letter writer, who mainly trades complex spreads on the cash-settled indexes, thinks there has never been a better time to trade. Ultra-short-dated options enable you to express your opinion in more efficient ways. Additionally, the trade of these options, in the aggregate, can influence market movements, and this is added opportunity if you understand it.

Graphic: Retrieved from Goldman Sachs Group Inc (NYSE: GS) via Bloomberg.

Darrin Johnson, a volatility trader, recently discussed sharp ways to use these options.

Heading into some big events this week, John noted S&P 500 (INDEX: SPX) implied volatility (IVOL) was trading at ~25% on a five-day straddle. Traders could buy this structure while, in the interim, selling other structures like it “against CPI, Retail Sales, and PPI” where IVOL was higher. This would enable you to lower the cost of having positive exposure to movement or positive gamma via the five-day straddle, though this is operating on the premise “that Friday’s volatility will hold mostly steady, while the other 3 deflate.”

Moreover, the ultra-short-dated options are palatable if we will, and other traders, potentially much bigger in size, are observant of this too. The growing interest in these products (e.g., in the second half of last year, ultra-short-dated options made up more than 40% of the S&P 500’s trading volume) is growing in impact on underlying products like the SPX.

In fact, JPMorgan Chase & Co’s (NYSE: JPM) Peng Cheng found these options have an impact that “can vary from a drag of as much as 0.6% to a boost of up to 1.1%.” 

To explain, though as of late options counterparties may be playing a smaller role as “customers have taken equal and opposite sides” of positions, per SqueezeMetrics, we can naively look at there being a pool of liquidity to absorb the demand for these ultra-short-dated options which are very sensitive to time, price, and volatility. These increased sensitivities are hedged in a way that impacts this available pool of liquidity. If the trade or impact is large enough, it is transmitted onto underlying market prices. 

For instance, consider so-called meme mania and stocks like GameStop Corporation (NYSE: GME) that rocketed as traders’ interest in short-dated options demands rose. To hedge increased demand in call options, for instance, counterparties must buy the underlying stock. This demand boosts the stock.

Likewise, if traders’ consensus is that markets won’t move much until some large macroeconomic events, then their bets against market movement (i.e., sell ultra-short-dated options) will result in counterparties having more exposure to bets on market movement (i.e., positive gamma) which they will hedge in a way that reduces market movement (i.e., buy weakness or sell strength in the underlying stock). So, if traders bet against the movement, resulting in more counterparty positive gamma, then market movement is reduced due to the reaction to this positioning.

On the other hand, if traders’ consensus is that markets may move a lot, particularly to the downside, their bets on market movement (e.g., buy ultra-short-dated put) will result in counterparties having more exposure to bets against market movement (i.e., negative gamma). This demand for protection will bid options prices, particularly at the front-end of the IVOL term structure as counterparties price this demand in, and the counterparty will sell underlying to hedge. If fears are assuaged and traders no longer demand these bets on market movements, the counterparty can unwind their hedge which, in the put buying example provided, may provide a market boost, such as that which we saw immediately following the release of consumer price updates (CPI) this week; to quote Bloomberg, “[w]hen the worst didn’t happen, these hedges were unwound, helping propel a recovery in futures. It’s partly why the Cboe Volatility Index, or VIX, dropped 7% in a seemingly outsize reaction in a market when the S&P 500 ended the session basically flat.”

Graphic: Retrieved from Bloomberg.

Additionally, the re-hedging-inspired recovery was short-lived as well; the impact of ultra-short-dated options, as this letter has stated before, is short-dated. It, too, does much less to influence measures like the Cboe Volatility Index (INDEX: VIX), a floating measure of ~30 day-to-expiry SPX options trading at a fixed-strike IVOL, though it does have an impact. Thus, the dis-interest to hedge stocks traders do not own (or hedge further stocks that may be hedged) out in time, does less to boost the VIX.

Anyways, in January, your letter writer interviewed The Ambrus Group’s co-CIO Kris Sidial about major risks to markets in 2023, as well as reasons why volatility could outperform in 2023 and beyond. Some of the information in that Benzinga interview made it into this newsletter in the days following its release. 

Basically, the SPX and VIX complexes are growing and, on the other side, are a small concentrated group of market makers taking on far more exposure to risk. 

