When volatility suddenly spikes like this, risk models used by hedge funds and big institutions called value at risk or VAR models automatically tell them to cut exposure. Once those models trip, the selling becomes mechanical, programs start dumping assets to stay within risk
@onechancefreedm I think you’re full of shit. Because I know that the algorithms used by institutions have the ability to shut off the sell side of the equation. In other words, they can immediately stop algorithms from selling. Today’s sell off was a calculated move by the institutions.
@TargetTheBulls If institutions could just shut off the sell side whenever they wanted, then why do they ever lose money? Why did Credit Suisse collapse? Why did Archegos blow up? Why did March 2020 happen at all? The truth is, these systems don’t operate like a light switch, they’re complex,
@onechancefreedm So why then did the market bounce upwards immediately after the first downswing? If your theory was true it would just accelerate downwards…
@onechancefreedm Wait a minute did just explain October 1987 flash crash?
@onechancefreedm This is why VaR models are essentially backwards. As markets go up and prices appreciate volatility generally goes down, as does VaR. That allows leverage to go up and people continue to buy as return expectations on that additional risk go down. On the other hand in falling
@onechancefreedm So VAR models add to the trigger sell event, so they basically are adding downward momentum automatically, interesting
@onechancefreedm Therefore, Human interface and control via stop switch for this algorithm self fulfilling loop is necessary
@onechancefreedm Expect global markets to sell off more this week. Also Trump could give more clarity on this manner and spook markets even further. Interest that earnings season starts next week as well. Very volatile market this week.
@onechancefreedm Jpm collar turns to bearish if we go down another 3-4% which can easily happen.
@onechancefreedm You do realize writing poorly understood paragraphs about this phenomenon is telling on yourself?
@onechancefreedm the yen carry trade unwinding was the signal to Friday's plunge
@onechancefreedm People think the markets are like the Wizard of Oz - some crusty old guy is behind a curtain pulling levels. The reality is what you’re describing. A bunch of algos trading with each other. Long Term Capital MAnagement for the masses
@onechancefreedm The funny thing about risk is there's trillions of dollars of money available when you need it and there's only about 500 million of long volatility funds when you are fucked
@onechancefreedm VaR is poorly understood, which is a shame, bc it is a terrific metric (actually, set of metrics) to use when both managing & evaluating a portfolio. That being said… Good pts re program selling feeding on itself — the snowball effect can be deadly when cap cushions are low.
@onechancefreedm Except when it comes down to actual needs.
@onechancefreedm VIX is a great indication of inflection points I generally get back into the market after VIX is a little over 30 for a couple of days Its natural state is 15-20. Option premiums and risk is to expensive at VIX 30+ Either they print or they bail out. Always happens
@onechancefreedm It’s rather stupid money management
@onechancefreedm Lol bears were saying oil going up was bad and now they're saying oil going down is bad