Our illustrious leaders have a fine tradition in the past year of saving some of their best ammo for the late Thursday/early Friday window so as to coincidentally get their best bang for the buck.
It’s the Gamma Effect, something we’ve gone over here periodically. Long story short, a Friday gap maxes out the pain to options shorts as they have to chase and cover as indices and stocks fly thru strikes.
But I suspect it won’t happen this go around for a variety of reasons. The chief “option-y” one is that we are in a 60 VIX world now. No one is putting their finger over options shorts until they have officially expired. And there’s enough premium cushion in them to withstand bigger moves. In other words, if an OTM call still has $2 in it, as opposed to 20 cents, you can let the underlying ride that much further before you even see a loss, much less a loss you feel the need to chase and cover Throw in that call shorts probably have some overpriced put shorts and the cushions get bigger.
Bottom line is we’re already pricing in these gigantic move days, not sure exactly what Ben and Hank can add to that at this juncture. Another rate cut? More money into the banks? Another lending facility? Ritualistic Execution of Shorts? Been there, done that.
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We can always make it illegal to excersize options, or even to own them at all… we’ll see how you like that!
any day now they will
Adam I think you are right. This time around there will probably be no crushing blow to the bears, and wouldn’t ya know I have no October puts this time around. I got blown out of the water too many times before to take the chance, and I’ve made too much recently to risk letting those fuckers rip me off again.
They really are running out of shit to do, except for closing the market, et al. Oh well, I have my longdated puts.
I need either a moonshot or a melt down, so I hope I’m wrong. But I think the only hope is maybe they run them in anticipation of some announcement.
Adam:
what’s up with the VIX today- up 13% and the S&P 500 only down 2%. Something is wrong. When volatility goes up that much market should go down significantly lower. Yesterday volatility was up 24% and S&P 500 went down 9%. Also VIX is hitting new highs but S&P 500 is not hitting new all time lows.
yeah, vix getting a bit scary. Part of it is that stock volatility has exceeded options volatility, so there’s some degree of catchup there. Otherwise though, it’s true Fear.
It sounds like you are gathering lots of different ideas in your blog. This is great stuff.