- Positioning feels like 4/10 long vs 9/10 in Jan.
- Institutions went from $210bn to 80bn in net length.
- We are not currently net short in terms of positioning so can’t say we are fully ‘clean’.
- Buybacks have been ramping up – we are 2x average of 2019. Entering blackouts soon so firms will have to use 10b5-1 programmes rather than managements discretion.
- Gross still elevated but Net down into 15 percentile. Gross exposure is still extremely high – short selling of fins is resulting in the space being the most underweight (7.7% vs MSCI World).
- Flows – Insurers adding protection and vol in size. Macro accounts trading from the short side. L/S, gross not been cut which could pose a liquidity risk if it does happen and they are staying in their favourite positions (HF VIP basket is holding up relatively well.
- Gamma is in play, market is short gamma (mkt closes at intraday low or high). Systematic sellers are largely gone – 1 month gamma is at 55vol, 1 day at 140 vol.
- Skew is currently at highest level ever.
- Think we see CTA demand 2900/3100 levels – these wont drive demand from here. See net selling to moderate (expect $50bn of 1 week sales). Higher vol results in longs and shorts coming down from vol control funds, forced selling at higher vol levels.
- S&P now trading as a short gamma instrument. Remain nimble. CBOE going fully electronic tomorrow for S&P options – think this will cause liquidity to drop. First day we will see floor shutting down impacting S&P option liquidity for the first time ever – OTC markets will be top of mind as clients prefer liquidity from this channel.
Trader Georgi Bozhidarov