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Strategies & Market Trends : ajtj's Post-Lobotomy Market Charts and Thoughts -- Ignore unavailable to you. Want to Upgrade?

To: Qone0 who wrote (83249)	12/21/2023 1:23:25 PM
From: Real Man	1 Recommendation Recommended By Lee Lichterman III Respond to of 97912

I am also in the camp that options control the underlying. Not options buyers but options sellers. This explains perpetually low vix while liquidity is easily available from the Fed. Options market makers can borrow o/n from the Fed, they are also ones who have high RRP balance at the Fed. They simply use that cash to drive the market to max pain roughly speaking. Roughly speaking because rolling expiration dates eliminated maxpain for everyone else. It’s now in random walk mathematics, and signals are not easily generated. The math just results in trading profits every day for them, losses for everyone else. Put it bluntly, options sellers drive the market where they need it to be, they have access to infinite liquidity and infinite leverage to do so. When liquidity is low like December 2018 or March 2020 crashes (mini crashes) tend to happen. Then the Fed opens the floodgates again. Options controlled markets are characterized by extremely low vix because sellers sell every spike like it is free interest, which in a way it is - Black scholes has vix squared as a correction to interest rate. While the market is overliquified like that it can’t crash or even decline, so it continues to march forever higher despite negative fundamentals. Then 2008 type of crash breaks that march higher because the fundamentals get too far detached from price. If the Fed does not come out and stop something like 2020 crash by printing money it will quickly become 2008-2009 type crash with accompanying economic disaster

To: Qone0 who wrote (83249)	12/21/2023 3:12:19 PM
From: Sun Tzu	Read Replies (2) \| Respond to of 97912

No the argument is not that the options control the underlying. The argument is that the two affect each other through a delicate balancing act by the market makers and it is a forced dance. Here are the facts: The notional size of the options far exceeds that of cash market. So it is a fact that derivatives move the market. But this is not the same as saying they control the market. What happens is this: Market makers have to hedge their positions. This hedging is either delta or gamma. His case only looked at gamma. Unlike delta hedging which is a relatively smooth transition, gamma squeeze is pretty fast and furious IF it hits an air pocket like it did yesterday He didn't say that the options controlled the market. He said that there was an air pocket based on the gamma surface. The index fell on its own, not because of options (if you are in the "THEY" argument, you could argue that someone sold enough to push the index over the edge). Once the index went over that line, the dealers had no choice but to sell it or they could get wiped out. Because of the leverage, that dynamic fed on itself and caused an even bigger drop which in turn cause more selling which... You can see this in the parabolic way in which the market fell once the zero line was crossed.