Market action

Seems like the main thing happening today is that the dollar is starting to feel the impact of central bank money printing. Commodities are up, across the board, equities are up (well, it would take a huge meteor strike on NYC to affect that), and bonds are up too. The risk-on/risk-off narrative does not apply, although the VIX continues to get crushed under the weight of money.

In general news, there is a big row over using the US postal service for voting by mail in the presidential election in Nov., China is injecting a lot of stimulus into its economy, Japan is looking very sick (which has pushed up its currency, explained by interest rate parity, maybe). South-east Asia is in a parlous state. Open economies dependent on manufacturing and tourism are not going to do well in a time of Covid.

Close

Market action from this morning continued. $TSLA jumped a ludicrous 11% to $1835. Fraud stocks ($NIO, $NKLA and $TSLA) account for 30% of total automotive market cap. There will be a price to pay, but not today and almost certainly not tomorrow.

Gold was up 2.25%. VIX futures were down 5.4%.

This looks important, but I don’t really understand it. Gamma is always highest for ATM options, so I don’t really get the significance of this. There is a post here which explains what gamma clenching is.

My tentative understanding is that gamma tends to drag money into the index (the Nasdaq in this case). For a ‘normal’ position in the index, via futures or passive funds, there is no need for whoever manages the QQQ ETF to actually execute any trades: the existing cash hedge is all that is needed. With a positive gamma position, this is not the case. To keep hedged, someone somewhere has to buy more in the cash market. But this cannot be the passive funds: they transact only in response to retail buying or selling. It has to be the active managers, who are an endangered species and have probably sold all their crazily over-valued Nasdaq stocks anyway. So the market goes

As money flows into the index, passive funds have no option other than to buy immediately (or get equivalent exposure via futures, but this will just force whoever is selling the futures to buy in the cash market to hedge their position). A positive gamma means that overall exposure