Graphic: Retrieved from Ambrus’ publicly available research.

During moments of stress, as we’ve seen in the past with GME for example, options counterparties may be unable to keep up with the demands of investors, so you get a reflexive dynamic that helps push the stock higher. “That same dynamic can happen on the way down”; counterparties will mark up options prices during intense selling. As the options prices rise, options deltas (i.e., their exposure to direction) rise and this prompts so-called bearish vanna counterparty hedging flows in the underlying.

“Imagine a scenario where [some disaster happens] and everybody starts buying 0 DTE puts. That’s going to reflexively drive the S&P lower,” Sidial said. “Take, for example, the JPMorgan collar position that clearly has an effect on the market, and people are starting to understand that effect. That’s just one fund. Imagine the whole derivative ecosystem” leaning one way.

Graphic: Retrieved from Ambrus’ publicly available research.

Well, that’s what JPM’s Marko Kolanovic just said is a major risk and could exacerbate market volatility. “While history doesn’t repeat, it often rhymes,” he explained, noting that the trade of ultra-short-dated options portends a Volmageddon 2.0. If you recall, in 2018, Volmageddon 1.0 turned successful long-running short-volatility trades on their head when traders who were betting against big movements in the market saw their profits erode in days.

Further, to conclude this section since your letter writer is running short on time, as Sidial said, “if you’re trading volatility, let there be an underlying catalyst for doing so.” From a “risk-to-reward perspective, … it’s a better bet to be on the long volatility side,” given “that there are so many things that … keep popping up” from a macro perspective. Check out our letters from the past weeks where we talked about protecting profits (e.g., sell call vertical to finance and buy a put vertical with a lot of time to expiry).

For Ambrus’ publicly available research, click here. Also, follow Sidial on Twitter, here. Consider reading your letter writer’s past two conversations with Sidial, as well. Here is an article on 2021 and the meme stock debacle. Here is another article talking more about Ambrus’ processes.

Technical

As of 6:15 AM ET, Thursday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, is likely to open in the lower part of a balanced overnight inventory, inside of the prior day’s range, suggesting a limited potential for immediate directional opportunity.

The S&P 500 pivot for today is $4,153.25. 

Key levels to the upside include $4,168.75, $4,189.00, and $4,206.25.

Key levels to the downside include $4,136.25, $4,122.75, and $4,104.25.

Disclaimer: Click here to load the updated key levels via the web-based TradingView platform. New links are produced daily. Quoted levels likely hold barring an exogenous development.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

Definitions

Volume Areas: Markets will build on areas of high-volume (HVNodes). Should the market trend for a period of time, this will be identified by a low-volume area (LVNodes). The LVNodes denote directional conviction and ought to offer support on any test.

If participants auction and find acceptance in an area of a prior LVNode, then future discovery ought to be volatile and quick as participants look to the nearest HVNodes for more favorable entry or exit.

POCs: Areas where two-sided trade was most prevalent in a prior day session. Participants will respond to future tests of value as they offer favorable entry and exit.

About

The author, Renato Leonard Capelj, works in finance and journalism.

Capelj spends the bulk of his time at Physik Invest, an entity through which he invests and publishes free daily analyses to thousands of subscribers. The analyses offer him and his subscribers a way to stay on the right side of the market. Separately, Capelj is an options analyst at SpotGamma and an accredited journalist.

Capelj’s past works include conversations with investor Kevin O’Leary, ARK Invest’s Catherine Wood, FTX’s Sam Bankman-Fried, Lithuania’s Minister of Economy and Innovation Aušrinė Armonaitė, former Cisco chairman and CEO John Chambers, and persons at the Clinton Global Initiative.

Connect

Direct queries to renato@physikinvest.com or find Physik Invest on Twitter, LinkedIn, Facebook, and Instagram.

Calendar

You may view this letter’s content calendar at this link.

Disclaimer

Do not construe this newsletter as advice. All content is for informational purposes.

Categories
Commentary

Daily Brief For November 29, 2021

What Happened

Overnight, equity index futures auctioned sideways to higher as participants looked to take back nearly all of Friday’s shortened holiday trading range. 

According to some metrics, the SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, experienced one of its most illiquid days, Friday.

At the same time, the CBOE Volatility Index (INDEX: VIX) closed up nearly 50% while the VIX futures term structure settled in backwardation amidst a re-pricing of tail-risk, so to speak.

