Options aficionado. Daily content on derivatives, vol, flow, and crypto. If it has optionality, I'm interested. Based in Antwerp.
Antwerpen
Joined October 2008
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Koen Hoorelbeke retweeted
After a big move, I want to know whether skew agrees with it.
Say something sells off by more than its expected move on the week, and put skew pops at the same time. Skew's moving in the same direction as spot, so it's backing up the move. When this happens I tend to stay out the way.
Same on the upside. A sharp rally with call skew getting dragged along with it. if anything the breakout is on and you want to buy dips.
If spot and skew are doing opposite things, that's a divergence. Say a really sharp rally and the put skew's held up very well. All that does is say pay attention. Potentially something's not lining up. And hedging some longs might not be a bad idea.
It's by no means a foolproof indicator, so I wouldn't just blindly trade on it, but just another lens to watch the market through.
Koen Hoorelbeke retweeted
Say you buy a VIX call a few months out as a crash hedge and the crash comes tomorrow. It might not do that much for you.
The way I'd think about it is that the nature of your exposure changes as you get closer to expiry. Early on, your option's priced off the VIX future, and that's a forward vol contract. It's reflecting what the market expects the VIX to be by the time that future expires.
So in a sell-off, spot VIX can go a long way in very short order while the future moves a lot less, because the market immediately prices things to have calmed down by then.
The closer you get to expiry, the more the future starts behaving like spot VIX. That's when it gets more volatile and gives you the explosiveness you were hoping for.
And those far out of the money VIX calls are probably the most expensive part of the surface, like in the whole of equity derivatives. Depends on the scenario you're going for, but I don't think there are many where that option does well. And even when it does, you get a very narrow window to monetise it.
Koen Hoorelbeke retweeted
Someone in our community said he used to sit unhedged in his long book for a long time, and now it makes him uncomfortable.
It's one of those things...
We've been in a bull market for so long, and drawdowns have been so short-lived, that just closing your eyes and ignoring it has worked out quite well...
The problem is there's going to be a period at some point where that strategy really hurts you. The market's down a lot and it stays down there for a while. And having no hedge in the book then will feel pretty bad...
It's not doomporn. It's just a fact. If you don't mind huge drawdowns then don't bother hedging. But, if you care about capital preservation when time get rough, then that's the cost.
Koen Hoorelbeke retweeted
I’ve written about this extensively regarding VIX OPEX.
When the VIX has tight Bollinger Bands & has been compressed with several down days prior to VIX OPEX it often (not always ) does 1 of 2 things.
It either causes a SPX reversal & selloff after 11am on the day of OPEX or a gap-down the following Thursday.
SPX is now down 30 handles AH.
Koen Hoorelbeke retweeted
If you used 200K to buy SPY at 10 seconds before the 4pm close then sold at the 9:30 open every trading day you’d have an 18% return so far this year vs a 14% return just buying Jan 1 & holding. (This doesn’t include dividend gains). So 200K is now $236K using that method.
Koen Hoorelbeke retweeted
A week ago the market had around a 70% chance of an October hike priced. It's down to about 42% now.
Yields are still stubbornly high though. The curve steepened after the dovish comments from Williams, so the long end hasn't really given anyone any relief.
With payrolls today I'd expect some more movement in rates pricing. Bond vol's already up there as well, TLT one-month implied is at the 100th percentile of its range and IEF isn't far behind.
We'll see what payrolls does to it.
xitter.cf/options_insight/status…
Bonds look oversold to me, and I still haven't been convinced by the options market that says the selling's done.
TLT and LQD were both down hard on the week. TLT implied vol's up at the highs of its range and put skew's pumped too.
If you look at something like the October 78 puts on TLT, fixed strike vol's been picking up as the price has come down, so the options market's confirming the move rather than fading it. Skew is starting to tick back the other way though which is an encouraging sign.
We may be close to a turn, I'd want to see this skew keep diverging from lower spot prices and vol to pullback before stepping into a long position.
Koen Hoorelbeke retweeted
A 90% probability of profit on a short option is mostly just telling you that you sold something around the 10 delta.
Say you sell a 5-wide put spread there for 0.50. You're risking 4.50 to make 0.50, so you need to win about 9 times in 10 just to break even before costs, right?
The high hit rate is kind of the deal you signed up for. It doesn't tell you there's an edge in it.
So for me the structure's only half of it. The other half is knowing what you'll do before the bad one shows up, whether that's rolling it, adjusting it or just cutting it.
That's usually what determines if you come out on top.
Koen Hoorelbeke retweeted
To trade intraday directional views, I like a 0DTE broken wing flys for a couple of reasons.
If I think we're oversold and due a bounce, that's a way to get leverage to the view for very little premium.
It bleeds slowly enough that I can ride it for a couple of hours.
I can also lean against any big gamma walls that might be on the 0DTE map, where dealer hedging would kick in.
Say I spend $200 on it. If I'm wrong I'll lose $100 and stop out. If I'm right it can make multiples on what I paid.
Far superior to trading futures in my view.
Koen Hoorelbeke retweeted
Gold has so far managed the stress test from higher yields and a stronger dollar remarkably well, trading down around 2% on the week without challenging key support levels. Meanwhile, ETF holdings have continued to rise and are now approaching the February peak, when gold was trading roughly USD 1,000 higher.
This resilience supports our view that while higher yields remain a near-term headwind for gold, they may simultaneously increase its longer-term appeal. Persistently elevated borrowing costs add pressure on governments, companies and other leveraged parts of the financial system, raising concerns about debt sustainability and financial stability. That may help explain why investors continue to seek protection through gold as an asset that sits outside the traditional financial system.
