Following the Croissant Crumbs
I've been a big fan of Cem Karsan for some time.
Cem is a volatility expert, one of the best.
Check him out on twitter at https://twitter.com/jam_croissant
-------
This new series, Following the Croissant Crumbs, will focus entirely on Cems appearances on podcasts.
I'll put all my notes of his appearance along with charting some key crumbs he leaves behind for us to find.
check it out if you want to listen at:
https://twitter.com/jam_croissant/status/1472029175225716747
Most of the notes are merely observations from the kung fu master.
--------
Options Insider - Cem Karsan - Friday Dec 18
HOLIDAY UNPIN & OMNICRON
Thanksgiving Holiday Vol was suppressed.
Pin removed after thanksgiving
Vol well supplied. People have been broadly hedged.
Makes larger moves down more difficult.
Everyone sees what has been going on with individual stocks.
Breadth has been Aweful
30% of QQQ stocks above their 20d moving average
Longs/Shorts having a tough go at it.
Structural Weakness under the hood
Vol complex however has been broadly supportive.
QUAD WITCHING
Quad Witching you tend to have positive flows leading up
Vanna Flows coming from the decay of time until expiry
Big Quarterly Expirations have been significant
Big moves coincided with fed meeting on Wednesday
Was high vol priced into Event Vol
CRUMB - As event Vol comes up, you tend to see things push higher.
Got the big spike on FOMC
Big spread on 46.5 47.5 range on 23rd expiration
Really good (ICHAN) players front running the big VANNA moves up
- Sells puts, then price goes up.
Then right back down because of all the blood in major long / short names.
There is structural weakness when/where vol is less supportive, noticeable in the nasdaq to the downside.
CRUMB - thinks it will change sometime in the coming year.
Nov26 - omicron - debt ceiling - vol popping
Vol remained in rallies and selloffs
CRUMB - Tug of War from vol as vanna steps in.
Bigger moves up and down were expected
DEC 3800 puts, trade at the offer, right at the bell on a reversal, the next day up
Couple margin taps on the shoulder
Led to high skew
Good sign at a reversal
Skew and margin protection means at the end of the stress.
Bigger structural tug of wars
Whats different is the speed at which we revert to the mean on VIX
——————
ROLL YIELD
https://moneyfortherestofus.com/roll-yield/
Commodity, Bitcoin and VIX ETFs enter and exit futures contracts to maintain exposure to the asset they are tracking. If the futures contract price increases during the holding period, then the futures contract holder earns a positive return. If the contract falls in price, then the futures holder has a negative return.
The roll yield is the difference between the futures price return and the spot price return.
——————
SUMO MARKETS
Why is VOL reverting to mean so quickly now compared to earlier in the year (Jan took months)
More leverage in the system now. Been increasing for the last 2 years
New participants in capital markets
Sumo wrestlers don’t move not wanting to move on either side.
leptokurtic distributions causing bigger spikes but also quicker reversions back to mean.
When one slips, the moves are much bigger
Amidst many historic points
* Pandemic
* Evaluations
* Quantative easing
* Bond Markets
* SPACs
* Short Squeezes
Bigger hedging as a result.
Increased VANNA and CHARM flows
Leads to real crazy rotations, like we are seeing
Real structural weakness like we are seeing with Breadth in the market.
---------
What is Market Breadth
investopedia.com/terms/m/market_breadth.asp
Market breadth indicators analyze the number of stocks advancing relative to those that are declining in a given index or on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. Positive market breadth occurs when more stocks are advancing than are declining. This suggests that the bulls are in control of the market's momentum and helps confirm a price rise in the index. Conversely, a disproportional number of declining securities is used to confirm bearish momentum and a downside move in the stock index.
IDEA. What if we are in fact in a BEAR & BULL Market at the same time!
--------
New VOL futures products coming in FEB. Provides more flows.
Fixed Strike VOL. Options Side
Been muted given the moves.
Because of higher skew
S&P skew came down dramatically.
Higher spikes into declines
Harder to do put spreads when skew is flatter
Which is likely to have a bigger effect on vix futures into decline
Added convexity to declines IF we get more declines from here
———----
SEASONALITY
Broadly vol is high
JP Morgan trade
Big trade in 2 weeks.
Well supplied in next 2 weeks in index land
End of year vol supply
500 trillion dollars of LONG assets in the world
+80 trillion this year alone
A big chunk of that is likely to get added JAN 1st
Santa Clause rally at the end of 2018 tends to be even stronger from a decline
VOL is part of that feedback loop that is seasonality
A lot of potential energy in the system
Vol is likely to get compressed going into the end of the year
----- VCP Trade from Friday --------
--------
There is pain out there but likely to result in moving higher short term.
* JAN new bar for CPI numbers
* JAN liquidity flows
* BIG JPM Trade in 2 weeks
SKEW
Take 2 moving parts
Call wing and put wing
Only updated once a day, not for intraday
Obvious Skew High = Don’t Buy Puts
Looking at money net
Dealers and Makers look at it as
Delta Sticky Skew
based on vol,
delta, 1 STD DEV
When you look at DSS
It can be quite mean reverting
When Skew Is High
Far OTM puts are short by dealers
Leads to by back of delta
Easy to hedge
when skew is high, VOL is Cheap
Like put spreads
reflexive support when skew is high
Important to understand position on the tail
To understand flows
I'll break some of the Crumbs down in updates later tonight and some new chart ideas.