Moreover, ahead is data on Pending Home Sales (10:00 AM ET).

Graphic updated 5:50 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. Levels may have changed since initially quoted; click here for the latest levels. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) calculations are based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. Learn the implications of volatility, direction, and moneyness. SHIFT data used for S&P 500 (INDEX: SPX) options activity. Note that options flow is sorted by the call premium spent; if more positive then more was spent on call options. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index (INDEX: VIX) from 0-100.

What To Expect

Despite the lackluster intraday breadth and divergent market liquidity metrics, the worst-case outcome occurred, Friday, evidenced by downside expansion of range and separation of value.

Coming into the session, the experiences associated with ‘Volmageddon’ came to mind; the VIX was up nearly 40.00%, a concern given the exuberance of past weeks and options positioning, as well as a decline in correlations, and unsupportive breadth.

Tempering the fall were divergences; the Russell 2000 was down nearly 4.00% before Friday’s U.S. open while the S&P 500 was off about 2.00% or so, buoyed by the Nasdaq 100 which was only down about 1.00% amidst an 8% dip in the ten-year yield.

The divergence persisted with the S&P 500 closing firmly below its 20-day simple moving average, a visual level often acted on by short-term, technically-driven participants who generally are unable to defend retests.

Graphic: Divergent delta (i.e., non-committed selling as measured by volume delta or buying and selling power as calculated by the difference in volume traded at the bid and offer) in SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index.

Context: A resurgence in the COVID-19 coronavirus as an improvement in macroeconomic conditions prompts a hawkish shift from the Federal Reserve (Fed). 

“Many risky asset tailwinds in 2021 are turning into at least mild headwinds in 2022,” Nordea says. “Economic growth should decelerate, liquidity conditions are deteriorating, profit margins should be under pressure from rising costs and question marks regarding the Fed/ECB put will arise due to elevated inflation indicators. To us, this spells higher volatility.”

Moreover, for the past two years, almost, equities rallied amidst an acceleration in growth, which is typically correlated with equity outperformance over bonds.

Graphic: Accelerating growth correlates with equity outperformance over bonds.

At the same time, there’s been an insatiable appetite for stocks, according to Bloomberg, with investors pouring “almost $900 billion into equity exchange-traded and long-only funds in 2021 — exceeding the combined total from the past 19 years.”

This appetite for risk fed into the activity of some high-flyers like Tesla Inc (NASDAQ: TSLA) with customers, at least in the past weeks, opting to aggressively sell puts and buy calls heading into the November monthly options expiration (OPEX).

Graphic: Per The Market Ear, participants were hating on downside protection for weeks.

Unfortunately, (1) after OPEX, the absence of sticky and supportive hedging flows freed the broader market for directional resolve, and (2) according to SpotGamma, in light of recent exuberance, “participants [were] underexposed to downside put protection.”

Graphic: Customers took on significant leverage in their purchase and sale of options, via SpotGamma.

What this meant was that after OPEX’s unpinning and increase in correlation, fundamental contexts were to matter more.

Therefore, the Fed’s “increased openness to accelerat[e] the taper pace” and hike rates, alongside fresh travel restrictions on a new COVID-19 variant, as well as holiday illiquidity, resulted in a rough re-pricing of tail risk as participants sought after those highly “convex” options which had counterparties exacerbating underlying price movement.

Graphic: According to Bloomberg, markets price “a full quarter-point rate hike into the June Fed meeting with a second by September and a third by December.”

To elaborate, in short, was volatility to pick up, those participants (who were once exuberant) were likely to reach for protection forcing dealers to reflexively hedge in a destabilizing manner. 

Dealers is the term used to describe those participants that take the other side and warehouse customer options risk, at least in the case where orders can’t be matched between customers.

With that, as volatility rose and customers demanded protection, counterparties hedged by selling into weakness. The conditions worsened when much of the activity was concentrated in shorter-dated tenors where the sensitivity of options to direction is higher if we will.

Graphic: VIX term structure. Backwardation signals an entry into an unstable environment.

Once that short-dated protection rolls off the table (and/or is monetized), dealers will reverse and support the market, buying to close their existing stock/futures hedges.

