SPX Gamma Wrap
The SPX turned an early gain of about 1.2 percent into a loss of 1.5 percent, after Fed officials like Bullard and Powell himself admitted defeat regarding the inflationary pressures that turned out to be anything but transitory and might not even have peaked yet as the fallback narrative is trying so hard to claim.
According to the federal fund future markets inflation will average 2.61 percent in December (see chart), which means the Fed will have to hike at least 10 times, IF the current outlook does not deteriorate from here.
https://www.tradingview.com/x/eHMaBjNc/
Does this sound likely?
Over the last couple days the frequency of “sources”, telegraphing a full-scale european oil embargo against Russia is going up, and just today Biden imposed a ban on Russian ships from US ports.
Is there enough upstream capacity to replace the lost barrels? If yes, are there enough VLCCs to pull off this massive re-routing? If yes, who owns the fleets? If no, who builds them? With what? The question is of course rhetorical, as available capacity is fully booked for building LNG carriers and there not much room left to expand given the supply disruptions.
Anyways, I don’t want to get into details, but the message is clear: Inflationary pressures might not abate anytime soon, and the power of financial stability has shifted away from central banks towards commodity producers/traders. What can the Fed do about it? Nothing, besides demand destruction to facilitate a transfer of human resources back to the real economy, I'm afraid. How is it done? Speculative asset bubble destruction - the Fed put is gone, sorry.
But to get back to the point of this: Dealer gamma currently registers at minus 595MM, which points to elevated volatility ahead, gamma inverts above 4480.
For now dealers are fully hedged again and futures seem to be able to stabilize at 4400. Should this level not hold then 4350 will come into play quickly, before the “big gamma magnet” at 4300 starts to pull.
Tomorrow a substantial amount of put options (500K contracts) with a delta of 20B is about to expire. The net gamma value will be -98MM, which represents 16% of total gamma.
Even though this is not a major OPEX event, it is reasonable to take into account a further uptick in volatility.
According to the federal fund future markets inflation will average 2.61 percent in December (see chart), which means the Fed will have to hike at least 10 times, IF the current outlook does not deteriorate from here.
https://www.tradingview.com/x/eHMaBjNc/
Does this sound likely?
Over the last couple days the frequency of “sources”, telegraphing a full-scale european oil embargo against Russia is going up, and just today Biden imposed a ban on Russian ships from US ports.
Is there enough upstream capacity to replace the lost barrels? If yes, are there enough VLCCs to pull off this massive re-routing? If yes, who owns the fleets? If no, who builds them? With what? The question is of course rhetorical, as available capacity is fully booked for building LNG carriers and there not much room left to expand given the supply disruptions.
Anyways, I don’t want to get into details, but the message is clear: Inflationary pressures might not abate anytime soon, and the power of financial stability has shifted away from central banks towards commodity producers/traders. What can the Fed do about it? Nothing, besides demand destruction to facilitate a transfer of human resources back to the real economy, I'm afraid. How is it done? Speculative asset bubble destruction - the Fed put is gone, sorry.
But to get back to the point of this: Dealer gamma currently registers at minus 595MM, which points to elevated volatility ahead, gamma inverts above 4480.
For now dealers are fully hedged again and futures seem to be able to stabilize at 4400. Should this level not hold then 4350 will come into play quickly, before the “big gamma magnet” at 4300 starts to pull.
Tomorrow a substantial amount of put options (500K contracts) with a delta of 20B is about to expire. The net gamma value will be -98MM, which represents 16% of total gamma.
Even though this is not a major OPEX event, it is reasonable to take into account a further uptick in volatility.
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