The investment banks are telling us something this week but I can’t figure out if it’s a description of where we are going or where we have been. Doesn’t take much digging to see that MDs and VPs are getting laid off in droves across many banks on Wall Street. They surely have fat severance and if they’re smart they stuffed their 2021 winnings under their pillow, but, Rich, in your experience, when the banks trim fat, is it a leading or lagging indicator?
Banks hire at the top and fire at the bottom but it may lead i.e. firing now tells me they will be back on campus in Fall 2023 looking to hire a lot. However, the market could go lower between now and graduation.
Also — another question on where we’re going compared to where we’ve been: implied volatility, especially as it relates to historical IV during these kinds of bear markets. Current SPY IV rank of only 66% after a ~3 SD move, as you pointed out, seems weird. My understanding of IV is that it’ll lead options prices and since you’ve pointed out how the put call ratio is so skewed bearish, is equity market downside simply consensus and moves lower are not deemed volatile but merely the expectation? I know underweight equities is consensus but how does the relationship of call and put prices get impacted by this low vol / put biased dynamic?
Couple ways I think about this. 1. September is a major expiration with lots of hedges. Put strikes concentrated 3900-3950. Many clients are rolling those. This means market makers have a LOT of gamma so no need to pay ic on Vega. Another way is to look at positioning in CFTC, BAML fund Mgr survey, AAIi report. People are very bearish. Implied volatility reflects where people are nervous. They are not nervous about a move to the downside because they are positioned for it. I think the put/call is a function of the rolls and HF adding leverage to positioning
The investment banks are telling us something this week but I can’t figure out if it’s a description of where we are going or where we have been. Doesn’t take much digging to see that MDs and VPs are getting laid off in droves across many banks on Wall Street. They surely have fat severance and if they’re smart they stuffed their 2021 winnings under their pillow, but, Rich, in your experience, when the banks trim fat, is it a leading or lagging indicator?
Banks hire at the top and fire at the bottom but it may lead i.e. firing now tells me they will be back on campus in Fall 2023 looking to hire a lot. However, the market could go lower between now and graduation.
Also — another question on where we’re going compared to where we’ve been: implied volatility, especially as it relates to historical IV during these kinds of bear markets. Current SPY IV rank of only 66% after a ~3 SD move, as you pointed out, seems weird. My understanding of IV is that it’ll lead options prices and since you’ve pointed out how the put call ratio is so skewed bearish, is equity market downside simply consensus and moves lower are not deemed volatile but merely the expectation? I know underweight equities is consensus but how does the relationship of call and put prices get impacted by this low vol / put biased dynamic?
Couple ways I think about this. 1. September is a major expiration with lots of hedges. Put strikes concentrated 3900-3950. Many clients are rolling those. This means market makers have a LOT of gamma so no need to pay ic on Vega. Another way is to look at positioning in CFTC, BAML fund Mgr survey, AAIi report. People are very bearish. Implied volatility reflects where people are nervous. They are not nervous about a move to the downside because they are positioned for it. I think the put/call is a function of the rolls and HF adding leverage to positioning