volatility

Going Hyperbolic: Fed Battles Volatility, Everything Else…

"The struggle itself towards the heights is enough to fill a man's heart. One must imagine Sisyphus happy." - Albert Camus "Captain Jack will get you high tonight And take you to your special island Captain Jack will get you by tonight Just a little push, and you'll be smilin'." - Billy Joel   This one has a long fuse, but you might enjoy the customary overallocation of pictures as we get into it: In a March 22nd note entitled "The Great Leverage Unwind" published by Guggenheim Investments, Global CIO Scott Minerd estimates the impact of the COVID-19 pandemic like this:  "...we would need to see about $4.5 trillion of quantitative easing (QE) before everything was resolved. This is in addition to emergency lending through the discount window, dealer repo operations, central bank liquidity swaps, and the Commercial Paper Funding Facility, Primary Dealer Credit Facility, and Money Market Mutual Fund Liquidity Facility. That would take the Fed’s balance sheet to at least $9 trillion, or about 40 percent of last [...]

By |2020-10-05T21:35:19-04:00April 16th, 2020|Open|
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Hacking the Matrix: A New Era in Risk Perception

"Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance." - Daniel Kahneman Chances are, "global pandemic" wasn't in your bag of quantamental factors; at least not by any name other than slippage.  But now that that cat is out of that bag - and, rightly or wrongly, the wheels of a response strategy have largely been set in motion - the least we should do against a backdrop of historically significant uncertainty (aka - risk) is widen our lens as to the new spectrum of future market contagions that have suddenly become more probable... Of particular note, keep your eye on a little thing that isn't widely discussed in polite society: the Fed's balance sheet. As of April 1, the chart below illustrates over a century of total assets for the US Federal Reserve system - ironically, since around the time of the last global pandemic (in 1918). What you are seeing there at the recent end of [...]

By |2020-10-14T22:20:45-04:00April 8th, 2020|Open|
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Ports in the Storm: US Options Exchange Rankings

 “It’s not bragging if you can back it up.” – Muhammad Ali   While so many seem to be pleasuring themselves with the Tiger King, some of us continue to geek out with the latest data. Now, with March so freshly in the review mirror, certain monthly and quarterly data updates are going to be among our first chances to benchmark the significance of what has just happened in capital markets. We started with a focused comparison of the volatility patterns of the GFC period to the unfolding CVP period here and here, and then detailed the first trading casualties of that volatility here, here and here. Below, is our latest visual of that volatility comparison, where we are beginning to break down the components of volatility represented by the gap and range... Among the more fascinating aspects of this perspective is the illustration that there have been 8 volatility spikes with intraday ranges greater than 20 VIX points since January 2008, and the greatest of these occurred on February [...]

By |2020-10-05T16:10:56-04:00April 2nd, 2020|For Subscribers|
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Parplus Impersonates LTCM, Drags Ronin Down

"Knowing is not enough; we must apply. Willing is not enough; we must do." - Johann Wolfgang von Goethe   With a name like Parplus, it's difficult not to take the bait. Not quite as fruitful as Lev Parnas' company, Fraud Guarantee, but ripe nonetheless, given the circumstances... For instance, we may never know if the advice - as recounted by Carl Spackler - of the Dalai Lama ever entered Jim Carney's mind: Gunga galunga. And, we may never know for sure whether the Parplus crew received total consciousness as the reality of the situation became clear. In fact, we may never know - as the Arnold Palmer story goes - what par actually was for this hole... But, one thing's for sure: It all happened fast... Here's the setup: Seeking to satisfy some of the hunger for yield enhancement solutions (and, ideally, some downside protection) - typically offered of late in the form of structured notes, "smart beta" products, and other clever overlay strategies - Parplus Partners was established [...]

By |2020-08-17T07:14:01-04:00March 30th, 2020|For Subscribers|
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ABN AMRO Clearing: Source of $200 Million Mystery Loss Revealed

“You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever." - Steve Jobs   In an article published today (March 26) by Risk.net based on a statement also released today from ABN AMRO (below), new details about the demise of Ronin Capital emerge - along with that of a "mysterious second default."  According to Risk.net, a spokesperson for ABN AMRO has repeatedly suggested Ronin was not the source - a US client - of the $200 million (net) loss. It's just a matter of time now before we learn of another potential victim of this latest volatility spike... ++++++ Update 9:59PM NYC: Well, that was fast! The source of $200 million loss revealed by Risk.net as New York-based Parplus Partners, an equity volatility hedge fund with close ties to Ronin... Until next time, stay safe out there...

