trading lower this week. There has been a lot of freaky stuff over the past few days, and there isn’t enough time to cover it all in just one write-up. The long and short is that the market may have finally pushed itself as far as it could go.It simply comes down to the fact that the dispersion across indexes and single stocks was at historic, beyond historic levels when the 1-month implied correlation closed last Friday below 3, at 2.93.
This was accompanied by a massive call volume trading in the IWM, rising implied volatility, and a rising IWM price—the classic markers of a gamma squeeze. I couldn’t even imagine what this was about or how it manifested. But clearly, it was epic, and given that IWM is an ETF and a basket of stocks, it created a lot of lopsided volumes to the upside.
As I said at the beginning, the market has simply pushed itself to a point where it finally broke. Can it repair itself? Sure. Will it repair itself? I’m not so sure. After a period of such low volatility, I would expect there to be a period of heightened volatility, and I would expect many of these market imbalances we have seen to start coming back into place. But we will see; this market has proven me wrong plenty of times since October 2023.
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