Today’s $-Net Put Delta is consistent with an instability of stock prices, withdrawl of liquidity and increased volatility. Puts BOT (neg delta) were closely equivalent to puts SOLD (pos delta) … a condition also associated with an increased likelihood of decreased returns over the ensuing week to month. And it appears traders may have been under-hedged … accounting for some of the magnitude of today’s decline.
All 3 “fear gauges” were up today … $VIX, $VVIX, and $SRVIX (Interest Rate Swap Volatility Index). The NYU vLab GeoPolitical Volatility Forecast rose 32%. (Note: Both $VIX and $SRVIX are forward looking measures of volatility and some suggest that the evaluation of one is incomplete without the other. Sounds right.)
Total market shares traded, across all exchanges, were up 13% … owing to liquidations in rate-sensitive assets, while trading in dark venues was down … suggesting a move to transparency (that is, increased trading in lit markets). The Dark liquidity index was down 5%.
Final Thoughts: Obviously, this is a very fragile market and the potential for further devaluatin of assets is high. Market makers are supply-informed investors who adjust their positions in response to changing demand for liquidity and will absorb a substantial proportion of liquidity-taking demands. Retail investors, by and large, are chartists and infer information from price dynamics. Finally, institutional investors trade largely on future economic prospects.
Today, all three groups shared the same sentiment and the Multi-factor algorithm printed a sell signal.