This flow is stabilizing and may play into a seasonally-aligned rally into Christmas as participants see defenses rolled out against the new COVID-19 variant, and the positive effects of pro-cyclical inflation and economic growth, improvements in global trade, and continuity at the Fed, among other dynamics, play out.

We see participants opportunistically buying the dip, already, via metrics like DIX that’s derived from liquidity provision on the market-making side.

Expectations: As of 6:00 AM ET, Monday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, will likely open in the middle part of a positively skewed overnight inventory, inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,618.75 high volume area (HVNode) puts in play the $4,647.25 HVNode. Initiative trade beyond the latter HVNode could reach as high as the $4,674.25 micro composite point of control (MCPOC) and $4,691.25 HVNode, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,618.75 HVNode puts in play the $4,590.00 balance boundary (BAH). Initiative trade beyond the BAH could reach as low as the $4,574.25 HVNode and $4,551.75 LVNode, or lower.

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that all levels are derived using the 65-minute timeframe. New links are produced, daily.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Learn about the profile.

Charts To Watch

Graphic: (NYSE: SPY). (S~$460 and $453). S is for support.
Graphic: (NASDAQ: QQQ). (S~$389 and $381). S is for support.
Graphic: (NYSE: IWM). (S~$222 and $216). S is for support.

What People Are Saying

Definitions

Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

Volume Areas: A structurally sound market will build on areas of high volume (HVNodes). Should the market trend for long periods of time, it will lack sound structure, identified as low volume areas (LVNodes). LVNodes denote directional conviction and ought to offer support on any test. 

If participants were to auction and find acceptance into areas of prior low volume (LVNodes), then future discovery ought to be volatile and quick as participants look to HVNodes for favorable entry or exit.

Gamma: Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent in a prior day session. Participants will respond to future tests of value as they offer favorable entry and exit.

MCPOCs: POCs are valuable as they denote areas where two-sided trade was most prevalent over numerous day sessions. Participants will respond to future tests of value as they offer favorable entry and exit.

Options Expiration (OPEX): Traditionally, option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire) and the reduction dealer gamma exposure.

Rates: Low rates have to potential to increase the present value of future earnings making stocks, especially those that are high growth, more attractive. To note, inflation and rates move inversely to each other. Low rates stimulate demand for loans (i.e., borrowing money is more attractive).

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets.

Additionally, Capelj is a Benzinga finance and technology reporter interviewing the likes of Shark Tank’s Kevin O’Leary, JC2 Ventures’ John Chambers, and ARK Invest’s Catherine Wood, as well as a SpotGamma contributor, developing insights around impactful options market dynamics.

Disclaimer

At this time, Physik Invest does not manage outside capital and is not licensed. In no way should the materials herein be construed as advice. Derivatives carry a substantial risk of loss. All content is for informational purposes only.

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Categories
Commentary

Weekly Brief For May 2, 2021

Happy Sunday! Markets were choppy, ending the week flat-to-down. This came after President Joe Biden’s joint session of Congress, Fed Chair Jerome Powell’s assessment of the economy, and blowout earnings by heavily weighted index constituents.

The following commentary on U.S. broad market equity indices will discuss what happened, why it matters, what to expect, and how participants can position themselves for the coming week.

Market Commentary

What Happened: U.S. broad market indices closed the week out flat-to-down after a failed attempt to break higher on Thursday, April 29. Last week’s action suggests participants are looking for information to initiate a directional move.

  • Policy leaders, creators: Inflation pockets transitory.
  • Ahead: Data on labor, manufacturing, and earnings.
  • Markets balancing, positions for directional resolve.
Updated: 10:00 AM EST Sunday.

Why It Matters: The sideways action during last week’s trade came after a lengthy run, higher. 

The S&P 500, in particular, from its March 2020 low, is up over 90%.

That said, as investors enter into a new month, popular news outlets are beating the drum of an old adage: “Sell in May and go away.”

Is there any truth to this statement? It depends on perspective.

Historically speaking, the period spanning May to October is generally weak. On average, the S&P 500 is up as high as +2% during this six-month period.

“Stocks are up more than 87% from the March lows, suggesting a well-deserved pullback during these troublesome months is quite possible,” LPL Financial Chief Market Strategist Ryan Detrick said in a recent blog post. “But with an accommodative Fed, fiscal and monetary policy, along with an economy that is opening faster than nearly anyone expected, we’d use any weakness as an opportunity to add to positions.”

