Sunday, June 19, 2016

"Buy The Fucking Brexit" aka. Greedthink

The reason why the VIX diverged from the S&P this week, is because the dip got bought with both hands, even as hedging costs soared. Which means "someone" is unhedged going into this week and Brexit i.e. Team Greedthink...

"Going into next week, going into that Brexit, you are set-up for new all time highs in the S&P 500"

Rydex cash balances record low:

June 14, 2016 JP Morgan/ZH:
"...central banks and option-related flows over the past 2 months were suppressing market realized volatility...High levels of equity exposure, currently in the ~90th historical percentile, indicate high market risk posed by a potential increase of market volatility. Equity exposure of Hedge Funds is also above average"

Barron's June 16, 2016
VIX ETF Trading Goes Bananas
“The Great British Pound, U.K. equities and European equities have priced a substantial portion of the Brexit risk.  Sterling, U.K. and European equity volatilities have soared.  However, U.S. equities and other U.S. risk assets have not fully priced in the risk of Brexit.  The spread of European equity volatility and U.S. equity volatility is at record wide levels and the term structure in European equity volatility and U.S. contrast sharply with each other.

Skew / VIX is my new indicator. It measures the amount of downside protection being bought divided by the cost of protection. When it goes down, it means accelerated selling is about to take place as the cost of hedging explodes out of control. 

In bear markets it costs more to hedge. And this is a bear market:

"Gamma Risk" aka. overexposure
Crossing the rubicon from wanting to sell, to having to sell...

Buy the fucking Brexit visualized
TRIN: Selling intensity

2x leveraged volatility short interest