Via TME, “markets are not crashing, they’re grinding. Hedging structures are failing, not because risk is low, but because the move is too slow. As volatility forces de-grossing, positions shrink and hedges get unwound, creating mechanical buying that cushions the downside. Flows, not fundamentals, are driving the market.”.
Morgan Stanley finds a quanty parallel.
At the same time, high volatility is mechanically forcing de-grossing, shrinking positions across books. As exposure is reduced, those hedges are no longer needed and get unwound. The result is positive delta being bought back, creating offsetting flows that help cushion the downside and prevent a sharper sell-off. (Charlie McElligott)
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