Source: Zero Hedge
Groundhog Day: Instability, Illiquidity, & ‘Invincibility’ Via SpotGamma.com, The current setup feels eerily familiar. In January of ’21 we wrote a note called “When YOLO goes YOL-OH NO!” which outlined the risks embedded in this market. The basis for this risks where: Large speculative call positions which increased leverage and market volatility Small relative put positions which infer the market is not hedged for a downside move Little short selling in markets What ensued was a very sharp ~4% drawdown… which lasted all of 5 days. However during the ~2 months since that was written we’ve seen two of the largest single day VIX spikes in history . And since writing that “ YOLO ” article, the options market has continued this pattern and become more committed to the current call position. With that we note that realized volatility, how much the market has been moving, has been increasing during each peak this year. You can see this measured in the chart below which depicts realized volatility on a 5 day (red) and 1 moth basis (green).