Wednesday, February 5, 2020

Money, Sex, Lies and Magic: An Inside Look at ETF's

That headline has no relationship with this post, I just wanted your attention, this could be important.
First up, ZeroHedge notes an anniversary:
....According to Nomura we can add a new, and decidedly bullish, market positioning dynamic which is already impacting the systematic “Vol Control”/Risk Parity community and their deployment of leverage across multiple asset exposures and their Dollar allocation—particularly within equities.
As the Bank's cross-asset strategist Charlie McElligott writes, over the past few days and certainly as of today, we have seen the infamous Feb 5th 2018 VIXtermination "vol event" - which in minute destroyed the universe of retail-darling inverse VIX ETF - drop-OUT of the 2-Year lookback window time-series utilized by the Nomura QIS Risk Parity model, which in the period since Feb 2018 has, according to McElligott, "dictated a slow-moving, mechanical de-leveraging across our estimated Risk Parity “gross” allocations, particularly in the Equities space."

As of today, this event is no longer a consideration for the systematic community.
This means that as this enormous cross-asset "Vol Shock" event has largely rolled-out of the lockback sample, going forward there will be the opposite move effectively taking place: a slow-moving "gross-up" as trailing realized vols drop and signal re-leveraging, from Equities to rates to credit to commodities. 

In fact, since risk-parity is effectively long everything with various amounts of leverage, one can argue that this is the most bullish thing possible for stocks!....
There was an earlier vixtermination, 2012's, when things went just as haywire for retail and I was posting such headlines as:
"Vix dog millionaire" (VXX; TVIX)

Perhaps Monsieur Would Like a Few Après-dînner TVIX Calls? (VIX; TVIX)

An Awful Lot of People Are Shorting Volatility (VIX; VXX; XVIX; XXV)
I'm starting to wonder if Izabella likes posting on volatility because, in addition to talking to Chris Cole who is pretty sharp, the ETP symbols read like Roman numerals?
As to the headline, I mean "awful lot" in both the colloquial and the literal....


Which is a good jumping off point for something Ms Kaminska is cogitating:

....MUCH MORE (thread)
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