The new week started with sizable gains across the board, but the enthusiasm faded away shortly before noon, as the 10Y note yield moved back above three percent, ending its session up eight basis points.
The move higher in yield was less about expectations of stronger growth, but rather about inflation expectations and of course supply and demand as almost one hundred billion in debt is hitting the market this week and needs to get absorbed (3-year auction Tuesday, 10-year Wednesday and 30-year Thursday).
Gamma Discussion
Implied dealer gamma declined to -421MM from -305MM this morning, which points to elevated volatility ahead.
Big investors and hedge funds are buying SPX put options to protect their portfolios. The contracts are sold by option dealers or market makers, which are then long the market and need to delta-hedge their exposure by selling futures.
If the market moves lower in a negative gamma environment, the dealers needs to sell additional futures, if the market moves higher, he has to buy back futures. Those mechanics lead to increased volatility when implied dealer gamma is negative.
The move higher in yield was less about expectations of stronger growth, but rather about inflation expectations and of course supply and demand as almost one hundred billion in debt is hitting the market this week and needs to get absorbed (3-year auction Tuesday, 10-year Wednesday and 30-year Thursday).
Gamma Discussion
Implied dealer gamma declined to -421MM from -305MM this morning, which points to elevated volatility ahead.
Big investors and hedge funds are buying SPX put options to protect their portfolios. The contracts are sold by option dealers or market makers, which are then long the market and need to delta-hedge their exposure by selling futures.
If the market moves lower in a negative gamma environment, the dealers needs to sell additional futures, if the market moves higher, he has to buy back futures. Those mechanics lead to increased volatility when implied dealer gamma is negative.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.