If gross leverage is rising but net leverage is falling, it means people are betting on short correlation between equities which tends to be a bullish positioning (they're long and short more things)

If gross is 220% and net is around 50% that means people are long about 135% and short 85% which usually means long momentum or quality and short stuff like small caps or value

What this also tends to mean is a lot more factor unwind type of days because the higher the gross-net and gross the more sensitive you are to your spread volatilities versus your beta risk

If volatility increases, like a small cap value outperformance day, this can trigger unwinding cascades (arguably early October was a lot of that) and eventually broader index declines (due to index composition vs popular longs)

For a fully discretionary portfolio with whatever factor tilts you want, this likely means you're long megacap tech and short IWM for example And this is partly also due to index concentration and the narrowness of market, since the pool of long outperformers at scale isn't deep

That's why anyone who isn't full of shit who tries to predict corrections must be studying the factor portfolios (like @JaredKubin or @selling_theta) and their relative performances, because they basically (with retail) dictate the broader market flow

@0xMerridew @JaredKubin @selling_theta Is it a fair assumption that sophisticated multistrat would have a quant overlay that measures factor concentration and sensitivity and either hedges accordingly at top of the house or feeds back analysis back to pods for self realization of positing risk?

@lexmutatio @JaredKubin @selling_theta I can't opine on what they do or don't but my friend who is a pod MM absolutely gets some level of color, and the firm at large obviously gets exhaust data from their own trading performance

@0xMerridew @JaredKubin @selling_theta Thanks

@lexmutatio @JaredKubin @selling_theta End of day nowadays short of exogenous shocks like Trump Liberation Day it is fairly easy to guess when a correction is likely going to occur, because it's presaged by factor instabilities

@lexmutatio @JaredKubin @selling_theta It can sometimes just not occur though (July was a good example, first day of July was a huge factor shock but with limited follow through - v similar to July 2024), but basically all corrections of note have been preceded by factor instabilities

@lexmutatio @JaredKubin @selling_theta Usually the order of factor quakes go: Quant L/S guys get hit first Discretionary L/S guys get hit second My book gets shot last Index goes down Factors restabilize (or so it has been for a while)

@0xMerridew @JaredKubin @selling_theta amateur question and if secret sauce just say so but is there a standard way of tracking the health and positioning of quant and discretionary L/S on a single name basis?

@lexmutatio @JaredKubin @selling_theta My rough proxy right now is QQQ-IWM daily move and a slightly more granular proxy would be GS Hedge Fund VIP Index - GS Highly Shorted Index

@0xMerridew @JaredKubin @selling_theta thanks for the tip, I also look at QQQ-IWM daily so good to hear I’m looking in the right places.