Kolanovic: "The Biggest Selling Pressure Was From Option Gamma Hedging On Wednesday"

Zero Hedge | 10/11/2018 | Staff
tictac399 (Posted by) Level 3
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Earlier today, we discussed how after the last 2-day furious selloff, the human-machine-human fingerpointing blame game had begun, with carbon-based traders accusing such systematic and risk-targeting quant strategies as risk-parity funds, CTAs, volatility targeting funds, and trend followers (which account for about $1.5 trillion in assets) for being behind the sharp selloff. This followed our own take on how much selling CTAs were responsible for on both Wednesday and Thursday, after selling triggers were hit.

Of course, any time there is a discussion of systemic, and quant, trading - and especially selling - JPM's head quant Marko Kolanovic can not be far behind. Unfortunately, just like during the February selloff, which Kolanovic failed to predict, so this time Marko's value added is only from the perspective of a post mortem of what everyone else has already observed.

Kolanovic - Weeks - Pressure - Selling - Driver

Furthermore, it was Kolanovic who just a few weeks back said that there was no pressure from systematic selling, and instead the only driver of significance was corporate profits which is why he predicted smooth sailing ahead.


Moments - Week - Selling - JPMorgan - Quant

So a few moments ago, having failed to predict this week's selling, the JPMorgan quant released his latest market update and wrote that Wednesday’s selloff was largely technical in nature, "with systematic strategies following the same selling template as in the Feb 5th selloff", a template which Kolanovic had failed to notice then too.

Discussing the catalyst behind the selling, Kolanovic said that fundamental fears were about rising yields and the Fed’s more hawkish stance, while noting that "in terms of systematic strategies that drove the selloff – by far the biggest selling pressure was from option gamma hedging on Wednesday."

Option - Gamma - Risk - Kolanovic

But don't worry: the same option gamma hedging risk that Kolanovic failed to warn about, is now supposedly gone or rather, as he puts it "balanced", and "can turn into...
(Excerpt) Read more at: Zero Hedge
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