Monday, November 7, 2016

The Efficient Collapse Hypothesis: 2% Upside 90% Downside

Wall Street just made the mother of all bets on Hillary...

And why not? It's clearly already been decided:

As we saw in 2008, and several times since then, the cost of options protection was lowest at the top and highest at the bottom. The exact opposite of what the Efficient Market Hypothesis would predict. However, Goldman still doesn't seem to understand that past performance is no guarantee of future result...

Rule #1: don't drive your car forward by looking in the rear view mirror...

ZH: Nov. 7, 2016
Largest Volatility Disconnect On Record
"Although the VIX is up, the market hasn’t actually been moving that much and that has led to one of the largest VIX dislocations on record"

The rear view mirror says this shouldn't be happening:
S&P 500 10-day and 1-month trailing realized volatility measures stand at 5.3 and 6.8.

If VIX is right, bonus may be affected:
"If the options market is correct and a high VIX is justified, then the market needs to drop considerably."

In conclusion, the options underlying VIX have to be wrong, because the options ON VIX have to be right for efficient bonus payout:
"The VIX is set up for a large decline if uncertainty declines post the election. The VIX options market seems to agree. More VIX puts traded last Friday than on any other day in history."

The mother of all bets on Hillary:
VIX put volume:

Is it possible that the VIX is bid for reasons having nothing to do with the election?

Nasdaq 100 new highs:

And of course if they're wrong, there's no coming back...but that doesn't matter because it's not their money anyway...