I was hoping I'm not stepping too much into lala land and trying to find some possible reasoning to a conspiracy that could have some basis. I didn't count on running into someone who can invalidate this so easily
Moves like this are usually a snowball event, stoplosses triggering stoplosses (forced liquidation). If so many large funds made so much money, I wonder who were the losers. I doubt there are enough retailers sophisticated (or stupid) enough to short vola.
You certainly did a good job sounding like an "intelligent conspiracy theorist" I had a boss who was really into all sorts of theories (9/11, Kennedy etc). One of the smartest people I know, but the moment you trigger him went into a proper lala land.
Perhaps I am reading this wrong but 20k front futures wouldn’t be enough. The bots might back off quite a bit(25-50bps) but other than a few raised eyebrows I doubt this much volume would move the market 5 handles. Short vol etfs moved the market 10 handles with about 270k contracts from what I read and that’s when the market was fragile. I’ve always wondered about that day. How much of the move during the TAS window was front running vs the etfs blowing themselves up by lifting the entire vx book. Wanna share some inside knowledge?
You don't think heavy-handed buy of 20k would move the market that much? Let's say there is 1k on the offer and another 2k on the next level - someone shows up and sweeps all of it. Just as there are enough size on the offer at a new level, again takes it all. And this way all the way to 20k (so 5% of ADV). My prior is that people would think that someone knows something and literally leave the market - nobody wants to get negatively selected into an event. Well, a big portion traded early in the spread market and the outrights was people watching the TAS and expecting the rebalance. Once the TAS orders started printing +10 in size, it was pretty clear what was going on and everyone was gunning for it. I, personally, had about a 800 fronts and about 500 backs in two separate strategies from Friday - some against a larger position in back and some was against a 14 strike in Jun. So I lost most of those on TAS. Wanted to actually go short vega, but got a panicked "no" from above.
Sure but not at 13 vix and not 5 handles. IMO, you would need a much more fragile market to achieve that move or a lot more size. If you have access to intraday data you can look at the day when there was a fake tweet about a bomb in the White House. If memory serves me right 20k contracts took out the asks 2 handles up and that’s with the spoos tanking. Could be wrong about the size though, memory isn’t what it used to be. Anyway, going back to feb 5th, I remember looking at my positions at 3pm and being surprised at how little my short vol was down while my relatively small long vol had exploded. I received a surprising “pre” margin call from my broker at around 3:02. I trade very leveraged and keep minimal excess liquidity but was still surprised to get a phone call the day of even before the market close. By the time the TAS window closed my NLV went from +5% to -25%. It was truly a moment of hold your breath and hope your hedge works as expected. There were no offers to cover into for a few hours. Very reminiscent of the flash crash. Selling vol at that moment was the last thing on my mind.
Well, the real question is if whoever is doing it would do it in the clumsiest way possible to scare the market makers. I don't have any hands on experience in market manipulation, so it's all theoretical musings Whoa, I'd shit myself if I were in your shoes. Did you do ok after all said and done? PS. talking of events, I have a sad story about trading on 9/11, but that's for PM only
The giant player doesnt need to push the market from start to end of vix raise, it just needs to create the abnormal starting force then a lot of programming trend following trading system would follow.
Actually, Feb 5th doesn't even make the top 5 shit myself moments. My book is mostly neutral but i tend to sell too much vol too soon into declines. I think i only took a 10-15% hit that day and vol spikes are usually a lot more painful to me. You would think i would have learned by now but the payoff and temptation to sell that 20 or 30 vol line is too big to ignore. I guess having someone to answer to would help in that regard.
I have exactly the opposite bias, tend to hold on to my longer vol positions too long. Usually that means that after I make money on a spike, I sit on it for an extra day and always regret it.