A trader whose blog I follow made an interesting point about the last 2 months rally in the /ES. He said that since the rally over the last six weeks has had such a narrow trading range, and since the /ES is so far above a value zone, you basically have a huge amount of accumulated momentum traders whose positions will all be in the red at the same time if there is a single daily drop of 20 points in the /ES. He was saying these accumulated momentum longs will all want to bail on the market at the exact same time if that happens, and will not be quick to buy the dip because they aren't value traders. I guess an ACD way to think about that scenario would be that the market has slightly been trading above the daily A up for a long time, and then suddenly it makes a hard C down. Fisher's "really crowded movie theatre and someone yells fire" analogy. Will be interesting to see if that scenario plays itself out.
Although if one looks at 2013...similar bottom...yet the market still rallied. Yet, the crowded trade here is to short vix...then it must be that the contrarian trade is for an impending crash? Am I interpreting this right...
No you are not looking at this right. You have to look at "where" the vix is not simply the number of contracts. What was the level of the VIX in 2013 vs today. What was the liquidity vs today. What was the open interest in the options. Or the SPX. Or the ES. Or the SPY. When you analyze data you have to go all the way. As the old saying goes, a little information can be dangerous.
http://fortune.com/2016/08/22/pension-funds-stock-market-drop/ Pension funds in Hawaii and South Carolina have now started selling naked puts on the S&P 500 in an effort to capture yield.
"The strategy appears to have been pushed by Pension Consulting Alliance, a firm that advises the giant retirement funds on how they should invest. According to the Wall Street Journal, PCA pitched the strategy to Hawaii’s pension fund last year with a prepared presentation. It’s not clear how many other pension funds got the same pitch. PCA did not return a call for comment." So how does this firm make money pitching a stupid strategy? Do the pension funds pay a fee or % of profits from this? What happens when pensions are loaded with crap stocks on a market crash if they take assignment or the losses to cover? Selling fool's good always happens before crashes.
Why not? The market has a short vol bias...selling premium has been a time tested strategy. Obviously, the risk management has to be on point here.