“Fortunately for America, it possessed a large population of colonists who were already militants, agitators, and rebels.”
- Philip Thomas Tucker
Yep, we Irish rebel capitalist guys have been here for a long while. And we aren’t going away. God willing, I will be agitating the establishment and ye Olde Wall for many years to come.
For those of you who don’t mind when people are who they are, you probably won’t be shocked to know I had a “day off” yesterday and spent my free time reading about my family’s #history: How The Irish Won The American Revolution.
Yeah, if you aren’t Irish, the title of Tucker’s book might trigger you a bit. That’s ok. It’s good to be triggered. It wakes you up to other perspectives. It makes you think. As the day went on, I was thinking forget the day-off thing too!
Back to the Global Macro Grind…
For the last 15 years of being independently employed, vaca or not, I still have to “trade” the market. Yeah, you can call me the dirty little Canadian-Irish day trader. I like to think of myself as The Risk Manager of my hard earned capital.
You see, in the early days of being a militant agitator, I wasn’t getting “paid” like the big-timer I thought I was going to be at Carlyle. No, no, no. It was writing big-time founder’s checks and eating what I killed, shorting stocks in 2008, eh!
In terms of market structure, trading today’s developing bear market is in many ways different than what it was like back in 2008. In many other ways it’s behaviorally similar too.
One of the biggest differences is just how BIG markets have become, especially options markets.
The “why” on the size of the US Equity listed Options market could be the subject of an entire book that I neither have time to write nor the need to. My job, as your Risk Manager, is to evolve alongside it so that we don’t lose money.
At the most obvious level of explanation, some of the most glaring reasons for the size of this market are:
A) LOTS of LEVERAGE in the Hedge Fund community
B) NOT a LOT of LIQUIDITY at the single stock level
C) Demand to run “neutral” to markets, Factor Exposures, etc. using options as liquid “hedges”
And, yes, of course there’s the new and grossly uninformed community of “Retail” Options players who can effectively bet their brains out with leverage for the lowest (or no cost) execution costs, ever.
Sounds great. What could possibly go wrong?
Well, there’s this thing in an options bet called “gamma.” What is gamma? It’s all about The ROC, baby. What is The ROC? You know what The ROC is. It’s the rate of change of an option’s delta.
In the spirit of your own self-education, I’ll let you look up the rest of that on your own time.
If you’re a pro and already know the basics, one of the biggest risk management questions in markets today is how do these epic Gamma Days impact your portfolio and decision making #process?
A) Are you getting whipped around like a rag doll into #opex (opex = options expiration)?
B) Are you fading the 1-3-5 day panic attacks and making money against the crowd?
C) Are you generally just unaware of it all but interested in learning more?
Personally, I spend more and more time on B). That’s the part that is almost nothing like shorting every big bear market bounce like I did in 2008. In this market, being “early” by literally 1-2 days on my shorts can be painful.
What’s more painful is being the donkey who can’t be 1-3-5 days early because he keeps selling alongside the crowd at:
A) The LOW-end of my Risk Ranges AFTER big bear market crashes and drawdowns… and
B) Is purely gambling on options trades that have short-term expirations
I say “he” on the donkeys, because I haven’t had a she chirp me on Twitter in those 1-3 day windows where it looks like I am going to be very wrong. Lol
You know what’s most interesting about the 2021 vs. 2022 Gamma Days?
A) At this time in 2021 we were in #Quad2 and the crowd (Consensus Hedge Funds and “Retail”) kept getting smoked SELLING at the LOW-end of my Risk Ranges into opex in a RAGING Bull market
B) Today in 2022 where the market is pricing in #Quad4 in Q2, the crowd is chasing at the TOP-end of my Risk Ranges
For the most glaring example of that yesterday look no further than the 1-line option for SPY:
A) The MAR 23s (March 23rd options expiration) had > 50,000 call bets on the $448 line
B) Look what happened to SPY intraday when the big boys (and girls) couldn’t capture that line…
Obviously those aren’t just “Retail” bets. Those are big Institutional (Hedge Funds and Long onlys) agendas! I don’t have any more time on the clock here this morning to quote all of these super-short-term 1-line gamma bets…
But seriously, look at the biggest ones (TSLA and AAPL into MAR 25 expiration tomorrow). AMC (as in the movie theater company) had > 60,000 options on the $20 line for MAR 25 yesterday!
As one of the sharpest Hedge Fund managers I know said to me on the phone yesterday about Tesla (TSLA), “Mucker the whole fn screen is calls.” And look at the intraday move in that puppy after the 1-3 day ramp into last week’s opex…
No, these moves have nothing to do with our #Quad4 in Q2 Economic Cycle view other than probably perpetuating the downside in these MEGA cap exposures after the MAR 25s bets go away.
Now you know why I put the “day-off” on hold yesterday. For the last 2-3 years there’s been increasing opportunity for rebels of #HedgeyeNation to make money, fading the madness of crowds, in 1-3-5 day windows of “clock time.”
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
UST 10yr Yield 1.92-2.42% (bullish)
UST 2yr Yield 1.68-2.24% (bullish)
High Yield (HYG) 79.75-82.38 (bearish)
SPX 4112-4528 (bearish)
NASDAQ 12,401-14,179 (bearish)
RUT 1 (bearish)
Tech (XLK) 139-158 (bearish)
Energy (XLE) 69.88-78.35 (bullish)
Gold Miners (GDX) 36.13-39.15 (bullish)
Utilities (XLU) 69.39-71.58 (bullish)
DAX 13,815-14,794 (bearish)
VIX 21.3-34.10 (bullish)
USD 97.83-99.47 (bullish)
EUR/USD 1.086-1.113 (bearish)
USD/YEN 117.21-121.82 (bullish)
Oil (WTI) 92.36-117.34 (bullish)
Gold 1 (bullish)
AAPL 149-172 (bearish)
TSLA (neutral)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
