Don’t you love end of year Federal Reserve rates hikes into a recession? This story is making the rounds today. iBC’s own, “The Devil” , called me on this today, praising the track record of Marko Kolanovic, suggesting we could be fucking doomed if the Fed hikes rates the wrong way.
A report from JPMorgan’s global quantitative and derivatives team, led by Marko Kolanovic, emphasizes the necessity of not roiling the markets. Extenuating circumstances in the options market could provoke a wave of selling pressure in equities precisely when the Fed seeks to ease markets into a new rate regime, Kolanovic warned.
“This important event falls at a peculiar time–less than 48 hours before the largest option expiry in many years,” wrote Kolanovic, noting that $1.1 trillion worth of Standard & Poor’s 500-stock index options–of which $670 billion are puts–will expire on Dec. 18. Roughly one-third of the puts poised to expire are at or near the money, with strike prices from 1,900 to 2,050.
“Clients are net long these puts and will likely hold onto them through the event and until expiry,” the strategist wrote. “At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.
The Fed shouldn’t be hiking rates in the first place. But this adds a brand new dimesion to the level of fuckery that is likely to take place next week. I’d love to see a zero bid market and the lads over at Zerohedge celebrating over the coffins of the American investor. But that never seems to happen.
Neverthless, December is usually a quiet month. The only caveat to that thinking is the fucking Fed is going to hike into a recession.
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ZeroBidHedge reported on this yesterday.
http://www.zerohedge.com/news/2015-12-07/beware-massive-stop-loss-jpms-head-quant-warns-unexpected-downside-catalyst-looms-ne
Dear programmers:
Friday was so obviously manufactured. Youre not foolin or shaking me. You shook the tree leaving a mess of tinsel. Tell grandma to grow a beard use the tinsel if she cant.
loyal supporter friend showtime
A massive amount of puts open under the mkt means there is great incentive to have them expire worthless.
To me this seems more like a gigantic bid under the market than a stop loss order.
Kolanovic is a beast, but he is always talking out of both sides of his mouth.
This has the smell of Y2K fear. I would be interested to know the history of these kind of technical warnings and what the outcomes were. Seems like once a threat like this is known the market arbitrages away the risk.
If it happens, it’s a lousy quarter point. Hardly the end of the world that many are making it seem. GMAFB
So. A. It’s not a free market. B. All invested want to control it from raising/lowering rates to corruption of buying up stocks from self preserved cups.
I’m new here, is that about right?
but on the flip side all these puts mean that whomever owns the puts will be hedging on the way down by buying from the put sellers? Also how many of these puts are just naked and NOT hedged in the least bit already…
Remember there are two sides to every bet, and almost all bets are hedged with some other position. Come on there’s just a naked massive put seller rolling the dice on the fed???
Poppycock