>vol targeting funds, they must be getting very weird signals. They normally sell when volatility rises, and buy as it goes lower, but in Korea and Japan, that strategy would now be badly lagging the market. I also wonder what it does to VIX if there was a sell off now. Volatility is already expensive - does it get more so? My guess is that CTA and trend following funds are positioned in very weird ways
Vol targeting, CTA/trend primarily look at realized vol, no?
Ex: CTA's generally aren't cutting their positioning if there is a strong uptrend and the market goes into vol up price up. Those are the right tails that drive returns. Some may cut early on positioning data/frontrun other CTAs/etc, but not ivol.
Elevated implied vol vs realized vol just makes.... vol selling more attractive, no? There's no possible downward reflexive vol loop there. I have a small multi-strat thing, and vol is an input into positioning, but outright spot implied vol print is just a subset of a subset of what informs positioning (and I would think that faster paced players that shock flow would be using things like sharp *rises*/second derivative in implied vol as the leading signal, which has already happened in this case in kopsi.)
Then jog over to the vol selling module and it would be levering up! Granted I don't know the term structure Intricacies here... from the sounds of it it's probably well screwed as well...
Hard to come away with a conclusion other than sell vol! OK, I do see what you are saying with the "what if scenarios" though. If vol supply has dried up, then shocks are inherently amplified at least to a degree, as that's is a core resource that any levered participant needs access to. But the backdrop is vol up price up... so sell vol on dips is doubly rewarded as it's a bullish backdrop with an uptrend. But consider that Korea has some absolutely bonkers speculative behavior, and there is a sort of equilibrium, because the attractive setup to sell outright downside gamma on price shocks is threatened with the chance that an extreme speculative mania could blow up in your face.
Ultimately, I'd look at something like Samsung Electronics, which has a huge runup and is suitably memed, yet is backed by equally huge fundamental NAND/RAM price hikes (and low forward PE, in addition to being the relative *cheapest* in the memory basket trade), look for a selloff, see a huge vol spike due to thin supply due to offsides autocallables, and sell vol against fundamental support beyond the next earnings barrier to get a clean reset built into the trade.
To be frank, outright selling vol into the dislocated autocallables sounds attractive as well, all things considered.
I will give way on your knowledge of vol targetting strategies - I have never run one. But you are right the dislocation between market vol and histroic vol does make vol selling here attractive - I guess the point is that usually rising markets push down market vol. I am starting to think the millennial habit of going long via short term call option also pushes up market vol in bullish markets.
I guess I am wondering if how investment model trained on historic data deal with dislocations in macro data? As Soros once said, when the CTAs are confused is when the chance of market crash is highest.
I have been highlighting GVZ/GLD for nearly a year. Peaks in gold come on peaks in vol, which also shows the same vol control where as gold/silver were rising CTA types would have been reducing their position sizes.
I think also represents the Millennial YOLO strategy of buying short dated options. This pushes up the cost of calls when a market is spiking - leading to higher vol
Price question: who is on the buy side for all the USTs?
Someone’s either collecting a lot of bags (USTs) by that theory betting on UST repricing (upwards). Or someone’s losing out on one side of the trade at one point - if Gold were to reprice downwards on a panic/liquidation for ex. USTs “win” relatively speaking and CBs would have proven (yet again) to buy at highs like drunken sailors in case of Gold - not making the point they are, but they have historically sold at lows, too - so why not reverse that?
Who goes in on more USTs? Someone thinking the “yield top is in” - ie Kevin Warsh comes in and cuts downwards like the brave little soldier in discguise (Started as a hawk, landed as a dove)?
Pension funds/insurers because they are happy to collect 4% (and on top, have to buy “safe liquid assets”?)
>vol targeting funds, they must be getting very weird signals. They normally sell when volatility rises, and buy as it goes lower, but in Korea and Japan, that strategy would now be badly lagging the market. I also wonder what it does to VIX if there was a sell off now. Volatility is already expensive - does it get more so? My guess is that CTA and trend following funds are positioned in very weird ways
Vol targeting, CTA/trend primarily look at realized vol, no?
Ex: CTA's generally aren't cutting their positioning if there is a strong uptrend and the market goes into vol up price up. Those are the right tails that drive returns. Some may cut early on positioning data/frontrun other CTAs/etc, but not ivol.
Elevated implied vol vs realized vol just makes.... vol selling more attractive, no? There's no possible downward reflexive vol loop there. I have a small multi-strat thing, and vol is an input into positioning, but outright spot implied vol print is just a subset of a subset of what informs positioning (and I would think that faster paced players that shock flow would be using things like sharp *rises*/second derivative in implied vol as the leading signal, which has already happened in this case in kopsi.)
Then jog over to the vol selling module and it would be levering up! Granted I don't know the term structure Intricacies here... from the sounds of it it's probably well screwed as well...
Hard to come away with a conclusion other than sell vol! OK, I do see what you are saying with the "what if scenarios" though. If vol supply has dried up, then shocks are inherently amplified at least to a degree, as that's is a core resource that any levered participant needs access to. But the backdrop is vol up price up... so sell vol on dips is doubly rewarded as it's a bullish backdrop with an uptrend. But consider that Korea has some absolutely bonkers speculative behavior, and there is a sort of equilibrium, because the attractive setup to sell outright downside gamma on price shocks is threatened with the chance that an extreme speculative mania could blow up in your face.
Ultimately, I'd look at something like Samsung Electronics, which has a huge runup and is suitably memed, yet is backed by equally huge fundamental NAND/RAM price hikes (and low forward PE, in addition to being the relative *cheapest* in the memory basket trade), look for a selloff, see a huge vol spike due to thin supply due to offsides autocallables, and sell vol against fundamental support beyond the next earnings barrier to get a clean reset built into the trade.
To be frank, outright selling vol into the dislocated autocallables sounds attractive as well, all things considered.
I will give way on your knowledge of vol targetting strategies - I have never run one. But you are right the dislocation between market vol and histroic vol does make vol selling here attractive - I guess the point is that usually rising markets push down market vol. I am starting to think the millennial habit of going long via short term call option also pushes up market vol in bullish markets.
I guess I am wondering if how investment model trained on historic data deal with dislocations in macro data? As Soros once said, when the CTAs are confused is when the chance of market crash is highest.
I have been highlighting GVZ/GLD for nearly a year. Peaks in gold come on peaks in vol, which also shows the same vol control where as gold/silver were rising CTA types would have been reducing their position sizes.
I think also represents the Millennial YOLO strategy of buying short dated options. This pushes up the cost of calls when a market is spiking - leading to higher vol
So the last $1000 in gold was telling us crypto was boring as opposed to any kind of macro signal ;)
Maybe its just telling us that Tether is buying gold instead of bitcoin?
Wait a minute I thought it was yolo calls?
I think the fundamental trend is CBs selling US treasuries to buy gold - but spikes are likely yolo calls
Price question: who is on the buy side for all the USTs?
Someone’s either collecting a lot of bags (USTs) by that theory betting on UST repricing (upwards). Or someone’s losing out on one side of the trade at one point - if Gold were to reprice downwards on a panic/liquidation for ex. USTs “win” relatively speaking and CBs would have proven (yet again) to buy at highs like drunken sailors in case of Gold - not making the point they are, but they have historically sold at lows, too - so why not reverse that?
Who goes in on more USTs? Someone thinking the “yield top is in” - ie Kevin Warsh comes in and cuts downwards like the brave little soldier in discguise (Started as a hawk, landed as a dove)?
Pension funds/insurers because they are happy to collect 4% (and on top, have to buy “safe liquid assets”?)