By |2020-08-17T07:14:01-04:00March 26th, 2020|For Subscribers|
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Marketquake 2020 – Volatility Update

“Do what you can, with what you have, where you are.” - Theodore Roosevelt   In last week's Feed post, "Marketquake: The Volatility of Volatility," we set up a comparison of volatility levels - and duration - from the GFC with that of the current pandemic period. In that, I implied that elevated volatility persisted for 218 trading days after the initial GFC shock. In other words, it took about 218 trading days for the VIX to traverse the round trip from normal vol levels (~mid-20's) through the associated shocks and back to normal. The chart below is a picture of that path along with where we are as of today, 23 trading days into the latest market shock... Now, 218 trading days into the pandemic shock puts us into early January 2021. The problem, however, is that with the latest vol shock being faster and higher than that of the GFC - and the likelihood that there will be subsequent shocks from the combined ongoing health and economic impacts [...]

By |2020-10-14T22:22:00-04:00March 25th, 2020|Open|
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Marketquake: The Volatility of Volatility

“To develop a complete mind: Study the art of science; study the science of art. Learn how to see. Realize that everything connects to everything else” – Leonardo da Vinci If there was ever a moment in time when we realized just how much everything connects to everything else - a quote (and concept) I have been using to repeatedly bludgeon you lo these many past months - now would be that moment. However, so as not to jump on the singularly overcrowded bandwagon of doom that is the current events flow of content (for now), I'd like to walk through a storyboard of related significance. That sadly familiar aroma in the air is fear; a specific vintage of which has not washed over the market ecosystem since 2008. Many are coming to the conclusion that if the virus doesn't take us down, the arsenal of preventative measures just might - and therefore, one way or another, we are likely entering a period of financial stress (to put it as [...]

By |2020-10-14T22:24:36-04:00March 19th, 2020|Open|
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Implications: 2019 Payments For Order Flow Flat vs. 2018

"Historians study the past not in order to repeat it, but in order to be liberated from it." - Yuval Noah Harari, Homo Deus: A Brief History of Tomorrow   With three quarters worth of financial reports for calendar 2019 long in the bag, it is not much of a courageous leap for us to deliver an estimate for order routing revenue - otherwise more notoriously known as payment for order flow (PFOF) - for the full year. And, with the quarterly earnings season coming in the month ahead, it won't be long before we are able to test the accuracy of this estimate. In the chart below, Alphacution extends our prior analysis not only to include 2011 and 2012 but also, more relevantly, to include the year just completed; thereby extending to nine years from six our focus on five of the primary players in retail order flow for US equity markets who also disclose order routing data: TD Ameritrade (soon to be acquired by Charles Schwab); E*Trade; the [...]

By |2020-10-14T21:47:35-04:00January 15th, 2020|For Subscribers|
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2020 Musings: In For A Penny, In For A Pound

Somebody may beat me, but they are going to have to bleed to do it." - Steve Prefontaine "Study the art of science. Develop your senses - especially learn how to see. Realize that everything connects to everything else.” - Leonardo da Vinci   Renowned columnist and author, Thomas Friedman often talks about unintended and unpredictable outcomes when tinkering with big systems. I am reminded of this thought as I drag myself, kicking and screaming, to write this next post. The source of my reluctance is this: I don't want to be in the prediction business mainly because the timing of the catalyst that dramatically alters the trajectory of prevailing themes is a fools errand. And, because we may be standing at such a consequential point in history that the events that await us along the journey in the months and years ahead are unimaginable. However, I do think it's important to start the year by reflecting out loud about the year ahead while leveraging what we have learned about those themes from [...]

By |2020-10-05T21:32:18-04:00January 8th, 2020|Open|
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Tower Research Capital: The Joy of Spoofing

On November 7, 2019, the U.S. CFTC (Commodity Futures Trading Commission) announced that it was ordering proprietary trading firm, Tower Research Capital, LLC (TRC), to pay $64.7 million in restitution, disgorgement and penalties for what amounts to the "largest total monetary relief ever ordered in a spoofing case." Apparently, this is all due to activity in equity index futures (at least) between March 2012 and December 2013. Now, this is one of those slippery - and potentially toxic - topics where someone ends up getting pissed off by whatever I say next. But, hey, it's Thanksgiving season, the Arctic blast has arrived 3 months early, and someone's likely to get pissed off anyway... Actually, this is a topic I have much to say about, and maybe even more questions than answers. For instance, why is so much of the spoofing / layering litigation on the futures side? (Is there no spoofing in equities? Or, just harder to find?) And, why does it take so long? We're nearly six years past [...]

By |2020-08-17T07:14:02-04:00November 14th, 2019|For Subscribers|
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