Adding, trends are changing, though; stocks have been higher during these so-called weak months 8 out of the past 10 years, according to LPL Research. 

Graphic by LPL Research. Data from FactSet. 

So, with that, in maintaining objectivity, we zoom out and ask a few questions.

  1. Where are we in relation to the prior week’s range? Overlapping.
  2. Is the market’s attempt to go in a certain direction supported? No. After a failed balance-area breakout, participants rotated and accepted prices back in the prior range, as evidenced by unchanged value-area placement, the area where 70% of prior trade (i.e., 1 standard deviation) is conducted.
  3. Is the technical and fundamental narrative supportive of current prices? Technically, the market is in an extended uptrend. However, despite value-area placement suggesting a validation of higher prices, market liquidity metrics point to distribution, the opposite of accumulation.

Now, we analyze other factors in play.

  • Real Yields: Alongside April’s FOMC — at which the Federal Reserve left rates unchanged and asset purchases steady — 10-year real yields are on track for their biggest drop since last summer. Low real rates may catalyze risk assets as the present value of their future earnings become more attractive. 
  • Capital Gains Tax (CGT): The White House expressed its desire to raise the federal CGT rate to 43.4% for wealthy individuals. However, as Goldman Sachs Group (NYSE: GS) sees it, Congress is likely to settle on a more modest increase. Adding, weak S&P 500 returns, historically, going into CGT hikes are short-lived.
  • Low Rates, Debt Expansion: Such dynamics incent market participants to take risks, causing destabilizing factors to brew. As Ambrus Group’s Kris Sidial says, “The growth of structured products, passive investing, the regulatory standpoint that’s been implemented with Dodd-Frank and dealers needing to hedge off their risk more frequently than not” are all part of a regime change that’s affected the stability of markets.
  • Positioning: According to Nomura data presented by The Market Ear, CTAs have taken their positions too far on the long side, reaching levels last seen prior to the 2018 Volmageddon. Additionally, the (1) SPDR S&P 500 ETF Trust (NYSE: SPY) and the (2) Invesco QQQ Trust Series 1 (NASDAQ: QQQ) funds saw some of their biggest outflows. At the same time, certain breadth metrics are diverging from current prices while the SPDR S&P 500 ETF, cash-settled S&P 500 Index, and Invesco QQQ saw sizable call-side bets trade, Friday. 
  • Earnings Reaction: Last week, heavily weighted index constituents reported blowout earnings. The reaction was muted, leaving broad market indices flat-to-down. One explanation is that the expectations, going into the events, were too high. Another is that the equity market is priced to perfection, at this stage of the recovery, and further advances will be supported by the rotation into cyclical parts of the market — financials, energy, and value. 
  • Option Expiration (OPEX): Option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire worthless) and the reduction dealer gamma exposure. According to SpotGamma, a provider of actionable options insights, on Friday, up to 30% of the S&P 500 and Nasdaq 100’s gamma rolled off which may allow the indices an opportunity to directionally resolve.

So, in summarizing this section, technically, the market is bullish, supported by the prospects of a healthy rotation. In the coming week, given increased clarity on policy and a sizable derivatives expiry, participants may see directional resolve.

What To Expect: An increased potential to resolve directionally.

In addition, metrics, like price movement, market liquidity, and speculative derivatives activity, confirm participants’ bullishness and opportunistic hedging in light of an acceleration in the global restart and a turn in flows, the result of an apparent shift in consumer preferences, from saving and investing to spending.

Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week ending April 30. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $400.000, which corresponds with $4,000.00 in the cash-settled S&P 500 Index (INDEX: SPX).

What To Do: In the coming sessions, participants will want to pay attention to where the S&P 500 trades in relation to its $4,186.75-$4,110.50 balance area. 

Balance (Two-Timeframe Or Bracket): Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).

Any activity above (below) the balance-area high suggests participants are interested in discovering higher (lower) prices. Any activity within the balance area suggests participants are looking for more information to base their next move; in such case, responsive buying and selling is the course of action. 

Responsive Buying (Selling): Buying (selling) in response to prices below (above) area of recent price acceptance.

Initiative trade below the balance-area low suggests an inclination by participants to revert to the mean and repair some of the poor structure left behind prior discovery. Initiative trade above the balance area puts in play the $4,210.75 minimal excess rally-high, and the cluster of price extensions at and above $4,200.00, typical price targets based on Fibonacci principles.

