Gamma Squeeze

The Market Huddle interviewed Brent Kochuba about gamma and how it interacted with the cash market last month. I listened to this while doing something which required more concentration than was compatible with understanding every nuance of what Brent and Kevin were discussing, but the takeaway I ended up with was that it’s quite possible that Softbank was just hedging some of its existing positions in the mega cap tech stocks. The logical conclusion was that if it wasn’t Softbank, it must have been the armies of RobinHood traders.

There are so many players, now, trading in individual stock options and index options, and there is such a range of possibilities of interactions between these markets and the underlyings that it’s very hard to attribute market moves to option buying and selling. It’s interesting to speculate, though, and I’d bet that the increased use of derivatives by ‘amateur’ traders is likely to create extra volatility, ultimately.

It was very interesting to listen to the Huddle’s discussion of what the option market makers have to do to hedge their risk after writing big option positions with (e.g.) Softbank as the counterparty, especially about the limits to delta hedging which is OK in a textbook but does rely on some heroic and unrealistic assumptions.

Opening notes

Generally, the markets bounced back, a bit, from their extremes of yesterday. There is still a lingering smell of risk-off, and bitcoin is down a bit, and T-bonds flat. Gold is well off its lows (1886) but still far from its high of 2080 in early August. The dollar is still strong: even now it is a safe haven from volatile securities markets.

News

The so called “FinCEN files” leak has indicated that the usual suspects have been involved in money laundering. HSBC, Barclays, JPM, Deutsche, StanChart all are fingered. It doesn’t seem to have made any difference to their share prices: I don’t suppose anybody was surprised, or cares very much. Stanchart share price was up 1.3% today, as of 11:47 as I write this. For the group that did the work, take a look here.

Wrap

Equities regained some of their lost ground, lead by the NASDAQ (of course). Commodities were practically flat, as were govt. bonds. Bitcoin & the Euro were down, Yen up. All the sectors were up apart from healthcare (slightly), financials and energy. Silver and silver miners were up, a bit. TSLA seems to have failed to get a bounce from battery day, although I don’t know why. The FT ran a rather gushing piece on how Tesla has revolutionized car manufacturing by being vertically integrated, as though this wasn’t something that Henry Ford wasn’t doing well over a hundred years ago. Supposedly, software works better if all the drivetrain is manufactured in house. I am not, unsurprisingly, convinced.

Latex

Tex is an amazing piece of software. I have recently been using xelatex (and pdflatex & lualatex), driven via pandoc, to convert markdown to pdf. The whole thing is controlled from a makefile. It’s probably not going to knock MS Word off its perch, but it’s really very easy to use, once you have got a basic grasp of some of the tools. The command line is a wonderful thing, still.