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Aug 21 2019

Gamma Driven VIX Drop

There was quite a large move down in the VIX overnight (8/20/19) and Nomura claims that was due in part to the gamma around a large VIX position. This gamma driven VIX drop is apparently related to hedging around a large VIX position. When options decay this can effect the amount of hedging that a dealer has to do around a position on their books. In this case the dealers were short VIX calls, which would have been hedged with LONG VIX futures (or other long volatility hedges). As the VIX calls lose value the dealers unload hedges.

VIX crashed overnight. Tradingview.com chart Gamma Driven VIX Drop
Gamma Driven VIX Drop. VIX crashed overnight. 8/21/19 Tradingview.com chart

These “crash” hedges are so “outsized” simply due to the massive scale of the “50 Cent” August VIX Call Wing positions, which Dealers are short—and thus they have been forced to get long a lot of S&P Vega via VIX futs, S&P downside or just “shorts” in Spooz [SPX] to offset this exposure

SpotGamma sees similar gamma drops in the the S&P500. See one of them here.

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Written by SpotGamma · Categorized: Market Analysis · Tagged: 50 cent, futures, gamma, SPX, VIX

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