Institutions are long the physical, puts, and short upside vol. A crowded trade. When the rotation happened, Russell, Dow, and SPX rallied beyond the short call strikes. NQ is hedged in vol, so if it starts to drop, the dealers will have to chase it down since they are short downside protection and they are short big (my biggest loss was getting caught by one of these moves). The hedges in vol are dominant, and the index spread trade is secondary. The spread bid will not prevent moves that are driven by dealer hedging. During the action, all the SPX short strikes went in the money, and so dealers had to hedge the book by buying ES -- same thing happened with DJX and RUT. And this happened before the cash session, which severely reduced overall liquidity available. NQ was already in the middle of selling, and was far away from the short call strikes that had traded before the rotation. When the index runs away from the short call strikes, the dealers need to reduce their delta hedge against the long calls (intensifies selling). Meanwhile, all the index spreads blew out, which exaggerated the moves. The spread bid will unwind as fast as TT will let them, whether the market is liquid or not, LOL. I have never seen intraday vol on DJX/RUT like on that day...easily double/triple and forced RTY lock limit (7% limit according to Bloomberg). Russell and DJX are used to hedge NDX, and SPX... The move happened before the cash session, so liquidity was much lower on all the major indices. The NQ/ES longs were forced to unwind, even as the major indexes ex-Nasdaq were making ATH's. There was a panic bid in RUT, DJX, SPX, and these are actually the hedges for NQ long/short spread trades. TLDR Dealers had to hedge vol exposure on the upside for SPX, DJX, RUT, but at the same time on the downside for NDX. The NQ is spread against the rest so when they all rally together it forces more selling and NQ was already being sold by dealers and prime brokerage (synthetic equity) longs into an illiquid market. Bonds went into freefall, which required the money flowing out of fixed income to hit the most liquid index at the time, which usually would include NQ (during the cash) but this time just hit ES alone. NQ didn't participate in a "risk on" rally... I would never have expected this kind of move to happen this way. Usually, it is much more carefully planned by the big banks so that the moves all happen during peak liquidity. They have very good algos to manage the indexes around the liquidity. That was obviously not the case here. I think the BD were already positioned for it, or they were just forced to act. On the other hand, maybe they wanted the entire cash session to serve as profit taking on this move since they always enjoy the most liquidity, that would make sense.
Thats why I failed the Stats program, I was too busy feeding the black swan outside the campus lagoon.
%% LOL And the long term flood rate is clearly uptrending for US. Strange we have had more> than one year 500 year flood + US is not even 300 years old. In fairness to the stat kings/quants; most mondays are down....................................................................................... QQQ + NQ is correlated to itself. As far as that being an event ''that never could happen'' LOL that wrongly implies one can predict the market.....
That Quickly Quant is a real mess, claiming to his clients how the Russell 2k 'momo crash' was virtually impossible, sure it was big but far from historic. * The big parabolic moves in the Euro session almost always retrace at least 50% either in the ETH or in the RTH on the RTY/NQ/YM. On the ES the retrace is most often a retrace of all of the parabolic. For every action there is an opposite & equal reaction, this chart illustrates this well, this is not uncommon - it's just that the 'equal reaction' was fast & furious. Us retail traders have a real big advantage over the whales, it takes them hours to days to turn their course - for us it's just a click. ATTACH=full]244166[/ATTACH]
I think the momentum trade was long tech and short everything else. This reversed like 8 percent which was like 10 standard deviations. It was a result of a big absolute move and a massive sector rotation. if you managed your book for every 10 standard deviation event you would be broke in about 2 days
I disagree. That was a lucky catch if you were long on the spike. If you were short on it, you were stopped out and would be singing a different tune. There is no TA in this world, and I mean NONE, that could have prepared anyone for that. You were either on the right side of that trade or the wrong. Pure chance. A little like CL back in April, but at least there was a glint of a forewarning for that one.
Excel is by far the best for making charts. Have used very sophisticated software but nothing compares to the good old stuff.