Australian dollar rocked by building ‘gammaquake’

See the latest Australian dollar analysis here:

China threatens suicide by US bond sales

DXY ended the Friday session flat after a wild night:

The Australian dollar likewise:

Gold is parked in neutral:

The oil canary carked it:

Metals went the other way:

And miners:

EM stocks look toppy:

Junk is OK so far:

Yields backed up on decent US job numbers:

Stocks were absolutely wild with Nasdaq down another 5% before rebounding to down -1.3%:

The gammaquake continues as Robinhood kids get their first taste of what markets are really about:

At the FT:

SoftBank is the “Nasdaq whale” that has bought billions of dollars’ worth of US equity derivatives in a series of trades that stoked the fevered rally in big tech stocks before a sharp pullback on Thursday and Friday, according to people familiar with the matter.

…“These are some of the biggest trades I’ve seen in 20 years of doing this,” said one derivatives-focused US hedge fund manager. “The flow is huge.”

…One person familiar with SoftBank’s trades said it was “gobbling up” options on a scale that was even making some people within the organisation nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

The Nasdaq was at one point on Friday down 10 per cent from its peak — the common definition of a correction — yet the options boom means that the US stock market remains vulnerable to further bursts of volatility, according to Charlie McElligott, a strategist at Nomura. “The street is still very much in a dangerous space, and that flow is still out there,” he wrote in a note on Friday.

At Bloomie, it’s more than SoftBank:

Jason Goepfert, president of Sundial Capital Research, says that while SoftBank may be the biggest player, it can’t be just one firm whipping up markets. Small day traders have spent $40 billion in call premiums in a month, data he compiled from the Options Clearing Corp. show. That’s a hefty amount for retail investors to be wielding and dwarfs what SoftBank is reported to have spent.

“Softbank as a call buyer makes sense, as does the underlying buying it generates. But trades less than 10 contracts swamped the rumored Softbank buys, so clearly others were trying to tag along for the ride,” Goepfert said. “Not sure why now versus other years, other than stay-at-home boredom. Maybe the retail crowd saw this as their last, best change to get rich quick.”

Demand for upside call options in began to rise at the start of August, before its earnings report sent cash equity shares surging. From the start of the month to the day before the software-marker reported, total call open interest more than doubled from 181,000 to 389,000. Now, the number of outstanding bullish call contracts on the stock stands near 700,000, the highest level on record.

If it stops then it’s game over. The whale is trapped. It’s going to get slaughtered as the gammaquake breaks. More from McElligott:

Yesterday was obviously the “…as it turns the other way to the downside” part, with the coiling convexity that is the reality of hedging “short gamma” as it relates to the sensitivity of the options that dealers are short to the then vacuum-like collapse in price of the underlying securities, i.e. the single-name Tech momentum longs which saw all the buying of calls, call spreads and riskies traded recently as part of the large upside buying flow from the institutional mkt participant as well as the Robinhood short-dated OMT Calls in said “gamma proxies” (i.e. continue to watch TESLA spot as a “leading indicator” today); to single-name delta and the NQ & ES “upside” & futs bot by dealers to hedge “CRASH UP” over the past few weeks).

That much accumulated “short gamma” doesn’t just go away in a ~4% flush – the Street is still very much in a dangerous space, and that flow is still out there in full “Resevoir Dogs” standoff fashion both to UPSIDE AND DOWNSIDE (again, short gamma = sell when mkt going lower, buy when mkt going higher).

Is there any point overlaying this bubble lunacy with a macro narrative? Nope. But I’ll give you a flavour of it.

Growth prospects for the globe are very slowly improving as stimulus persists and the vaccine wave sweeps in. This presents yields with a short term quandary as they’d like to steepen the curve vis-a-vis the better US jobs report.

But equity markets have run so completely crazy that any passing of the baton from fakeflation to fundamentals only presents the outcome that they crash. In short, the equity bubble is now the number one risk to any recovery.

Expect fireworks for equities and, increasingly, forex.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. darklydrawlMEMBER

    Wow… Trading calls (and/or puts) is a risky business at the best of times – even for those who know what they are doing. That screen grab is a world of pain.

    • Terrifying, isn’t it? I’ve dipped my toes in the water, had some large wins, painful losses, and finished square; I count myself as dumb-lucky! I’m no trader and have thus decided to ditch PUT and CALL from the list of available instruments I’ll invest in.

      Can’t see how you could do it with half of one eye on the market. Full time (to have any chance) or go back to work with both eyes completely on the job..

  2. Gammaquake

    Don’t fear nothing
    Snake is bluffing
    Whips his tail
    Send you running


    I’m the serpent
    Devil’s servant
    Time to meet your end
    FAANGS are ready for the strike
    Deadly razor sharp
    Poison with a single spike
    When they rip apart
    Screaming like a maniac
    After my attack
    Crying like a baby child
    In exile [?]


    Rattle, rattle, rattle
    Rattle, rattle, rattle
    Rattle, rattle, rattle

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