Negative gamma, short squeeze?

destriero · Aug 29, 2023

carson_volsignals said:
I did a whole thread about this on our subreddit at Reddit.com/r/VolSignals

The gist of it was that markets overshot on the way up, heading into the Fed taking the foot off the gas given the data in May-> June. With investors broadly UW US equities, there was a real rush into stocks especially after end-Q2.

The problem with that: the move pushed the index (SPX) *through* a LOT of call overwrites. You can assume anytime the SPX moves 5% higher in the span of ~2 months, you're going to be sitting on the other side of a "call wall", and gamma is just not negative.

Top it off- gamma is never really negative. That's total garbage. These sites- they scrape the single leg retail execution (screen trades) to try to improve upon the old "dealers short puts, long calls" adage. But they miss almost everything that routes through the CBOE SPX floor. You know- the one that all the banks and funds put up massive size on.

Garbage in- garbage out.

Fact is, systematic vol selling has ramped up, and it's more true than ever that dealers are swimming in positive gamma. Yes- to the downside, too.

The negative gamma coincidence is a function of other systematic flows that hit in big size. For example, CTA flows and Vol Control flows *BEHAVE* like negative gamma.

If option dealers were short gamma in that range too? Look out...

You are lucky they're not, we'd have volmageddon every 3 months.
More...

Wow, flow being short gamma has ramped up. Imagine. "Vol Control" oic.

carson_volsignals · Aug 29, 2023

blueraincap · Sep 4, 2023

https://www.cs.toronto.edu/~jerry/documents/vol.pdf

https://downloads.hindawi.com/journals/complexity/2022/6728432.pdf

https://kar.kent.ac.uk/75687/1/344PhD_Dissertation_MB_Latest.pdf

https://acfr.aut.ac.nz/__data/assets/pdf_file/0008/29933/Rohini-GroverShah2013_vixfuzz.pdf

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Negative gamma, short squeeze?

destriero

carson_volsignals

blueraincap