Loading ...by Tyler Durden
Jun 24, 2016 3:20 PM
Early this morning we laid out the thoughts of RCB’s Charlie McElligott on today’s dramatic market action, which discussed not the blow up of “fat tail” quant stategies (something we touched upon later and which is likely to unleash even more quant-driven selling next week) and the “forced out” liquidations across the curve coupled with a rush into safety, but also the biggest question of all for today’s trades – which macro funds are quietly blowing up? Now, we follow it up with a second piece by the RBC trader, one which those worried about being caught long risk over the weekend, are urged to read.
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TODAY IS THE APPETIZER FOR MONDAY
The early macro trade has been focused on two things: 1) the outstanding performance of credit early (even before the stock rally as HY, IG and Converts all saw size “offers wanted” around Street from real $ and credit HFs) and 2) monetization of downside hedges from select macro funds in stocks and GBP (and then seeing those same accts turn and buy upside calls) as the driver of this phenomenal 60-plus handle rally in Spooz off the lows / pairing-back of half the collective loss in liquid EU equities indices / 500 pip recovery in GBP off lows. Same with VIX as a derivative of that too, where profit-takers in their upside vol bets have made the VIX a one-way trade lower today (or V2X which is EU’s version of VIX and was +32% at one point today….now just +6%). Similarly with regards to “monetization of winners,” USTs options are seeing ‘like’ flows—extremely profitable liquidation of TY calls, contributing the the move higher in UST 10Y yields +17bps off the lows).
There are some who are pounding-table for another leg-down in risk, but now that we’ve just cleared the first hour, I’m seeing INCREASED client activity (after almost consensual “avoiding the noise of the cash open” feedback earlier), and it’s significantly “better to buy.” We’re now running at 280% of the 20adv (notional) on the US cash desk, and sit at 64.2% notionally better to buy. By the way, the longer we go on without seeing a “rollover” in Spooz, you’ll see further capitulation from overnight futures shorts who are already way upside-down.
I do feel that Monday is where we’re going to see a truer-look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the delta one flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.
cont. http://www.zerohedge.com/news/2016-06-24/today-appetizer-monday