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by Tyler Durden
Tue, 02/06/2018 - 10:51
It seems like just yesterday the overly confident bulls were openly taunting any market participant that dared counsel about the increasing risks in the equity market.
“You don’t get it. Trump’s tax policies have ushered in a new era of corporate profitability. Why fight the rise? Nothing can stop this freight train.”
Yadayadayada. It’s always the same. Markets make opinions, not the other way round.
All of sudden, in less than a week, the S&P 500 has given up 200 points.
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2/7/2018 One Of The Greatest Squeezes Of All Time? | Zero Hedge
I have written about this risk extensively. The Source of the Next Crisis or Vol Sellers Branch Out are just a couple of the articles warning about the risks from
selling volatility.
Last night, short equity vol sellers got a lesson in getting squeezed. And as much as everyone wants to enter into these complicated discussions about kurtosis or the
volatility of volatility, I am going to spell it out in much simpler terms. The short vol sellers were out over their skis, and the market always punishes the weak
hands.
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In the space of 20 minutes, VIX futures spiked to a level that was higher than 80% from the previous close, triggering the dreaded liquidation clause in the short
XIV ETN. And sure enough, it appears the manager chose to exercise that right, with the market assuming the ETN will be wound down.
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2/7/2018 One Of The Greatest Squeezes Of All Time? | Zero Hedge
Whereas a week ago no one could imagine the equity rally ever stalling, this morning the financial world is filled with all sorts of doomsday contagion
scenarios about the short volatility collapse.
And could that happen? For sure. If there is one thing that we should have learned from the recent past is that anything can happen.
Yet here is an alternative thought for you to ponder. What if this was simply a case of weak hands getting shaken out? Market history is replete with examples
of short squeezes that were nothing more than the stronger capitalized players taking out the under capitalized ones.
Whether it was Brian Hunter’s massive loss in obscure forward nat gas contracts or Porsche’s epic short squeeze of Volkswagen, this game is as old as the hills.
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2/7/2018 One Of The Greatest Squeezes Of All Time? | Zero Hedge
It’s almost like that the stop loss for the short-volatility ETNs was a target for market participants to shoot for.
But the real question is whether the move from the weak hands to strong ones has already happened. Will VIX short sellers look back at last night’s spike and kick
themselves for getting stopped out? Everyone on the financial TV is soooo convinced that the vol trade is about to spiral upwards out of control. A good trader
learns to never say never, but I am not as sure that last night’s squeeze won’t prove to be the top in VIX for this move.
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Comments
Sheeple
Carry on
Bots
Not people
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2/7/2018 One Of The Greatest Squeezes Of All Time? | Zero Hedge
Markets are expressions of every human emotion in one location. Greed, fear, etc. But they are built on a foundation of trust, and trust can't be
fabricated out of bullshit. There isn't a sustainable way forward when nobody trusts anything they see, hear, or interact with.
Yes, it's a correction. Not surprising, not overblown, and very much needed. Part of the issue is that a good chunk of the readers here have
little/no trading experience, or alternatively only a very short history of trading (<10 years). So this sort of thing seems really exciting and
abnormal, when it really is far from that.
And the other piece of the puzzle is that we KNOW the central banks will get back on the bid hard IF (and that's a big IF) this gets to be a turn
rather than a correction.
The run will continue in due course. No crisis, it's just a correction. Nothing to see here, move along.
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2/7/2018 One Of The Greatest Squeezes Of All Time? | Zero Hedge
Swampland For Sale in Florida, Rather Than all These Fluctuating Stocks, for All Who Believe that America is Bad, While the Rest of the World is
Free of Evil—-
---> Get out and stay there until dust settles (Down Arrow)
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