Cem is a volatility expert, one of the best.
Check him out on twitter at https://twitter.com/jam_croissant
-------
This new series, Following the Croissant Crumbs, will focus entirely on Cems appearances on podcasts.
I'll put all my notes of his appearance along with charting some key crumbs he leaves behind for us to find.
check it out if you want to listen at:
https://twitter.com/jam_croissant/status/1472029175225716747
Most of the notes are merely observations from the kung fu master.
--------
Options Insider - Cem Karsan - Friday Dec 18
HOLIDAY UNPIN & OMNICRON
Thanksgiving Holiday Vol was suppressed.
Pin removed after thanksgiving
Vol well supplied. People have been broadly hedged.
Makes larger moves down more difficult.
Everyone sees what has been going on with individual stocks.
Breadth has been Aweful
30% of QQQ stocks above their 20d moving average
Longs/Shorts having a tough go at it.
Structural Weakness under the hood
Vol complex however has been broadly supportive.
QUAD WITCHING
Quad Witching you tend to have positive flows leading up
Vanna Flows coming from the decay of time until expiry
Big Quarterly Expirations have been significant
Big moves coincided with fed meeting on Wednesday
Was high vol priced into Event Vol
CRUMB - As event Vol comes up, you tend to see things push higher.
Got the big spike on FOMC
Big spread on 46.5 47.5 range on 23rd expiration
Really good (ICHAN) players front running the big VANNA moves up
- Sells puts, then price goes up.
Then right back down because of all the blood in major long / short names.
There is structural weakness when/where vol is less supportive, noticeable in the nasdaq to the downside.
CRUMB - thinks it will change sometime in the coming year.
Nov26 - omicron - debt ceiling - vol popping
Vol remained in rallies and selloffs
CRUMB - Tug of War from vol as vanna steps in.
Bigger moves up and down were expected
DEC 3800 puts, trade at the offer, right at the bell on a reversal, the next day up
Couple margin taps on the shoulder
Led to high skew
Good sign at a reversal
Skew and margin protection means at the end of the stress.
Bigger structural tug of wars
Whats different is the speed at which we revert to the mean on VIX
——————
ROLL YIELD
https://moneyfortherestofus.com/roll-yield/
Commodity, Bitcoin and VIX ETFs enter and exit futures contracts to maintain exposure to the asset they are tracking. If the futures contract price increases during the holding period, then the futures contract holder earns a positive return. If the contract falls in price, then the futures holder has a negative return.
The roll yield is the difference between the futures price return and the spot price return.
——————
SUMO MARKETS
Why is VOL reverting to mean so quickly now compared to earlier in the year (Jan took months)
More leverage in the system now. Been increasing for the last 2 years
New participants in capital markets
Sumo wrestlers don’t move not wanting to move on either side.
leptokurtic distributions causing bigger spikes but also quicker reversions back to mean.
When one slips, the moves are much bigger
Amidst many historic points
* Pandemic
* Evaluations
* Quantative easing
* Bond Markets
* SPACs
* Short Squeezes
Bigger hedging as a result.
Increased VANNA and CHARM flows
Leads to real crazy rotations, like we are seeing
Real structural weakness like we are seeing with Breadth in the market.
---------
What is Market Breadth
investopedia.com/terms/m/market_breadth.asp
Market breadth indicators analyze the number of stocks advancing relative to those that are declining in a given index or on a stock exchange, such as the New York Stock Exchange (NYSE) or Nasdaq. Positive market breadth occurs when more stocks are advancing than are declining. This suggests that the bulls are in control of the market's momentum and helps confirm a price rise in the index. Conversely, a disproportional number of declining securities is used to confirm bearish momentum and a downside move in the stock index.
IDEA. What if we are in fact in a BEAR & BULL Market at the same time!
--------
New VOL futures products coming in FEB. Provides more flows.
Fixed Strike VOL. Options Side
Been muted given the moves.
Because of higher skew
S&P skew came down dramatically.
Higher spikes into declines
Harder to do put spreads when skew is flatter
Which is likely to have a bigger effect on vix futures into decline
Added convexity to declines IF we get more declines from here
———----
SEASONALITY
Broadly vol is high
JP Morgan trade
Big trade in 2 weeks.
Well supplied in next 2 weeks in index land
End of year vol supply
500 trillion dollars of LONG assets in the world
+80 trillion this year alone
A big chunk of that is likely to get added JAN 1st
Santa Clause rally at the end of 2018 tends to be even stronger from a decline
VOL is part of that feedback loop that is seasonality
A lot of potential energy in the system
Vol is likely to get compressed going into the end of the year
----- VCP Trade from Friday --------
--------
There is pain out there but likely to result in moving higher short term.
* JAN new bar for CPI numbers
* JAN liquidity flows
* BIG JPM Trade in 2 weeks
SKEW
Take 2 moving parts
Call wing and put wing
Only updated once a day, not for intraday
Obvious Skew High = Don’t Buy Puts
Looking at money net
Dealers and Makers look at it as
Delta Sticky Skew
based on vol,
delta, 1 STD DEV
When you look at DSS
It can be quite mean reverting
When Skew Is High
Far OTM puts are short by dealers
Leads to by back of delta
Easy to hedge
when skew is high, VOL is Cheap
Like put spreads
reflexive support when skew is high
Important to understand position on the tail
To understand flows
I'll break some of the Crumbs down in updates later tonight and some new chart ideas.
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