Gold is facing a major stress test amid a continued surge in US bond and real yields combine with renewed dollar strength. Yet ETF holdings and Chinese demand remain resilient, highlighting a market supported by investors seeking security and an alternative to traditional financial assets. social.saxo/t96ozbw via @saxobank
Koen Hoorelbeke retweeted
When vol spikes on the way down, the way I sometimes monetise a put hedge is by selling the strike below it.
You own a put, the market's dropped, you're up on it. The obvious move is to sell it and take the money, but then you're naked again when you probably still want protection.
Instead, sell the strike below and turn what you own into a put spread. You bring premium into the book, you keep protection down to that lower strike, and the put you've sold is the one that evaporates first on a bounce, so you can buy it back cheap and go back to owning the outright.
What makes it work is the vol spike. That's what makes the lower strike juicy enough to bother with because it's setup to shrink fast on a bounce.
Koen Hoorelbeke retweeted
There's no event premium in semis for November, which is odd for the trade the midterms could hit quite hard, given the political angle on the AI safety concerns.
On the S&P the forward vol around the midterms is about 20. It's there, but it's not much, and I'd expect it to build as we get closer and the rhetoric picks up.
In the AI names it isn't there at all. One of the guys made the point that if the balance of power shifts, that's where the pushback lands, and I think he's right. Data centres are already becoming a local political issue, with people voting against them.
So the trade that interests me is owning November in SMH and selling October against it.
Also, looking at how skew has be realising, we are starting to see spot up - vol up lately which makes me think that IV could catch a bid if this rally picks up steam.
Koen Hoorelbeke retweeted
44 days until the midterm election. In both 2018 & 2022 after Sept OPEX in those midterm years SPY dropped 10%. In 2018 from the trading day after OPEX (Sept 24) to Oct 24, a 10% drop. In 2022, from the trading day after OPEX (Sept 19) to Oct 13, a 11% drop. Food for thought. 🌽
Koen Hoorelbeke retweeted
Whether I buy a call or a call spread mostly comes down to how expensive the vol is.
When vols are elevated, the calls are just expensive. So I'd cheapen that up with a call spread, selling a strike up where I think the stock's going to struggle to get through anyway.
When vol's cheap relative to where it's been, the outright call starts to make more sense, as long as the stock isn't realising much less. You're not overpaying for the move, and you keep all the upside if it really goes.
Case in point, $SMH calls don't look bad for year end which implied vol cheap across the whole term structure.
Koen Hoorelbeke retweeted
Gold is heading into the FOMC meeting up 1.5% at USD 4,355 on the day, suggesting a rate hike is all but priced in. What happens next will likely depend on Warsh and, importantly, how the hike is “sold” to the market.
The relatively steep downtrend from the August high from around USD 4,700 is currently being tested, potentially shifting attention to a USD 4,420-40 band of resistance. A break above these levels would strengthen the case for a more sustained recovery, back towards the 200-day moving average at USD 4,540, while failure would point to more consolidation.
Koen Hoorelbeke retweeted
For the Sept 16, FOMC mtg. here’s the breakdown of the 12 who’ll be voting:
Kevin Warsh — Hawk 🔴
Beth Hammack — Hawk 🔴
Lorie Logan — Hawk 🔴
Neel Kashkari — Hawkish 🟠
Michael Barr — Hawkish 🟠
Anna Paulson — Hawkish🟠
John Williams — Centrist 🟡
Lisa Cook — Centrist 🟡
Philip Jefferson — Centrist 🟡
Jerome Powell — Centrist 🟡
Michelle Bowman — Dovish 🟢
Christopher Waller — Dovish 🟢
Koen Hoorelbeke retweeted
Gold is holding just above a key support area around USD 4,300, despite facing multiple headwinds from moves across other markets.
Since the US Labor Day holiday, gold has fallen 1.8%, while the December Fed Funds futures contract has declined by 15 basis points to imply a year-end rate of 4.08%. Over the same period, the dollar has gained 0.6%, two- and ten-year Treasury yields have risen by 22 and 17 basis points respectively, while Brent crude has surged 10%, adding to inflation concerns.
Taken together, these developments represent significant headwinds for gold. Yet the relatively modest decline also highlights resilient underlying demand, which so far has prevented a deeper correction and kept the key USD 4,300 support area intact. However, in the very short term, holding that area now looks increasingly challenging.
Koen Hoorelbeke retweeted
Gold rangebound as weaker dollar offsets rate-hike and inflation risks.
Gold traders - and the algorithmic programmes that account for a significant share of day-to-day activity - are currently struggling to determine which of several competing themes will ultimately set the tone, overall keeping prices rangebound around USD 4,400. As the charts below illustrate, the clearest headwind has come from rising rate-hike expectations and higher bond yields, increasing the opportunity cost of holding a non-yielding asset such as gold.
Against this, a softer dollar has provided support, while underlying investment demand through ETFs and futures has so far remained relatively resilient. Geopolitical uncertainty remains elevated with the latest Middle East flareup helping to maintain gold’s appeal as a portfolio diversifier, limiting the downside despite the renewed pressure from yields.
With next week’s FOMC decision currently viewed as close to a coin toss between unchanged rates and a hike, the August CPI and PPI releases later this week could prove decisive. A hotter inflation print would likely reinforce rate-hike expectations and keep yields elevated, while softer data could quickly unwind some of the recent hawkish repricing as the window for a hike in my opinion then shuts until after the November Midterms. Either way, the inflation data may provide the catalyst that breaks gold out of its current tug-of-war and sets the direction ahead of the September meeting.
Koen Hoorelbeke retweeted
Gold rangebound as weaker dollar offsets rate-hike and inflation risks social.saxo/mjhs12h via @saxobank