Below is a chart and brief excerpt from today's Early Look written by Macro Analyst Christian Drake.
Q: Is positioning such that we are primed for a capitulation and price gap higher?
This line of questioning implicitly takes aim at the derivatives market and is inextricably bound up in the dynamics highlighted above. That is, with high, collective long equity positioning, trailing realized volatility at multi-year lows and central bank decisions/Brexit/Impeachment/Trade Deadline/Year-end Repo-funding risk, etc. all coalescing around a similar timeline, we’ve seen implied volatility premiums build and Skew ramp as left tail risk protection and other hedges have been put on.
To the extent we cleanly hurdle that collective concern basket, that protection will get sold and, in isolation, will be a short-term support to prices.