Initiative Buying (Selling): Buying (selling) within or above (below) previous price acceptance.

Excess: A proper end to price discovery; the market travels too far while advertising prices. Responsive, other-timeframe (OTF) participants aggressively enter the market, leaving tails or gaps which denote unfair prices.

So, in the best case, the S&P 500 makes an attempt to balance or discover prices as high as $4,300.00. In the worst case, participants look to auction the S&P 500 into prior poor structures and low-volume areas (LVNodes) that ought to offer little-to-no support.

More On Volume Areas: A structurally sound market will build on past areas of high-volume (HVNode). Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area (LVNode) which denotes directional conviction and ought to offer support on any test). 

If participants were to auction and find acceptance into areas of prior low-volume, then future discovery ought to be volatile and quick as participants look to areas of high volume for favorable entry or exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

News And Analysis

Markets | U.S. builders produced record share of homes with hot market. (BBG)

Economy | Consumer spending, labor cost data suggests inflation warming up. (REU) 

Trade | Baltic Dry Index breaks 3,000 points in more than a decade on prices. (TW)

Wealth | Rich Americans fleeing tax hikes may turbocharge the shift to ETFs. (BBG)

Markets | Fed’s Robert Kaplan warns on ‘imbalances,’ wants to talk taper. (REU)

Markets | A volatility quant nets $540 million as momentum trades boom. (BBG)

Lending | States are investigating predatory subprime auto lenders. (Jalopnik)

Markets | Record metals prices catapulted mining profits beyond big oil. (BBG)

Medicine | Biden’s ARPA-H agency to ‘end cancer’ modeled after Darpa. (TC)

Markets | Bond market’s inflation bulls get Powell’s go-ahead to double down. (BBG)

Markets | Bridgewater Co-CIO sees ‘fair amount’ of stock market in bubble. (BBG)

Markets | Retail investors could counter the much-anticipated correction. (SA)

Economy | Warren Buffett denounces SPACs and Robinhood at meeting. (Axios)

Markets | Crypto’s shadow currency surges past deposits of most U.S. banks. (BBG)

Technology | Roku says it may lose YouTube app after Google’s demands. (Axios)

Economy | Ex-Treasury Secretary Summers on scarcity of workers, inflation. (BBG)

Markets | Parametric fund earns ‘Gamma Hammer’ moniker with its bets. (FT)

What People Are Saying

Innovation And Emerging Trends

FinTech | Apex Fintech has blow-out earnings ahead of NYSE listing. (BZ)

FinTech | How to attract large investors to your direct investing platform? (TC)

FinTech | New fintech groups form as industry scrutiny is ramping up. (S&P)

FinTech | Cryptocurrency bank wins OCC approval to form de novo. (S&P)

Markets | CME eyes wider customer base with micro bitcoin futures. (TB)

FinTech | Coinbase plans to acquire data and analytics platform Skew. (TB)

FinTech | How U.K.-based Lendable is powering fintechs across EMs. (TC)

FinTech | Amid the IPO gold rush, how should we value fintech startups? (TC)

FinTech | 10 fintech headhunters you need to know for recruiting to talent. (BI)

FinTech | U.K. banks speed up plans to ax branches, switch to digital focus. (S&P)

Medicine | Kevin O’Leary-backed MindMed has uplisted on the Nasdaq. (BZ)

Media | Creators are making lots of money selling Google spreadsheets. (Mashable)

Media | As newsletter advertising grows, advertisers opting for quality. (ADWK)

About

Renato founded Physik Invest after going through years of self-education, strategy development, and trial-and-error. His work reporting in the finance and technology space, interviewing leaders such as John Chambers, founder, and CEO, JC2 Ventures, Kevin O’Leary, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others, afforded him the perspective and know-how very few come by.

Having worked in engineering and majored in economics, Renato is very detailed and analytical. His approach to the markets isn’t built on hope or guessing. Instead, he leverages the unique dynamics of time and volatility to efficiently act on opportunity.

Disclaimer

At this time, Physik Invest does not manage outside capital and is not licensed. In no way should the materials herein be construed as advice. Derivatives carry a substantial risk of loss. All content is for informational purposes only.

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