AAIIBEAR Index “Da Bears” just logged a reading of sub 22.00, the lowest reading since January 2nd. The Bulls logged their longest euphoria reading since January 2018. Euphoria is high.
GS Tactical Fund Flows 2021 - some interesting tidbits:
We are set up to see a massive wave of inflows [in 2021]. The “January Effect” will be exceptionally strong this year. Investors are looking to buy the dips, but they remain shallow as there is competition for dip alpha.
AAIIBEAR Index “Da Bears” just logged a reading of sub 22.00, the lowest reading since January 2nd. The Bulls logged their longest euphoria reading since January 2018. Euphoria is high.
This flow of funds shift will get exacerbated this year given the heavy positioning in money markets and bonds, aka TINA, or lack of alternatives.
US Investment grade corporate bond yields are at their all-time low of 1.8%, less than what 10-year US Treasuries were yielding earlier this year.
There are currently 49M accounts now open for online brokerage, a jump of 13M in 2020. DARTs, the common metric for retail activity hit a record of 10M trades/day earlier this year.
Systematic Unemotional Mechanical equity demand is in the market and will accelerate once the volatility premium is taken out of Georgia. Georgia can be another clearing event for investors.
GS Systematic strats team estimates +$19B worth of equity CTA demand over the next 1-month assuming a flat market tape.
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Ok here is the explanation. Grab a cup of coffee and read on. If you have not read/noticed this, you will see intraday options movement in a new light.
Say we have two options, one 50 delta ATM options and another 30 delta OTM option. Normally for a 100 point move, the ATM option will move 50 points and the OTM option will move 30 points. But in a high volatile environment, the OTM option will also move nearly 50 points
To understand why this happens, first understand why an ATM option is 50 delta. An ATM option has the probability of 50% of expiring as ITM. The price just has to close a rupee above the strike for the CE to be ITM and vice versa for PEs
Now think of a highly volatile day like today. If someone is asked where the BNF will close for the day or expiry, no one can answer. BNF can close freakin anywhere, That makes every option of an equal probability of being ITM. So all options have a 50% probability of being ITM
Hence, when a huge volatile move starts, all OTM options behave like ATM options. This phenomenon was first observed in the Black Monday crash of 1987 at Wall Street, which also gave rise to the volatility skew/smirk
In a high IV environment or when the market is very volatile
— Subhadip Nandy (@SubhadipNandy16) January 21, 2022
" OTM options will behave like ATM options", one will get almost the same delta movement
Say we have two options, one 50 delta ATM options and another 30 delta OTM option. Normally for a 100 point move, the ATM option will move 50 points and the OTM option will move 30 points. But in a high volatile environment, the OTM option will also move nearly 50 points
To understand why this happens, first understand why an ATM option is 50 delta. An ATM option has the probability of 50% of expiring as ITM. The price just has to close a rupee above the strike for the CE to be ITM and vice versa for PEs
Now think of a highly volatile day like today. If someone is asked where the BNF will close for the day or expiry, no one can answer. BNF can close freakin anywhere, That makes every option of an equal probability of being ITM. So all options have a 50% probability of being ITM
Hence, when a huge volatile move starts, all OTM options behave like ATM options. This phenomenon was first observed in the Black Monday crash of 1987 at Wall Street, which also gave rise to the volatility skew/smirk
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