Market Wrap
The SPX closed 0.9% lower on Tuesday as there was little risk appetite ahead of the pathbreaking CPI on Wednesday, a crashing German ZEW Index and a collapsing energy complex (WTI -7.6%) due to recession concerns.
There is a sense in the air that the world is falling apart right in front of the markets eyes, but still - put volume fell through a floor today (see chart below), which is indicative of only little demand for protection.
https://bucket.mlcdn.com/a/3517/3517811/images/3bf85927ae3996063b38ff161a76c5198e351424.png
The picture remains puzzling - how can VIX be so cheap relative to MOVE, and why is SKEW literally pricing in almost no black swan risk in the wake of the enormous risks the world is facing?
There are a couple theories floating around and we were laying some of them out already, but none of them seem very satisfactory in explaining this phenomenon.
The chart below plots SKEW relative to VIX and depicts the relative "complacency" of equity participants.
https://bucket.mlcdn.com/a/3517/3517811/images/4e48f508b8324c834bda60b36d81825b94a1aecb.png
So far July continues the trend of very little risk awareness.
Dealer gamma decreased to -650M, which lays the ground work for increased volatility tomorrow.
We think that in the case of a CPI print above 9% year-over-year first 3800 and then the much bigger gamma strike at 3700 could be tested.
Please visit our Dashboard for more macro research ahead of the release.
There is a sense in the air that the world is falling apart right in front of the markets eyes, but still - put volume fell through a floor today (see chart below), which is indicative of only little demand for protection.
https://bucket.mlcdn.com/a/3517/3517811/images/3bf85927ae3996063b38ff161a76c5198e351424.png
The picture remains puzzling - how can VIX be so cheap relative to MOVE, and why is SKEW literally pricing in almost no black swan risk in the wake of the enormous risks the world is facing?
There are a couple theories floating around and we were laying some of them out already, but none of them seem very satisfactory in explaining this phenomenon.
The chart below plots SKEW relative to VIX and depicts the relative "complacency" of equity participants.
https://bucket.mlcdn.com/a/3517/3517811/images/4e48f508b8324c834bda60b36d81825b94a1aecb.png
So far July continues the trend of very little risk awareness.
Dealer gamma decreased to -650M, which lays the ground work for increased volatility tomorrow.
We think that in the case of a CPI print above 9% year-over-year first 3800 and then the much bigger gamma strike at 3700 could be tested.
Please visit our Dashboard for more macro research ahead of the release.
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