Through an options market lens, the following text will add color to some recent market movements.
Brent, Founder of SpotGamma, explains how the “Vanna Trade” works. As implied volatility changes, options dealers may have to adjust their hedges. Brent explains how this hedging flow can create large rallies or selloffs in markets. He also touches on the topic of charm, or the change in hedging delta due to time decay.
Summary: Issue: SpotGamma believes that current markets reflect a great amount of risk and face the prospect of a violent drawdown. This is due to the following: Hedging: Low levels of options-based hedging. Short-Selling: Low levels of stock shorting. Speculation: High levels of margin used to buy stocks. Remedies: SpotGamma levels continue to be […]